oil

British energy expert: ‘oil companies have 10 years to change strategy or die’

With the price of crude under $45 and increasing public expectations to tackle climate change, the future of oil companies looks bleak. One energy expert from the U.K. made headlines with his bold comments. He says oil companies have only 10 years to adapt and make a shift away from fossil fuels — their primary business, after all — otherwise these will collapse. The market will not be forgiving.

oil

Credit: Pixabay

This bombshell was dropped by Paul Stephens, a fellow at Chatham House thinktank, in a paper that investigates the future of major international oil companies (IOCs) like BP, Chevron, ExxonMobil, Shell and Total.

“The prognosis for the IOCs was already grim before governments became serious about climate change and the oil price collapsed,” Stephens wrote.

“The IOCs have been able to survive over the last quarter of a century, but signs that their business model is faltering have recently begun to show. As well as poor financial performances, the symptoms include growing shareholder disillusion with a business model rooted in assumptions of ever-growing oil demand, oil scarcity and the need to increase bookable reserves, all of which increasingly lack validity.”

That some of the strongest and wealthiest companies in the world might die in such a short while might sound ludicrous, but it’s really not that far fetched. In the wake of Exxon’s current investigation by NY’s attorney general for “lying about climate change”, many shareholders who own stock in oil are now calling for more transparency.

oil-companies

Credit: International Oil Companies: The Death of the Old Business Model, Chatham House.

Oil companies list oil reserves as assets, but these could very well become stranded, literally buried in the ground, if governments call for a carbon tax and cut subsidies. Right now, fossil fuels are subsidized by $14.5 billion a day, but it’s foreseeable this winning streak might soon be over. Shareholders have another reason to be worried: ever-dwindling returns. In this respect, the graph below is telling.

oil-graph

To survive, Stephens argues that the IOCs need a make a drastic shift in strategy. Some tips include:

 

  • Squeezing costs in the hope oil prices will revive
  • More mega-mergers
  • Playing vultures with remnants of the US shale gas revolution
  • Reshuffling their portfolios
  • Diversification
  • Becoming a purely OECD operation
  • Rebuilding in-house technology
Source: International Oil Companies: The Death of the Old Business Model, Chatham House.

Source: International Oil Companies: The Death of the Old Business Model, Chatham House.

However, even if all of the above are satisfied the IOCs are still in trouble. Historically, crude prices have spiked and plummeted in cycles but “the old cycle of lower prices followed by higher prices is no longer applicable”.

“Inevitably, this means that they must shrink into the remaining areas of operation, functionally and geographically, where they can earn an acceptable return. This would require a major change in the corporate culture of the IOCs. It remains to be seen whether their senior management could handle such a fundamental shift. If they can, the IOCs will be able to slip into a gentle decline but ultimately survive on a much smaller scale,” Stephens says.

 

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About Tibi Puiu

Tibi is a science journalist and co-founder of ZME Science. He writes mainly about emerging tech, physics, climate, and space. In his spare time, Tibi likes to make weird music on his computer and groom felines.

One thought on “British energy expert: ‘oil companies have 10 years to change strategy or die’

  1. Brian

    We really could use the help of the oil and gas companies in the waste to fuels industry that will backup solar and wind and provide chemical feed stocks and long haul fuels. about 10-20% of the 100% renewable energy will come from wastes. fossil companies are masters of turning mixed crude junk and turning it into the fuels and chemicals we need. Oil and gas are about 1/3 to 1/2 of our energy comes from oil and gas. we will double the world energy demand in the next couple decades, so 20% of twice the energy demand from wastes will be only slightly less than fossil oil and gas now.

    Oil and gas companies should go into wastes to oil and gas.

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