The End of the Oil Era Is Proven Wrong

International Giants Cancel the "Funeral for Oil"

British Petroleum (BP), Chevron, ExxonMobil, Shell, and TotalEnergies, these international energy giants, have now realized that they have chosen the wrong strategic direction. Sacrificing traditional energy for renewable energy, investing huge sums of money, and ultimately ending up with declining profits instead of increasing them. It was clearly a mistake to exclude oil from development plans too early, but now they are preparing to correct this. What happened?

International oil giants, such as British Petroleum, Chevron, ExxonMobil, Shell, and TotalEnergies, who have long bet on renewable energy and invested heavily, are now changing their strategy and focusing more on the exploration of new traditional oil and gas fields, which is reflected in their earnings reports.

This all indicates that global trends are shifting. These international giants had almost sounded the death knell for oil before, turning their attention to renewable energy. Why are they now re-believing in the value of oil?

Taking BP as an example, in its 2020 "World Energy Outlook (to 2050)" it stated that the peak daily demand of 100 million barrels of oil was reached in 2019, and would never return to pre-pandemic levels.

However, their prediction was off: after the pandemic, there was no large-scale shift to electric vehicles, and the oil era has not ended. The development of renewable energy has not been as rapid as investors had hoped, and it cannot quickly replace traditional fossil fuels. With global energy demand recovering after the pandemic, where will this energy come from?

Data from Wood Mackenzie shows that the slowdown in the transition to renewable energy could lead to a 5% annual increase in oil demand. Expectations of growth in demand have raised concerns, as years of underinvestment may leave the oil industry unprepared to cope.

Jessica Joceck, head of the geological exploration department for North and South America at Wood Mackenzie, said that there is a "huge demand" for additional reserves of oil and natural gas. She said that in the early part of this decade, the industry neglected geological exploration, focusing instead on transitioning to green energy, and now is trying to make up for this gap.

BP's strategic shift is the most significant. Since 2021, the company has invested a total of $15 billion in renewable energy. But in February of this year, the company announced a significant increase in investment in the oil and gas sector.

BP plans to drill 40 exploration wells within three years, and recently discovered the largest oil field in 25 years off the coast of Brazil. This week, BP CEO Murray Auchincloss described a series of ten recent discoveries as historically significant when speaking to analysts.

Chevron is also changing direction. In recent years, the company reduced its investments in shale oil, leading to a drop in its oil reserves to 9.8 billion barrels last year, the lowest level in over a decade. In August this year, CEO Mike Wirth said he was "not satisfied with the results of geological exploration in recent years," and began increasing new geological exploration sites from last year.

ExxonMobil CEO Darren Woods said that geological exploration is "a track we must stick to." Recently, the company signed an agreement to explore four offshore blocks in Libya and is preparing to resume geological exploration work in Trinidad and Tobago after a 20-year hiatus. TotalEnergies has obtained permission to conduct new exploration in the United States, Malaysia, Indonesia, and Algeria. Shell, on the other hand, has turned its attention to the Gulf of Mexico, Malaysia, and Oman.

Why have international oil giants invested so actively in renewable energy, sacrificing traditional fossil fuels?

"Firstly, many giants really believed that renewable energy would flourish. No one wanted to be 'Polaroid.' Polaroid's story is well known; it launched instant cameras, and everyone thought that was the future, but eventually technology developed toward digital photography, and Polaroid's position plummeted, ultimately going bankrupt. Oil giants don't want to be left behind by history, missing out on the new stage of the energy revolution. They invested in the emerging trend of renewable energy, believing that this was the future," said Igor Yushkov, an expert at the Russian Federation State Financial University and the National Energy Security Fund.

"Secondly, if oil companies ignore the global trend of transitioning to renewable energy, it would bring significant image and financial losses. Large public companies care about public opinion because their stocks are traded on stock exchanges, and management needs to demonstrate performance through capital appreciation and rising stock prices."

The expert added.

But the result was the opposite: tilting towards renewable energy led to losses. "Significantly cutting investments in fossil fuel production triggered the risk of oil shortages. Advocates of energy transition had warned that there was no need to invest in traditional energy, as demand would decline, and the oil and gas market would be oversupplied in five years, making investments unrecoverable. However, the reality is the opposite: due to reduced investment, and demand not declining, there may be a shortage of fossil fuel supplies," said an expert from the National Energy Security Fund.

However, the hype has passed, and people have realized that renewable energy is expensive and slow to develop. "The transition is by no means an overnight process, but a long one. Moreover, the returns from green energy are lower than those from traditional energy. As for hydrogen, people have high expectations, thinking that hydrogen-powered cars, hydrogen pipelines, and hydrogen storage devices will soon appear, but the fact is that these projects have been abandoned, and all plans have failed," Yushkov pointed out.

For Russia, which has vast oil and natural gas reserves, the cooling down of the renewable energy craze and returning to reality is undoubtedly beneficial.

"Oil is our competitive advantage, and we have abundant reserves. Although the quality of the resource base is declining, this is a problem faced by the entire world, and we still have a lot of room for exploitation, capable of producing large quantities. Additionally, from the perspective of traditional energy investment, Russia is attractive. Western investment may not return, but there are Asian companies that want to cooperate with us to obtain our oil. For related countries, we are the most reliable supplier, as it is almost impossible to interrupt our pipeline supply," the expert concluded.

Original: https://www.toutiao.com/article/7537600351759843850/

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