It was a historic week for the oil industry, potentially marking a turning point, at least for the corporate strategies of the oil majors. More curbs on the supply side do add some bullish sentiment to the market, although the impacts on the fundamentals are not necessarily going to unfold in the near term. But in the wake of the huge blows to the oil majors this week, more than a few analysts spoke about growing odds of a supply crunch in the years ahead.
Shell loses in court. Royal Dutch Shell (NYSE: RDS.A) lost a landmark legal case in a Dutch court, which, if it stands, will require 45% cuts in GHG emissions by 2030. The case is seen as a warning sign for the rest of the oil industry, signaling legal exposure to Scope 3 emissions (those burned by end-users). More litigation related to emissions is likely.
Exxon loses board vote. Engine No. 1 won votes for two if its candidates in a stunning blow to ExxonMobil (NYSE: XOM). The win is being viewed as a shocking and powerful statement by shareholders as to their displeasure with the oil giant for not doing enough to mitigate the effects of its business on the climate. And For Exxon, it could mean big changes are coming.
Court ruling could shrink Shell. The court ruling ordering Shell to speed up its plans to cut greenhouse gas emissions could lead to a 12% decline in the company's energy output, including a sharp drop in oil and gas sales, according to Reuters.
Exxon must cut production, Engine No. 1 says. Engine No. 1 said that ExxonMobil (NYSE: XOM) must cut oil production. “They need to position themselves for success,” Charlie Penner, of Engine No. 1, told the FT. “You would certainly believe that would mean less oil and gas production going forward.” The hedge fund’s founder, Chris James, added: “Watching that meeting yesterday was such a perfect example of how they don’t realize the world has changed. It was all on display.”
Chevron shareholders vote for Scope 3. Chevron (NYSE: CVX) also lost a notable shareholder vote, with a measure requiring a target to reduce Scope 3 emissions passed by more than 60% of shareholders, another major rebuke to the oil industry.
Oil rises after boardroom brawls. Oil prices rose early on Friday for a sixth consecutive day and were on track for weekly and monthly gains after the defeats on climate policies that major oil firms suffered at the hands of shareholders and judges. Related: OPEC+ Set To Proceed With Plans To Boost July Oil Production
Total to see investor pressure. On the heels of the string of losses suffered by Exxon, Chevron, and Shell, France’s Total (NYSE: TOT) is facing growing scrutiny from investors over its corporate strategy.
Biden defends Alaska oil project. President Biden’s administration has backed the Willow oil project in Alaska in a new filing by the Department of Justice.
Commodity boom driven by speculation. A Bloomberg analysis argues that the spectacular rise in commodity prices in recent months is not the result of demand outstripping supply, but mainly the result of increased risk appetite – i.e. speculative financial flows into commodities.
Tellurian signs a 10-year deal with Gunvor. In a major achievement towards a new LNG project, Tellurian (NASDAQ: TELL) inked a 10-year deal for 3 mtpa of LNG with Guvnor, linked to JKM and TTF prices. The deal could bolster a push towards an FID on the Driftwood LNG project on the U.S. Gulf Coast.
Heat to test U.S. grid. The risk of grid blackouts to multiple regions in the U.S. is rising this summer, with 40% of the U.S. population now living in areas at risk, according to the North American Electric Reliability Corporation. This is the first time that NERC included parts of New England and the Midwest in this threat assessment.
Moody’s: Credit risks growing for Big Oil. This week’s climate-related actions in boardrooms and courtrooms involving some of the largest international oil companies signal a rising threat to the sector, Moody’s Investor Service said in a comment on the industry. “A new court ruling against Royal Dutch Shell and shareholder votes at ExxonMobil and Chevron highlights the increasing credit risk for major oil producers over concerns about climate change,” Moody’s said.
ADVERTISEMENT
Oil region to become hydrogen hub? The largest oil producers in the Arab Gulf have jumped on the hydrogen bandwagon — especially its so-called green variety produced from water electrolysis using electricity from solar or wind — as it gains momentum with governments and the world’s largest international oil companies. Related: Attempts To Regulate Bitcoin Emissions Are Pointless
China bars banks from selling commodity-linked products to retail buyers. China's banking regulator has asked lenders to stop selling investment products linked to commodities futures to retail investors, according to Reuters. The move comes after soaring commodity prices has put the spotlight on speculative flows.
U.S. says sanctions on Nord Stream 2 “counterproductive.” The Biden administration stuck with its new position on refraining from sanctions on companies working on Nord Stream 2, citing the risk of fraying ties with European allies.
Biden unveils Pacific offshore wind push. The Biden administration announced a decision to open off blocks in offshore California for wind development. Deep waters have made development more difficult, as well as opposition from the U.S. military.
DHS to propose regulations for pipelines. The U.S. Department of Homeland Security is preparing regulations on cybersecurity for oil and gas pipelines, a move that could beef up security in the wake of the Colonial outage.
By Josh Owens for Oilprice.com
More Top Reads From Oilprice.com:
- U.S. Shale Is Finally Giving Shareholders A Payday
- The $87 Billion Chinese Car Maker That Hasn’t Sold A Single Car
- Oil Prices Fall As Iran Claims Sanctions Will Be Lifted
Logic dictates that the global economy operates on oil and gas and will continue to do exactly that well into the future.
It follows then that there could neither be a post-oil era nor a peak oil either throughout the 21st century and probably far beyond. It is very doubtful that an alternative as versatile and practicable as oil could totally replace oil in the next 100 years and beyond. The story of energy transitions through history has been a constant move toward fuels that are more energy-dense and convenient to use than the fuels they replaced.
Yet, environmentalists who call for an abrupt end to fossil fuels and a sudden adoption of renewable energy fail to recognize the obvious lack of logic in this. It is not possible in this particular reality to simply ditch fossil fuels for renewable energy in what is called a global energy transition.
On their own, renewables aren’t capable of satisfying global energy demand because of their intermittent nature. Moreover, global energy transition won’t succeed without major contributions from both natural gas and nuclear energy.
Neither courtrooms nor boardrooms will force Big Oil to change its direction as long as there is global demand for oil. Such theatrics will remain what they really are: mere theatrics.
Therefore, the sensible way to combat climate change is to focus on reducing carbon emissions from fossil fuels and not their actual use.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London