Quantcast
Climate

Big Oil Is in Big Trouble

By Andy Rowell

Something significant happened on Friday that warrants more than just a few column inches in a newspaper.

With the most divisive presidential election in U.S. history just days away from concluding, it is easy to understand why more is not being made of the news, but just to tell you something seismic happened on Friday last week.

The world's largest listed oil company, Exxon, announced that it was going to have to cut its reported proved reserves by just under a fifth—by 19 percent.

It would be the biggest reserve revision in the history of the oil industry. It is yet another sign that Big Oil is in big trouble.

For years people have been warning that Big Oil's business model was fundamentally flawed and was not only putting the climate at risk, but millions of dollars of shareholders' money.

For years the industry's critics warned the industry was ignoring the risks of climate change and was just caring on drilling regardless.

But the oilmen did what the oilmen do: find oil and gas, no matter the consequences.

And the worst oil company has been Exxon which for decades has denied climate change and the impact that climate change will have on its business.

For decades it could have invested wisely in renewables but it carried on looking for oil and gas—including unconventional oil which is even more carbon intensive than conventional oil. Its critics warned this was pure folly: but the oilmen carried on drilling anyway.

Big Oil is used to doing things its own way.

The warnings have kept coming, but the boys from Exxon didn't listen. Oil Change International, 350.org, Carbon Tracker and many others in the #keepintheground movement have been saying for years that large swathes of oil reserves must stay in the ground.

They warned that fossil fuel reserves will become "stranded assets."

Exxon often dismissed its critics as irrelevant lentil-eating, sandal wearing hippies, who wanted to take humanity back to the stone age.

And it carried on drilling. And it dismissed the fact that any of its assets could become stranded.

But then came the Paris agreement on climate change last December. "With the Paris agreement on climate ratified in December 2015 … no company has more to lose than Exxon," noted the Chicago Tribune in a great article written last Friday entitled, Exxon enters no man's land.

The Chicago Tribune continued:

"Big oil companies have been solid investments for years, with a deceptively simple business model: Find at least as much new oil as you sell, book those barrels as future sales and reinvest in the hunt for new reserves. That made sense as long as oil prices went up, but it locked companies into a vicious cycle of replenishment, leading them to search for ever more extreme, and expensive, sources of crude oil in the Arctic and beneath the oceans."

And it added:

"Cheap oil has stopped that business cold and the threat of climate action raises fundamental questions about whether it'll ever be viable again."

The issue of long term viability has been raised by numerous organizations over the last eighteen months too. Last year the energy watch-dog, the International Energy Agency, argued that two thirds of known reserves would have to stay unburnt, if we are to keep climate change to the limits agreed in Paris.

But Exxon carried on drilling.

Last year Citigroup issued a report warning policies to limit climate change could render vast swaths of oil companies' reserves worthless, leading to trillions in losses.

But Exxon ignored the warnings.

In May this year, the London-based Chatham House warned in a report, entitled The Death of the Old Business Model, that the world's largest oil companies "Faced with the choice of managing a gentle decline by downsizing or risking a rapid collapse by trying to carry on business as usual."

Importantly, most of Exxon's de-booked reserves, about 3.6bn barrels, will be at the company's dirty Kearl oil sands project in Canada. The reduction would account for over three quarters of the reserves. Not only are tar sands very energy intensive, but they are expensive to produce.

In a low oil price, carbon-constrained world, they are stranded assets.

"For the oil sands, this is a tipping point," argued Andrew Logan, director of the oil and gas program at the ethical investment organization, Ceres. "Why would any company invest billions of dollars in a new oil-sands project now, given the near certainty that the world will be transitioning away from fossil fuels during the decades it will take for that project to pay back?"

Indeed, two days before Friday's announcement an article on CNN Money noted just how much trouble the oil giant was in: "Exxon's stock is down 17% from its 2014 peak amid the crash in oil prices. The oil giant's profits have plunged to 17-year lows and its once-perfect AAA credit rating has evaporated."

It quoted Tom Sanzillo, former deputy comptroller of New York State and now head of finance at the Institute for Energy Economics and Financial Analysis saying the company was in the middle of an "irreversible decline."

Friday's announcement is further evidence that we are witnessing the beginning of the end of the oil age.

And the great carbon dinosaur Exxon is slowly dying before our eyes.

Reposted with permission from our media associate Oil Change International.

Show Comments ()

EcoWatch Daily Newsletter

Sponsored
Health
San Cristóbal de las Casas, in the Mexican state of Chiapas. Tjeerd Wiersma from Amsterdam, The Netherlands / CC BY 2.0

How Coca-Cola and Climate Change Created a Public Health Crisis in a Mexican Town

A lack of drinking water and a surplus of Coca-Cola are causing a public health crisis in the Mexican town of San Cristóbal de las Casas, The New York Times reported Saturday.

Some neighborhoods in the town only get running water a few times a week, so residents turn to soda, drinking more than half a gallon a day on average.

Keep reading... Show less
Animals
Emilie Chen / Flickr / CC BY-ND 2.0

Against All Odds, Mountain Gorilla Numbers Are on the Rise

By Jason Bittel

The news coming out of East Africa's Virunga Mountains these days would have made the late (and legendary) conservationist Dian Fossey very happy. According to the most recent census, the mountain gorillas introduced to the world in Gorillas in the Mist, Fossey's book and the film about her work, have grown their ranks from 480 animals in 2010 to 604 as of June 2016. Add another couple hundred apes living in scattered habitats to the south, and their population as a whole totals more than 1,000. Believe it or not, this makes the mountain gorilla subspecies the only great apes known to be increasing in number.

Keep reading... Show less
Animals
Plastic trash isn't safe for kids, whether human or bear. Kevin Morgans Wildlife Photography

Even Polar Bear Cubs Can’t Escape Plastic Pollution

By Allison Guy

Plastic bags are often stamped with an all-caps warning: This bag is not a toy. Unfortunately, polar bear moms don't have much control over their kids' playthings.

Keep reading... Show less
Insights
Sea level rise is a natural consequence of the warming of our planet. NASA Goddard Space Flight Center

We Can’t Hide From Global Warming’s Consequences

Over the past few months, heat records have broken worldwide.

In early July, the temperature in Ouargla, Algeria, reached 51.3°C (124.34°F), the highest ever recorded in Africa! Temperatures in the eastern and southwestern U.S. and southeastern Canada have also hit record highs. In Montreal, people sweltered under temperatures of 36.6°C (97.88°F), the highest ever recorded there, as well as record-breaking extreme midnight heat and humidity, an unpleasant experience shared by people in Ottawa. Dozens of people have died from heat-related causes in Quebec alone.

Keep reading... Show less
Sponsored
Health
Stacey_newman / Getty Images

More Than a Third of Schools Tested Have ‘Elevated Levels’ of Lead in Drinking Water

A troubling new report by the U.S. Government Accountability Office (GAO) found that more than a third of the nation's schools that tested their water for lead found "elevated levels" of the neurotoxin. But despite heightened concern in recent years about lead in drinking water, more than 40 percent of schools surveyed conducted no lead testing in 2016.

Keep reading... Show less
Popular
Bill Pugliano / Stringer / Getty Images

Can Elon Musk Fix Flint’s Water?

By Fiona E. McNeill

The Michigan community of Flint has become a byword for lead poisoning. Elon Musk recently entered the fray. He tweeted a promise to pay to fix the water in any house in Flint that had water contamination above acceptable levels set by the U.S. Food and Drug Administration.

Keep reading... Show less
Sponsored
Popular
A researcher at Oregon State University examines creeping bentgrass. Oregon State University / Flickr / Tiffany Woods

You Need to Be Paying Attention to GMO Grass

By Dan Nosowitz

Creeping bentgrass doesn't get as much attention as other genetically modified plants. But this plant tells us an awful lot—emphasis on the "awful"—about how GMO plants are regulated and monitored.

Keep reading... Show less
Politics
Alaska Wilderness League

Grassroots Fighters for the Arctic Refuge Take the Case to DC

By Rebekah Ashley

Even though our day-to-day existence may be far removed from Arctic Alaska, we must stand for the protection of the Arctic Refuge and ask our representatives to do the same.

Most Americans oppose drilling in the Arctic National Wildlife Refuge. In fact, a majority of us "strongly oppose it." This broad public concern echoed through the halls of Congress during Alaska Wilderness League's Wilderness Week, when more than 25 people from around the country (as far as Alaska and as young as six months) convened in Washington, DC, in late May to advocate for the protection of the Arctic Refuge. Collectively, our group met with more than 60 offices in just three days.

Keep reading... Show less
Sponsored

mail-copy

The best of EcoWatch, right in your inbox. Sign up for our email newsletter!