Until this year, alarmists proclaiming the end of oil were often dismissed as crackpots or overly optimistic environmentalists. But the spread of the novel coronavirus and its unprecedented disruption of the global economy and many of the stalwart industries at its core has amplified the discussion about life after oil and brought it into the mainstream.
This year’s headlines have been full of oil obituaries, from shale companies falling into bankruptcy like dominoes to think piece after think piece saying goodbye to the oil sector as a whole, from Sierra’s “The End of Oil Is Near” to Vice’s “The End of the Oil Age Is Upon Us.”
And it’s not all sensationalism or overreaction, either. Even Big Oil itself seems to see the writing on the wall, and has been moving swiftly away from oil exploration towards more lucrative ventures now that “Big Oil’s Most Profitable Business Is No Longer Oil.” In Europe especially, Big Oil seems to be accepting the inevitability of an impending global energy transition and is taking the first steps to transform itself into Big Energy.
“Nine years ago, ExxonMobil was the most valuable corporation in the world,” The Houston Chronicle wrote on Friday. “Last week, Dow Jones removed the stock from its industrial index that is supposed to represent the U.S. economy. Exxon’s market capitalization has dropped from $400 billion in 2011 to just $175 billion today, and the oil business is no longer as important to the U.S. economy.”
But Big Oil in the United States has responded very differently to its decline than its European counterpart. Instead of innovating and evolving, the United States’ response seems to be: deny…until you die. “Oil executives talk a lot about how their industry will bounce back after the coronavirus pandemic passes, but the truth is their business is in long-term, secular decline,” writes the Houston Chronicle. “No matter who wins November’s elections, we need to find new businesses to replace the oil and gas industry in Texas to avoid economic decay.”
Lucky(ish) for the oil industry, however, they are not the first energy sector to age out of the United States economy. For a little lesson from history, U.S. oil needs to look no further than the U.S. coal sector. “Old timers like to say the oil business has seen bad times before, and that every bust is followed by a boom. […] Once the price of crude jumps, Texas will be rolling in money again,” continues the Chronicle report.
“You know who used to talk that way? Coal company executives.” And we all know how that story ended.
Also noting a contrast between the U.S. and Europe, the Houston Chronicle writes, “While European oil company CEOs have announced plans to transition from oil to natural gas and eventually to climate-friendlier forms of energy, the American oil industry continues to demand government bailouts and protections. Coal companies did the same, and look where they ended up.”
In this context, recent articles about the shale sector emerging from the pandemic stronger than ever before and $100 barrels of shale oil just on the horizon are disturbingly reminiscent of when chairman and CEO of Peabody Energy Gregory Boyce said in 2011 that coal was about to be bigger than ever and scoffed at the suggestion that natural gas would unseat coal in the U.S. energy mix. “We are at the early stages of a long-term supercycle for global coal demand with hypergrowth being driven by soaring energy needs,” he said in a now laughable quote.
The message here for U.S. oil execs is loud and clear. Those who do not learn from history are doomed to repeat it. It’s time to evolve to meet a changing global energy industry, not dig their heels in–and get left behind.
By Haley Zaremba for Oilprice.com
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