Speaking to the BBC in London on Monday, U.S. climate envoy John Kerry lashed out at major oil companies that continue to increase capital investments in exploration and development of oil and natural gas resources to meet rising global demand. Kerry was responding to a question about remarks by Shell CEO Wael Sawan last week that such investments are needed, and that mandates to cut oil and gas before proven scalable and affordable alternatives are available would be “dangerous and irresponsible.”
Kerry disagrees, accusing Shell of backtracking from prior commitments to cut its equity oil production, and calling that shift “unnecessary.” He then added, “What we need are company chief executives, looking to the future and investing in that future and accelerating the transition to that future.” But neither Kerry nor any other U.S. official has the power to pick chief executives for the private sector, and companies will make those decisions based on the realities at hand.
Besides, major oil and gas companies have always been capable of walking and chewing gum at the same time, and Shell is certainly doing that, making big, ongoing investments in renewable energy and other “green” projects even as it raises spending on its core business of oil and gas. It is also more than fair to point out that Kerry’s remarks came less than a year after major oil companies in the U.S. were slammed by President Joe Biden and some of his appointees for not investing enough in drilling for more oil and gas during last year’s summer gasoline price spikes.
It’s the kind of mixed messaging the President and his appointees seem to specialize in delivering.
A Key To Addressing Energy Poverty
I was able to catch up with ExxonMobilXOM senior VP and head of the company’s global LNG business Peter Clarke shortly after Kerry’s comments were published. In that context, I asked why his company continues to allocate rising capital investments to that and other pieces of its core oil and gas business even as it ramps up its own investments in carbon capture, hydrogen hubs and other alternative ventures.
“Billions of people around the world are enjoying the benefits of affordable, reliable energy that’s delivered longer, happier, healthier lives,” he says. “But in the developing world, there are hundreds of millions of people facing various levels of energy poverty. Some don’t have access to some basic fuels for heating and cooking. So, energy supply will need to grow to allow these populations to improve their living standards.”
Clarke points to the fact that, over time, energy markets and choices have been driven by affordability, scalability and energy security considerations, leading to a high reliance on coal as the energy source of choice for many developing nations. “It is quite striking that even today, almost 40% of the world’s electricity is still being generated from coal,” he says. “Reducing emissions intensity while lifting people out of poverty is a key requirement for energy to address all the elements of the energy trilemma – affordability, reliability, reducing emissions. That’s where we see natural gas delivered around the world can really help to achieve this.”
A Proven Tool For Emissions Reduction
That is exactly what has taken place in the United States thanks to the advent of the “shale revolution,” enabled by hydraulic fracturing and horizontal drilling. The dramatic rise in domestic natural gas production since development of the Barnett Shale began in earnest at the turn of the century has enabled a large percentage of the country’s coal fleet to be replaced with lower-emission natural gas generation. The result has been a decrease in U.S. emissions of greenhouse gases to levels last achieved in the early 1990s, far outpacing reductions by any other developed country.
The strong track record of natural gas in this emissions reduction arena, the abundance of the resource itself, and potential synergies with other low carbon ventures combine to drive Clarke’s view that LNG will continue to be a growth part of the business through at least 2050. “We certainly project solid growth in the LNG demand right through to 2050,” he says. “And why is that? Because we actually see enormous potential to lever LNG value chains into low carbon value chains, specifically around hydrogen, and to some extent around ammonia.”
He also points to the huge investments being made in LNG, not just on the supply side but also on the customer side of the business, as other companies and nations rush to secure infrastructure and long-term contracts required to build the business into the future.
“Our customers are making big investments in the gas terminals and in our plants that are consuming their gas,” Clarke says. “We’re very focused on our unique, long-term relationships with these customers. So, the new discussions that are going on all the time now around how to ultimately lever the infrastructure investments we’re making to help drive a lower carbon future. The offer that we have to LNG customers is clear and builds the confidence that they can invest now in LNG and know that down the road we’ll be able to further decarbonize LNG value chains to accommodate the hydrogen and really help them achieve their net zero emissions goals.”
The Bottom Line
These probably aren’t answers that will satisfy Mr. Kerry’s objections, but they are the answers and real-world factors that are driving the ongoing expansion of the LNG business, both at ExxonMobil and globally. While governments in the western world keep striving to force a rapid shift away from fossil fuels via fiat subsidies and incentives, the reality is that governments in other parts of the world have their own national priorities to meet, and those priorities are likely to dictate continued rising demand for LNG and petroleum-related products for decades to come.
These are the realities that drove Shell’s recent strategic recalibration, and they’re the same realities driving the LNG growth strategies adopted by ExxonMobil and others. To paraphrase a famous quote by former President Ronald Reagan, realities are stubborn things.
