This article is part of the Road to COP special report, presented by SQM.
WASHINGTON — Eight years after Paris, the oil business is bigger than ever.
Profits are soaring. Production is climbing — and marking a record year in the United States. The industry is even poised to gain from the crusade to rein in climate pollution, including the billions of dollars in incentives that U.S. President Joe Biden is offering for wind farms, battery minerals and carbon-carrying pipelines.
It’s not necessarily the future that appeared to be dawning in 2015, when nations gathered in the French capital to pledge an assault on the fossil fuel pollution that’s warming the planet. But it’s the reality that advocates and governments will confront when the next climate summit dawns Nov. 30 in Dubai’s Expo City, a showpiece of the United Arab Emirates’ petroleum wealth — hammering home the reality that oil and gas producers are thriving, not shrinking, during the era of ambitious green agendas.
The reasons, analysts say, include the spikes in fuel prices driven by the Russian invasion of Ukraine and the economic recovery from the pandemic, as well as struggles to deploy cleaner technologies such as wind turbines or electric cars on the scale needed to meet the crisis.
“The death of the oil industry has been greatly overstated,” said Kevin Book, managing director at the consulting firm ClearView Energy. “The realities of demand and the limitations of alternatives haven’t changed.”
The long-term prognosis for fossil fuels could still turn out to be cloudy: The Paris-based International Energy Agency reported last month that “the beginning of the end of the fossil fuel era” may be at hand, with demand for oil, natural gas and coal all expected to peak by the end of this decade.
Still, the oil industry’s Goliaths are placing big bets that fossil fuels have plenty of life in them.
The United States’ two oil and gas supergiants are leveraging their wealth to buy rivals with untapped reserves — Chevron is buying Hess for $53 billion, while Exxon Mobil is spending about $60 billion to buy a Texas-based company with vast land holdings in the state’s fracking hotbed. Europe’s largest industry champions, BP and Shell, are likewise basing their businesses firmly on oil and gas while walking back their pledges to green their businesses.
The companies have all touted their investments in cleaner technologies, such as carbon capture, geothermal and mining for the raw materials used in batteries. They have promised to cut their climate pollution. But Sen. Jeff Merkley (D-Ore.) dismissed those proclamations as “99 percent greenwashing,” saying: “What they’re trying to do is protect their established ownership of fossil assets.”
When world leaders huddled in Paris to strike their climate deal in 2015, levels of heat-trapping carbon dioxide in the atmosphere were near 402 parts per million — already high enough to threaten a disastrous future for human civilization and the Earth’s ecosystems. Now they’re approaching 420 parts per million, levels that scientists say the planet hasn’t seen since more than 4 million years ago, when seas were 75 feet higher.
Amid those warnings, even government leaders who support taking action on climate change have found fossil fuels impossible to quit.
Biden’s pledge to avert climate catastrophe included a campaign promise in 2020 to halt new drilling on federal land. That triggered expectations among some market analysts that his policies might crush oil company stock prices.
Instead, Biden has presided over a record year for U.S. oil production and natural gas exports, and his administration has greenlit an array of fossil fuel projects, including oil drilling in Alaska and an Appalachian gas pipeline.
Oil company profits in the most recent quarter didn’t reach the stratospheric heights that record-high gasoline prices delivered last year, yet they still beat pre-pandemic returns. Exxon reported earnings of $9.1 billion, and its refineries churned out the highest volume of fuel for that period since 1999, the company said in a financial filing. Chevron reported $6.5 billion in profit for the quarter, down from its $11.1 billion haul a year earlier but still about double what it earned in the same period of 2019.
Exxon’s share price has more than doubled since Biden took office, when the oil market was in the doldrums because of the pandemic. Chevron’s stock has climbed nearly 60 percent since then.
And oil companies may be ready to rev up their production engines soon. After years of focusing on returning money to shareholders and shrinking their budgets for new projects, industry capital expenditures are forecast to grow from $500 billion last year to $640 billion by 2030, according to a report from the International Energy Forum and S&P Global.
At the same time, the industry is gearing up to take advantage of the billions of dollars that Democrats in Congress and the Biden administration have made available for emerging climate technologies, such as those focused on capturing greenhouse gas pollution before it hits the air and deploying hydrogen as a carbon-free fuel. Those technologies, along with geothermal energy and wind power, could offer opportunities to oil and gas companies with long experience in digging holes, laying pipelines and building structures offshore.
Exxon Mobil also announced plans to begin drilling for ancient salt water in Arkansas and extract its lithium, a critical mineral for electric vehicle batteries. It said its goal is to produce enough lithium to cover the manufacturing needs of more than 1 million electric vehicles a year.
Even so, some of these companies are walking back their pledges to lessen their carbon pollution. BP earlier this year said it would reduce the carbon emissions from its energy production by 20 to 30 percent by 2030, down from its previous pledge for a 35-to-50-percent reduction. It plans to spend $8 billion to grow its oil and gas production, a move that would increase emissions but that the company said is needed to keep fuel affordable.
“Action is needed to accelerate the transition,” then-BP chief executive Bernard Looney said in a news release announcing the change in the target. “And — at the same time — action is needed to make sure that the transition is orderly, so that affordable energy keeps flowing where it’s needed today.”
BP said it would also invest $8 billion in renewable energy.
A BP spokesperson said the company’s ambition to reach net zero carbon emissions by 2050 has not changed.
Shell also said it would invest less in renewable energy production than it had first planned, citing low profits from that business.
But Shell spokesperson Curtis Smith insisted by email that the company’s strategy had not changed, and that it still intended to reach net-zero greenhouse gas emissions by 2050.
“An unwavering commitment to capital discipline combined with exceptional delivery will create value for shareholders and allow Shell to supply the energy the world needs today while contributing to the growth of profitable, low-carbon business models that will play a critical role in a balanced energy transition,” he wrote.
BP also said it remained committed to lowering its carbon footprint. The company plans to invest $60 billion by the end of the decade in electric vehicle charging, low carbon hydrogen, renewables and using plant-based ingredients to make fuel.
Chevron has touted plans for developing geothermal energy and cutting the amount of greenhouse gas that comes from its operations, but has also made it clear it is full steam ahead in its efforts to produce oil and natural gas.
“It’s very difficult to change as rapidly as some people would like,” Chevron CEO Mike Wirth said earlier this month in an interview with Barron’s. “There’s massive investments, trillions of dollars, in the existing system that has evolved over 150 years.”
Exxon has said it will spend $17 billion through 2027 to reduce its own climate pollution. But the company dismissed a shareholder call for it to release a study on how its oil and gas holdings would be affected by the sorts of reduction in fossil fuel use that the IEA forecast in its report.
“It is highly unlikely that society would accept the degradation in global standard of living required to permanently achieve a scenario like the IEA” report, Exxon said in its reply to the proposal.
That reply infuriated environmental groups and climate scientists, who have accused Exxon of knowing for decades that greenhouse gases coming from the industry would trap heat in the atmosphere and lead to global climate change.
“Why aren’t they out there searching for alternatives helping us make the conversion” to clean energy, asked Don Wuebbles, a professor emeritus of atmospheric science at the University of Illinois who led a congressionally mandated report on climate science in 2017. “They’re gonna spend their money looking for more oil. …They’re full speed ahead. That’s the problem.”
Exxon spokesperson Erin Szeligowski said the company’s commitment to lowering emissions from its own operations, and those from other companies through its Low Carbon Solutions business, “is evident.”
“We’ve built an entire business dedicated to this goal, and are investing $17 billion on lower emissions initiatives over the next four years to do so,” she said by email.
Two major developments have helped explain the oil and gas sector’s resilience, analysts said. First, the pandemic temporarily crushed oil demand, which benefited the more efficient, deep-pocketed producers who were able to buy out weaker competitors. Then Russia’s 2022 invasion of Ukraine drove up oil and gas prices, creating new financial incentives for oil production — and even prompted the Biden administration to call on companies to ramp up drilling to ease pain for consumers.
Oil companies are facing pressure not only from shareholders worried about profits, but also politicians spooked by recent inflation, said Francisco Blanch, head of global commodities, equity derivatives and cross-asset quantitative investment strategies at Bank of America Securities.
Russia’s war against Ukraine sent energy markets into an upheaval that is only now settling, and that shakeup put a focus on ensuring that countries had a secure energy supply, Blanch said in an interview.
“What is everyone worried about? Inflation,” he said. “If you don’t have stable domestic gas or oil resources, you become very exposed to whatever is happening in the world. And that’s a very worrying thought to politicians.”
Still, some reasons for climate optimism exist alongside the oil and gas industry’s resurgence, said John Larsen, a partner at the climate and energy research firm Rhodium Group.
Going into the Paris climate conference in 2015, studies indicated that the planet was projected to see temperatures rise by nearly 4 degrees Celsius by the end of the century — a recipe for full-blown catastrophe. Now, it’s on pace for a still-disastrous increase of 2.7 degrees based on the policies that countries have adopted since then, according to the Climate Action Tracker, a project that assesses national progress on meeting carbon emissions goals. The Paris Agreement had set an official target of 2 degrees, along with a more aspirational goal of 1.5.
Clean energy technology has also scaled rapidly, with electric vehicle adoption taking off much faster than many anticipated. Annual electric vehicle sales are set to exceed 1 million for the first time this year, with sales through the third quarter up 55 percent from 2022, BloombergNEF said in an analysis last week.On top of that, regulators and oil and gas companies are starting to crack down on emissions of methane, a potent climate pollutant that frequently leaks and vents from fossil fuel operations.
The Global Methane Pledge brought 150 countries behind a pact to shave methane pollution 30 percent below 2020 levels during this decade. Satellites that can detect enormous plumes are proliferating, offering a way to track the emissions from oil fields and remote transportation infrastructure. And new regulations in the U.S., South America and Europe are taking force, prompting oil and gas companies to partner with third-party firms to stomp out leaks.
“It’s a huge multiplier effect to avoid methane emissions or to quickly stop them,” Gordon said. “That is the race that we are on now.”
But it’s a race that veterans of the climate talks admit the world is in danger of losing. Even in the U.S., whose delegation will travel to Dubai touting last year’s massive climate law, activists have been angered by Biden’s approval of the Alaskan oil project and his failure to halt new lease sales in the Gulf of Mexico.
Those actions have emboldened other countries, particularly developing nations with undeveloped oil and gas reserves, to press for the chance to tap their own fossil fuel resources — which will be a major theme undergirding the Dubai talks.
“Unfortunately, a number of countries are going in the wrong direction” on fossil fuel production if the world is to combat climate change, said David Waskow, director of the World Resources Institute’s international climate initiative. “We’re clearly doing expansion of oil and gas.”
This article is part of the Road to COP special report, presented by SQM. The article is produced with full editorial independence by POLITICO reporters and editors. Learn more about editorial content presented by outside advertisers.