Countries and companies around the world have committed to climate neutrality by 2050 – including the USA and its large oil companies. But why does the industry continue to bet on fossil fuels?
There is currently an increasing number of billion-dollar takeovers in the US oil industry. After ExxonMobil announced its purchase of fracking specialist Pioneer Natural Resources for almost $60 billion a few weeks ago, Chevron followed shortly afterwards. The group wants to take over competitor Hess for $53 billion – for strategic reasons, according to analysts. Not only does the USA plan to be climate neutral by 2050, but the two oil giants also want to achieve net zero emissions by then. How does that fit together?
Return higher than with renewable energies
“The clear answer is return,” says Andreas Schröder, head of energy analysis at energy market researcher ICIS, in an interview with tagesschau.de. “Both the wind power industry and the heat pump industry are in a difficult market with high cost pressure.” One example is the energy company Siemens Energy, which is already negotiating with the federal government about state guarantees. With oil, on the other hand, the return is much higher – also because of the increased prices.
Crude oil prices have been climbing for months due to production cuts by producers such as Saudi Arabia and Russia. In the summer, the International Energy Agency (IEA) warned that oil supplies would be too low over the course of the year. This is one of the reasons why prices temporarily rose to $100 per barrel in September. Even though they have fallen somewhat since then, they remain at a high level. The war between Israel and Hamas is also causing uncertainty on the oil market.
The oil companies have not been as successful recently as they were last year, when prices temporarily reached more than $120 per barrel due to the Russian attack on Ukraine and the corona pandemic. But they continue to make billions in profits and have accumulated enormous cash reserves thanks to record results in 2022. “On the one hand, they pay this out in bonuses and dividends, but on the other hand, they swallow up competitors who could pose a threat to them,” explains Schröder.
Demand for oil continues
“Oil has become, or still is, an attractive business,” says Andreas Löschel, Professor of Environmental and Resource Economics and Sustainability at the Ruhr University in Bochum tagesschau.de. In the eyes of many, the price jumps during the energy crisis would have extended the business model by another decade or two. “We see that not only have investments in renewable energies grown massively, but investments in oil and gas infrastructure have also increased again.”
“The current rise in oil prices has no significant impact on the strategy,” says the head of the Berlin World Energy Council’s “Energy for Germany” editorial group, Hans-Wilhelm Schiffer. Rather, it is the forecast demand for oil that is driving the companies to make acquisitions. “ExxonMobil, for example, expects that more oil and natural gas will be consumed in 2050 than today and that the share of these two fossil fuels alone will still account for more than 50 percent of total primary energy consumption,” explains the expert.
Schiffer himself also estimates that global oil consumption – unlike coal – will initially increase. However, the peak could be reached before 2030. From then on, a decline in global demand is likely. “With the result that the share of fossil energies in global primary energy consumption is expected to decrease from 80 percent today to 40 to 45 percent by 2050.”
Industrial processes sometimes difficult electrifiable
But it will still be a long time before then, says Löschel. “Although renewable energies are growing very quickly, there is still a risk that oil levels will remain high for a long time.” Investments in climate protection primarily concern electricity generation. Many industrial processes, on the other hand, are difficult to electrify due to high temperatures, because alternative solutions such as hydrogen or synthetic fuels are still a long way off.
“Based on current government policy and market trends,” the IEA predicts in its latest annual outlook that global oil demand will rise to around 106 million barrels per day by 2028. “We completely agree with the IEA: oil demand will continue to grow before 2030,” says ICIS expert Schröder. The main drivers are aviation, petrochemicals and shipping.
The Organization of the Petroleum Exporting Countries (OPEC) meanwhile expects global demand to rise to 116 million barrels per day by 2045 – that would be 16.5 percent more than last year. India, China and other Asian countries as well as Africa and the Middle East are likely to be responsible for the growth.
Corporations want to secure deposits
“Especially in emerging and developing countries there could be a turn to oil,” explains Löschel. This would probably also be a result of the past few months, in which prices and availability on the global market were quite stable, unlike gas. “The slightly poorer countries want to participate in our prosperity model – and that is energy-intensive,” adds Schröder. In order to meet ongoing demand, companies want to secure oil reserves, especially at current prices.
With the takeover of Hess, Chevron gains access to a particularly promising deposit off the coast of Guyana. According to consultancy Rystad Energy, the South American country could grow faster than any other producer outside OPEC by 2030.
Hess also has production sites in the US state of North Dakota, between Malaysia and Thailand and in the Gulf of Mexico. Pioneer, in turn, has access to large reserves in the Texas Permian Basin, which may have made the company a target for ExxonMobil.
So what does all of this mean for climate protection?
“In my opinion, the transformation of the energy supply is on a good and promising path,” says energy expert Schiffer. While fossil fuels have covered most of the increase in global energy consumption in recent decades, renewable energies are now gradually replacing their use. There is “quite a good chance that the rise in temperatures in the second half of this century could be limited to less than two degrees Celsius.”
Economist Löschel is much more skeptical: “The IEA’s scenarios based on current policies are not in line with the net zero scenario.” Oil consumption should actually fall by a quarter by the end of the decade, which is currently not the case – but rather the opposite. “In industrialized countries it is not happening as quickly as hoped, and in other regions of the world things are completely different.” These countries urgently need support in the energy transition.
“There is a gap between expectations and reality,” sums up ICIS expert Schröder. Climate ambitions and private investments are currently not moving in the same direction. This is because companies are committed to their shareholders and employees and not to the climate. Politicians must therefore manage to provide incentives through state control: i.e. more expensive fossil and cheaper renewable energy.