Four top takeaways from the World Petroleum Congress


One thing to start:

Welcome back to Energy Source — coming to you today from Midland, Texas, in the heart of the US shale patch.

I’ll be in town for the next few days doing some reporting on the increased focus on the energy transition, as well as on how the industry and the region are faring in the wake of last year’s crash.

I have a packed schedule ahead of me — thanks to all of you who got in touch — but if anyone else in town wants to catch up for a chat or a drink, please do reach out:

The ES team spent the past few days in Houston for the World Petroleum Congress. In today’s newsletter, Justin and I reflect on what we learnt from the US’s first big in-person reunion of oil executives since the Covid-19 pandemic.

Covid, and worries around the flare-up of the Omicron variant, meant numbers at the event were a far cry from what they might have been — with a handful of big companies and industry personalities pulling out at the last minute.

We’ll have more on the conference on tomorrow, but for now, read on for our key takeaways.

As ever, thanks for reading.

This article is an on-site version of our Energy Source newsletter. Sign up here to get the newsletter sent straight to your inbox every Tuesday and Thursday

World Petroleum Congress: four takeaways

1. Climate on the main stage

Climate change has long been the elephant in the room at these Big Oil gatherings. A decade ago, it was largely ignored. Five years ago, it was largely minimised or dismissed. It has now — after far too long — taken centre stage.

ExxonMobil’s Darren Woods set the new tone on the conference’s first day, calling climate change “one of the most important conversations of our time”.

It was part of a broad recognition — long resisted in the industry — that the sector’s fortunes are now inextricably tied to the pace and course of the global transition to cleaner fuels.

Yet the oil industry’s vision for the energy transition is at odds with what is being advocated by climate scientists and activists. The bosses at WPC see the oil companies themselves — not the Teslas or renewables powerhouses such as the Orsteds of the world — continuing to play the starring role.

Woods said that the world “needs our industry’s expertise and experience to successfully reduce emissions while preserving economic prosperity”. Chevron’s boss Mike Wirth claimed that “no industry is better positioned” to tackle climate change than the oil industry.

US producer ConocoPhillips’ chief executive Ryan Lance also put the sector at the centre of the transition.

The answers for decarbonising “cement, for steel and fertiliser, for airlines, for marine transportation are going to be different. And the interesting thing is our industry sits at the juxtaposition of all of that,” he said.

Wind, solar and electric vehicles were rarely mentioned as part of the transition. Rather, the oil executives put the emphasis on the importance of technologies such as carbon capture and storage, hydrogen and biofuels — which many in the industry are placing their bets on, but that have yet to prove themselves as meaningful tools to combat climate change.

2. Warnings over transition’s ‘unintended consequences’

The oil bosses’ vision of the energy transition is one that moves far slower, and more cautiously, than climate scientists and activists have called for. It also keeps fossil fuels in the mix.

Exxon’s Woods, for instance, warned that jettisoning fossil fuels too soon could send the energy transition into a ditch.

“Narrowly focusing on taking action on one aspect of the challenge could potentially lead to significant unintended consequences,” he said. “As history has shown on many occasions, the best of intentions poorly executed to do more harm than good.”

“The fact remains under most credible scenarios, including net zero pathways, oil and natural gas will continue to play a significant role in meeting society’s needs,” said Woods.

Saudi Aramco’s boss Amin Nasser, meanwhile, was the talk of the conference after warning that the world was “facing an ever more chaotic energy transition, centred on highly unrealistic scenarios and assumptions about the future of energy”.

Admitting oil and gas was here to stay would be “far easier than dealing with energy insecurity, rampant inflation and social unrest as the prices become intolerably high and seeing net zero commitments by countries start to unravel”, he told delegates.

It was a welcome message in the hall. How it plays beyond the friendly confines of the WPC is a different matter.

3. The Biden administration’s feud with Big Oil is running hot

A return to the bygone era of “drill baby drill” in the US shale patch was not on the WPC agenda.

The White House’s latest tactic to bring down prices at the pump for American motorists — namely calling on US producers to pump more oil — was met with derision and charges that it was more political posturing than a serious proposition.

As we wrote yesterday, Scott Sheffield, Pioneer chief executive, said he had received no approach from officials, despite the berating the industry received publicly.

Even if the Biden administration had called, however, Sheffield indicated that Wall Street had put the clamps on industry spending — so a big ramp-up is not on the cards.

“We already have an investor contract with our shareholders: we’re not going to grow more than 5 per cent,” Sheffield told ES.

That was a message echoed by other shale players, who said the days of price-busting oil growth from the US was over after years of lossmaking.

“Investors and oil companies alike overinvested in shale . . . we grew it at a rate that was too fast. It destroyed the price of oil,” said John Hess, the chief executive of Hess, a large US producer.

“People have to realise shale has gone from a growth industry to a harvest industry,” he said.

4. Industry sets out to target Build Back Better

The White House’s call for more oil was not the only bone the industry had to pick with Washington.

Biden’s moves to cancel the Keystone XL pipeline, pause new leases on federal lands and talk of potentially banning oil and gas exports cropped up regularly.

Big Oil is also lining up to oppose certain elements of the president’s $1.75tn spending bill — which Democrats are hoping to pass before the year is out.

Mike Sommers, chief executive of the American Petroleum Institute, Big Oil’s main Washington lobby group, said his organisation had been successful in slimming down the bill from earlier iterations. It had lobbied to remove items including the Clean Electricity Performance Program (with which readers of this newsletter will be intimately familiar) and efforts to scrap industry subsidies from the tax code.

But unless further concessions are made on remaining items, such as a new fee on methane and increased royalties on leases on federal lands, his group will be lobbying Congress to vote the bill down.

“The tack that we have taken so far is that we have concerns about individual provisions — we’re not looking to tank the entire bill,” Sommers told the FT.

“We will see what comes out the other end and if some of these provisions are included we’ll work hard with members of Congress so that they understand the importance of voting no.”

(Justin Jacobs and Myles McCormick)

Data Drill

Rising commodity costs are making the clean energy transition more expensive. A new analysis from the International Energy Agency estimates that investment costs for solar and onshore wind plants have increased 25 per cent, threatening to erase the past few years of cheaper production costs.

The IEA found that since the start of 2020, the cost of polysilicon, a key material for solar modules, has more than quadrupled and shipping fees have increased six-fold. Steel, aluminium, and copper are also more expensive. Higher input costs have already driven up prices for modules and wind turbines by at least 10 per cent, according to the IEA.

Still, the IEA found that given higher natural gas and coal prices, solar and wind remained competitive. The renewable sector saw record growth in 2021, largely driven by solar and wind additions.

Higher commodity prices, however, could affect the speed of deployment. If higher prices continue, countries will have to pay an additional $100bn in investment costs. The IEA estimates that without commodity price increases, developers could build about an additional 120GW of solar and wind capacity by 2026. (Amanda Chu)

Line chart of price index (Jan 2020=100) showing renewable energy industry faces higher input costs
Column chart of Additional investment costs ($bn) showing Continued higher commodity prices could raise solar and wind investment costs by over $100bn

Power Points

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs and Emily Goldberg.

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