Sign Up for My Free Newsletter Subscribe

The Future of Oil & Gas Majors: Back to the Roots?

10.09.22 | Blog | By:

Oil demand has exploded from 4 to 100 million barrels per day in the last 70 years. This 25-fold increase was the key element to fuel the growth, including in food uptake (seven-fold growth in calories), of the world’s population from 2.5 to 8 billion in the same time lapse, something mankind had never, ever witnessed, and likely will never, ever repeat in the future. Can anyone seriously believe such a miracle energy can, all of a sudden:

  • Either disappear altogether? Such a scenario would take all of us back to the pre-industrial age. No doubt populism would stand in the way, as it would prove well nigh impossible to educate people, massively and quickly enough, to understand the reasons for such a radical change in our lifestyle.
  • Or be replaced by low-carbon alternatives, with contemplated investment in the trillions, of whatever currency? If the last decade allowed renewable energies to get a foot in the door, make the incremental energy demand low-carbon, the return of inflation, the end of the globalization we had gotten used to, also in finance, the ever-increasing fragmentation of nations that we thought united under the American umbrella, do conspire against an all-out, global as climate change is, approach to deep decarbonization.

Climate change is a slow cooking recipe to make our life more miserable in the future, near or far away, no one knows, but the less privileged, be it nations or individuals, already suffer. If the surgery described above is not a possibility, do we have at least palliative care, to reduce the suffering and buy us some time to adapt?

History often helps. Back to the end of the 19th century, and until WW II, oil companies were not the multi-national capitalist behemoths we know today, but powerful instruments (weapons?) for the most advanced nation-states to secure supply of what was then considered as an essential tool to modernize and get a military edge over bellicose neighbors.

US Standard Oil, UK Anglo-Persian Oil Company or French Compagnie Française des Pétroles, were national in essence, and oil had to be looked for and secured wherever it was, quite often in far away, less advanced, regions of the world, like the Middle East, helping these companies on the road to internationalization, after WW II, when Pax Americana made the world open for free trade. In this pre-globalized world, energy prices could be quite different from one country to another, a minor issue then, compared to aspired autarky and ultimate hegemony.

Today, the heirs to these precursors happily dump their former raison d’être as oil & gas only and adopt energy at large as their core business, adding a significant reorientation towards renewable. When geopolitics impose getting out of rogue areas of the world, like Russia in 2022, and when energy scarcity looms, like in Europe this winter (natural gas) or in China last summer (electricity), one wonders if the newly-renamed renewable energy giants are not somehow going back to their ancestors’ beginnings, back to be champions of national energy security.

These companies have the size, the technologies, the skilled manpower, and the money, to help their home-nations, a concept (nation) getting back in favor, to secure a better, though less holistic or ubiquitous, energy future in a more fragmented, regionalized, deglobalized, world of tomorrow, where price differences between regions could appear again, actually the case already this year with natural gas prices: transportability matters in energy.

Not that the Oil & Gas sector has been absent from the renewable field, just think about Valero in US ethanol and Neste in European renewable diesel. But the momentum is now with the majors, BP, Chevron, Shell, TotalEnergies. As liquid fuels will not disappear overnight, nor will cars and trucks relying on the internal combustion engine, decarbonization of said liquid fuels is absolutely necessary. And, prices being fixed mostly on a national basis, many different pathways are to emerge, building on the specific advantages of each and every country, in raw materials availability, affordability and sustainability, as defined by regulation, hierarchy of usage, fuel mix demand, transport strategies.

Fuel suppliers, often subsidiaries of majors in the developed world, with a deep knowledge of the local markets, of the actors, get eager to massively invest several hundreds of millions of dollars or euros to retrofit their redundant (fossil carbon-rich) oil refineries into biorefineries, mostly to provide renewable diesel and sustainable aviation fuels. See what Shell in the Netherlands, BP in Germany and Spain, TotalEnergies in France, are doing. Just the beginning? Also consider deals with raw materials providers to secure the upstream, integration having been a regular feature of oil & gas majors, like the recent deal between TotalEnergies and SARIA to secure animal fats for the future JV, read co-investment, biorefinery near Paris, aiming to produce nearly a quarter million tons of SAF every year from 2024.

Locality matters in transport low-carbon energy, whether for biofuels or for green electricity, which does not travel far.

Sure, corporate communication today concentrates on green gas and green electricity, hydrogen is hot as well, but, under the media radar, good ol’ liquid fuels also get their share of capital to reduce their carbon intensity, country by country. When the electrification-of-everything will fail to deliver on unrealistic promises, a small solace will come from our low-carbon fuels, not saving the world from whatever nature has got in store for us, but having helped somehow, and for quite some time, and against the fatwas from environmental NGOs, to mitigate the consequences of our 20th century stampede to “more of everything”, traveling amongst others.

Philippe Marchand is a Bioenergy Steering Committee Member of the European Technology and Innovation Platform (ETIP).

Print Friendly, PDF & Email