The global oil industry recently held its biggest annual gathering this week in the Swiss town of Davos, inviting banking exes and fund managers to discuss climate change and pressure from investors. The industry gathered alongside the World Economic Forum (WEF), which hosted global political and business leaders for their annual conference, holding a series of closed-door meetings.
Executives from the world’s largest oil and natural gas companies met, with American companies joining their European and Middle Eastern peers in debating climate change, an issue which has split the oil industry over the past decade. While many American companies took an initially soft approach toward global warming, Shell had urged that the industry be held responsible not only for its own emissions, but also for those of consumers. Linked to that debate was pressure from investors urging the oil industry to help tackle climate change, with some pension funds including that of Norway saying they would stop investing in the stocks of oil companies.
The oil industry was slow to realize the threat from environmental lobbyists and slow to respond to protect its reputation. Pressure is rising and the industry is losing a battle not to be seen as one of the world’s biggest evils. Their proposed solution is to lure investors with higher returns and raise the PR game. “How do you get the hearts and minds of investors back? That is a real challenge for our industry,” said John Hess, the founder of independent US producer Hess Corp.
“There is no doubt - and there is a consensus coming here in various meetings in Davos - that our industry is literally under siege and the future of oil is at stake,” said Mohammed Barkindo, Secretary-General of the oil producer group OPEC. “The industry needs to come together and respond positively with facts and figures. We are not shying away from the fact that we have not been able to communicate well,” Mr. Barkindo said.
The oil industry has not understood the game environmentalists were playing, believing it was a rational discussion and repeatedly attempting to explain that if it stops investing in new projects, the world will face an energy shortage and price spikes because renewables and nuclear energy cannot meet rising energy demand as the global population grows.
The US oil industry has been booming in recent years, but investors have been frustrated by heavy debts and a lack of free cash flow and dividends. However, even European oil majors such as Shell and BP, which pay billions of dollars in dividends, have struggled to remain popular with investors.
BP’s CEO Bob Dudley said the industry needed to explain the challenge of producing and making energy affordable for an increasing global population, which will see energy use rising 30 percent by 2040. “You cannot just tax energy-intensive industries and not the users of energy and think you’re going to solve the problem. People need to use less energy. Philosophically, trying to look at emissions across the entire value chain is critical,” Mr. Dudley told Reuters reporters.
Amin Nasser, who heads Aramco, said investors would ultimately differentiate between cleaner and more polluting companies. Aramco intends to list its stock sometime after 2021 in what could become the world’s largest initial public offering. Mr. Nasser said the latest research by Stanford University found Aramco was the cleanest major oil company in the world thanks to zero gas flaring and modern field technology. He said oil companies could help cut emissions but end users but should not ultimately be responsible for them.
“As a company we are looking at what we can do to increase the efficiency of end users,” he said.