I recently perused the projections made by the energy economists of ExxonMobil, Chevron Corp, Shell plc, BP and TotalEnergies — the five largest private international petroleum companies — on the prospects for oil and gas in 2050. What struck me was not so much the differences between these projections but their possible adverse consequences on the attainment of the net-zero carbon emission targets.
The US companies ExxonMobil (XOM) and Chevron do not see a material decline in the consumption of oil and gas between now and 2050. XOM is the most “pessimistic”. It expects consumption in 2050 to be the same as it is today, that is, 100 million barrels of oil per day (mbd). Chevron’s projections are more nuanced — a consumption range of 75-112 mbd.
The European companies build their projections around possible scenarios. In Shell’s “archipelago” scenario, the transition towards the electrification of transport, industry and residential areas is slow and episodic. As a result, oil demand hardly drops. This scenario projects a demand of around 90 mbd. In the “Sky 50” scenario, however, the electrification process is faster and more complete and oil demand falls to around 40 mbd. BP and Total also have scenarios which foresee a demand ranging between 50 to 70 mbd.
Now, in and of itself, I am not concerned about the differences in projections. For, as is often said, “Put three economists in a room and you can be assured of receiving four different opinions”. Or, to quote the late Harvard Professor of Economics, John Kenneth Galbraith (and former US Ambassador to India), “the only function of economic forecasting is to make astrology look respectable”. But I am concerned. And that is because of the impact, possibly unintended, of these projections on the pace of the clean energy transition and the attainment of the net-zero carbon emission targets.
Were these companies to base their investment decisions and strategies around the message that oil and gas will remain the dominant fuels in the energy basket in 2050, they would embed more deeply the structural dependence of the global economic system on fossil fuels. And that, in turn, would make the energy transition that much more difficult and expensive.
This is not an abstract concern.
Already, in October last year, the US companies spent over $100 billion in two mega acquisitions of oil and gas assets. XOM acquired Pioneer Natural Resources, one of the largest producers of shale oil and gas in an all-stock transaction valued at almost $60 billion. Chevron purchased Hess Corporation for $53 billion primarily to secure Hess’s equity interest in the Stabroek Block in Guyana which is slated to produce up to 1.2 mbd of oil from 2027.
The European companies have made no such dramatic moves, at least not yet. But their CEOs are also showing signs of restiveness with the clean energy play. The relatively new CEOs of Shell and BP have already indicated that they will leverage their existing petroleum portfolio to improve the return on shareholder equity capital. Clearly, they are concerned that their share price has lagged behind their US peers. The veteran CEO of Total has also said he will be looking to consolidate and perhaps even double down on the company’s assets in Africa and elsewhere.
I do not want to suggest that these companies are insensitive to the challenge of global warming. All of their public pronouncements acknowledge it is a major issue and that investment dollars must flow to develop low-carbon technologies and accelerate electrification. But, they also doff their hats to economic and social realities. And therein lies the rub. They make clear, for instance, that the world economic system is embedded in fossil fuels and it will take decades and trillions of dollars to wean it off them; they also offer a reminder that economic development and energy consumption are inseparable and that as population and prosperity increase (reflected in higher per capita GDP), the absolute demand for energy will rise.
This rise will be particularly sharp in the so-called Global South. Finally, they point out that because the infrastructure in most countries in the Global South to produce, transmit, distribute and store, at scale, clean energy, is inadequate, the bulk of this demand will have to be met by traditional fossil fuels. More so because despite the dramatic fall in costs, clean energy is still not competitive against fossil fuels and to render it so, governments would have to impose a carbon tax equivalent to the value of the pollution caused by fossil fuels. Unfortunately, the consumers in these countries would not be prepared to pay such a premium, even if they could afford to do so. Such a tax would be politically and socially infeasible.
It is this deference to economic and political reality that is the source of my concern. I understand the logic but I ask whether one should let it drive actions that might trigger an existential crisis.
There have been two energy transitions in the past. The first was in the early 18th century. It resulted in the shift from wood and biomass to coal. The second was in the early 20th century. This heralded the move to oil and gas. Both of these transitions were, to use Daniel Yergin’s word, “additive”. They led to the addition of a fuel to the energy basket. The clean energy transition has to be different. It must be “substitutive”. It should result in the near or complete displacement of fossil fuels by clean energy. The International Energy Agency (IEA) has calculated that the oil demand must fall by at least 75 per cent from its current level for the world to meet its net zero target. This will not be achieved if, on the back of the numbers produced by economists, corporates look to sustain the dominance of oil and gas.
The writer is chairman and distinguished fellow, Centre for Social and Economic Progress (CSEP)
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With Big Oil's 2050 forecast, it will be difficult, if not impossible, to achieve net-zero carbon emissions targets
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04.03.2024
I recently perused the projections made by the energy economists of ExxonMobil, Chevron Corp, Shell plc, BP and TotalEnergies — the five largest private international petroleum companies — on the prospects for oil and gas in 2050. What struck me was not so much the differences between these projections but their possible adverse consequences on the attainment of the net-zero carbon emission targets.
The US companies ExxonMobil (XOM) and Chevron do not see a material decline in the consumption of oil and gas between now and 2050. XOM is the most “pessimistic”. It expects consumption in 2050 to be the same as it is today, that is, 100 million barrels of oil per day (mbd). Chevron’s projections are more nuanced — a consumption range of 75-112 mbd.
The European companies build their projections around possible scenarios. In Shell’s “archipelago” scenario, the transition towards the electrification of transport, industry and residential areas is slow and episodic. As a result, oil demand hardly drops. This scenario projects a demand of around 90 mbd. In the “Sky 50” scenario, however, the electrification process is faster and more complete and oil demand falls to around 40 mbd. BP and Total also have scenarios which foresee a demand ranging between 50 to 70 mbd.
Now, in and of itself, I am not concerned about the differences in projections. For, as is often said, “Put three economists in a room and you can be assured of receiving four different opinions”. Or, to quote the late Harvard Professor of Economics, John Kenneth Galbraith (and former US Ambassador to India), “the only function of economic forecasting is to........
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