I guess my point here is they cannot and will not solve it - they just need to exit and let energy move on - by exiting the renewable cleantech sector at least we can say they have given up - disappointing- but at least we don’t have to listen to their theories of the new energy system anymore - they’ve been subbed off
As the IEA show energy growth has decoupled from fossil fuels growth for a while now - also investment in clean energy is a fair chunk of eg Chinas GDP growth now
I reviewed your comments -well links - i disagree - and I will continue to write - all best and look forward to your original researched work at some point
Eroi is dropping for oil. It’s also getting too costly to extract and doesn’t cost enough to buy to support investment in new technology. I don’t think the shift is driven by progress. I also don’t think renewables are where they need to be to really step up and provide. I hope i’m wrong but we could be looking at an energy crisis
Interesting comment - i am more optimistic- the EROI of renewables - the energy return on investment, for other readers - is vastly better than extractive oil and gas and will only get better - and oil and gas worse - I think that is now becoming clear and I do think in transport and power - 50% of energy use - we are seeing the wind / solar - battery tech (WSB) becoming mainstream - recall 65% of oil and gas is wasted as CO2 and heat - so we only need a third of the energy we use today to meet requirements- and WSB getting there fast - so I am hopeful
I like the positivity. I hope you’re right! It’s not my field, i just (very subjectively) felt like there were a ton of headlines about the failings of renewables to provide home electricity in European countries over the last year.
Yeah, China seems to be doing some great stuff with Sponge cities and other smart ways to improve the small water cycle and increase resilience in the face of climate change
Great work. To what extent is the same in terms of how they mobilise revenues in absolute rather than percentage terms. Asking, because over this period they experienced windfall profits which, levies notwithstanding, were likely to be redistributed to shareholders and financialised rather than invested. So in absolute terms, it would still be possible to increase O&G capex while also increasing the proportion of revenues they take out of the business.
It's a good point. Take Shell for example - They have had good profits, but not exceptional, they tend to talk about $50/bbl break-even, and $75/bbl healthy - so a typical cycle in the past 5 years. I noted that they now send 50% back to shareholders versus 20-40% 5 years ago. It is still about $11-12bn pa, but that is down from over $20bn 10 years ago, so $25bn in real terms in 2015 etc.
This amount of capex cutting has consequences. Another metric pairing to use is reserves to production ratio and reserves replacement ratio.
Simply put Shell for example has about 4 billion barrels of oil and gas (mainly gas) reserves, and produces about 0,5bn barrels per year. Hence 8 years of reserves to fill production - unless it replaces reserves (or cuts production).
If it replaces its reserves 100% per year, it can keep going indefinitely at 8 years.
And last few years it has stuck at about 8 years - but if you note in my piece Shell has reduced production by 33% as its old fields decline at about 6-8% pa.
Hence reserves must have fallen by this amount too.
And yes - the reserves replacement over the past three years was not 100%, but 50%.
Without capex and new discoveries and new development, it is spending capex at lower rates just to stem decline, and not even that.
So - it is leaving the energy battlefield and winding down. Aiming for niche profits in LNG etc - hence able to downsize workforce by 20% etc and focus on legacy assets and trading.
There is a stakeholder group for this, but more generally we are on the slow prt of the decline now where year to year changes seem seems limited - until suddenly - pop!. You cannot cut your capital investments by 50% and replace your reserves only 50% for many years before the reservoirs decline come for you. At pace.
Looks like they're just maxing out at the cashpoint before it all comes to an end then. Financialisation is also pretty normal now, with owners and execs taking large equity and cash out rather than invest, so it could just be the sector's process of financialisation. But equally plateauing demand+investment in more supply = lower profits so why would you?
Txs for your valuable and hopeful message. The change is happening in the power sector, mobility. And the realisation that change is required is clear in other sectors.
I’m curious how you see this trend connecting to overall economic growth. Energy is tied very closely to GDP so does this portend an overall slowing or reversal of growth? I think we can have a civilization with renewables, just not the current energy hungry one we enjoy now.
As the IEA show energy growth has decoupled from fossil fuels growth for a while now - also investment in clean energy is a fair chunk of eg Chinas GDP growth now
From what I can see Shell is also moving to more trading instead of production and reserves replacement.
They have been increasing LNG sales and intend to keep increasing LNG sales the coming years, and keep their oil product sales flat.
That is a less capital intensive and more flexible way of operating and therefore less risky in a world that is in transition....or not. Keeping options open and hanging around on the battlefield
Shells strategy may well be as you say but there are many ways to leave the battlefield- niche trading in a potentially oversupplied market hardly a transformative approach to energy - more a quiet bowing out
Thanks Nick - the GS report covered the main IoCs plus some of the larger NOCs - the latter are more difficult to study as they don’t file standard accounts - but most of them have major payments to state governments to consider rather than eg buy backs etc . That said NOCs are the biggest capex spenders by far so the field is now tilted even more heavily to OPEC output dominance for the future as the IOCs reign it in - IEA has noted the details on this I think in their latest WEO -
Interesting but I don’t understand why they prefer exiting energy rather than hiring new staff and turn to renewables ? If they have cash wouldn’t that be a better strategy? How can shareholders be happy with a firm that let itself die on purpose ?
Indeed - they have no skills to do this in my opinion - energy evolves? Corporations may or may not - they don’t die on purpose but by changes in the environment they are in - oil companies building solar panels well ? Nope 👎
That is their strength- oil as commodity may be on a structural decline - electrotech as a commodity for the long term is an energy game changer - everywhere for the long long term
Unfortunate that they're pivoting to making the rich even richer instead of helping to solve the climate crisis they caused
I guess my point here is they cannot and will not solve it - they just need to exit and let energy move on - by exiting the renewable cleantech sector at least we can say they have given up - disappointing- but at least we don’t have to listen to their theories of the new energy system anymore - they’ve been subbed off
https://www.iea.org/commentaries/the-relationship-between-growth-in-gdp-and-co2-has-loosened-it-needs-to-be-cut-completely
As the IEA show energy growth has decoupled from fossil fuels growth for a while now - also investment in clean energy is a fair chunk of eg Chinas GDP growth now
https://www.carbonbrief.org/analysis-clean-energy-contributed-a-record-10-of-chinas-gdp-in-2024/
- so as the new system grows energy gets more efficient - manufacturing vs extraction
I reviewed your comments -well links - i disagree - and I will continue to write - all best and look forward to your original researched work at some point
many thanks Pol - progress underway
Eroi is dropping for oil. It’s also getting too costly to extract and doesn’t cost enough to buy to support investment in new technology. I don’t think the shift is driven by progress. I also don’t think renewables are where they need to be to really step up and provide. I hope i’m wrong but we could be looking at an energy crisis
Interesting comment - i am more optimistic- the EROI of renewables - the energy return on investment, for other readers - is vastly better than extractive oil and gas and will only get better - and oil and gas worse - I think that is now becoming clear and I do think in transport and power - 50% of energy use - we are seeing the wind / solar - battery tech (WSB) becoming mainstream - recall 65% of oil and gas is wasted as CO2 and heat - so we only need a third of the energy we use today to meet requirements- and WSB getting there fast - so I am hopeful
I like the positivity. I hope you’re right! It’s not my field, i just (very subjectively) felt like there were a ton of headlines about the failings of renewables to provide home electricity in European countries over the last year.
Also China - lacking fossil fuels they have rebuilt energy literally from the ground up - see my next post to come -
Yeah, China seems to be doing some great stuff with Sponge cities and other smart ways to improve the small water cycle and increase resilience in the face of climate change
A ton of headlines is right, but the reality is the opposite.
Genuinely, with hope in my heart, can you provide some links? Sometimes it’s hard for me to see right with all of the cultural dissonance.
Have a look at https://ember-energy.org and https://ourworldindata.org/renewable-energy
Well many thanks - as founder of Ember and we have the brilliant Hannah Ritchie of OWID on our advisory board I am going to be a fan of your comment !
Great work. To what extent is the same in terms of how they mobilise revenues in absolute rather than percentage terms. Asking, because over this period they experienced windfall profits which, levies notwithstanding, were likely to be redistributed to shareholders and financialised rather than invested. So in absolute terms, it would still be possible to increase O&G capex while also increasing the proportion of revenues they take out of the business.
It's a good point. Take Shell for example - They have had good profits, but not exceptional, they tend to talk about $50/bbl break-even, and $75/bbl healthy - so a typical cycle in the past 5 years. I noted that they now send 50% back to shareholders versus 20-40% 5 years ago. It is still about $11-12bn pa, but that is down from over $20bn 10 years ago, so $25bn in real terms in 2015 etc.
This amount of capex cutting has consequences. Another metric pairing to use is reserves to production ratio and reserves replacement ratio.
Simply put Shell for example has about 4 billion barrels of oil and gas (mainly gas) reserves, and produces about 0,5bn barrels per year. Hence 8 years of reserves to fill production - unless it replaces reserves (or cuts production).
If it replaces its reserves 100% per year, it can keep going indefinitely at 8 years.
And last few years it has stuck at about 8 years - but if you note in my piece Shell has reduced production by 33% as its old fields decline at about 6-8% pa.
Hence reserves must have fallen by this amount too.
And yes - the reserves replacement over the past three years was not 100%, but 50%.
Without capex and new discoveries and new development, it is spending capex at lower rates just to stem decline, and not even that.
So - it is leaving the energy battlefield and winding down. Aiming for niche profits in LNG etc - hence able to downsize workforce by 20% etc and focus on legacy assets and trading.
There is a stakeholder group for this, but more generally we are on the slow prt of the decline now where year to year changes seem seems limited - until suddenly - pop!. You cannot cut your capital investments by 50% and replace your reserves only 50% for many years before the reservoirs decline come for you. At pace.
Looks like they're just maxing out at the cashpoint before it all comes to an end then. Financialisation is also pretty normal now, with owners and execs taking large equity and cash out rather than invest, so it could just be the sector's process of financialisation. But equally plateauing demand+investment in more supply = lower profits so why would you?
Yup - a sheepish exit after all that century long sound and fury - hey ho
Sometimes the baddies need to be allowed to exit quietly rather than fight until the end.
Txs for your valuable and hopeful message. The change is happening in the power sector, mobility. And the realisation that change is required is clear in other sectors.
Best regards, Pol Knops
I’m curious how you see this trend connecting to overall economic growth. Energy is tied very closely to GDP so does this portend an overall slowing or reversal of growth? I think we can have a civilization with renewables, just not the current energy hungry one we enjoy now.
https://www.iea.org/commentaries/the-relationship-between-growth-in-gdp-and-co2-has-loosened-it-needs-to-be-cut-completely
As the IEA show energy growth has decoupled from fossil fuels growth for a while now - also investment in clean energy is a fair chunk of eg Chinas GDP growth now
https://www.carbonbrief.org/analysis-clean-energy-contributed-a-record-10-of-chinas-gdp-in-2024/
- so as the new system grows energy gets more efficient - manufacturing vs extraction
From what I can see Shell is also moving to more trading instead of production and reserves replacement.
They have been increasing LNG sales and intend to keep increasing LNG sales the coming years, and keep their oil product sales flat.
That is a less capital intensive and more flexible way of operating and therefore less risky in a world that is in transition....or not. Keeping options open and hanging around on the battlefield
Production is down 30% over 5 years as noted
Shells strategy may well be as you say but there are many ways to leave the battlefield- niche trading in a potentially oversupplied market hardly a transformative approach to energy - more a quiet bowing out
Great article, many thanks. Can you share which oil companies the Goldman report covers? What actions from NOCs impact on this topic?
Thanks Nick - the GS report covered the main IoCs plus some of the larger NOCs - the latter are more difficult to study as they don’t file standard accounts - but most of them have major payments to state governments to consider rather than eg buy backs etc . That said NOCs are the biggest capex spenders by far so the field is now tilted even more heavily to OPEC output dominance for the future as the IOCs reign it in - IEA has noted the details on this I think in their latest WEO -
cheers
http://www.nigelsouthway.org/storage/01JQYM1X7KSRE3RJM6RDHZJQ1P.pdf
https://www.youtube.com/watch?v=7j7jU3cwDQw
https://www.youtube.com/watch?v=7j7jU3cwDQw
https://www.youtube.com/watch?v=dN_ARfPY9rY&t=449s
You are welcome you your view - I have laid out mine and I disagree with your thesis - but it’s your money
Wow.. your response means that you are not interested in facts or the truth… shame.
Why bother writing such an article if you wont review it against other facts?
The reason for the investment hold back is that they are reacting to foolish government policies that are pushing us all in the wrong direction.
As the use of S&W increase so does the cost of energy… time to stop the nonsense…..
http://www.nigelsouthway.org/storage/01JQYM1X7KSRE3RJM6RDHZJQ1P.pdf
https://www.youtube.com/watch?v=7j7jU3cwDQw
https://www.youtube.com/watch?v=7j7jU3cwDQw
https://www.youtube.com/watch?v=dN_ARfPY9rY&t=449s
Interesting but I don’t understand why they prefer exiting energy rather than hiring new staff and turn to renewables ? If they have cash wouldn’t that be a better strategy? How can shareholders be happy with a firm that let itself die on purpose ?
Indeed - they have no skills to do this in my opinion - energy evolves? Corporations may or may not - they don’t die on purpose but by changes in the environment they are in - oil companies building solar panels well ? Nope 👎
Renewables have been commodified to the point where there’s not much margin. Isn’t that the main reason for their lack of interest?
That is their strength- oil as commodity may be on a structural decline - electrotech as a commodity for the long term is an energy game changer - everywhere for the long long term