A Chevron gas station is shown in Austin, Texas, on Oct. 23, 2023.
Brandon Bell | Getty Images News | Getty Images
On Monday, Chevron announced plans to accumulate oil and gas company Hess for $53 billion in stock.
Lower than two weeks prior, Exxon Mobil announced it’s acquiring oil company Pioneer Natural Resources for $59.5 billion in stock.
On Tuesday, the International Energy Agency released its annual world energy outlook report that projects global demand for coal, oil and natural gas will hit an all-time high by 2030, a prediction the IEA’s executive director Fatih Birol had telegraphed in September.
“The transition to scrub energy is occurring worldwide and it’s unstoppable. It is not a matter of ‘if,’ it’s only a matter of ‘how soon’ — and the earlier the higher for all of us,” Birol said in a written statement published alongside his agency’s world outlook. “Taking into consideration the continuing strains and volatility in traditional energy markets today, claims that oil and gas represent secure or secure decisions for the world’s energy and climate future look weaker than ever.”
But based on their acquisitions, Chevron and Exxon are seemingly preparing for a special world than the IEA is portending.
“The big firms — nongovernment firms — don’t see an end to grease demand any time within the near future. That is one among the messages you’ve gotten to take from this. They are committed to the industry, to production, to reserves and to spending,” Larry J. Goldstein, a former president of the Petroleum Industry Research Foundation and a trustee with the not-for-profit Energy Policy Research Foundation, told CNBC in a phone conversation Monday.
“They’re on this within the long haul. They do not see oil demand declining anytime within the near term. They usually see oil demand in fairly large volumes existing for not less than the subsequent 20, 25 years,” Goldstein told CNBC. “There’s a serious difference between what the large oil firms imagine the longer term of oil is and the governments around the globe.”
So, too, says Ben Cahill, a senior fellow within the energy security and climate change program on the bipartisan, nonprofit policy research organization, Center for Strategic and International Studies.
“There are countless debates about when ‘peak demand’ will occur, but in the intervening time, global oil consumption is near an all-time high. The biggest oil and gas producers in the USA see an extended pathway for oil demand,” Cahill told CNBC.
Pioneer Natural Resources crude oil storage tanks near Midland, Texas, on Oct. 11, 2023.
Bloomberg | Bloomberg | Getty Images
Africa, Asia driving demand
Globally, momentum behind and investment in clean energy is increasing. In 2023, there shall be $2.8 trillion invested in the worldwide energy markets, in response to a prediction from the IEA in May, and $1.7 trillion of that is anticipated to be in clean technologies, the IEA said.
The rest, a bit greater than $1 trillion, will go into fossil fuels, resembling coal, gas and oil, the IEA said.
Continued demand for oil and gas despite growing momentum in clean energy is on account of population growth across the globe and particularly, growth of populations “ascending the socioeconomic ladder” in Africa, Asia and to some extent Latin America, in response to Shon Hiatt on the USC Marshall School of Business.
Oil and gas are relatively low cost and simple to maneuver around, particularly compared with constructing latest clean energy infrastructure.
“These firms imagine within the long-term viability of the oil and gas industry because hydrocarbons remain essentially the most cost-effective and simply transportable and storable energy source,” Hiatt told CNBC. “Their strategy suggests that in emerging economies marked by population and economic expansion, the adoption of low-carbon energy sources could also be prohibitively expensive, while hydrocarbon demand in European and North American markets, although potentially reduced, will remain a major factor.”
Also, while electric vehicles are growing in popularity, they are only one section of the transportation pie, and lots of the other sections of the transportation sector will proceed to make use of fossil fuels, said Marianne Kah, senior research scholar and board member at Columbia University’s Center on Global Energy Policy. Kah was previously the chief economist of ConocoPhillips for 25 years.
“While there may be lots of media attention given to the increasing penetration of electrical passenger vehicles, global oil demand remains to be expected to grow within the petrochemical, aviation and heavy-duty trucking sectors,” Kah told CNBC.
Geopolitical pressures also play a job.
Exxon and Chevron are expanding their holdings as European oil and gas majors are more more likely to be subject to strict emissions regulations. The U.S. is unlikely to have the political will to force the identical form of stringent regulations on oil and gas firms here.
“One might speculate that Exxon and Chevron are anticipating the European oil majors divesting their global reserves over the subsequent decade on account of European policy changes,” Hiatt told CNBC.
“They are also betting domestic politics won’t allow the U.S. to take significant latest climate policies directed specifically to restrain or limit or ban the extent of U.S. oil and gas domestic production,” Amy Myers Jaffe, a research professor at Recent York University and director of the Energy, Climate Justice and Sustainability Lab at NYU’s School of Skilled Studies, told CNBC.
Goldstein expects the ever-expanding U.S. national debt will eventually put all types of presidency subsidies on the chopping block, which he says may even profit firms resembling Exxon and Chevron.
“All subsidies shall be under enormous pressure,” Goldstein said, the intensity of that pressure dependent on which party is within the White House at any given time. “By the way in which, which means the massive financial oil firms will have the opportunity to weather that environment higher than the smaller firms.”
Also, sanctions of state-controlled oil and gas firms in countries like those in Russia, Venezuela and Iran are providing Exxon and Chevron a geopolitical opening, Jaffe said.
“They likely hope that any geopolitically driven market shortfalls to return may be filled by their very own production, even when demand for oil overall is reduced through decarbonization policies around the globe,” Jaffe told CNBC. “Should you imagine oil just like the game of musical chairs, Exxon Mobil and Chevron are betting that other countries will fall out of the sport whatever the variety of chairs and that there shall be enough chairs left for the American firms to take a seat down, every time the music stops.”
An oil pumpjack pulls oil from the Permian Basin oil field in Odessa, Texas, on March 14, 2022.
Joe Raedle | Getty Images News | Getty Images
Oil that may be tapped quickly is a priority
Known oil reserves are increasingly worthwhile as European and American governments look to limit the exploration for brand spanking new oil and gas reserves, in response to Hiatt.
“Notably, each Pioneer and Hess possess attractive, well-established oil and gas reserves that supply the potential for significant expansion and diversification for Exxon and Chevron,” Hiatt told CNBC.
Oil and gas reserves that may be dropped at market relatively quickly “are the perfect candidates for production when there may be uncertainty concerning the pace of the energy transition,” Kah told CNBC, which explains Exxon’s acquisition of Pioneer, which gave Exxon more access to “tight oil,” or oil present in shale rock, within the Permian basin.
Shale is a form of porous rock that may hold natural gas and oil. It’s accessed with hydraulic fracking, which involves shooting water mixed with sand into the bottom to release the fossil fuel reserves held therein. Hydrocarbon reserves present in shale may be dropped at market between six months and a 12 months, where exploring for brand spanking new reserves in offshore deep water can take five to seven years to tap, Jaffe told CNBC.
“Chevron and Exxon Mobil are looking to scale back their costs and lower execution risk through increasing the share of short cycle U.S. shale reserves of their portfolio,” Jaffe said. Having reserves that are easier to bring to market gives oil and gas firms increased ability to be conscious of swings in the worth of oil and gas. “That flexibility is attractive in today’s volatile price climate,” Jaffe told CNBC.
Chevron’s purchase of Hess also gives Chevron access in Guyana, a rustic in South America, which Jaffe also says is desirable since it is “a low price, near home prolific production region.”
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