Like Rome, oil demand won’t be destroyed in a day
18/03/2024 15:12
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Robert Cyran
NEW YORK, March 18 (Reuters Breakingviews) - The
question for the oil producers, investors and other energy
participants attending CeraWeek, the industry’s big conference
in Houston starting Monday, is when fossil fuel empires will be
sacked, and how to cope.
The hope among most, and belief among firms like Exxon Mobil
XOM.N , is that the shift away from oil won’t happen quickly.
Past transitions occurred at a glacial pace. Historian Vaclav
Smil points out it took 40 years for oil to go from 5% to 25% of
the world’s primary energy supply, and 55 years for natural gas.
Solar and wind’s share of primary energy consumption only
reached 5% in 2018.
Yet past transitions involved varying forms of combustion.
Solar, wind and batteries are diverse technology plays, with R&D
and scale delivering regular improvements and lower costs in
multiple areas. Solar and wind’s share of electricity
production is growing more quickly than past transitions. The
adoption of electric cars is accelerating even faster, from
about 2% of global car sales in 2020 to over 20% this year,
according to Canalys Research.
Participants deal with the prospect of oil’s death with a
mix of denial, avoidance, bargaining and acceptance. Executives
in Exxon Mobil and Chevron CVX.N can seize the moment to talk
about the massive deals they have in the works to buy Pioneer
Natural Resources PXD.N and Hess HES.N , respectively.
European firms may reaffirm their plans for a post-oil future,
which have so far been halfhearted. Saudi Arabia, trying to
reinvent itself, has guests presenting on carbon markets and
low-carbon fuels. Oil services company Baker Hughes BKR.O is
highlighting how to maximize the value of mature assets.
So what to do? As in any dwindling land, oil emperors Exxon
and Chevron are characteristically being defensive by
striking takeovers. Deals to cut costs are helpful both now and
when the retreat starts, ensuring a bigger piece of a shrinking
market. But that decline is coming. Purchases to increase
overall production, or investments in green power, carbon
capture and other strategies, as European giants like Shell
SHEL.L and BP BP.L have done, look riskier. That leaves the
prospect of enriching the masses by paying back essentially all
cash flow to investors. It may not be exciting, but it’s
rewarding and easier than guessing whether building a bigger
palace makes sense with barbarians on the horizon.
Follow @rob_cyran on X
CONTEXT NEWS
CERAWeek, the annual energy conference sponsored by S&P
Global, takes place in Houston from March 18 to March 22.
(Editing by Lauren Silva Laughlin and Sharon Lam)
((For previous columns by the author, Reuters customers can
click on CYRAN/
robert.cyran@thomsonreuters.com; Reuters Messaging:
robert.cyran.thomsonreuters.com@reuters.net))