The CEOs of oil companies are in a tight spot. They have to meet two seemingly opposing demands. Shareholders want nice dividends, which are easiest to create by doubling down, at least in the short term, on extracting fossil fuels. Climate activists want lower emissions, which they believe can only be achieved by moving away from fossil fuels altogether.
Shareholders have more power. That’s why every oil company continues to spend more on fossil fuels than on renewable energy—often by a factor of 10. A recent study from the University of Oxford found that more than 90% of patents filed by oil companies in 2018 were for technologies aimed at making fossil fuels more efficient.
But any smart CEO knows that the social license to operate comes from consumers. That’s why, last week, the secretary general of OPEC, the Organization of Petroleum Exporting Countries, called climate protestors the “greatest threat” to fossil fuels. People could, if they were organized enough, vote to install a government that has an explicit mandate to punish fossil fuel companies.
In a bid to avoid the worst, oil companies are starting to hedge. But none of them, it seems, knows exactly which strategy will pay off.
A move away from oil is likely to mean an increased demand for electricity. That’s why many European oil companies now own or are invested in electric-car charging startups. Shell bought First Utility in the UK. Equinor’s betting on wind power, having built the world’s first floating offshore wind farm. BP bought a Lightsource, a solar-power developer. Total owns Saft, a large battery company.
But US oil majors aren’t following their European counterparts in expecting to make money in electrification. ExxonMobil continues to bet on biofuels (but as yet has nothing to show for it). Chevron’s venture money has mostly gone to startups making oil and gas more efficient. Occidental, which recently acquired Anadarko, is investing in carbon-capture technology, which could allow the use of fossil fuels without contributing additional emissions.
If all this leaves you confused about the future of oil, you’re not alone. Oil companies’ own projections for global oil demand are all over the place.
That’s why investors aren’t confident that oil companies can handle climate change. Even as oil demand continues to grow and support increased profits for these companies, the share of oil and gas stocks on the S&P 500 has halved in the past six years. There is no light at the end of the tunnel—only oil.