Just when you thought that Big Oil was coming around, that maybe they thought it might be a good idea to invest in our collective future, not just oil futures, Royal Dutch Shell announces that it will focus its “renewable investment” portfolio on oil, gas and biofuels (ignoring solar, wind and other alternatives).
Never mind that oil and gas are hardly renewable resources by any stretch of the imagination; this news strikes a blow at the heart of the renewables industry because it begs the question: if one of the largest energy companies in the world won’t invest in our renewable future, who will?
“Not Big Oil”, says Mr D, a 28-year veteran of the oil and oilfield services industry, who agreed to provide his insights into the “oil mentality” on condition of anonymity. The incentives, it seems, are all wrong: “The driving force behind oil companies today is on getting maximum returns out of their oil and gas assets. This means increasing performance, reducing costs, furthering efficiencies, developing fields. They see time as running out and are maximizing returns – now.”
Think about it. Oil companies own many many expensive assets, of which a quick rundown include: oilfields and oil rigs (or the rights to use them, anyway); drilling apparatuses; the trucks, helicopters and boats that ferry supplies to and from distant outposts; the outposts themselves, many of which are large compounds replete with 18 foot walls and generators powerful enough to supply a small city (with highly trained ex-military guards to boot); not to mention the hundreds of thousands of miles of pipeline needed to transport the black gold across the great expanses of the planet (there are an estimated 55,000 miles of pipe in the U.S. alone). With physical asset liabilities worth hundreds of billions of dollars, is it really surprising that Big Oil is unwilling to leave it all behind?
And then there are the people. Thousands and thousands of them, engineers mostly, all highly trained in such dark arts as “log analysis”, “reservoir management” and “flow assurance modeling”. In what is perhaps one of the most self-contained, boutique industries around, the collective intelligence of every Big Oil employee is harnessed for one purpose, and one purpose only: to get oil out of the ground.
Perhaps not surprisingly, this makes for a conservative culture, where innovation is primarily focused on how to make a better drill head, pipeline sensor or improved reservoir model. Says Mr D.: “Innovation is restricted to oil-specific processes. It’s very limited and very conservative. In fact, it’s more of a slow evolution than anything else.” Put bluntly: “They’re not a very innovative bunch.”
Let’s be fair: focused, “vertical” innovation is to be expected within a specialized industry; nobody can fault the auto industry for coming up with 20 versions of a cup holder, tailpipe or headlight (except maybe GM’s flimsy models). But “evolution” is an interesting choice of words because it implies that Big Oil is responding to environmental factors – as in, the international economic system and global resource crisis we are all facing – even when all indicators suggest that the opposite is true.
It’s not that the majors haven’t toyed with sustainability and investment in renewable energy. At various points each has invested more or less in the pursuit of alternatives to oil, from Shell’s investments into solar, to BP’s wind projects, to more radical initiatives like Hydro’s investment in Pelamis Wave Power. While at first glance this might all seem encouraging, there is no escaping the fact that Big Oil is sending very mixed signals when it comes to its interest in sustainability.
Exxon-Mobil is the most consistent of the majors (which isn’t saying much): in June of 2005, Exxon’s chief made it clear that the company was going to stay out of renewables, bucking the then nascent trend of oil companies foraying into the space. The company stuck to its message through late 2006, until in mid-2008 it decided to reverse its policy, with its chairman stating “We’re focused on safely and reliably meeting the growing energy demand while working to reduce our impact on the environment.” Fast forward to 2009, and CEO Rex Tillerson seems adamant that Exxon will not be going “into investments that are dependent on a government providing a tax system to make them viable.” The investments he was referring to? Alternative energy and renewables.
It’s the same story for the others: BP started out the millennium with an $8 billion commitment to renewables in 2005, toyed with selling off the clean energy unit in early 2008, changed its mind four months later, put new money into cellulosic ethanol two months after that, only to shutter its UK-based renewables operations shortly thereafter. Shell, for its part, invested in photovoltaics early on but offloaded the business arm in 2006, only to launch a new wind energy investment with Texas utility provider TXU in mid-2007. Beyond investments into renewable energy, Shell has lately taken a positive, measured stance on climate change more generally, even going so far as to call for global action on CO2 emissions.
Clearly, Big Oil’s record on renewables is spotty at best, or hypocritical at worst. Much of this, Mr D. continues, owes to the fact that the majors “are suffering from an identity crisis in which they can’t decide if the market will reward them for expanding their energy horizons”, or punish them for their transgressions.
A Force for Good
There is a potential silver lining to all of this. One of the main weaknesses of the oil industry, suggests Mr D., is also one of its greatest strengths. “Oil companies know supply chains, distribution and logistics.” So what if the equation were flipped? What if the thousands of miles of pipeline could be modified for other uses, such as electricity transmission from far-away wind farms? What if the pipes themselves were covered in thin film photovoltaics, the rigs converted into wind farms or luxury accomodations, and the engineers all retrained to look at the world in a more sustainable way, to apply their hard-earned petroleum focused skills to global alternative energy solutions?
Wishful thinking perhaps, but not necessarily too far off base. While the US auto industry struggles to re-imagine itself, and the financial system reorganizes according to a different set of operating principles built on measured growth and absolute transparency, who is to say that the oil industry can’t do the same? The one thing that Mr D. knows to be true is this final thought: “Oil needs to rethink what business it wants to be in.”