Peak oil? Majors aren’t buying into the threat from renewables

A combination of file photos shows the logos of five of the largest publicly traded oil companies; BP, Chevron, Exxon Mobil, Royal Dutch Shell, and Total. Big oil firms are not buying the argument that their traditional business faces any imminent threat. (Reuters)
Updated 08 November 2017
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Peak oil? Majors aren’t buying into the threat from renewables

HOUSTON: Two decades ago, BP set out to transcend oil, adopting a sunburst logo to convey its plans to pour $8 billion over a decade into renewable technologies, even promising to power its gas stations with the sun.
That transformation — marketed as “Beyond Petroleum” — led to manufacturing solar panels in Australia and Spain and erecting wind farms in the US and the Netherlands.
Today, BP might be more aptly branded “Back to Petroleum” after exiting or scaling back its renewable energy investments. Lower-cost Chinese components upended its solar panel business, which the firm shed in 2011. A year later, BP tried to sell its US wind power business but could not get a buyer.
“We made very big bets in the past,” BP CEO Bob Dudley told Reuters in an interview. “A lot of those didn’t work. We’re not sure yet what will be commercially acceptable.”
The costly lesson of the biggest foray yet by an oil major into renewable energy was not lost on rival firms.
Even as governments and environmentalists forecast a peak in oil demand within a generation — and China and India say they may eventually ban gasoline and diesel vehicles — leaders of the world’s biggest oil firms are not buying the argument that their traditional business faces any imminent threat.
A Reuters analysis of clean energy investments and forecasts by oil majors, along with exclusive interviews with top oil executives, reveal mostly token investments in alternative energy. Today, renewable power projects get about 3 percent of $100 billion in combined annual spending by the five biggest oil firms, according to energy consultancy Wood Mackenzie.
BP, Chevron, Exxon Mobil, Royal Dutch Shell and Total are instead milking their drilling and processing assets to finance investor payouts now and bolster balance sheets for the future. They believe they can enter new energy sectors later by acquiring companies or technologies if and when others prove them profitable.
“There is no sign of peak demand right now,” said Chevron CEO John Watson, an economist by training, who is retiring in early 2018. “For the next 10 or 20 years, we expect to see oil demand growth.”
The International Energy Agency forecasts a 10 percent rise in oil demand through 2040, reflecting the consensus among oil firms. The earliest estimate for peak oil demand from any oil company is late next decade, by Shell CEO Ben van Beurden.
History shows energy transitions — from wood to coal to oil — take a long time. Coal’s contribution to world energy consumption peaked recently at 28 percent and remains above the share from natural gas, though just below oil’s one-third.
Profit, if any, from the majors’ decades-long interest in renewable energy ventures is unclear. None of the largest oil companies disclose earnings from their solar, wind or biofuels ventures.
Investors such as Alasdair McKinnon, portfolio manager at Scottish Investment Trust, believe oil will sustain shareholders far into the future.
“There isn’t a viable alternative to fossil fuels on the horizon,” he said. “We’re not buying into the long-term demand destruction for oil.”
The confidence in oil’s future relies largely on rising consumption from emerging economies. Exxon forecasts that transportation will require 25 percent more fuel by 2040, propelled by growth in Asia. Chevron’s analysis of the India and Nigeria markets, meanwhile, concludes that infrastructure needed for electric cars is unlikely to be built.
Cars account for about a fifth of oil consumption, BP estimates. So if electric vehicles do eventually capture mass markets, oil firms would still expect growing demand from the air, rail and trucking industries.
Natural gas — now a smaller business than oil for most majors — can grow to nearly a quarter of all energy used by displacing coal in power generation and through expanded uses in chemicals, these companies forecast. Natural gas can also fuel the power needed for electric cars.
Although Shell forecasts peak oil demand coming earlier than its rivals, it is preparing for that prospect mostly with massive natural gas investments. The firm last year spent $54 billion acquiring BG Group, which derives half its production from gas. Chevron, Exxon and Shell recently have spent billions of dollars on new liquefied natural gas projects across the globe.
Exxon declined to comment for this article.
Critics of oil majors’ cautious renewable strategy — including some big investors — say the firms are being short-sighted in their trust that change will come slow, or that one fossil fuel will gradually replace another. Just as cheap natural gas is supplanting coal, even cheaper wind or solar eventually will displace gas, they argue.
South Australia is soon to become a proving ground for a project that could pave the way for renewable power to supplant fossil fuels for peak electricity — a combined wind farm and grid-scale battery storage facility, by electric-car maker Tesla and operator Windlab.
Fossil fuel companies need to quickly reorient themselves to the low returns of the solar and wind industries, said Jules Kortenhorst, a former Shell executive who runs the Rocky Mountain Institute, a nonprofit energy research organization.
“You cannot flip a switch on a Monday morning from being one to another,” he said. “Paychecks in the oil and gas industry are based on fundamentally believing that the world cannot see economic growth without fossil fuels.”
To achieve the same share of the renewables market that the largest publicly traded oil companies now hold in oil and gas would require an investment of about $350 billion over the next 18 years, estimates consultancy Wood Mackenzie. Such spending would cut into the generous dividends that oil firms’ shareholders have come to expect.
“We think it will be a real challenge for these companies to change their business model,” said Nathan Fabian, director of policy at Principles for Responsible Investment (PRI), a UN backed group.
PRI has guidelines calling for investment analysis that weighs environmental, social and governance issues. Its principles have been adopted by investors with $70 trillion in assets under management.
Oil companies have made relatively modest investments a wide range of renewable technologies. Chevron has a smattering of mostly small wind and solar ventures; Shell invests in sugar-cane ethanol in South America, wind farms in the US and electric-car charging stations in Europe; and BP still owns the US wind farms it once tried to sell.
John Browne — who as BP’s CEO two decades ago helped launch the early investments in renewables — said he still believes the renewable power will grow.
“It will take time,” he said in an interview with Reuters last month. “And they have time.”
Shell pledged to invest up to $1 billion a year by 2020 in what it calls “new energies.”
Total said this year it would spend $500 million annually on developing alternatives. But soon after that announcement, it unveiled its $7.5 billion acquisition of Maersk Oil, part of a plan to pump more crude from Norway’s North Sea.
Total CEO Patrick Pouyanne explained the focus on economics at an October oil conference in London.
“When you ask our customers what their priority is, either in developed economies or in emerging countries, price comes first,” he said. A hasty shift to renewables, he said, “could bring great economic and social damage to our 6 billion customers.”
Exxon Mobil is backing research into biofuels, joining with gene modification firm Synthetic Genomics to coax algae to produce more lipids, an oil substitute. It hasn’t detailed its investment but said the effort remains far from commercialization. By comparison, Exxon this year spent $5.6 billion on US shale oil assets.
Some of the oil industry’s largest customers are planning a shift to renewable alternatives, especially in transportation, which accounts for about a quarter of annual energy consumption.
Ford earlier this fall disclosed it would aim, by 2030, to derive a third of its sales from battery-powered cars and another third from gas-electric hybrids.
A startup backed by Boeing and JetBlue Airways recently announced plans for a small hybrid jet by 2022, using batteries from Tesla and battery supplier Panasonic.
Yet oil firms continue to forecast aggressive growth in liquid fuels. Exxon predicts 90 percent of the transportation industry will rely on petroleum through 2040.
BP projects the world’s auto fleet doubling to 1.8 billion vehicles by 2035, with only 75 million of those powered by electricity.
“We’ll see if (electric cars) can be delivered in a way that doesn’t require large subsidies” from governments, Chevron’s Watson told Reuters. “That’s what we’re seeing now.”
— Reuters


Saudi Arabia launches company to transform Asir into global tourism hub

Updated 14 November 2024
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Saudi Arabia launches company to transform Asir into global tourism hub

RIYADH: Saudi Arabia’s Asir region has launched a new tourism venture through a partnership with the aim of creating a holding company to transform the area into a global tourist destination.

The collaboration between Aseer Investment Co., a subsidiary of the Public Investment Fund, and Rikaz Real Estate, aligns with the goal of transforming Asir into a world-class tourist destination that combines authentic heritage with sustainable development, according to the Saudi Press Agency.

The holding company seeks to contribute to enhancing a tourism environment that enriches guests’ experiences with unique offerings, connecting visitors to local culture and community traditions, SPA reported.

It is also committed to promoting sustainable tourism by protecting the environment, developing local communities, and collaborating with artisans and local businesses to preserve the authenticity of Asir’s heritage.

In October, the Kingdom’s Abha city secured a new investment partnership to boost tourism by developing culturally rich dining and retail experiences. 

PIF firm Aseer Investment Co. signed the deal with Nimr Real Estate and the National Co. for Tourism, or Syahya, to propel the project, the Saudi Press Agency reported. 

This aligns with the objectives of developing Abha, which will offer a range of benefits, including retail stores that reflect the cultural heritage of the Asir region.

The partnership also seeks to be a model for multiple collaborations with private sector investors and create more regional job opportunities.

Investments in the region are expected to create between 14,000 and 18,000 job prospects and contribute to up to 6 percent of the non-oil gross domestic product within 10 years, as outlined by AIC Chief Executive Osama Al-Othman in February.

Saudi Arabia emerged as a leader in tourism growth among G20 nations, experiencing a 73 percent increase in international visitors in the first seven months of 2024 compared to 2019.

According to the UN World Tourism Barometer report in September, the Kingdom welcomed 17.5 million international tourists during this timeframe, showcasing its growing allure as a global travel destination.

This surge is part of the nation’s Vision 2030 initiative, which aims to diversify the economy and reduce dependence on oil revenues.

“Saudi Arabia cements its global leadership and takes the first spot among G20 countries in international tourist arrivals growth, with a 73 percent increase in the first seven months of 2024 compared to the same period in 2019,” stated the Saudi Tourism Ministry on X.

Under the National Tourism Strategy, the Kingdom aims to attract 150 million visitors by 2030 and increase the sector’s contribution to the nation’s gross domestic product from 6 percent to 10 percent.

These goals reflect the country’s commitment to strengthening its tourism sector and enhancing its global appeal.


IMF, Saudi Arabia announce new annual conference tackling global economic challenges

Updated 14 November 2024
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IMF, Saudi Arabia announce new annual conference tackling global economic challenges

RIYADH: The International Monetary Fund and Saudi Arabia will jointly organize a high-level annual conference in AlUla to discuss global economic challenges, it has been announced.

The AlUla Conference for Emerging Market Economies will bring together a select group of finance ministers, central bank governors, and policymakers, along with leaders from the public and private sectors, representatives from international institutions, and members of academia.

According to a joint statement by Kristalina Georgieva, managing director of IMF and the Minister of Finance Mohammed Al-Jadaan, the first edition of this series will be held from Feb. 16-17, 2025.

“The world is confronting deeper and more frequent shocks, including from conflicts, geoeconomic fragmentation, pandemics, climate change, food insecurity, and the digital divide,” according to the statement.

They continued: “If not addressed adequately, these shocks put at risk emerging market economies’ hard-won improvements in living standards. Such setbacks would affect large segments of the world population and put at risk global growth and macro-financial stability.”

The gathering will offer a platform to exchange views on domestic, regional, and global economic developments and discuss policies and reforms to spur inclusive prosperity and build resilience supported by international cooperation.

Recent economic issues affecting the global landscape include rising inflation rates, driven by supply chain disruptions and increased demand for goods post-pandemic.

Supply chain delays continue to impact the availability of essential products, causing bottlenecks in manufacturing and increasing costs.

Additionally, geopolitical conflicts, such as the war in Gaza, have disrupted energy supplies and food exports, leading to global food insecurity and fuel price volatility.

Concerns over the using the Red Sea shipping lane increased dramatically at the end of 2023, when Houthi militants stepped up attacks on vessels in the wake of the escalation of the Israel-Hamas conflict.

The effects of these challenges pose significant risks to economic stability, especially for emerging markets that are more vulnerable to such global shocks.

The AlUla conference is the latest example of the growing relationship between Saudi Arabia and the IMF, with the organization in April establishing its first office in the Middle East and North Africa region in Riyadh.

The facility was launched during the Joint Regional Conference on Industrial Policy for Diversification, jointly organized by the IMF and the Ministry of Finance, on April 24.

The new office aims to strengthen capacity building, regional surveillance, and outreach to foster stability, growth, and integration, thereby promoting partnerships in the Middle East and beyond, according to the Saudi Press Agency.

The work hub will promote closer collaboration between the IMF and regional institutions, governments, and other stakeholders, according to the SPA report.

The IMF also expressed its gratitude to the Kingdom for its financial contribution aimed at supporting capacity development in member countries, including fragile states.


Closing Bell: Saudi Arabia’s TASI ends in the red, trading volume hits $2.95bn

Updated 14 November 2024
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Closing Bell: Saudi Arabia’s TASI ends in the red, trading volume hits $2.95bn

RIYADH: The Tadawul All Share Index concluded the last session of the week at 11,791.18 points, down by 139.27 points or 1.17 percent.

The MSCI Tadawul 30 Index also saw a decline, dropping 19.18 points to close at 1,481.36, reflecting a 1.28 percent loss. In contrast, the parallel market Nomu finished Thursday’s trading at 29,467.71 points, up 262.18 points or 0.90 percent.

TASI reported a trading volume of SR11.10 billion ($2.95 billion), with 51 stocks advancing and 182 declining. The top performer of the day was Saudi Cable Co., which saw its share price surge by 5.10 percent to SR92.70.

Other strong performers included Shatirah House Restaurant Co., which gained 3.75 percent to reach SR21, and Arabian Mills for Food Products Co., which rose by 3.08 percent to SR53.60. Naseej International Trading Co. and Saudi Real Estate Co. also posted notable gains.

The worst performer was Saudi Real Estate Co., which dropped 4.94 percent to close at SR10. Alkhaleej Training and Education Co. and Red Sea International Co. also suffered significant losses, with their share prices falling by 4.90 percent to SR29.10 and 4.84 percent to SR68.80, respectively. Astra Industrial Group and Al-Omran Industrial Trading Co. were also among the day’s largest decliners.

On the parallel market, Nomu, Alqemam for Computer Systems Co. was the top gainer, rising by 9.57 percent to SR103. Other gainers included Dar Almarkabah for Renting Cars Co., which climbed 9.10 percent to SR42.55, and Horizon Educational Co., which rose by 7.58 percent to SR79.50. Mulkia Investment Co. and Knowledge Tower Trading Co. also saw significant increases.

On the losing side of Nomu, WSM for Information Technology Co. recorded the largest drop, with its share price falling by 6.18 percent to SR44. Osool and Bakheet Investment Co. and Natural Gas Distribution Co. also experienced notable declines, with their shares dropping by 5.37 percent to SR37.85 and 5 percent to SR57, respectively.

 


Leaders stress urgent need for climate finance at COP29 ministerial dialogue

Updated 14 November 2024
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Leaders stress urgent need for climate finance at COP29 ministerial dialogue

RIYADH: Global climate finance continues to fall short of expectations, as leaders gathered at the COP29 Ministerial Dialogue on Climate Finance to address ongoing challenges and map out next steps.

The meeting, held in Baku, Azerbaijan, underscored the urgent need for increased and more effective funding mechanisms. COP29 President Mukhtar Babayev emphasized that climate finance plays a central role in the broader negotiations.

“The urgency of the situation is evident,” Babayev remarked, pointing to the severe impacts of climate change observed over the past year. “Recently, we witnessed catastrophic flooding in Spain, and in the Pacific region, island communities are faced with the possibility of being wiped out entirely. We must act now; failure to do so will have grave human and economic costs.”

The president stressed the importance of fulfilling the $100 billion-per-year commitment made in Copenhagen and reiterated in Paris, urging leaders to reflect on lessons learned and consider the quality and allocation of financial resources.

Developing countries once again voiced the need for tangible action, with Fiji’s Deputy Prime Minister Biman Prasad highlighting the importance of aligning climate finance with the goals of the Paris Agreement.

“This is a ‘put your money where your mouth is’ moment,” Prasad said. “The 1.5°C temperature goal and the Paris Agreement itself will not be deliverable from both an economic and scientific perspective if we do not invest right. The New Collective Quantified Goal is critical for aligning our priorities and addressing major inconsistencies,” he added.

The EU reaffirmed its commitment to climate finance, noting that the $100 billion goal was first collectively met in 2022, with contributions reaching $115.9 billion.

“The EU and its member states contributed €28.5 billion, or around $30 billion, in climate finance from public sources,” a representative said. “Almost half of the public funding came in the form of grants, with a significant portion provided on concessional terms. We need to make further efforts to facilitate the mobilization of private funding, as it remains a key source of climate finance,” the representative added.

Simon Stiell, executive secretary of the UN Framework Convention on Climate Change, emphasized the critical juncture at which the global community now finds itself.

“The huge opportunities we have and the terrible risks we face are real,” Stiell said. “It’s time to take action to bridge gaps, solve problems, and come together to ensure climate finance and climate action benefit everyone.”

Sweden also announced a significant new contribution, with Ministerial representatives unveiling an $8 billion Swedish krona ($723.6 million) pledge to the second replenishment of the Green Climate Fund.

“This makes Sweden the largest per capita donor to the GCF among the larger donors,” the Swedish representative noted.

As discussions progressed, leaders acknowledged the widening gap between current financial commitments and the funds required to meet the 1.5°C target. There were calls for more robust mobilization of both public and private finance.

The COP29 president concluded: “Delivering the climate fairness that developing countries need is one of the main metrics of shared success. We can learn from past efforts to inform the road ahead, but significant determination and leadership from all parties are required to bridge these critical gaps.”


IsDB, multilateral banks aim for $120bn in annual climate finance by 2030

Updated 14 November 2024
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IsDB, multilateral banks aim for $120bn in annual climate finance by 2030

RIYADH: Multilateral development banks are aiming to mobilize $120 billion annually by 2030 for climate financing in low- and middle-income countries, according to recent projections.

This ambitious funding goal includes $42 billion dedicated to climate adaptation efforts, with an additional $65 billion expected to come from private sector investments.

The target was unveiled in a joint statement issued during COP29 in Baku, Azerbaijan, by several prominent MDBs, including the Islamic Development Bank, African Development Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank, the Development Bank of the Council of Europe, the European Bank for Reconstruction and Development, and the European Investment Bank. Additionally, the Inter-American Development Bank, the New Development Bank, and the World Bank Group are part of the initiative.

The statement emphasized that setting a strong, collective climate finance target is crucial to meeting the goals of the Paris Agreement.

“A new collective quantitative target on climate finance that is both strong and ambitious is essential to achieving the Paris Agreement’s objectives,” the statement read. “We urge parties to reach a robust conclusion on this target.”

For high-income countries, the MDBs have set a target of $50 billion in annual climate finance, including $7 billion specifically for adaptation, with private sector mobilization expected to generate an additional $65 billion. This new target builds on the success of previous climate finance goals, with MDBs already surpassing their climate financing projections for 2025. Since 2019, the MDBs have increased direct climate finance by 25 percent and doubled climate mobilization efforts over the past year.

In response to the urgent need for enhanced climate action, the MDBs also emphasized the importance of establishing a new collective quantitative target for climate finance at COP29. The institutions highlighted their commitment to ensuring that the finance provided leads to meaningful, measurable impacts on both climate mitigation and adaptation.

To further enhance the effectiveness of climate finance, the MDBs released the “Common Approach to Measuring Climate Outcomes,” a framework that provides standardized indicators for tracking global progress on climate mitigation and adaptation. This framework aims to better align MDB activities with global climate goals and improve transparency in measuring outcomes.

Additionally, the MDBs published their “Country Climate Action Platforms,” reaffirming their commitment to strengthening collaboration between host countries, MDBs, donors, and the private sector. These platforms are designed to ensure that climate finance is targeted effectively and that developing countries have the support they need to implement robust climate policies.

COP29 has emerged as a critical moment in global climate negotiations, especially for the Global South, where developing nations are pushing for significant climate financing, stronger adaptation measures, and equitable policy outcomes. These countries continue to advocate for a climate finance framework based on the principle of common but differentiated responsibilities, recognizing that nations’ contributions should reflect their respective capabilities and historical responsibilities.