Big Oil's Enviable Problem: What to Do With All this Money?

Editorial by Geoffrey Lakings for Industrial Info Resources (Sugar Land, Texas)--Big Oil is flush with cash, thanks to price and volatility trends that have been unfolding across global energy markets for more than a year.

• OilPrice: Big Oil Is Flush With Cash, but Doesn't Know Where to Spend It: Exxon is considering a change of strategy for Europe, because of the windfall taxes governments are using to get some of the money Big Oil made from last year's oil and gas price rally. Shell is warning that Europe should stop relying on luck with its energy security and invest in new gas infrastructure to replace lost Russian supply. Relying on luck, according to CEO Wael Sawan, is not a good strategy.

Saudi Aramco is doing especially well.

• Reuters: Saudi Aramco reports record profit of $161.1 billion in 2022: Saudi Arabian oil giant Aramco on Sunday reported a record annual net profit of $161.1 billion for 2022, up 46% from the previous year on higher energy prices, increased volumes sold and improved margins for refined products.
  The profits, which are around triple that of Exxon's $56 billion, follow similar reports in February from international peers such as BP, Shell, and Chevron which have mostly posted record profits for last year.

However, even with this influx of capital, plans are already afoot to pivot away from some of the "supposedly committed" energy transistion/ESG projects.

• New York Times: Big Oil Gets Its Mojo Back--Huge profits and higher demand have empowered the industry: Now, after raking in record profits, several oil giants seem to be backtracking on promises they had made to reduce their contributions to global warming.
  Exxon, for example, has dropped a project to produce environmentally friendly fuels from algae, one of the company's most publicized climate efforts. Shell pumped the brakes on its renewable-energy spending, saying its investments in wind, solar and biofuels will stay flat after hitting a high in 2022.
  And BP, which announced three years ago that it would transform, stop looking for oil and gas in new areas, and slash fossil fuel production, has watered down its ambitions. Last month, the company revised its plan to cut production by 40% by 2030, setting a new target of 25%. The company's share price surged on the news.

In fact, some plans are quite the opposite. The U.S. Department of the Interior recently granted ConocoPhillips permission to move forward with its Willow Oil project in Alaska.

• IIR News: Conoco's Willow Oil Project May Be More of a State-Level Issue: A trickling relative to output from the premier shale oil basins in the Lower 48, the $15 billion expected in tax revenue and near-universal support for the project prompted consultant group Wood Mackenzie to call the Willow oil project the start of an Alaskan revival.
  ConocoPhillips, after a lengthy process that involved the U.S. courts, received a record of decision from the U.S. Department of the Interior that paves the way for new oil developments on Alaska's North Slope.
  Signing off on Conoco's so-called Alternative E, the U.S. Department of the Interior will allow for a scaled-down version of the supermajor's initial plans for a five-pad development. Forfeiting nearly 70,000 acres worth of existing leases in the process, Conoco can now move forward with weighing the final investment decision necessary to drill three sites at the Willow project.

And there is a growing backlash against ESG initiatives in the U.S.

• WSJ the Journal Podcast: Conservatives Come for ESG: Companies like BlackRock have promoted ESG investing in recent years. But WSJ's Julie Bykowicz says a new conservative nonprofit is pushing lawmakers to ban ESG, equating it with "woke capitalism."

But none of this means Big Oil is dropping its energy-transition/ESG projects. In fact, plenty of related investment was highlighted by IIR's peerless "boots-on-the-ground" research during a recent webinar focused on the industry's future.

Join IIR for a Webinar on the Outlook for Refining, Crude Oil & Alternative Fuels.



One clear example: Chevron and Talos Energy are looking to expand their carbon hub here in the Lone Star State.

• Reuters: CERAWEEK-Chevron, Talos Energy triple size of proposed Texas carbon hub: Oil producers Chevron and Talos Energy on Monday said they have tripled the size of a proposed carbon-capture and storage hub for the Gulf Coast.
  Their joint venture, which includes Carbonvert Incorporated, plans to collect and bury greenhouse gases from clients in the petrochemical, cement, steel and other industrial businesses along the Texas coast. The cost of the acquisition was not disclosed.

And energy-transition initiatives are not just related to carbon-hub projects here in Texas, but also how to fuel electrification initiatives already underway.

• IIR News: U.S. Working to Catch Up in Strategic Lithium Race: Incentives outlined in the U.S. Inflation Reduction Act already are making a dent in breaking foreign dependencies on the essential materials of tomorrow, with electric vehicle leader Tesla Incorporated getting in on the lithium game.
  Tesla planted a flag of sorts in Texas by breaking ground for a facility near Corpus Christi that can make battery-grade lithium hydroxide, which will be one of the few domestic plants making the essential electric-vehicle (EV) component.

But there's also a growing awareness that the U.S. power grid needs to be modernized and become a true "smart grid" for the future.

• OilPrice: America's Grid Has a Multi-Trillion Dollar Problem: Numbers are out again permitting us to update our US electric grid's reliability report card. Last year, 2022, was nowhere near as bad as 2021--the worst year of the 24-year record. It was "only" the fourth worst year. Severe storms, fire, floods, snow, hurricanes -- many often in the same places. Whether we call it weather or climate, utilities and other infrastructure providers face new challenges. The electric industry's response to this increasing cycle of weather disruption followed by system repair is to basically reinforce the status quo with a reassuring, "Don't worry, we'll fix the grid better than before."

Big Oil's big question (and big problem) is where to spend its capital to provide both the necessary energy today and carbon-neutral, sustainable energy for tomorrow.

• OilPrice: Big Oil is Flush With Cash, But Doesn't Know Where to Spend It: The problem is that nobody appears to be certain it is worth investing more--not publicly, at least. It is quite likely that Shell's Sawan, Exxon's Woods, Chevron's Wirth and BP's Looney are well aware that the world needs more investments in oil and gas in order to meet current and future demand. Yet, that pressure from governments and activist shareholders to not produce more oil and gas is countering the reality of global energy demand.
  That pressure--and associated legislation and court decisions--are making decisions that at any other time in history would have made the simplest and most obvious sense seem difficult and risky.

But maybe there can still be an agreed-upon path forward. A new study warns that a warming planet and rising sea levels could be having a worse-than-expected impact on megacities, especially in Asia.

• CNN: Threat of rising seas to Asian megacities could be way worse than we thought, study warns: Parts of Asia's largest cities could be under water by 2100 thanks to rising sea levels, according to a new study that combines both the impact of climate change with natural oceanic fluctuations.
  Sea levels have already been on the rise due to increasing ocean temperatures and unprecedented levels of ice melting caused by climate change.
  But a report published in the journal Nature Climate Change offers fresh insight and stark warnings about how bad the impact could be for millions of people.

Not to mention what is unfolding in the Middle East.

• Daily Sabah: Climate crisis in Middle East: Looming threat to millions: The Middle East is facing severe consequences of climate change, with nearly 22 countries and 400 million people at risk; even wealthy countries in the Gulf region are at risk of life-threatening issues

Maybe some of that Saudi Aramco money will be put to work on multiple energy transition and sustainability initiatives.

• EIN News: The Green Transition and Sustainability in Saudi Arabia: The Kingdom of Saudi Arabia (KSA) has invested significantly in renewable energy in recent years: (i) The country has set a goal of generating 9.5 gigawatts in renewable energy by 2030, with plans to build large-scale solar and wind farms; (ii) Riyadh is investing in energy efficiency measures to reduce energy waste and promote sustainability; and (iii) KSA is looking to further reduce its dependence on oil by setting a target of having over 50,000 electric vehicles by 2030.

As the Middle East Institute says, "We can't tackle climate change in the Middle East without ESG investing."

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