Post New

Reuters recently carried an interview with Darren Woods, CEO of ExxonMobil, who warned that XOM would no longer continue operations in Europe if the recent laws on climate change and windfall profits are put into practice.

I read the entire interview on Apple News, but it requires a Reuters subscription otherwise. Perhaps others can find links to the info. Here's what I found in open links:

***********

"Darren Woods, the CEO of ExxonMobil, has warned that his firm could withdraw from European markets entirely if the EU proceeds with the rollout of the Corporate Sustainability Due Diligence Directive (more commonly known as the CSDDD).

This stringent piece of sustainability legislation would see companies slapped with fines of up to 5% of global revenue, should they controvert its rules. As the world's 13th largest company, any fine incurred by ExxonMobil would be particularly significant.

At the ADIPEC conference in Abu Dhabi, the CEO told Reuters that the CSDDD would have "disastrous consequences" if adopted in its current form.

The directive requires companies operating in the bloc to address human rights and environmental risks across their supply chains, holding firms accountable for harm even in operations outside Europe.

AND

It is the legislation's extraterritorial scope that has Darren particularly concerned.

"What's astounding to me is the overreach not only requires us to do that for the business that we're doing in Europe, but it would require me to do that for all my business around the world, irrespective of whether it touches Europe or not," he says.

The CEO also warned that if European authorities attempt to enforce the legislation globally "it becomes impossible to stay there".

The law demands that large companies implement climate transition plans aligned with the Paris Agreement's goal of limiting global warming to 1.5°C above pre-industrial levels.

Darren described this requirement as technically unfeasible for fossil fuel producers." And European human rights laws aren't doable worldwide.

ExxonMobil is not the only energy company to speak out against the implementation of strong sustainability regulations in Europe. Saad al-Kaabi, the CEO of Qatar Energy, echoed Darren's sentiments at the same conference, threatening to halt all liquefied natural gas shipments to Europe should the EU go ahead with its plans.

Saad, who also serves as Qatar's Energy Minister, told Reuters the company has contingency plans prepared if it decides to stop European deliveries. (Qatar supplies circa 14% of LNG imports to Europe)

"We can't reach net zero, and that's one of the requirements, among other hosts of things," he said during his ADIPEC address.

"Europe needs to understand that, I think, they need the gas from Qatar. They need gas from the US."

***********

The threats from both companies carry significant weight given their position as major European suppliers.

Another law impacting XOM (and other energy companies) is the Euro Union windfall profits tax that basically cuts off the top of the price cycle in terms of profits. Energy companies have learned to navigate through the boom-bust O&G business by making good money, paying down debt and building cash during the up cycle and borrowing to continue operations during the down cycle. It is the net of these two over time that determines the profitability of long term O&G investments.

Woods has already stated that this makes Europe uninvestable, and they are already only investing maintenance capex in Europe. Reuters has already reported efforts to spin off chemical investments.

While the foregoing is specific to XOM and Qatar, I would think the same would apply to many other industrial companies in the Euro Union. Paris 1.5C goals simply can't be met - citizens are unwilling to pay the costs and the reductions in their standards of living required to do so. Try to do so, and you lose the next election. In many cases the technology to do so simply isn't developed and employable in this time period.

If you could be fined 5% of worldwide revenue, mostly outside Europe, would you continue under these rules?

I think this is a Macroeconomic Trend and Risk that deserves more attention than it is getting.

On the BRK board, several posters have talked about pulling out of USA investments because of the current administration's actions. Understandable. But have they also thought what happens if Europe industry is slammed by these rules? Where is left to invest?

I'll be watching. XOM is my second largest holdings beyond BRK. They've been in Europe for over 100 years. But they don't need Europe to survive. And they won't let the Euro Union run their worldwide business. OTOH Europe will need the energy supplies from the O&G industry to survive. They've already experienced what happened when Russian supplies were impacted.

Hopefully calmer heads will reverse these new laws.

So....BP, Shell, and Total say "good, less competition", while Exxon retreats to the US, which is probably it's most profitable market anyway. The CEO has probably been looking at how Ford and GM have been fluffing up their profit margins by abandoning markets outside of North America, and abandoning lower profit segments within the North American market.

Steve

o....BP, Shell, and Total say "good, less competition", while Exxon retreats to the US, which is probably it's most profitable market anyway.

Not that simple Steve.

BP, Shell, and Total don't produce much O&G in the Euro Union. So all their remaining operations outside the US are burdened by bureaucracy, costs, and potential fines that their competitors don't face. And can Shell, BP, and Total meet the Euro Union's energy demands alone? How will other Middle East suppliers react?

I see no reason Chevron won't react similarly to XOM.

Economies still run basically on O&G - both for energy and raw materials. I don't know, but I don't think Euro is self sufficient in energy from European companies. And their Euro based suppliers would be operating at an economic disadvantage.

I think the Euro Union has crapped in its own diaper.

"outside the EU" ........ sorry about that.

Tex

So all their remaining operations outside the US are burdened by bureaucracy, costs, and potential fines that their competitors don't face.

If I read the article correctly, seems there would be an incentive for the EU based companies to abandon the US, due to the requirement for their US operations to meet EU regs, which would hurt their profits, vs US based companies.

And can Shell, BP, and Total meet the Euro Union's energy demands alone?

Refineries change hands from time to time. BP's US refineries were generally built by predecessor companies that BP bought. Not that many years ago, Marathon bought Ashland's downstream assets. The same would happen in the EU, if the European companies thought they needed the extra capacity: buy up the assets of US companies that are abandoning the market. BP could spin off it's US assets into a separate company. I haven't seen the SOHIO brand in decades. I have been noticing an apparent revival of the Amoco brand around metro Detroit, so BP may already be considering a spin-off.

Steve

Darren Woods, the CEO of ExxonMobil


Reality is, Exxon should be put out of business, and the sooner the better.

Perhaps if he got off his advocacy high horse, he'd see something important in life.

I think the Euro Union has crapped in its own diaper.

The EU is walking away from fossil fuels successfully with renewables.

We need to follow suit. We are wasting our time.

Post New

Macroeconomic Trends and Risks FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.