As of January, the fossil fuel sector has been anticipating big changes with President Joe Biden’s climate-focused, clean energy policies. That sector’s actions have reflected that anticipation, with a greening-up campaign that has gone into overdrive.
According to IHS Markit vice chairman Dan Yergin, this represents an important turning point for the fossil fuel sector. “The oil and gas industry is calibrating itself to what has become the new benchmark — net zero carbon by 2050,” Yergin said last week at the annual CERAWeek by IHS Markit energy conference. “There’s a lot of variation in strategies and thinking about what will be the new map to get there. But the big cross-cutting themes that jump out this week are hydrogen, carbon capture, innovation—and the need for large companies with engineering capabilities that can operate at scale.”
Greening Up for the Planet… and Investors
At the conference, CEOs from BP, ExxonMobil, Chevron, Occidental Petroleum, and ConocoPhillips spoke regarding the industry’s transition to a lower-carbon world. Occidental Petroleum CEO Vicki Hollub said that her company’s goal is to produce net-zero carbon oil, indicating that in 15 to 20 years, Occidental would be “a carbon management company, not just an oil company.”
With falling prices in the renewable energy sector and unprecedented numbers of green installations planned, the oil and gas industry had already been moving toward a cleaner future. President Biden’s re-entry into the Paris climate agreement has further accentuated the need for the fossil fuels sector to continue its gravitation toward green.
The 2020 CERAWeek conference was canceled due to the coronavirus pandemic. At that time, the price of oil was plummeting, and energy stocks took a major hit. Now, oil prices are on the rise, and oil stocks have benefitted from the readjustment. According to CNBC, Goldman Sachs recently reaffirmed its buy rating on Exxon and raised its price target to $61 from $59. Exxon stock closed at $56.07 per share on Tuesday.
Goldman analysts indicated that investors will likely want to hear more about Exxon’s production plans, CAPEX and the impact of the Texas storms. “We believe investors are looking for more clarity on how the company will drive a meaningful reduction in carbon levels as well as position itself for success in the next decade in the energy transition,” Goldman analysts said.
CNBC also reported that environmental, social and governance investing (ESG) has been a big driver of change. According to Helima Croft, head of global commodities strategy at RBC, “It’s a fight for survival in the ESG world. It’s not enough now to be the cheapest barrel. You have to be the greenest barrel now.”
Long-Term Agility is the Goal
According to BP CEO Bernard Looney, there is likely to be “a boom period” after massive vaccine rollouts result in increasing global immunity from COVID-19. In the meantime, he is focused on transitioning his own company.
“We decided to embrace that energy transition more as an opportunity than as some sort of threat to our core business,” Looney said at the conference. BP has expanded its efforts in wind, solar and other technologies. Looney says that BP will be “an integrated energy company in the future, rather than an international oil company.”
“What I think that people don’t understand is we should not be talking about eliminating fossil fuels,” said Occidental’s Hollub. “What we need to be talking about is eliminating emissions. Net carbon zero oil that is what the world needs and the world cannot achieve the goals of the Paris accord without the oil industry helping with that.”
Hollub also said that Occidental is aiding other companies in their efforts to reduce carbon. Occidental has reportedly agreed to take carbon from two ethanol plans and store it in the Permian basin, which is on track to be the largest direct air capture facility in the Permian. Occidental also plans to take CO2 from a steel plant in Colorado and store it in the Permian basin as well.