The University of Pennsylvania's Wharton School hosted Marvin Odum, outgoing president of Shell, for a discussion on how oil companies are dealing with the current low oil price environment and preparing for a "new normal" in the energy sector.
According to an article on Wharton's website published in late March, "Odum noted that Shell as a company recognizes that the world is in an energy transition — away from a focus on fossil fuels to a mix that places increased emphasis on renewable energy sources, electricity storage and possibly the use of hydrogen." Reinforcing this point further:
A major theme of Odum’s Wharton presentation, [Wharton Professor Arthur] Van Benthem pointed out, was that “although it is going to be very difficult — given the speed at which investment moves — to see a world predominantly powered by renewables by 2050 or so, it is completely wrong for oil and gas companies to say that they don’t have to take renewables very seriously because there are lots of exciting developments there.”
Of course, as Odum correctly points out, the scale of this transition from fossil fuels to clean energy will be enormous -- "not the least because of the scale of the energy system and the trillions and trillions of dollars that have gone into developing that system."
In related news, Odum praised the Paris climate accord as a "significant event in itself … and it builds a certain amount of momentum that will cause decisions to be made." For his part, Odum "said he prefers setting a price on carbon, and noted that the Clean Power Plan was the closest analogue to a price on carbon that the Obama Administration could practically achieve." In fact, Odum says "Shell wants to set a price of CO2 that is 'high enough that it triggers substantial innovation and incentivizes companies to change their practices.'" Also, Odum argues that a price on carbon would give Shell a competitive advantage as it moves away from oil and towards a more diverse energy mix.
Second, and more importantly, with its acquisition of BG, Shell is “moving away from being mostly an oil company with a bit of natural gas, to becoming mostly a natural gas company which happens to do a little bit of oil,” Van Benthem said. Carbon pricing, or something like the EPA’s Clear Power Plan, is “relatively favorable for natural gas producers — and much less so for their competitors that are more oil- or coal-heavy. It certainly puts [Shell] at a competitive advantage compared with other players in the energy industry.
The world is changing fast. Whether oil remains their core business in 20, 30, 50 years is becoming an increasingly pressing question, given both rapid declines in the cost and increased demand of clean energy alternatives. Will oil companies adapt to these changes -- and if so, how quickly? In the end, are oil companies going to find themselves in the "electrons" business, perhaps even more than they remain in the traditional, transportation fuel business? The answers to these questions will have real implications - big ones - not just for the oil industry but for cleantech as well.