The oil industry is the target of sustained negative pressure, essentially calling for production to cease immediately. What should it do?
The argument against the industry is simple, emotive, and has a scientific basis: burning hydrocarbons contributes directly to rising greenhouse gas levels and global warming. In addition, the well-known ‘oil curse’ in developing countries has caused both social and environmental damage. In these instances, as is the case with global warming, the industry is often perceived by the public as not being held adequately accountable; there are few sentences or fines, and businesses seem to continue to operate as before. From this view, it is easy to see why the industry is seen as ‘evil’ and faces a vocal, growing opposition.
Source: Sebastian Dooris
To compound the issue, the case for the defense of the oil industry is nuanced and requires consideration of the trade-offs inherent in living in an industrial society. People choose to drive their cars, heat their homes, and fly thousands of miles for holidays, without necessarily investigating and understanding the environmental consequences of their lifestyles.
In an ideal world, hydrocarbons would not be necessary to fuel these lifestyles – indeed, progress is being made towards creating this reality. Developed countries’ national grids increasingly carry renewable-generated electricity, and the decarbonization of transport can be seen on the horizon. Steps are being made in optimizing efficiency for air travel, and in reducing residential demand. Despite this, most hydrocarbon alternatives are new, immature, and not yet economically viable.
We have to acknowledge that we live in an ‘oil age’ in which society enjoys the benefits of abundant low-cost energy. The oil industry is currently the engine on which our economies run, yet society does not like or want to acknowledge that fact. The perception of oil corporations as the ‘bogeymen’ does not help in an informed debate about the choices facing society in planning our future energy needs. In fact, is the oil industry simply a convenient scapegoat?
Managing Supply and Demand of Hydrocarbons
There is little independent journalism presenting an alternative, holistic opinion. Points that need to be made include the fact that the globe continues to demand hydrocarbons (IEA). Reduced production from existing oil fields creates a shortfall, even if global demand is reduced to limit carbon emissions to achieve the 2°C target. Oil companies must continue to search for low-cost oil and gas to prevent the social disruption that will result from demand outstripping supply.
In BP’s evolving transition scenario, only in 2040 will renewables be producing more primary energy than coal or gas. Source: BP Statistical Review of World Energy 2019.
There are also ethical dilemmas in prematurely curbing the use of oil. The main driver for the growth in energy emand comes from China, India and Africa. Who will take the blame for a failure to provide the energy to support these growing economies? The major oil and gas discoveries of the recent past have been in Guyana, Senegal, Mauritania, Egypt, Cyprus and South Africa: all countries in need of the economic boost that comes from oil and gas production. Without compensation, we cannot demand they forgo the right to develop and advance as we already have.
With natural technological and economic barriers to innovation, the displacement of oil by renewable energy will not happen fast enough to mitigate climate change. Thus, the focus for public action on climate change must be to reduce our demand for energy. This requires the combination of legislation, new technologies and changes in behavior.
Taking Action and Risks to Change the Public Perception of the Oil Industry
The case for the oil industry to act and join a ‘coalition of the willing’ was well made recently by Nick Butler in the Financial Times; the oil industry is part of society and now society is expecting the oil industry to change – but how?
Managing the transition to a zero-carbon energy system requires the rational analysis of all elements in the energy mix, including social behavior. Despite the flaws of the oil industry, singling out one industry as ‘the bad guy’ does not help in this analysis – as seen with the public perception pariah status of the nuclear industry.
In the face of overwhelming pressure from public opinion, the industry is in danger of losing its legitimacy and, despite rational arguments to the contrary, may have its activities curtailed. Therefore, oil companies and their investors must be seen to take action. Doing nothing, citing ‘the world needs hydrocarbons’, is the wrong response.
The energy transition is underpinned by a radically different suite of technologies. Decentralized energy generation is becoming more important, with consumers owning generating assets like solar panels, wind generators and heat pumps. The energy landscape is undergoing a paradigm change from capital intensive power stations connected to consumers via a grid, to distributed energy generation and consumption nodes with the grid as a back-up. Owners of power stations and national grids wish to protect their revenue streams and are reluctant to embrace the new paradigm.
The oil industry skill set of major project delivery and risk management does not fit easily into this coming transition. To date, those oil companies that are investing more in renewable energy are following a traditional major project route through important wind farm or solar projects; major power generation assets feeding the grid. This fits the oil industry capital deployment skill set.
However, a more transformative role for the industry would be to drive the change in consumer behavior through innovations in business models and new technology. It is only through engaging with the consumer that the oil industry can expect to change public perception and win back its legitimacy. One limitation to the deployment of new renewable technologies and business model innovations is a lack of risk capital. The oil industry has a role to play here. Investments on the scale of a new frontier exploration program, put into renewable energy, would be transformative, making an impact far greater than the value of the capital itself – and at a lower risk than wildcat exploration.
A Clear Signal
Taking a leading role in the promotion of decentralized energy generation would be a clear signal to the public and investors that the industry is taking action; it needs to earn its legitimacy and not be afraid of promoting the actions being taken.
In this context, the oil business should be considered an integral part of our economy, working alongside the renewable industry to effect the energy transition while continuing to drive economic growth. Responsibility for informing the public about the complexity of this transition falls to the leadership of both the oil and renewable industries.
Is there scope for a forum on this issue, bringing together all stakeholders to influence both press and policy makers? Many oil industry professional organizations are interested in this idea, and bodies representing the renewables sector and the wider public should also be supportive. Could this help change public perception?
