Oil producers face their ‘life or death’ question

Shell et al need structural change in order to continue. These are engineering companies (upstream) with remarkably massive engineering and financial capabilities on the one hand and consumer oriented networks and outlets on the downstream side. They’re used to long term planning and hence mostly conservative, and that has taken its toll. They have such leverage that their narrative often dominates the debate especially in political circles with which they’re deeply intertwined.  That turned to their own detriment because it’s been unhealthy for big oil not to have had to listen to legitimate criticism and warnings that could have saved them billions in poorly executed investments and could have saved the environment years.

Shell made a lot of bad calls (arctic, sakhalin, tar sands, shale write off, Nigeria, borrowing to pay dividends) but its purchase of BG was proper: natural gas will more likely have a longer lifespan than oil for various reasons less pollution being one and having an established and growing role in electricity generation and heating being another. One of the real challenges for them is to start thinking electric and how to carve out a role in that world. Not just one of generation and scaling up production but also one of storage. In each of these fields the expertise is missing and culture incompatible (they’re geologists and chemists, the latter helps a bit, but the slow motion at the top doesn’t) and they’re well behind much more agile companies like Orsted, Tesla and China’s CATL. Still this is early days and prices of batteries are falling very rapidly while promising new technologies continue to be developed. Competition also is coming from hydrogen with pretty much all car companies introducing hydrogen models as well just in case that that’s where the action will be.

I’m glad I don’t have to decide. Being in bed with politicians and having such a immense national security role complicates an already complex set of choices that need to be made. Wrong bets already cost tens of billions and because oil companies ultimately are extensions of political imperative (keep transport affordable), it’s about much more than just money and happy shareholders.