STREAMING NOW: Watch Now

Clean energy is coming. What's Exxon waiting for?

BP will soon own the UK's largest electric vehicle charging company. In France, oil giant Total already cont...

Posted: Oct 6, 2018 2:21 PM
Updated: Oct 6, 2018 2:22 PM

BP will soon own the UK's largest electric vehicle charging company. In France, oil giant Total already controls one of America's largest solar panel makers. Even the state oil company of oil-rich Norway is launching floating wind farms.

Europe's oil industry, under fire from governments and shareholders, is grabbing a foothold in clean energy.

Alternative fuel vehicles

Automotive fuels

Automotive industry

Automotive industry and environment

Beth Comstock

BP Plc

Business and industry sectors

Business figures

Business, economy and trade

Chevron Corp

Companies

Continents and regions

Electric vehicles

Energy and resources

Energy and utilities

Environment and natural resources

Environmentalism

Europe

Exxon Mobil Corp

Motor vehicles

Natural gas

Northern Europe

Norway

Oil and gas industry

Renewable energy

Shale development

Solar energy

Space and astronomy

Technology

Wind energy

North America

The Americas

United States

Electric power industry

Life forms

Plants and trees

Seaweed and algae

Utilities industry

Company activities and management

Market share

Sales and selling

It's a smart way to get in on the ground floor of new technology — while hedging their fossil fuel empires for the eventual rise of renewables and electric vehicles.

Yet, unlike their European rivals, American juggernauts ExxonMobil (XOM) and Chevron (CVX) have not yet made large-scale investments in solar, wind, electric cars or energy storage. Their more cautious approach raises their risk of being left behind if the energy revolution arrives faster than they anticipate.

"Exxon and Chevron have held their fire," said Tom Ellacott, senior vice president of corporate research at energy consulting firm Wood Mackenzie.

Big Oil would have to spend $350 billion on wind and solar by 2035 to match the 12% market share it holds in global oil and gas, Wood Mackenzie estimates.

"At some point in the future, the oil and gas market will start to get squeezed as the energy transition takes off," Ellacott said.

Electric vehicles pose a long-term threat to the industry's business model. Almost half of America's appetite for crude oil comes from passenger vehicles. Yet BP (BP) thinks 320 million electric vehicles will be on the world's roads by 2040, compared with 2 million in 2016.

"Exxon thinks they can ride it out. They'll be the last to move," said Jeff McDermott, managing partner at Greentech Capital Advisors, a sustainable energy investment firm.

McDermott said that although drilling for oil has been a "damn profitable business," disconnecting from change "does not recapture the past — it loses the future."

Europe dips its toes in clean energy

Beth Comstock, former vice chair at General Electric (GE) and author of "Imagine it Forward," a book about embracing change in business, told CNN Business that BP and Norway's Equinor have done "incredibly innovative work" in renewables.

Not only is BP acquiring electric vehicle charging company Chargemaster, last year it placed a $200 million bet on solar by purchasing a stake in Lightsource, Europe's largest solar development company.

Another European oil giant, France's Total, spent $1.4 billion in 2011 to acquire a majority stake in San Jose, California-based solar panel maker SunPower (SPWR). And in 2016, Total (TOT) paid $1.1 billion to buy Saft Group, a manufacturer of lithium-ion batteries used to power electric vehicles.

Equinor, which was known as Statoil until this year, recently launched the world's first floating wind farm near Scotland. It's planning to build a wind farm off the coast of New York's Long Island by 2023.

Comstock's advice for Big Oil: "You have to look around the world, see this is happening — and at least hedge your bets."

When will the tipping point arrive?

The world is moving toward a cleaner energy future. But there's fierce debate about when the tipping point will arrive.

OPEC sees oil demand growing through at least 2040 — suggesting there's no urgent need for Big Oil to shift its thinking. No wonder Exxon is spending billions to pump oil in far-flung locales like Guyana, Mozambique and Brazil.

However, other companies believe the winds of change are blowing harder.

"The risk is there's a game-changing technology that brings forward peak oil demand," Ellacott said.

BP says demand could "plateau" during the late 2030s because of the rise of electric vehicles. Royal Dutch Shell (RDSA), which last year acquired an electric charging provider, says peak oil demand could come within 15 years. Equinor predicts a peak around 2030.

Meanwhile DNV GL, an energy-focused risk advisory firm, recently warned that peak oil is coming much sooner — in 2023.

'How do you actually make money?'

Of course, there are legitimate reasons European oil companies have been more aggressive with clean energy than their American peers. European governments are cracking down on carbon. France, Britain and Norway even want to ditch gas and diesel cars altogether. Electric vehicles made up 39% of new car sales in Norway last year, compared with 1% in the United States, according to the International Energy Agency.

Rather than worry about renewables, American oil companies are focused on capitalizing on the lucrative shale boom at home.

Exxon, which was late to the shale game, has recently invested heavily in the Permian Basin. The gushing oilfield in West Texas has made the United States the world leader in crude production for the first time since 1973. Chevron, and more recently BP, have also become major players in the Permian.

It's safe to say that money spent in the Permian will generate better returns than pumping money into renewables.

"Renewables sound good, but how do you actually make money?" said John Herrlin, an analyst covering the oil industry at Societe Generale.

However, Wood Mackenzie said that renewable projects can offer similar returns as refining — with "much lower risk." And companies will pour $200 billion per year into wind and solar projects by 2022, double the amount going into the US shale oil and gas business, Wood Mackenzie estimates.

At first blush, it may not make much sense for Exxon to get involved in renewables because it's not a power utility.

However, Wood Mackenzie argues that major oil companies have both the "engineering expertise" to succeed in complex offshore wind projects and the balance sheets to invest in large-scale solar projects. Exxon and Chevron also have vast experience working in challenging terrains and with foreign governments.

Others think Big Oil should explore powering electric vehicles. It could be a natural shift from gas stations to charging stations, albeit less profitable.

Pavel Molchanov, a Raymond James analyst, believes US oil companies will eventually do just that.

"Beyond 2025, we think electric vehicles will begin to be needle-moving for oil demand," Molchanov said.

Chevron launches future energy fund

To be sure, US oil giants have not ignored the shifting landscape. The shale gas boom prompted Exxon and others to push further into natural gas, the cleanest-burning fossil fuel. And natural gas plays a major role powering the grid that powers electric vehicles.

Last month, Exxon, Chevron and Occidental Petroleum (OXY) became the first US members of the Oil and Gas Climate Initiative. The group aims to "mitigate the risks of climate change."

"They're not running their businesses with blinders on," Herrlin said.

In a statement, Chevron said it's taking "prudent, practical and cost-effective actions to address potential climate change risks." That includes investing about $1.1 billion in carbon capture and storage projects in Australia and Canada and recently launching a $100 million Future Energy Fund to invest in "breakthrough technologies." Carbon capture is the process of preventing power plant emissions from reaching the atmosphere.

Chevron said it is using internal research and partnerships with universities to understand and evaluate the "economic viability of different energy sources."

Exxon bets on algae

For its part, Exxon has pledged to slash methane emissions by 15% and flaring by 25%. Flaring, the burning of excess natural gas at oil wells, is a significant source of greenhouse gas emissions.

Exxon defended its work on clean energy by pointing to partnerships with leading universities and other companies to come up with solutions.

"Others choose to invest in companies. Our approach is sweat equity: Let's put our best brains with any other set of best brains," Vijay Swarup, head of research and development at Exxon, told CNN Business.

For instance, Exxon has plowed more than $9 billion into lower-carbon technology since 2000, including advancements in carbon capture.

Swarup is most excited about Exxon's research over the past decade into algae biofuels as a way to power heavy-duty trucks or even airplanes. Exxon and biotech firm Synthetic Genomics recently achieved a technical breakthrough on algae by using advanced cell engineering.

"I think we're on to something. If we can solve it, this is one of the big game-changing technologies," Swarup said.

Others say Exxon should be putting its money into more advanced renewable technology.

"The future of mobility is electrification, not algae. Those investments are a mistake. That's why they are gun-shy," said McDermott.

Comstock, the former GE executive, said that all too often large businesses are scared to make bold bets on the future. Companies don't want to lose market share, and executives fear for their jobs.

"Human nature is afraid of risk. But disruptive change is coming in many different forms — and it's surprising us more often," Comstock said.

Will Exxon be the next large company caught off guard?

Terre Haute
Clear
77° wxIcon
Hi: 88° Lo: 64°
Feels Like: 78°
Robinson
Clear
75° wxIcon
Hi: 87° Lo: 62°
Feels Like: 75°
Indianapolis
Broken Clouds
75° wxIcon
Hi: 85° Lo: 67°
Feels Like: 75°
Rockville
Scattered Clouds
71° wxIcon
Hi: 87° Lo: 64°
Feels Like: 71°
Casey
Clear
71° wxIcon
Hi: 87° Lo: 64°
Feels Like: 71°
Brazil
Clear
77° wxIcon
Hi: 87° Lo: 64°
Feels Like: 78°
Marshall
Clear
77° wxIcon
Hi: 88° Lo: 64°
Feels Like: 78°
Storms Possible
WTHI Planner
WTHI Temps
WTHI Radar

WTHI Events

 

Illinois Coronavirus Cases

(Widget updates once daily at 7 p.m. CT)

Confirmed Cases: 151572

Reported Deaths: 7329
CountyConfirmedDeaths
Cook940054676
Lake10175427
DuPage9502483
Kane7971281
Will7120322
Winnebago3143101
McHenry2208100
St. Clair2128144
Kankakee134465
Unassigned1170210
Rock Island110730
Madison109570
Kendall102423
Champaign101017
Boone62921
Peoria60929
DeKalb60220
Sangamon49333
Jackson34519
McLean30115
Randolph2927
Ogle2834
Stephenson2826
Clinton24417
Macon24222
LaSalle23917
Whiteside20315
Union19619
Coles18817
Grundy1875
Iroquois1705
Tazewell1648
Knox1520
Monroe14713
Warren1470
Adams1421
Williamson1394
Cass1367
Morgan1323
Jefferson11317
Lee1042
Henry1031
McDonough10315
Vermilion852
Pulaski790
Marion770
Montgomery641
Macoupin623
Perry601
Douglas550
Livingston542
Jo Daviess491
Christian484
Jasper477
Ford421
Woodford412
Franklin400
Jersey381
Bureau312
Menard280
Mercer280
Washington250
Cumberland240
Fayette233
Johnson230
Mason230
Wabash230
Alexander220
Carroll212
Clark210
Piatt210
Effingham201
Shelby201
Bond191
Hancock191
Moultrie190
Crawford180
Logan180
De Witt160
Edgar160
Fulton160
Massac150
Wayne151
Schuyler130
Marshall120
Saline110
Brown100
Greene80
Henderson80
Lawrence80
Richland80
White80
Hamilton70
Stark60
Pike50
Gallatin40
Clay20
Edwards20
Calhoun10
Hardin10
Out of IL11
Pope10
Putnam10
Scott10

Indiana Coronavirus Cases

(Widget updates once daily at 8 p.m. ET)

Confirmed Cases: 49575

Reported Deaths: 2739
CountyConfirmedDeaths
Marion11812690
Lake5337247
Elkhart343257
Allen2867133
St. Joseph202569
Cass16439
Hamilton1629101
Hendricks1439100
Johnson1306118
Porter78038
Tippecanoe7439
Clark67144
Madison66864
Vanderburgh6296
LaPorte59727
Bartholomew59245
Howard58258
Kosciusko5654
Marshall5217
Noble49128
LaGrange4829
Jackson4773
Delaware46052
Boone45944
Hancock45736
Shelby43425
Floyd39144
Morgan32831
Monroe31528
Grant30226
Montgomery29720
Henry29316
Dubois2906
Clinton2882
White26810
Decatur25532
Lawrence25125
Dearborn24723
Vigo2408
Warrick23229
Harrison21722
Greene19132
Miami1892
Jennings17912
Putnam1708
DeKalb1634
Scott1628
Daviess15017
Wayne1496
Perry1409
Orange13623
Steuben1332
Franklin1278
Jasper1252
Ripley1247
Wabash1152
Carroll1122
Fayette1037
Gibson1032
Newton9910
Whitley995
Starke963
Huntington822
Randolph804
Wells791
Jefferson782
Fulton731
Jay680
Washington671
Pulaski661
Knox650
Clay644
Rush603
Owen511
Adams491
Posey490
Benton480
Spencer461
Sullivan451
Brown421
Blackford392
Fountain332
Crawford320
Tipton311
Switzerland280
Parke240
Martin220
Ohio210
Vermillion170
Warren151
Union130
Pike110
Unassigned0193