What does Bob Dylan know about Big Oil? zintro-com/profile/steven-day
Big oil still dominate the Fortune 10 but for how much longer because the times they are a changing? The world is changing around us and these behemoths aren’t as nimble or as innovative as they would like to be. Despite recent developments with the Paris climate accord, the world is steadily moving away from fossil fuels and running towards renewable forms of energy. At some point there will be a tipping point. Peak oil is no longer the discussion in the bars of Houston instead it’s how quickly assets can be developed…… before they are no longer assets. Maybe the world will be a safer place with super-power politics less focussed on security of supply together with the ability of the shale drillers to quickly ramp up or down production. The shale drillers flexibility capping the price of oil despite the best efforts of OPEC.
The implications of a permanently lower value commodity are already affecting board room decisions. Saudi Aramco is preparing to list and improve transparency of its governance. Western oil companies are re-evaluating their positions and moving away from Frontier Plays to focus on developing existing basins with better understood geology, established infrastructure and secure political agreements. Drilling and producing from Deep Water is also under scrutiny with its excessive costs and very real questions over safety and integrity.
So what next? The world still needs oil and will for some time. Nuclear is controversial and seemingly always will be…… technological advancements insufficient to overcome the public’s apprehension. Maybe the German government’s decision to step away from nuclear and require decommissioning of its nuclear assets will be a harbinger of change. Gas is, and will continue to be, a focus and there will still be a traditional role for the big oil companies. Don’t worry the dividend is safe for now thanks to aggressive cost cutting! But there has been a tipping point, an emerging confidence that the world can power itself from renewables. Recently rainy cold Britain produced a record amount of solar electricity, nearly a quarter of total demand generated across its PV network!
So will Big Oil respond by transforming into renewable energy companies? Could they achieve this and still meet the dividend payments to keep their CFOs smiling? Ten years ago BP established a renewables division but perhaps the timing wasn't right. Investment in renewables diverted capital away from developing lucrative oilfield plays and the short term commitments trumped longer term strategic gains. Ultimately there will be change but it will probably be demand driven. The younger generation want renewables, governments want to control their energy resources. How long will it be before one of the majors breaks cover and makes a bold move? Maybe the answer, my friend, is blowing in the wind…
© 2017 Steven Day
The views and opinions expressed in this article are those of the author.