Front Burner - Big Oil’s ‘monster profits’ and climate rollbacks

Episode Date: February 16, 2023

Last week, United Nations Secretary-General António Guterres called out oil companies for raking in “monster profits” and expanding production instead of focusing on renewable energy. 2022 was a record-breaking year for oil producers. According to the International Energy Agency, global gas and oil profits went from a recent average of $1.5 trillion to four trillion dollars last year alone. And in the wake of those profits many oil companies are walking back on climate-friendly pledges. Today on Front Burner, we’ll be talking about why Big Oil is raking in so much cash, how long a fossil fuel resurgence could really last. Geoff Dembicki is an investigative climate reporter who has been following this closely for DeSmog and the author of The Petroleum Papers.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. Take a listen here to United Nations Secretary General Antonio Guterres last week. And I have a special message for fossil fuel producers and their enablers scrambling to expand production and raking in monster profits.

If you cannot set a credible course for net zero, with 2025 and 2030 targets covering all your operations, you should not be in business. Your core product is our core problem. We need a renewables revolution, not a self-destructive fossil fuel resurgence. He really couldn't be more clear. And the monster profits he referenced are no joke. 2022 was a banner year for oil producers. In fact, for the biggest energy companies in the world, it was the most profitable year ever. Global gas and oil profits went from a recent average of $1.5 trillion to a whopping $4 trillion last year alone. That's according to the International Energy Agency. Exxon, for example, ExxonMobil reported a profit of almost $56 billion for the last year,

earnings not seen in more than 150 years of company's history. Shell just announced a record profit of $40 billion, and U.S. company Chevron has doubled its annual earnings to a record $35.5 billion. Today, we're going to be talking about why big oil is raking in so much cash, how long a fossil fuel resurgence could really last, and what this all reveals about the industry's previous promises to drive down emissions and pivot to renewable energy. Joining me now is Jeff Dembicki.

He's an investigative climate reporter who's been following this closely for DeSmog and the author of the Petroleum Papers. Hey, Jeff, it's always a pleasure to talk to you. Thanks so much for making the time today. Yeah, thanks so much for having me on the show. So I wonder if we should begin in 2020. Bring us back to the beginning of the pandemic. What was the story of oil back then? So when the pandemic first started, you know, there were stay-at-home orders. People weren't traveling. They weren't seeing friends and family. And so demand for oil and gas and other fossil fuel products really plummeted.

And this absolutely devastated the oil and gas industry. The price of oil has collapsed to a record low as demand dries up and storage runs out. The cost of benchmark U.S. crude oil for delivery in May actually fell below zero, and that drove down the entire stock market. So there was actually one point in April 2020 when the price of oil went negative, which is completely unheard of. And so we had this crash in demand for oil and gas,

and then if that wasn't enough, there was a price war between the oil giants, Saudi Arabia and Russia, which depressed the prices of oil even further. And so in that context, there were analysts declaring the end of oil. And organizations like the Canadian Association of Petroleum Producers in Canada asked the federal government to relax climate and environmental rules and said the industry might not survive if it had to meet these green goals. I remember this well, and it resulted in a lot of conversations about how the industry, how oil producers were going to have to start pivoting real hard.

Right. And so take me through the kind of promises that were made. Yeah. So there was this really big sort of existential discussion being had at high levels around what exactly is the future of oil and gas? exactly is the future of oil and gas? And how could these iconic oil and gas producers survive into the 21st century with world governments moving aggressively to fight climate change? And so you had a company like Royal Dutch Shell announcing that it would become a net zero carbon company by 2050 and really pivoting more towards green energy than its core business of oil and gas. The way the world produces and uses energy is visibly changing.

But to meet the most ambitious goals of the Paris Agreement, change needs to happen faster. Shell is becoming an energy business for the future, and it's playing its part to help drive that change. You had BP saying that it would cut its oil and gas production 40% by the end of the decade. It is the right thing for BP. It's going to help BP decarbonize over the next decade. It's going to help BP diversify. And we're going to use those funds.

And after the Canadian government made a formal commitment to achieving net zero emissions by 2050, six oil sands companies came together and they unveiled a plan to get their own operations to net zero. And they're now known as the Pathways Alliance. Oil sands contribute significant carbon emissions in Canada. So the six largest companies have joined forces on carbon capture technology that will reduce emissions by millions of tons annually. It's a key step in helping Canada meet its net zero climate goal. Come see what we're doing. Of course, these projections that 2020 was like peak oil, they turned out to be very wrong. Because last year we saw this record year, monster profits really for these companies.

And why? Why did we see that? Well, after we had all spent a few years in the pandemic, not really traveling so much, there was a lot of pent up demand to go to travel internationally to see friends and family. And this really drove up demand suddenly for oil and gas all over the place. It sort of supercharged demand when it had been very low. And then around that same time, Russia, a major oil and gas producer, of course, decided to invade Ukraine. And this set off this energy security crisis in Europe as European countries moved to find new sources for the energy they needed to power their economy. Supplies of gas from Russia to Europe have been drastically cut and reduced further by

the damage done to the Nord Stream pipelines in the Baltic Sea. Chancellor Olaf Scholz is in Canada looking for new energy suppliers as Germany reduces its reliance on Russia. New deals were brokered, old gas facilities reopened, and measures to control consumption imposed. And so factors like this combined to drive up the price of oil to above $120 per barrel, which is just way, way higher than it had been a few years ago.

And this is what led to the supercharged profits that we're now seeing. Right, right. And like when we're talking numbers here, the five major oil conglomerates combined likely topped $200 billion last year, which is really an astounding number. And of course, you mentioned before that it's a big jump because profits dip so much during the pandemic. But can you compare that to pre-pandemic for me? Like, is it still a lot more money than what they were making before the pandemic? Yeah, there's really no comparison or equivalent for the types of profits these companies were making. these companies were making.

AP took in $28 billion last year, which is the highest in its entire 114-year history as a company. Shell earned $40 billion. And when you hear these high numbers, it's sometimes hard to wrap your mind around them. But the climate scientist Catherine Hayhoe, she did a bit of calculations about what that $40 billion means. And she tweeted that you could have made $20 million per year since Jesus was born and still not make the profits Shell did in 2022. That's the magnitude that we're talking about. Wow, that is really crazy.

And just talk to me a little bit more about why these profits are so high. Like, have the companies cut back on spending elsewhere so that they're making more money now? I know that in the State of the Union recently, President Biden called these profits outrageous. Have you noticed Big Oil just reported its profits, record profits? Last year, they made $200 billion in the midst of a global energy crisis. I think it's outrageous. Why? They invested too little of that profit to increase domestic production. If they had, in fact, invested in the production to keep gas prices down, instead, they used the record profits to buy back their own stock, rewarding the CEOs and shareholders. So just just like flesh that out a little bit more for me. that more for me. Yeah, I think what sometimes gets left out of these conversations is that these huge profits, they really came from the wallets of ordinary people all over Canada and

the US and the world. And so one of the biggest issues of the last year, the biggest social issues has been this huge inflation that we've all experienced. And one of the most visceral places where people see that is every time they have to fill up at a gas station. And, you know, this has had massive social implications. I reported on how people in Vancouver, for example, were feeling stressed and hopeless and trapped by the amount of money they had to spend on oil and gas and other products. People had to cut back on groceries or trips to see people they love.

And another part of the reason why the oil companies have been able to cash in so much is because during the pandemic, they did cut back their operations. They laid people off. And when oil surges to such a level as $120 a barrel, the companies, they don't even have to do anything to achieve these massive profits. It's like a switch is flicked and suddenly money just comes pouring in. United Nations Secretary General Antonio Guterres and a few others have called out the industry. And he said, I urge people everywhere to send a clear message to the fossil fuel industry and their financiers that this grotesque greed is punishing the poorest and most vulnerable people. 2023 is a year of reckoning. It must be a year of game-changing climate action. We need disruption to end the destruction. No more baby steps.

No more excuses. No more greenwashing. No more bottomless greed of the fossil fuel industry and its enablers. And so this is kind of the intense, visceral reaction that some people are feeling in response to these monster profits. Worth noting, maybe I know the Biden administration has been trying to get these companies to produce more, and they have essentially said no, right? And I think they have arguments for why they think

that they'll lose money in the future if they do that, but that's part of the reason why the price has been driven up so high. So these announcements that they made in the midst of the pandemic to really accelerate renewable energy, investments in renewable energy? What has happened to those announcements in light of these roaring profits? Well, I want to make an important point about those climate commitments that we witness oil companies make during the pandemic. Those commitments weren't primarily about fixing climate change. The goal of them was to ensure that oil companies

would survive in a world moving to address climate change more aggressively. You know, I recently attended a natural resources conference held in British Columbia for the outlet DeSmog, and a director at the Canadian Association of Petroleum Producers kind of laid this all out. And he said, from our industry's perspective, there's a recognition that we must address climate change so we can play a bigger role to meet that global demand for oil and natural gas. Mm-hmm. demand for oil and natural gas. And so what's happened now that these companies are experiencing such huge profits is that there isn't quite the same pressure on them to cut their emissions and to pivot towards greater forms of energy. They're making tons of money doing what they've

always been doing. And so Shell recently said that it was going to pause the growth in new spending at its renewable energy unit. BP announced it was going to slow down a planned decline it had promised in its fossil fuel production. Total announced it would be opening up new liquefied natural gas terminals in Europe. Exxon walked back its commitment to algae-based biofuels despite advertising about them for over a decade. So we're seeing a real step backwards from big oil. It's interesting, though, because at the same time, I hear executives from these companies say that they expect this kind of growth and the kind of profits that they've been seeing recently to drop off, right? And so what are their expectations and plans moving forward if they're pausing so many of these initiatives? Like what do they think is going to

happen? That is a very good question. I would love to speak to an executive at one of these companies about that and see what the strategy is going forward, because in all likelihood, these huge profits are not going to be sustainable or last. But I think one of the issues with these companies is that they're not really set up to think long term. Their performance is measured on a quarterly basis. And a lot of how they're valued in the market has to do with growth in the production of oil and gas. And, you know, to some extent, pivoting to cleaner forms of energy is completely at odds with the fundamentals of their business model. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization.

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they're asking the government for massive amounts of financial assistance in helping them achieve their climate goals. And so the environment minister recently said something to the effect of, you know, if they're not making these climate investments while they're making record level profits, then when would it be a good time for them to make those investments? You know, when profits are down, they can't afford it. And when profits are up, they still can't afford it. Mm-hmm. Mm-hmm. Has that rhetoric from the environment minister been followed up by any concrete action? So I know, you know, fossil fuel subsidies and tax breaks are a big topic of discussion in this country.

Canadian companies that receive money for stuff like research and development or cleaning up oil wells. The organization Environmental Defense estimated in 2020 it was at least $18 billion and $8.6 billion in 2021. billion in 2021. Is anything changing this year in light of these profits vis-a-vis the Canadian government's policy response? Well, it's kind of interesting. It's sort of hard to look at all this and sometimes figure out exactly what is happening because the federal government appears set to increase the amount of financial assistance that it's willing to give to oil and gas companies to cut their carbon emissions. And so last year, the government had proposed a tax credit for carbon capture and storage technology, and that was expected to cost about $1.5 billion annually starting in 2026.

And now there's increasing pressure on the federal government to up that support. And, you know, in one sense, you could argue that it's important to have the government helping achieve this goal of cutting emissions because we all need that to happen. But my experience attending oil and gas conferences is that the industry sees cutting emissions at home as part of a strategy that will allow it to sell more of its products abroad. And it'll market those products as green and climate friendly. And so if the federal government is giving massive financial assistance to these climate initiatives, you could argue that this is really a subsidy that is allowing companies who are making record levels of profits to sell even more of their, if it's not now, the Canadian

government hasn't really changed its approach to how they deal with the companies and how they offer incentives and tax breaks. Yeah, I haven't seen, you know, a major policy shift coming from the federal government in regards to reducing emissions from the oil and gas sector. Of course, there are negotiations now over an emissions cap for oil and gas, which would be basically the absolute level that oil and gas producers could hit with their emissions. But obviously, these are contentious discussions. And there's a lot of back and forth now between the industry and provincial policymakers and the government. And I think what, in Canada, the industry's response to a cap like that will be to try to reduce the emissions at its operations as much as possible while then selling its products overseas. And the vast majority of emissions that come from a barrel of oil come from the moment when it's burned in a

car engine, for example. So we could have a situation where oil and gas producers in Canada can credibly claim that their operations are some of the greenest in the world, while they're still selling record numbers of oil and gas overseas and climate emissions are still going up. Right, right. And of course, the argument that the government makes here is that they're trying to push the industry into making sure that it's greener when they take it out of the ground. Right? I mean, just to be fair. Yeah. And, you know, those are substantial amounts of emissions, too. But basically all the talk in Canada about reducing emissions from the oil and gas sector has to do with the operations themselves and not burning the oil and gas that comes from those operations. What about in the U.S.? I mean, the president brought this

up in a State of the Union speech, taking aim at these big companies. What's their approach been there? So the U.S. is in a really interesting moment for climate action, because the Biden administration recently passed the Inflation Reduction Act, which is one of the biggest expenditures on climate action that has ever been done in the U.S. or globally. And, you know, climate activists rightly pointed out a lot of flaws and compromises with that legislation, but it will result in close to $400 billion being spent on energy security and climate programs over the next decade. And that has the potential to be really transformative and to sort of supercharge this transition to cleaner forms of energy that we need in order to avert the worst impacts of climate change.

And so that's kind of putting pressure on governments all over the world to sort of meet that level of ambition. And you're kind of seeing the Canadian government try to figure out how it will match that. Look, Jeff, I mean, I think today people listening, they might feel quite dismayed to hear about these record profits that the fossil fuel industry has raked in and the fact that programs that they announced during the pandemic have been shelved or put on pause. But if you could zoom out for me a little bit here, like big picture, where is this all headed? Yeah. And anytime you're looking about you're looking at climate change and climate action, it's just a whole bunch of really seemingly contradictory signals. And, you know, 2022 is significant for these huge profits that oil companies made, but it was also significant in another sense. It was the first year when investments in cleaner forms of energy surpassed a trillion dollars, which is just, it's a massive

amount of investment. Almost every major automaker on the planet has dove into making electric vehicles. They're now advertising about those on primetime TV. And even in the European Union, you know, there was all this talk about European countries backtracking on climate change initiatives because of Russia's invasion. You know, there was a recent headline in The Economist saying that the green transition there has actually turbocharged and potentially the continent could decarbonize a full decade faster than people had previously expected. And so in the midst of all this backpedaling on climate initiatives from the oil companies, there's also a story of rapid transition away from oil. And it'll be really fascinating to see how this all plays out in the coming years.

Okay. Thank you so much for this. It's always really fascinating to listen to you. Thank you. Yeah, thanks for having me on the show. I always love coming on. All right, that's all for today. I'm Jamie Poisson.

Thanks so much for listening. Talk to you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.