Oil Chiefs Clash over Energy and Climate

Conflicting messages about how the oil industry should respond to climate change and manage its reputation have been sent out by the heads of three oil majors - ExxonMobil, Shell and ChevronTexaco. None foresees a challenge to the supremacy of oil and gas for the next three decades - but on many other issues the transatlantic rift runs deep.

ExxonMobil remains the target for a global campaign by environmentalists who see it as one of the main architects of the Bush administration's resistance to concerted international action to reduce greenhouse gas emissions.

On 26 February, the StopEsso campaign won the latest round in its battle with the group when a French appeal court overturned an earlier judgement that it should stop using a parody of the company's logo on its website. The court described Esso France's application to ban the doctored logo as 'not serious'.

The campaign appears to have left Lee Raymond, ExxonMobil's chairman and chief executive, wholly unrepentant.

Interviewed by The Economist in March, Mr Raymond assailed scientists for exaggerating evidence of global warming in order to attract research funds, described renewable energy as 'a complete waste of money', and criticised oil companies for wasting cash on research into hydrogen fuel. He was also confident that oil and gas would remain the dominant global sources of energy 'until at least the middle of the century.'

Shell chairman Sir Philip Watts put across a very different perspective in a speech in Texas in March. He described the evidence of climate change as 'compelling', and called for action now rather than delay until all the risks were well understood.

Sir Philip foresaw little prospect that global oil and gas resources will become scarce before 2025, and 'perhaps not for some time thereafter.' But he also told his audience that Shell's scenario work envisaged renewables and hydrogen becoming major energy sources from the third decade of the century, with renewables meeting up to a third of global energy demand by 2050.

Shell's chairman went on to outline how he saw commercial opportunities 'from being ahead of the game.'

The group has already cut its greenhouse gas emissions by 10% from 1990 levels, and intends to keep them at least 5% below the 1990 baseline at the end of the decade despite its expansion plans. It will do this by:

  • Eliminating routine gas flaring by 2008.
  • Pursuing in-house improvements in energy efficiency.
  • Factoring the costs of greenhouse gas emissions - from taxes or emissions trading - into all its projects.
  • Enabling customers to switch to gas from more carbon-intensive fuels, and developing ultra low-sulphur fuels fo energy-efficient vehicles.
  • Developing enabling technologies for hydrogen in partnership with car manufacturers and others.
  • Growing a renewable energy business. Shell has 230MW of wind capacity in the US, is working on biofuel blends for vehicles, and owns one of the world's largest solar energy businesses.
  • Working with others to develop carbon sequestration.

These are all business opportunities, said Sir Philip. 'Pursuing them is part of the continuing drive to create new, long-term sources of value for our shareholders by offering new choices to customers.'

Meanwhile, the chairman and chief executive of US-based ChevronTexaco, David O'Reilly, spoke about the long-term challenges facing the oil and gas industry at a conference at the Institute of Petroleum in London on 18 February. Conspicuously, he made only one passing reference to climate change - but warned that the industry was running into a serious reputational problem.

The three dimensions of the problem, according to Mr O'Reilly, were the industry's performance, behaviour and communications.

On performance, he suggested, 'in many respects our industry is invisible to the public until there is a big price spike or something worse happens, like the [Exxon] Valdez or the Prestige - disasters that grab the headlines and infuriate the public.

'Because these events are relatively rare, they're much more dramatic when they do happen. And the public response is understandably severe and long-lasting. Frankly, it doesn't matter to most people whether the responsible party is a super-major or a marginal operator. The distinction counts for little when a coastline is covered with oil.'

The industry's behaviour, particularly in developing countries, is also wanting, Mr O'Reilly suggested. ChevronTexaco itself has come under fire recently for the social and environmental impacts of its operations in Ecuador.

'Too often,' he said, 'our behaviour seems to suggest that our mere presence is enough, that we have no further responsibilities to the communities where we operate. Few things could be more damaging to the way the world sees us.'

ChevronTexaco's chief also hit out at the industry's communications efforts. 'Too often, we act defensively about what we do wrong - and sheepishly about what we do right. Too often, we respond with delay and denial.'

The consequences of these failings, he said, 'extend to the bottom line - and far into the future.' At stake were the industry's ability to resist onerous regulation, gain access to fresh resources, and recruit talented people.

Mr O'Reilly proposed that the industry should start by improving its communications about its central mission - the provision of affordable energy.

In the most controversial part of his speech which was a clear swipe at BP's 'beyond petroleum' message, he complained that 'there are some in our own industry who are doing just the opposite. They're sending the message that fossil fuels are on the way out, soon to be replaced by alternatives.' Rather, he insisted, they will remain 'the primary source of energy for generations to come.'

Mr O'Reilly closed by advocating better self-policing by the industry to combat poor performers, and the pursuit of energy efficiency - the 'single most effective way to reduce greenhouse gas emissions' - in its own operations and among its customers.

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