The Week That Shook Big Oil : NPR

The energy industry was rocked this week by three events that could shape the future of oil and gas. Here the 2010 sun sets behind two offshore oil platforms under construction in Port Fourchon, La., Below. Saul Loeb / AFP via Getty Images hide subtitles

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Saul Loeb / AFP via Getty Images

The energy industry was rocked this week by three events that could shape the future of oil and gas. Here the 2010 sun sets behind two offshore oil platforms under construction in Port Fourchon, La., Below.

Saul Loeb / AFP via Getty Images

The news of the day was nothing short of astonishing.

On Wednesday a Dutch court has one groundbreaking decision against Royal Dutch Shell – an oil company that has already committed to cutting its CO2 emissions to zero by 2050 – and orders to act faster.

At Chevron’s annual general meeting, investors voted for the company to reduce its contribution to climate change. Demand was tight, but investors made it clear that this was not enough use renewable energy Driving oil and gas operations: Real action against climate change means sell less oil.

A much larger shareholder revolt took place at Exxon Mobil. Activist Investors picked up the giant and won and gave a stinging reprimand to the company’s management.

The hedge fund engine No. 1 has appointed two new directors to the board of what was once the world’s most influential oil company to prepare it for a world where oil and gas may no longer be burned.

In a landmark case, a Dutch court orders Shell to cut its carbon emissions faster

A small fund has scored a historic victory over ExxonMobil over the future of oil

This moment has been a long time coming. The scientific consensus that burning oil and gas is driving climate change has been well established for decades. For just as long, activists have used this scientific evidence in the fight against the world’s massive oil and gas giants. You have sued in courts around the world. They picketed. They held die-ins.

And they’ve used the tools of business, arguing that oil and gas are a bad long-term investment.

In a world where governments are determined to tackle climate change, many oil and gas investments could never pay off – they would become “stranded assets” and companies would lose money.

Activists have introduced this financial logic to corporate executives. You have submitted proposals from shareholders. Sometimes they even have gained incrementally Victories.

But they have never had a week like this.

So what has changed?

“The special thing about this moment is that we now have technologies that are cheaper, cleaner and better. The market is therefore realizing that oil and gas are no longer indispensable,” argues Fred Krupp of the Environmental Defense Fund. “The argument that used to be a bit stranded is now very tangible and real.”

The cost of building new wind and solar energy has fallen dramatically. Electrical appliances and heat pumps could potentially replace natural gas in households. And after Tesla proves that battery-powered vehicles don’t have to be glorified golf carts, the entire auto industry is racing around electric vehicles.

Meanwhile, governments around the world – particularly in Europe and China – have been promoting green technology through increasingly aggressive incentives and penalties. Total denial of the climate, while still widespread in countries like the United States, is no longer mainstream politics.

And more and more investors, including giant, influential money managers like BlackRock, are focused on climate change. Some groups cite moral reasons while others focus on the bottom line.

“The biggest risk for us as investors is embracing the status quo and not realizing the risks or technological disruptions that are about to come,” said Aeisha Mastagni of CalSTRS, the teacher pension fund in California. The group was a noted supporter of the Exxon shareholder revolution.

“I don’t know what the price of oil will be tomorrow. I don’t know exactly when the world will pass,” she says. “But I know changes are coming and Exxon Mobil has to change with them.”

This sense of change has reached some oil CEOs and boards of directors.

“Certainly a growing number of directors in Europe have had a real awakening,” says Karina Litvack, who sits on the board of directors of the Italian energy company Eni and co-founded the World Economic Forum’s Climate Governance Initiative.

“We’re certainly not with everyone, but … Directors recognize the urgency, complexity and scale of the climate challenge,” she added.

Increasingly aggressive carbon targets in Europe are putting American companies under pressure to follow suit. As the Dutch court ruling against Shell shows, the bar continues to be raised in Europe.

All of these forces have come together to create a remarkable moment of reckoning for oil and gas giants.

This week’s dramatic news doesn’t suggest the battle over climate change is over.

In the sometimes perverse American corporate lexicon, the idea that the world will fight a successful battle against climate change is a “risk.” In particular, it is referred to as “transition risk”.

If the world chooses to fight climate change and the oil and gas transition, a multitude of companies will have to adapt or perish. It may or may not happen, but when it does, there will be a cost. So from a company’s perspective, this is a risk.

No new oil and coal project says it will be climate neutral by 2050

Exxon Mobil has repeatedly argued that the odds of this were so slim that it wasn’t worth planning.

With investor revolt this week, Wall Street believes a significant move away from oil and gas is possible.

Proxy consultancies, companies making recommendations on how investors should vote on shareholder proposals, even used the word “inevitable”. And since beliefs about what is possible can influence what is politically feasible, this is no small feat.

However, there is no consensus on when this change would occur.

The oil industry suggests that cutting production too early – before global oil demand actually declines – would lead to price spikes and bottlenecks that would be somewhere between disruptive and catastrophic.

And for demand to fall fast enough to stave off the worst effects of climate change, it would include massive investments in renewable energy, widespread acceptance of electric vehicles, lifestyle changes to lower energy needs, the political will to disruptive policy changes, and international collaboration between rivals required and downright enemies.

The world is currently not on the right track for this kind of transformation.

In short, the fate of the climate is deeply uncertain. However, this week’s decisions in the boardroom and courtroom indicate a growing sense of what is possible.

A massive move away from fossil fuels is a prospect that Big Oil can no longer rule out.

Jack

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