Big Oil bets big on extended life for fossil fuels
Has Big Oil in the US got its swagger back?
It’s tempting to believe so, in a week where the most significant industry consolidation in two decades gathered pace and the supermajors continued to enjoy a lift from rising crude prices.
As we report today, ExxonMobil, which fired the starting gun on the current M&A race with its $60bn purchase of Pioneer two weeks ago, is still on the hunt for deals, or at least those where “one plus one equals three”.
Exxon also reported third-quarter earnings had risen to $9.1bn, up from $7.9bn in the previous three months, thanks to the oil price increase and more refining activity, although a little lower than expected because of weaker margins in its chemical business and reduced trading.
On Monday, Chevron announced a $53bn deal to buy fellow US producer Hess, the biggest transaction in its history, doubling down on its bet that demand for fossil fuels would remain strong for decades to come. Today it reported third-quarter revenues of $6.5bn, down from $11.2bn last year, but up from $6bn in the previous three months.
This doubling down was attacked by former US vice-president and climate campaigner Al Gore this week in an FT interview as he hit out at the “buddy-buddy” relationship between political leaders and the fossil fuel industry, which he said was damaging prospects for global climate action.
Gore has also criticised the industry’s “capture” of the UN climate change negotiations. Big Oil remains unapologetic: “We are not selling a product that is evil,” Chevron chief Mike Wirth told the FT this week as he laid out a “real world” case for fossil fuels.
The backdrop to the industry manoeuvring is the shift from fossil fuels to cleaner sources of energy.
The International Energy Agency said this week that demand for oil would fall by almost half by 2050 if governments carried through on their green pledges and said that the energy crisis triggered by Russia’s full-scale invasion of Ukraine, rising tensions in the Middle East and record temperatures highlighted the risk of continuing to rely on fossil fuels. The IEA also laid out the ramifications of governments failing to follow through on their pledges, showing oil demand would barely fall by 2050.
The FT editorial board said recent tie ups are part of the race to be last man standing, a bet that the IEA is wrong, and proof that, as Saudi Arabia’s energy minister said this week, “hydrocarbons are here to stay”.
What the recent megadeals really show however is that we are in a new age of uncertainty, writes energy editor David Sheppard, who says that those betting the transactions signal robust demand growth may want to think twice.
“You can of course believe that the IEA have got this wildly wrong,” he says, “or that governments will grow tired of addressing climate change, if their populations deem it too complicated or expensive. But within the wide ranges and uncertainty of the IEA scenarios is a glimpse into what the likely path is for the oil sector. Investors should be careful about swaggering blindly towards it.”