A major shift is taking place in global energy.
Investment in clean energy has now surpassed investment in traditional fossil fuels. Even five years ago, for every dollar invested in fossil fuels, the same went to clean energy. But since then, a big gap has opened. This year, for every dollar invested in fossil fuels, $1.70 is going to clean energy.
In the U.S., the $400 billion Inflation Reduction Act (IRA) and investment strategies linked to ESG, short for environmental, social and corporate-governance issues, are the big drivers for this shift. But the U.S. is not alone. Governments around the globe have been blowing money on green fuels.
Energy independence and energy dominance were key American successes of the last decade. But over the last several years, instead of pressing for energy independence and returns on investment, investors pressed oil companies to show how they were working to reduce their climate footprint to facilitate Net Zero Emissions by 2050 (IEA NZE). You will recall that in 2021, after losing three board seats to an activist hedge fund, Exxon adopted the so-called net-zero commitment.
At the same time, President Biden has waged war on fossil fuels, doing everything he can to shut them down. Inflation has followed, with energy prices up by 33% and food prices up nearly 20%.
The tide might be turning on these policies, however. An inflationary hit to the pocketbook awakens casual slumber. People, it turns out, don’t want expensive energy. Expensive energy is challenging people to ask — how green is this green energy? How much is the climate really changing and how much of that change is man-made? It’s now fair game to consider the net positive effects of O&G instead of sounding the environmentalists’ alarms of worst-case scenarios.
People know intuitively that cost-effective energy is essential to an abundant, prosperous and safe world. More energy is desperately needed not just here in the U.S., but by billions of people around the world. What’s new is that folks are beginning to understand that fossil fuels are uniquely able to provide cost-effective energy. This is only beginning, but it is a start. Fossil fuels have been a primary driver in raising the standard of living and the lifespan of the globe. Understanding these drivers, people are questioning if we really need to wreck our economy and our power grid by lunging into an unknown future of green energy.
A recent poll conducted by the Committee to Unleash Prosperity, a newsletter that provides updates about the economy, shows that 79% of people agree that we shouldn’t make energy more expensive and 77% of respondents don’t want electric vehicle mandates. (Sidebar: after being the first U.S. auto maker to pledge to go 100% electric, GM recently announced a $1 billion investment in internal combustion engine vehicles.)
I believe the public is moving away from the war against fossil fuels, doubting the apocalyptic qualities of CO2 and the sagacity of ESG policy. When pushback comes from the general public, there is a domino on shareholder votes, boards of directors and eventually in government policy.
First, shareholder support for proxy resolutions on climate change has dropped significantly.
Recently, ExxonMobil and Chevron’s shareholders uniformly struck down a suite of ESG proposals. The proposals ranged from greenhouse-gas emissions and climate benchmarks to the disclosure of certain ESG risks. These votes were a wipeout for climate activists. Most of the proposals garnered less than 25% support, with some getting far fewer votes than similar proposals put forward last year. Similar climate proposals were defeated at the annual meetings for bp and Shell. Industry executives have argued some climate-related proposals would backfire or leave the economy worse off. These vote results clearly demonstrate how shareholders have backed off pushing major oil companies to embrace certain climate goals.
Filled with ESG fervor, many in business have forgotten that unprofitable is unsustainable. Contrarian ExxonMobil CEO Darren Woods said recently that the company had benefited from investing in fossil fuels when others pulled back.
Other firms are now following suit. Shell’s renewables and energy solutions division was responsible for a loss of $6.39 billion in 2022. Shell is actively selling some of its green energy business units. "Delivery (of cash flow) will be the mandate of the organization going forward … the things we’ve been less successful with, we need to scale back or stop," said Steve Hill, executive VP of Shell Energy during an internal town hall for the Shell Energy unit, which includes the company’s renewable power business.
It’s not just the energy majors turning from ESG initiatives; top U.S. banks also recently voted down ESG resolutions calling for the lenders to wind down new fossil fuel financing. These votes were major setbacks for climate activists who had hoped for new constraints on O&G industries. Resolutions like these won only about 10% support at Citigroup, Bank of America and Wells Fargo. This bodes well for the smaller independent O&G firms which, as a rule, cannot finance their own growth.
The pushback against ESG measures has also hit investment firms such as BlackRock, which have faced potential boycotts in Texas and other red states. Republican officials in Florida, Texas, Louisiana and South Carolina pulled more than $4 billion in pension and investment funds from BlackRock.
Not only is it bad for corporate profit, but bad for the public welfare. After the defeat of ESG resolutions, Citigroup’s CEO, Jane Fraser, pointed out pragmatically the need for fossil fuels. "We simply don’t yet have affordable alternatives at the scale and reliability that is required" to move national economies off fossil fuels, she said as reported by Reuters.
Similarly, in an SEC filing last month, ExxonMobil said: "It is highly unlikely that society would accept the degradation in global standard of living required to permanently achieve a scenario like the IEA NZE."
Read that last line again. Smart leaders are realizing that achieving environmentalist goals would require reducing the global standard of living to such a degree that there would be a revolt.
Governance follows culture. I believe that we all share this opportunity to set the record straight about the value of fossil fuels. Let’s hope that the tide is in fact turning. Because if it does, and common-sense policies are restored, America will be safer and more prosperous.
In this issue of BIC we have several articles to make your job more prosperous and safer in the near term. We feature perspectives from ExxonMobil Venture Executive Denise Burcham, at the ExxonMobil Baytown chemical expansion project; Kinder Morgan GM C.J. Barrois; TEAM CEO Keith Tucker and ShepBoys President Russell Shepard.
Also covered in this issue are feature articles about topics from procurement and skills gaps to the future of refineries, new government regulations and more.
I’d like to thank each of you for helping make BIC Magazine one of the largest and most-read multi-industry, multi-departmental energy magazine in North America.
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