Saturday, September 1, 2012

No Succession Plan for ExxonMobil

These are the 12 biggest corporations on the planet according to Forbes. You'll notice that 6 of the 12 are oil companies. There is no clearer picture of the Dinosaur Economy than this list. In 40 years time, none of these oil companies will be in the top 12.  Even if they manage to make the transition to clean energy, I doubt if they'll be in the top 12. In 40 years time, with most coal, oil, and gas phased out, world energy markets will look very different.

The dominant form of energy will be electricity generated by a combination of rooftop solar PV, utility-scale solar thermal, wind generators and hydro. Ownership of the utility-scale solar and wind generators will be a combination of public and private. I wonder whether a handful of global corporations will come to dominate electricity generation as they have dominated oil and gas? Somehow I think not. In order to dominate they would have to control all the various forms - hydro, wind, solar PV and solar thermal - each of which has very different constraints.

Even if an oil company got big in wind generation by dominating engineering, manufacture, building and running wind farms in dozens of countries, could they be similarly big in PV, solar thermal and hydro? Not a chance.

The other major energy source in 2050 will be biofuel though it is unclear how big this sector will be. I suspect that markets in sunny climes will promote EVs over internal combustion engines running on biofuel, because solar power will be more cost-effective than any of the biofuels. Biofuel will be attractive for specialty uses (aviation, oils, plastics) and will, in effect, be too valuable to be used for transport that can be electrified. There is a chance that oil companies could dominate the biofuel market, but it will be a tiny market compared with the current oil/gas market. Biofuel suppliers are not likely to be among the biggest corporations in the world.

I used to think the oil companies were securing their future by beginning the transition towards post-carbon corporations. Reports like this from Bloomberg (May 2012) support the notion.
BP has invested $7 billion in alternative energy since 2005. ExxonMobil is spending $600 million on a 10-year effort to turn algae into oil. And Royal Dutch Shell has invested billions of dollars in a Brazilian biofuels venture, buying up sugar cane mills, plantations, and refineries to make ethanol. In the U.S., Shell produces small lots of so-called drop-in biofuels—engine-ready products that can replace gasoline—from a pilot plant in Houston that uses sugar beets and crop waste.

BP is the company that has been most explicit about positioning itself for the post-carbon world. Their Beyond Petroleum slogan signalled a clear intent to be a long-term contender. However, they are finding it a rocky road. It's not easy to leap from drilling, pumping, refining and selling liquids and gases, to running factories that make photovoltaics. They had a go at it, but they withdrew in the face of strong competition from China. They still have investments in a couple of wind farms, and they're big in ethanol with a 10% share of the world market. So perhaps you could say they're still in the game and have a chance at being somebody in 2050.

The Royal Dutch Shell investment in Brazillian biofuel looks serious. Maybe that is the core of their succession plan, so perhaps they'll still be somebody too.

But ExxonMobil? I don't think so. Last week, I connected some dots that seemed to show that they have no succession plan.

I discovered that ExxonMobil spends  $100 million every day trying to find more oil and natural gas in increasingly inaccessible places like deep oceans, Siberia and now the Arctic. How does $100 million a day compare with $600 million over 10 years on algae development mentioned by Bloomberg? It looks like this - the $600 million for algae doesn't even register on the graph compared with $365 billion for oil and gas.

Does this look like ExxonMobil is serious about having a post-carbon future? Does this look like a succession plan? If they were serious about having a Plan B, they'd be partnering with the Pentagon to put $100 million a week into biofuel, instead they're spending $100million a day looking for more oil and gas that will end up as stranded assets

No wonder the oil companies are fighting tooth and nail to preserve and extend their current activities. They see that the post-carbon future does not have a big role for biofuel where they have relevant expertise, and they can't find a way to dominate the markets for PV, solar thermal and wind turbines. In those markets, they are bit players.

Without an effective  Succession Plan, ExxonMobil is wringing as much as it can out of current operations. When the carbon party is over, it will join the rest of us on the sidelines watching the new kids strut their stuff on Forbes Biggest Corporations list.


The Transformation tab reports examples of progress towards a low-carbon future. Here is a recent snippet.

India's government has approved a $4.13 billion plan to spur electric and hybrid vehicle production over the next eight years, setting itself an ambitious target of 6 million vehicles by 2020. Source: PlanetArk.


  1. Conventional (cheap, flowing, liquid) crude oil production has already peaked, but biofuels and "unconventional oil" (ie. tar sands) have made up the shortfall until now so that the whole liquid fuels business hasn't yet shrunk.

    The liquid fuel business is more profitable today than ever before (2008 excepted) and will probably get *more* profitable, not less, as the total supply begins to decline when new supplies prove inadequate to make up for declines in the old, big, cheap giant crude oil fields in the Middle East. That means in terms of fiduciary responsibility to shareholders it's perfectly valid for the oil majors to carry on investing ever more heavily in the same business for the time being.

    If we are already on the "downslope", it looks like Exxon is betting on a "Mad Max" post-peak-oil world (in which the last drops of oil are as valuable as gold to the survivors of an apocalypse) while the other companies are hoping for a gentler landing. But I think there's still a big window for a change of strategy before the profits in oil per se really begin to decline.

  2. Thanks Jonathon, it's always good to be reminded that companies are acting rationally.

    Yes, the "Mad Max" comparison rings true. I suspect you're right about the window of opportunity for change, except that the foundations for dominating the new post-carbon economy are being laid right now. By the time ExxonMobil decides to shift across to the new industry, it is likely that others will have taken/built the prime seats.