As more governments and multinationals focus on the upcoming COP21 talks in Paris, energy companies appear to be at a kid’s table lonelier than the ones that have opened the recent Republican presidential debates.
Whether or not next month’s Paris climate conference is a success or not, the stubborn fact remains that renewables are becoming increasingly cost-effective and a more attractive investment. Yes, that is good news for the earth’s long-term climate, but pragmatically, this means a boost in energy security and more consistent pricing for governments and their citizens.
Energy companies, however, still have a seat at the table, and a very comfortable one at that. No matter how fast clean-energy technologies ramp up — and the reality is that they still comprise a sliver of most nations’ portfolios — fossil fuels will be in the global energy mix for a while. But drama is unfolding within the energy industry as Royal Dutch Shell, led by its CEO, Ben van Beurden, is becoming more vocal in calling on governments to implement an effective carbon tax.
According to the Wall Street Journal, a recent speech van Beurden gave at an energy trade association meeting emphasized the need to build a global carbon tax program that will foster more investment in clean energy and natural gas at the expense of coal.
No, this turn of events hardly means energy companies have seen the light or have lost their minds, based on one’s opinion about renewables or energy policy in general. No matter what one thinks about the oil and gas industry, the reality is: These firms spend tens of billions of dollars on long-term plans — many of which have gone awry with the spectacular fall in petroleum prices over the past 15 months. But companies such as Shell have seen massive opportunities in natural gas, as it has become the favored source for power plants in the United States. To that end, Shell is in the midst of a complicated acquisition of BG Group, which would significantly boost the company’s natural gas business.
Thrown under the bus is America’s coal industry, which, despite its bellyaching over the Obama administration’s energy policy, has lost out mostly because of many utilities’ shift from using coal to an embrace of cleaner-burning natural gas. This summer is a case in point: Natural gas edged out coal as the preferred method of power generation nationwide for the second time ever.
And while politicians love to talk about “energy independence” and not buying energy from “countries that don’t like us,” the lion’s share of imported oil comes from Canada. Saudi Arabia is next at 13 percent, while Iraq, despite two wars, ships the U.S. only 4 percent of its oil imports. Mexico and Venezuela together, in fact, import slightly more petroleum to America than the entire Middle East. In any event, oil imports currently provide 27 percent of America’s total petroleum needs, the lowest amount in almost 30 years. Finally, only about 1 percent of electricity needs in the U.S. are met by petroleum, and that occurs largely in Hawaii and remote rural areas.
So, while the U.S. will continue to import oil until electric vehicles truly become mainstream, or if as a society we suddenly decide we no longer want to use plastic or anything derived from petrochemicals, this business will still be lucrative for energy companies. And natural gas promises to pay these firms even more handsome dividends. Furthermore, the reality is that a carbon tax will not have a significant impact on energy producers — those costs will largely be passed onto consumers.
Arguments over just how many reserves of oil and gas are in existence aside, the energy sector, even if in a slow decline, will still be largely lucrative for the next few decades. Shell’s advocacy of a carbon tax, therefore, is a savvy public relations chess move. A carbon tax would sabotage the coal industry while causing oil and gas companies minimal pain, and in the long run, buys companies such as Shell, Total, Statoil and their American competitors a most precious resource: time -- which is necessary in order to revamp their business models by that pivotal moment when renewables will be in demand more than ever.
Image credit: Raysonho, WikiCommons
Leon Kaye has written for TriplePundit since 2010, and became its Executive Editor in 2018. He's based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas. He's lived in South Korea, the United Arab Emirates and Uruguay, and has traveled to over 70 countries. He's an alum of the University of Maryland, Baltimore County and the University of Southern California.