What would it take for big oil to change?

We all live in our own little bubbles. Earlier this week I posted the following on Facebook:

I’m really not sure what was going on at Edie but the story was a hoax and it was quickly removed. Of course it wasn’t true. From within my own little oat milk-drinking bubble I so wanted to believe it, and therefore I did. Arla did publish a report that day entitled “A Vision for the Future of the European Dairy Industry”. The word “oat” didn’t appear once. “Cow” was in there 8 times. There couldn’t be a better example of turkeys not voting for Christmas.

And yet there was a certain logic to this story that drew me in. According to the “journalist” who wrote it, Arla had done an assessment of what it would take for the dairy industry to reach carbon zero and concluded that this was simply not possible whilst they still reared cattle. Therefore the only solution was to switch all cows milk production to oat milk production which required 1/7th of the land, 1/6 of the water and produced 1/3 of the Carbon emissions. This is far from just a switch in production methods, of course. It assumes that consumers are going to happily change from something that has been part of their daily diet for generations to something that, let’s face it, doesn’t taste the same. Personally I like the taste but it does take a bit of getting used to. Milk alternatives are growing in popularity and the dairy sector is already suffering from overcapacity. I am no Leave supporter, but maybe being outside the EU gives the UK the ability to tackle this structural change. Instead of continuing to prop up an industry that is in terminal decline, support should be given to farmers who are prepared to give up their cattle herds for fields of oats. But it’s not a straightforward transition.

The story got me pondering about big oil. If the White Stuff is thinking the unthinkable and voting for Christmas, what about the Black Stuff?

What would it take for an oil major to become carbon zero? Amongst the thousands of people working in these companies, you can be sure that there is a strategy group in each of them that has charted a course away from fossil fuels to a green future. It has been clear for decades that any business based on extracting a finite resource will need to change at some point. It is all about timing and what has become more and more obvious in the last few years is that the timing is no longer driven by when the finite resource is exhausted, but by what the science tells us about the scale and speed of climate change.

How does that “green future” compare to the lucrative returns of producing fossil fuels today? In the week that Bernard Looney took over as BP’s CEO, Greenpeace stepped up their campaign to get BP to switch to 100% renewables. The problem for BP is that they don’t have any particular competitive advantage in renewables. They know about geology and process engineering in challenging environments. Carbon capture, use and storage leverages that. It is a high risk opportunity and one that has had limited investment compared to the $71bn that Greenpeace claims BP is investing in exploration over the next 10 years. There are no easy answers for any of the oil majors but they have a stark choice between taking some big bets with uncertain revenues or joining a long list of big companies that simply failed to adapt to a market environment that changed quicker than they thought it would. Think Kodak, HMV, Woolworths, Nokia, etc.

Again it will be driven by a combination of consumer pressure and policy to support the shift. Phasing out of petrol and diesel cars puts a huge hole in oil revenues. Renewables will hit the gas producers, although there is still the huge issue of domestic gas heating to tackle. And the divestment movement must be hurting even if it is difficult to quantify.

A clear commitment this year from one of the oil majors to halt investment in exploration and lay out a roadmap to a carbon zero future would go down in history as a pivotal moment in humanity’s mission to save itself. There has to be a first-mover advantage here. It will need tremendous courage from the CEO and Board. The time is now.

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