2030 Is the New 2050: The Oil Industry Begins to Unwind
BP’s plan to reduce oil production is seismic because of what it says about the decade past and the decade to come, the authors write.
Tom Steyer and Bill McKibben August 10, 2020
BP has promised to stop exploring for oil in new countries and rapidly ramp up its low-carbon investments.
Last week, one of the world’s seven fossil fuel supermajors — Britsh Petroleum, whose legacy dates back to the early days of the oil age — announced, in essence, that the time had come to wind down its core business.
BP said that by 2030 it would be producing 30 to 40 percent less oil and gas than it does now. It promised to end exploration for hydrocarbons in new countries and to increase tenfold its stake in “low-carbon investment.”
Yes, the announcement came with caveats — it excludes its work with Russian gas giant Rosneft (BP owns a fifth of that company); some of those "low-carbon investments" are likely to be destructive in their own right, like biomass; and BP has a shaky record on follow-through (in 1997 it declared the company’s initials would henceforth stand for Beyond Petroleum, a stance it maintained for just a decade before doubling down on oil and gas).
But the news was nonetheless seismic for what it says about the decade past and the decade to come.
Two trends over the last 10 years have converged to produce this moment. First, a massive movement arose to challenge this industry. From small beginnings — for example, the remarkable indigenous campaigns to cut off funding for the development of Canada’s tar sands — this has become arguably the most widespread movement in human history. From Africa to Alaska, every new pipeline and coal port and frack well is fought, on the grounds of native sovereignty, local pollution and climate damage.
And the largest divestment campaign in the planet’s history has persuaded portfolios worth more than $14 trillion to steer funds away from fossil fuels. As TV stock-picker Jim Cramer told viewers back in January, “divestment all over the world” had turned oil stocks into tobacco; there is no longer money to be made investing in them. Even things like BP’s sponsorship of art exhibits were regularly challenged in recent years — it, like the other oil majors, was a company under siege.
Meanwhile, with help from the 2009 American Recovery and Reinvestment Act, engineers had spent the decade dropping the price of solar and wind energy by world-changing percentages — power from the sun cost barely a tenth in 2020 of what it did in 2010, and these renewable energies now provide electricity more cheaply than anything in human history.
Squeezed in these pincers, the oil majors have begun to squirm. They’ve started writing down billions in “stranded assets” — deposits like those Canadian tar sands they know will stay underground. They’ve made vague promises about change by 2050, which are fairly transparent efforts to avoid action now. And, in the U.S., they’ve tried (with real success) to game the Trump administration so that subsidies continue and environmental regulations disappear.
Those strategies kept alive their hopes for a managed and slow decline until the COVID-19 pandemic — by drying up demand and dropping the price for crude — truly laid bare these deeper stresses. At $40 a barrel, the spreadsheets of big oil bleed red; and the new, cheap green energy means that the eternal boom-bust cycles have probably seen their last real boom. A formerly cyclical business that could always rely on demand growth is now in secular decline, its destiny out of its control.
BP’s announcement is the first big capitulation to these new realities, but it won’t be the last.
What makes BP’s plan so important is the scale and especially the speed of the cuts it envisions. 2030 is the new 2050; it represents, says the U.N.’s climate panel, a real deadline in the effort to meet the climate targets agreed in Paris in 2015. The massive and ongoing climate disinformation campaign waged by the oil companies has cost us three decades; now we have to squeeze the work of 40 years into 10, and at best it’s going to be on the bleeding edge of possible.
We require a massive coordinated effort by governments to retrofit buildings, boost clean transport and revamp manufacturing — and to do it in ways that help, not hurt, those people and groups historically burdened by pollution.
In the U.S., that project clearly waits on the dismissal of the Trump administration — for the next three months, that’s the most important environmental project on the planet. And when Joe Biden takes office, the new administration will be under immense time pressure to move aggressively, both for the obvious substantive reasons but also to show the rest of the world that we’re actually serious.
Moving fast on clean energy also offers the best chance for climbing from the economic pit that a mismanaged pandemic has cast us into. It’s a real jobs program in an economy desperate for good-paying jobs. BP’s news shows that if we try to lead the world in this direction, a Biden administration will find allies.
Even though BP also announced it was cutting its dividend in half, its stock soared 7 percent on Tuesday. Investors, it appears, appreciate the logic behind winding down a losing business, on not throwing more money down a literal hole in the ground. It makes no sense to spend capital — financial or political — on pursuing a commodity that’s simultaneously deadly and unprofitable.
Thanks to the remarkable efforts of millions of activists and thousands of engineers, the world is ready to pivot. Now the questions are all about how fast we can push the pace. Because on a planet where temperatures pushed past 100 degrees Fahrenheit above the Arctic circle this summer, winning too slowly is just another way of losing.
Tom Steyer was a Democratic presidential candidate in 2020 and founded NextGen America, a progressive political advocacy nonprofit. Bill McKibben is a founder of the climate campaign 350.org.
And today, a major national candidate potentially a heartbeat away from the highest office who has openly vowed to ban fracking. I do sense a pivot. BP was definitely a precusor.
IMO, there will be no comprehensive ban on fracking. First, because it is not a stated goal of VP Biden. And second, because until there is the ability to provide energy at the same or lesser cost, it would be a predictable political blunder. Cost parity is right around the corner for much of the lower 48. Now Biden might ban fracking on new public land leases but that is effectively far short of a comprehensive ban, allows private property owners to monetize their mineral rights and has an insignificant impact on oil and gas supply although that would be a boon for companies stuck in a depressed commodity price cycle caused by over supply.
What I do expect is more funding for clean energy technology and infrastructure, commonsense efficiency measures like LED lighting and a return to the prior CAFE miles per gallon requirements and incentives for EV purchases. All told those measures will not equal the current tax breaks and investment advantages that O&G has enjoyed for decades. O&G states will be free to incentivize O&G as they see fit. Louisiana has a constitutional amendment on the ballet to, "Create a property tax exemption for certain goods destined for the Outer Continental Shelf" for example.
The bottom line is there is certainty where all this leads. The market will choose the most cost efficient and publicly acceptable energy options. That has already been starkly clear where coal is concerned. Oil and natural gas will also decline as they become less cost competitive. If natural gas focused companies were to institute serious fugitive emission abatement programs and stop all flaring, I think they could buy themselves an additional decade. When the end of coal fired generation is in sight, natural gas will need to compete with renewable energy options for utility scale generation switching. Five years ago natural gas would have won hands down. The delay in eliminating coal use has drug out the switching process and now natural gas finds itself with a lost cost advantage. Wind and solar are already cost competitive in much of the country and the cost will continue to come down.
I hate to disagree, but in the March 15 debate, Biden agreed with Sanders that he wanted to stop fracking as soon as he could. Later, when Sanders pressed him, Biden responded “No more-no new fracking”. It is true that the Biden campaign later responded that he was only speaking of Public lands, but which position is his true belief? I’m uncomfortable discussing politics on a trade site, but as a mineral owner and professional in the gas industry, I’m not willing to take the risk. Especially if the Democrats gain both houses of Congress.
Chad, it's okay to disagree. I refer you to my prior comments concerning Mexico paying for walls and government saving coal. I totally understand when candidates makes statements based on the occasion and the audience but I have to weigh whether they are irrational enough to do something that would guarantee they would not serve a second term. There is nothing to replace the oil and gas produced through "fracking" as yet but that will change in the not too distant future. No politician in their right mind would do something that would guarantee they would lose the next election and I think a four year term is insufficient to realize a major change in energy sources. Spiking the cost of energy would be a deal killer for a majority of voters. I do expect a Biden presidency and Democratic majorities in Congress will accelerate the adoption of EVs and begin the slow decline of gasoline demand. The bulk of my clients are tied to natural gas and my hope is that there is still time to modify the public perception by taking a different approach to the entire value chain. Either renewables or natural gas will replace all those coal fired generation plants and the gas focused companies are sitting in the corner with their thumbs in their ears. I also think that Biden has walked back that earlier statement and you won't be hearing anymore of that without the qualifier that it would be limited to public lands and new leasing although Republicans will try to make voters think he meant all fracking and still does. I refer you to my post from twelve hours ago which at this time is 4 posts below this one.
Fracking will be regulated enough to ban it. All the momentum is headed that way.
We will see. I'm betting it's not.
I know you have a reasoned position, and knew recent deregulation would have a blowback consequence. I think we both know of the possibilities.
Here is how you "regulate" fracking, please some hard greens but not much, and have pretty much zero impact of oil and gas supply and thus, consumer and commercial energy prices.
There are 700 million acres of public land managed by the Bureau of Land Management. 26 million acres are currently leased for O&G exploration, less than 4%. Of that 26 million acres, only 12.8 million are developed/in production. So about half and less than 2% of the total. If a ban on fracking on public land is enacted for new leases, basically nothing changes except a new administration has a talking point to go along with the commonsense measures I mentioned above. If a ban were to be enacted on the 12.8 million acres now under development, there would be law suits and a protracted trip through the justice system would begin. Even though this would actually help the majority of public and private E&P companies by marginally reducing supply and propping up commodity prices, the industry would push back and it would turn into a partisan fight over a basic nothing burger. In other words, regardless of how that legal battle might turn out, there would be no noticeable impact for the average American.
I suspect we will hear a lot of dog whistles and misrepresentation on this subject for the foreseeable future. IMO, it is scare tactics to warn of a wide spread ban on fracking with no rational underpinning or factual basis. At lot of crazy things are sometimes claimed in political campaigns such as getting Mexico to pay for "the wall" or "saving the coal industry". Anyone who believed those whoppers should by now realize that some claims may sound good but are beyond the authority of any politician to accomplish. The market is always the determining factor. And energy sources that are cheap and dependable while being "clean" will draw capital and public support. The ascendancy of those sources can be accelerated by regulation and legislation. Those sources that do not meet that definition, can not.
The market is the determining factor? Six trillion from the Fed for corporate bond purchases tells me that statement is a whopper. Anyone claiming market ascendancy in this environment will raise eyebrows. Thirty two million unemployed, and we have a leerless feeder bragging about getting fellow autocrats and princes to boost oil prices. The determining factor is what every corporate lobbyist buys. I have read good info on this forum, but there have been whoppers through the years.
In energy switching, yes, the market decides. The Fed purchases have nothing to do with the long term decisions of public electric utilities and merchant generators. The switch has been in progress for years before the current COVID crisis and will continue after.