Oil: Exxon, Obama, and Abroad – 1/24/16

Many of the recent events affecting the oil and gas industry have been related to the supply and demand mismatch causing a collapse in oil prices, but investigations into Exxon’s role in climate change denial illustrate the threat of legal action in an America where public opinion has turned against deniers.

California and New York attorney generals have both announced investigations into the extent of Exxon’s lies about the risks of climate change on the basis that the company did not disclose information vital to investors. After pivoting from research producing evidence in line with today’s consensus on climate change to research with suspiciously skeptical results, the company has ardently denied that its products contribute to environmental damage. And this is crux of the case. The attorney generals posit that the corporation intentionally mislead investors on regulatory and environmental risks. If the state attorneys, which hold the power to access internal company documents, find that Exxon withheld information crucial to shareholders, then the company is dead in the water.  A similar investigation of tobacco companies in the 1990’s revealed admissions by top executives of suppressing knowledge of health risks. Like the discovery of big tobacco’s lies led to the industry’s sorry state of taxation and open disdain, a discovery of blatant misinforming of investors and the public could have far reaching consequences. It would put another nail in the coffin of climate change denial for one thing. More importantly, it may be the first step in convincing some of the biggest energy companies to move away from the legislative nightmare that fossil fuels are sure to become and towards more sustainable investments.

In contrast to the pains facing oil and gas, renewables are having a great year. Just as President Obama begins to push new rules favoring cuts to emissions, a study published in Nature Climate Change found that a mixture of renewable- and natural-gas fired power plants could provide electricity at costs about 10% cheaper than a more coal-reliant grid, in 2030, using current technology and upgraded transmission lines. Such a reality would be in total contrast to Republican complaints of increased bills. Given the current rate of innovation in energy production, storage, and efficiency, claims of higher electricity costs hurting consumers seem all the more unfounded. Scare tactics are only going to look more pathetic as humanity innovates its heart out to make a cleaner, cheaper energy source.

Back to oil. Canadian carbon cap curbs crude crusade. Coming to power in the North, a left-leaning government has announced a cap on carbon emissions from the oil-sands industry. Such a cap would seriously curtail extraction as the industry is set to reach the level dictated as soon as 2020. The threat to companies’ access to proven reserves is yet another example of government efforts to fight climate change keeping companies from exploiting their resources fully, showing weakness to investors and shareholders. With every new cap, the long-term prospects of oil companies look a little dimmer.

In China, the government struggles to cut steel production capacity and coal output as part of measures to reduce overcapacity and excess labor in state-owned industries. Reasons behind this move include weak demand for heavy industry products and attempts to reign in runaway lending to state-run companies as the country moves towards more sustainable growth driven by consumption. The government has also vowed to reduce demand for coal as part of a plan to reduce the debilitating air pollution that covers many major industrial cities.

Energy-demand projections released by Exxon on Monday cut expectations for annual demand growth by almost 10% a year through 2025 with peak energy demand by 2030. Even with the slowdown of Chinese economic growth, energy demand grew significantly slower than GDP for the country. China making large investments in alternative energy and service-industry growth has resulted in a energy demand growth far below the optimistic expectations made by many energy companies and the IEA.

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