Keep fossil fuels in the Ground now!

Knowing that we are moving towards a decarbonized ecosystem where petroleum products will still exist, but their role in energy generation is going to be substantially less, what are the best areas for oil & gas R&D investments?  Which company(ies) have the best energy transition strategies?  Which companies are truly embracing this transformation and truly being sincere about their commitment to meeting climate change and decarbonization goals?  If you could tell the oil & gas companies anything about what they should be focusing on, what would that be?

I have to start at exactly the same place as Andrew Blakers did, this is a real Industry-wide Kodak moment. Andrew is the Professor of Engineering, Australian National university and answered

“I suspect that most of the oil, gas and coal companies will have Kodak moments. Its rare that a company firmly entrenched in an industry survives a wholesale transition of that industry to new technology - especially when it is fast and complete as the solar/wind revolution will be by 2040.”

What is or was a Kodak moment?

New Word Suggestion a  phrase used when taking a picture of someone at a particular moment that will never be forgotten.

“The Kodak moment” both Andrew and I are thinking about is the day Kodak collapsed and the reference to the Eastman Kodak Company's decline when cameras and film were overtaken by smartphones and digital technologies. The situation was the business failed to foresee the absolute shift within its industry and drops from a market-dominant one to become more of a minor player and even is forced into Bankruptcy.

Oil, Coal and Gas  as fossil fuels, being the major contributor to our growing Carbon levels and the companies extracting these will all need to face their “Kodak moments” in the coming years, in my view ALL within this current decade. The shift away from "extraction" needs to rapidly accelerate

What and where should R&D investment be directed?

The debate presently is “why should fossil fuels still even be used?” Not just in 2050 but leading up to this period. Most of the current scenarios have fossil fuels as still prominent within any energy mix over the next thirty or more years. We do need to simply ask why?

Will the oil and gas majors have a role to play, yes it can be prominent IF, I mean IF, they shift their thinking from “fossil fuels” to all “energy fuels” while they have the cash flow, balance sheets and dominance of today and put that into a total energy transition over the coming decade or two.

Within R&D I would shift the vast majority of my research and development into alternative renewable energy solutions. I would direct my M&A activity totally away from oil and gas into these solutions. The oil and gas companies need the same seismic shift in their business as we all do in the Energy transition.

What replaces fossil fuels? I still believe Nuclear Energy in smaller modular design solutions will become increasingly needed and deployed. We can all get into the debate of “fallouts” from a leak but the BIGGER fallout from a rapidly warming planet that will relentlessly alter what we know and how we function is the real debating point. Nuclear is proven, it has regulation, recognition, governance etc., etc to radically ramp up solutions that are safer, more manageable and distributed. Will one or two of the Oil and Gas majors shift to this alternative energy source?

I am not convinced that Carbon Capture and Storage is a sustainable alternative solution. I believe this is no more than a sticking plaster to cover up the determination to extend the investments into fossil fuels. It can be wrapped up as an "interim" solution but the ROI cannot be measured in 20 years and then extended but in 10 maximum and high financial penalties applied if it is longer.

We need R&D that takes away all the need for fossil fuels and the Oil and Gas companies have the chance to be in the drivers seat of this change. Without doubt, the driving of this will be fraught with challenges that will need a highly agile, focused and determined approach that has speed and impact of change as central to force a significant part of the transformation into this decade. It will require some brave and bold CEO leadership in Oil & Gas majors

We are seeing a debate playing out between European versus American oil and gas majors on how, when and where they make their diversification away from Oil and Gas or double down and extract the maximum for as long as there is runway to do this. Investors are putting pressure on boards, regulators are putting pressure, the society is beginning to make the move. This is not a great positioning for a rapidly warming world. Is this denial or stubborn determination to hold onto what you have got.

I believe the CEO’s in these majors should be directing all their future developments spends into renewables and backing a safer, modularized Nuclear set of solutions as investments that offer sustaining returns.

Lastly can we "pluck" existing build ups of carbon out of our air?  Can solutions be found. Could part of the R&D of oil and gas companies be directed at cracking this atmospheric question then we might have a different "ball game"

Which company(ies) have the best energy transition strategies?  

My initial reaction here is NONE. When you can’t let go you can’t really accelerate and move forward in any new direction. Of course we throw the word “transition” into this but there is a point of not debating and dragging your feet, you throw all your energies into a total transformation. The question might be “who of the majors will break first and make that totally transforming move?”

If your shareholders, especially all the large institutions finally have their “Kodak moment” in their Oil & Gas investments then perhaps. The debate of how and when this might happen and the financial penalties on how they will be distributed becomes a real barrier to making any sysmic change. Decisions are partly caught up in the massive investments in pension fund contribution for the attractive dividend returns offered by Oil & Gas. When will the financial coffers get drained that dividends can’t be paid, will that make the move? When will institutions recognize this dividend or investment is unhealthy and prolonging the carbon emissions we need to stop? 

I would again argue here, invest heavily in alternative fuel now and secure the future dividend that maintains shareholder commitment and belief.

Today that transition is being handled better by Total, BP, Enel and Shell it seems. They are sensing this growing, perhaps unrelenting pressure to transform and are moving towards the adjustment. The “adjustment” is simply not fast enough, bold enough or attractive enough and I think that is simply NOT TRUE. To avoid that Kodak moment you have to be the usurper like Apple that wraps up a solution into a Smart Phone.

The oil and gas companies have THAT CHANCE to become the “Smart Energy Solution” providers that has renewables, digital and smart infrastructure as their operating core. My money is on BP, Enel & Total. It will be a European “win” on present indicators but how Saudi, Russia and China reacts depends on how they can transform their “State” companies into fully privatised entities. ARAMCO is the leader in this pack but the history of oil and gas runs even deeper in Saudi Arabia to ask if they ever can let go? ARAMCO are arguably the best at providing the highest quality of oil, but when you are the best, why change?

What do I tell the Oil and Gas companies?

 I would never “tell” but I would council and convince them that the tide is going against them and the undercurrent is really treacherous, dangerous and full of peril. The full force in years away not decades away. Fossil fuel must and should stay in the ground .

Working on carbon capture and storage is great but it is a interim solution, It enables time for a orderly transition if it is decoupled from traditional payback returns. We are heading towards stranded assets, bankruptcies and forced mergers as the world continues to recognize it is totally unsustainable with any fuel that omits carbon or other greenhouse gases.

We don’t need to “tell them”, they know that time is running out. Our job is to encourage them to make the transition within their business core as fast as they can and that is not decades but a few years of massive, disruption transformation. There are many examples of industry transformation, or even societal transformation to draw down from. Will they recognize it is in their hands or suddenly taken out of their hands?

What we do need to do, is inform the wider community concerned with the shifts taking place on our planet on global warming. We need to get across this does need to be the start of a new era of progress on climate change, moving away from fossil fuels as quickly as possible, and provide sustained evidence of a tired, ineffectual system of shareholder rights that governs Oil and gas companies but separating Oil and Money is really hard. 

Net Zero pledges still do lack tangible plans to achieve them. Mandating a shift from 2050 to 2040 or even 2035 globally seems so unlikely in this current global environment where trust is eroding but we should be looking towards responsible leadership at global, government and company level to face up to global warming and the total shift to sustainable, clean energy.

Thanks for the questions, it stirs up a lot.

I continue to debate, read, research and see a shift of this magnitude as the one big event of the century. This decade we are in will be the defining one. We have had four industrial revolutions, this is the energy revolution, bigger and more necessary than all those others as there is more at stake; our health, food supply, environment, nature, the ability to function as we know it as humans on this planet. The planet as we know it and all it offers, is at risk, arguably in peril.

Oil and Gas, politics, the lobbying and continued fossil fuel investment will all be or should be on the wrong side of the energy revolution we really do need into clean, sustainable sources of energy, unless they cross over, now! Oil and Gas companies are facing their "defining" moment in these next few, short years. Can they avoid their Kodak moments as THIS particular moment that will never be forgotten