Photo Credit: Mark Klotz – Rally against Kinder Morgan oil pipeline on Burnaby Mountain

We have lived with Covid-19 for about 12 months, some of us a little longer. This creates an excuse to revisit the early obituaries for fossil fuels. The first lockdowns did give a push to attempts to resist climate change. The air was cleaner with far fewer vehicles on the roads, it was quieter outdoors with the near curtailment of air traffic, and some town dwellers (and not only Brian May of Queen in London) noted the reappearance of forgotten forms of wildlife in open spaces.

The new resident of the White House is clearly a positive for the resistance. On his first day in office, Joe Biden moved to rejoin the Paris climate accord and withdrew the permit for the Keystone XL pipeline. One week later, he ordered the suspension of federal leases for the development of fossil fuels. His advisor on climate change, John Kerry, has suggested that the administration would like to replace the suspension with an outright ban.

Listed European oil companies with activists among their shareholders are also supportive of the resistance. BP monopolized the early headlines last year when its chief executive set a target of zero carbon emissions by 2050 and a cut of almost one quarter in its production to 2.0 million barrels per day (mbpd) by 2025. It has rushed to deploy capital in green projects, buying a stake in offshore wind developments (Beacon and Empire) in the US in September.  Earlier this month BP was one of several bidders that paid well over the odds to secure leases for UK offshore wind projects in auction.

Royal Dutch Shell has also set a zero emissions target for 2050, albeit with a different methodology to BP’s, and looks to reduce its crude output by 40 per cent by 2030. Its diversification plans are a little different, with a focus on electricity production. In January it announced the acquisition of the UK’s largest network for public charging of electric vehicles.

ExxonMobil has not joined the resistance, planning to increase its combined oil and gas output from the current 4.0mbpd by 1.0mbpd by 2025. Its heterodox forecasts have crude demand rising from the pre-Covid 100.0mbpd in 2019 to 111.0mbpd in 2040. The company has shareholders of course but a disproportionate number of retail investors who hold the stock for the generous dividends, which the company did not cut in 2020.

Our main reason for warning against premature obituaries for the fossil fuels industry, however, is the stance of state-owned producers with tame shareholders (or none at all). Rosneft in Russia leads from the front with a giant Arctic project that could consume as much as US$130bn. It hopes to export 100 million tons crude/year from the Vostok Oil prospect once it has secured tax breaks from the Russian government and new investors. Rather than embrace the concept of “peak oil”, Rosneft is looking to contribute to new highs in oil and gas output.

It is not alone. Saudi made a voluntary cut of 1.0mbpd for this month and next following the latest virtual gathering of OPEC+. It wants to avoid sharp movements in the crude price: too high and the shale industry in the US could spring back into life, too low and Aramco is unable to generate the revenue for the government’s ambitious plans to diversify the economy. Most emerging market producers have similar hopes for their skewed economies and require increased revenue to ring the changes. Nigeria, Angola and Gabon spring to mind in Africa, and further afield the full membership of core OPEC.

What the listed oil majors in Europe give, the state-owned producers elsewhere are eager to take. Our equation may be a little simplistic but should temper the timetables of the resistance. For now, all producers other than the US can enjoy the benefits of the abnormally cold weather in Texas as the spot price of UK Brent has settled into a range of US$60-US$65/b. Robust demand from China and the restraint of OPEC+ had earlier played their part in breaching the US$50/b threshold.

Jean Puri

25 February 2021