Can Big Oil Adapt to Climate Change? Industry Analyst Views

Multinational Monitor, September-October 2007 | Go to article overview

Can Big Oil Adapt to Climate Change? Industry Analyst Views


Interviews with oil industry analysts

Multinational Monitor: How will efforts to address global warming affect the future profitability of the oil majors?

Phil Weiss, senior analyst, Argus Research Group: There's no doubt in my mind that global warming is something to be concerned with. The different oil companies have different views in terms of how they approach that concept. Traditionally, in any industry, as it makes major changes, the leaders today aren't the leaders of tomorrow. There's certainly a danger to any one of these companies that, as we develop alternative fuels, the business of these companies could suffer. They're all taking different steps to try and plan for that future.

I actually think if you put too much of the burden on the oil companies, that could have a negative impact because they still need to explore, they still need to look for new things, they still need to develop new technologies. If you take away their profitability by putting various taxes and tariffs on those companies, that could limit exploration and limit their availability to look at new things.

Adam Sieminski, chief energy economist, Deutsche Bank: I don't think that there are big issues in terms of the profitability of oil majors coming from climate legislation or regulation. From a climate perspective, the biggest problem in terms of fuels is coal. The real pressure is going to be on coal companies and electric utilities that rely on coal as the major source of their power.

Then you could look at it as many businesses are starting to do: What are the positive aspects of climate [change]? What are the needs that the economy will have because of climate legislation? You can argue, for example, that we need electricity; we can't just shut the coal plants down. So we're going to have to learn how to capture and sequester carbon dioxide. And sequestering it means largely pumping it underground. And guess who knows how to do that? The oil majors. They have the gas reservoirs that could be depleted or oil reservoirs that could hold the carbon dioxide, and they have the skills--they have already, on occasion, used carbon dioxide in tertiary recovery, which means they pump carbon dioxide into oil reservoirs to try and force more oil out. For all I know, climate change is going to have a positive impact on the oil industry rather than a negative one.

Philip Verleger, president, PKVerleger LLC: Some companies will respond, taking it very seriously--BP and Shell. Chevron actually looks like it's doing a pretty good job. Some companies will resist. The companies that try to ignore it are going to really suffer.

Bob Tippee, editor, Oil and Gas Journal: Mostly what governments do in terms of taxation--that will be the main affect on oil companies' profitability. No matter what happens with global warming politics, demand for oil will remain substantial. Demand for natural gas could be even more substantial, because natural gas [is] a preferable fuel in terms of the mitigation of global warming. Oil and gas companies produce a lot of natural gas, so if global warming politics attaches a premium to natural gas because of its lower carbon emissions, then whatever oil companies might suffer from in the way of oil can be compensated for in the way of natural gas. But that depends on the politics.

If politics treats all hydrocarbons alike and taxes them not on the basis of carbon, but taxes them because they are hydrocarbons, then both fuels stand to be more heavily burdened by taxation. Global warming mitigation would suffer accordingly, but oil companies will still be able to make money because the demand for those fuels is not going to go away.

Sarah Emerson, director, Energy Security Analysis Inc.: I don't think it's going to be a huge burden on oil. It certainly will affect demand growth, but we've already done that with the fuel economy changes and the alternative fuel changes. …

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