No. of Recommendations: 37
BreckHutHigh previously linked to ExxonMobil’s new energy outlook to 2050.
https://corporate.exxonmobil.com/sustainability-an...I’ve read both the XOM presentation and the Liberty one, including slides. I’m starting a new thread, because I’ll try to summarize some key points from the presentations.
How does this relate to BRK? Their projections certainly are on subjects that will impact Oxy, CVX, and somewhat BHE re future growth in electricity demand and supply. XOM’s growth estimates by country also have economic implications for BRK overall. Finally, I feel that the folks on this board have an interest in this world outlook and implications for both energy supply/costs and combatting climate change. The world of energy is often not well understood by those outside the industry.
To begin, the XOM document provides the long-term outlook on which XOM bases their investment decisions. It is the base case from which they also evaluate downside and upside cases. XOM makes this clear. They’ll invest $28-30 billion annually after the recent acquisition based on these projections.
A lot of analysis and effort goes into the document. And they summarize their conclusions clearly so they can be compared with others. It’s not a PR document. But they do make some blunt statements and projections that I haven’t seen before.
Some key takeaways, over-summarized, from the document. Also some of my comments.
Energy demand for O&G in the Americas, Europe, and other OCED countries will decrease by circa 10% by 2050. Growth in China will offset this keeping the sum of these two groups about flat. Growth in India and other non-OCED countries will provide overall energy demand growth of 15%.
As the presentations make clear, and others have commented, it is the combination of reducing poverty of 4 billion people in the non-OCED countries plus 2 billion growth in population, also centered there, that will drive energy demand growth going forward.
Here is one place where XOM speaks more bluntly. They speak to the impact if we provide enough energy to permit a 50 million BTU supply for each individual. This is 1/3rd of avg. OCED use. That will be enough to provide clean propane for heating food, electrify the country, and promote economic growth. (I had not realized until I read elsewhere about how high mortality rates from particle pollution are in areas that depend upon wood, dung, and other historic biofuels for energy.) XOM simply states that a policy to “keep O&G in the ground” would not be just. “JUST” is a strong word to hear from XOM. They’re putting a lot of effort now on better informing the public. But they rarely preach. They assume that policies will permit these populations to improve their lives.
The overall demand for oil is expected to flatten by the early 30,s. So about at current levels, and not dropping by 2050. That doesn’t mean that more new oil won’t be needed. Without new investments, existing fields will decline by 15% per year due to more being produced from tight rock reservoirs. With added investment in existing fields, the decline rate will be about 8% annually, close to IEA’s projections.
I’ve calculated what a 6% annual drop from 100 million B/D in 2023 would be by 2030. That about lines up with the graph in XOM’s presentation. That’s probably because there is still some existing excess capacity in the Mid-East and Russia. That would bring 2030 supply down to 73 million B/D without new added supplies. Given demand projections, that would rapidly drive up oil prices – more than the OPEC crisis in the 70,s. After that it would get worse as fields continue to decline. The industry has to continue to invest in finding and developing new supplies. As the Red Queen told Alice, “You’ve got to run as fast as you can to stay in the same place.”
Other O&G majors, particularly in the UK, that were moving away from O&G are now realizing this. It’s going to take huge new investments just to maintain current production levels
Natural gas demand is projected to rise by 15% by 2050. That’s driven by moving away from coal and increased demand for petrochemicals plus some economic growth. Supply doesn’t seem as big of a concern to me. Finding large new natural gas deposits has a good success rate compared with oil. But these still take time and money to develop and put on line. Again, you can’t stand still.
I’ve been guilty in the past of underestimating the ability of the O&G companies to develop new technology and supplies. I believe they can do it. Witness very deep water development and the frac revolution as examples. Certain sources of O&G do peak and decline – but new ones and new ways are found. (They had better be if modern civilization isn’t to decline. O&G can’t be replaced by electricity. Now I’m preaching.)
Re efforts to combat climate change, emissions from energy sources are expected to start turning down by 2030, and to drop by 25% by 2050 even after economic growth. XOM’s projections are slightly higher than the IEA STEPS projections until the late ‘40’s but drop below them by 2050.
“The STEPS ;model analyses the current policy landscape to determine what the energy system might look like without new policy initiatives The model’s aim is to illustrate the consequences of existing plans, not to predict how they might change in the future.” So at first glance XOM is assuming business as usual. But a closer analysis suggests they do anticipate policy changes with respect to carbon capture and storage, hydrogen fuels, and biofuels. At least they forecast spending $15 billion over the next five years to progress these technologies. These projects will demonstrate commercial scale economics and technologies. With incentives from recent US legislation, they anticipate a circa 15% ROCE on these large-scale demonstrations. But, they also state that policy must move forward from incentives to market factors for these to become significant on a global basis. To translate – a carbon tax will be required. A true energy transition will be expensive for us all.
Frankly I can’t tell what are the detailed assumptions in their emissions projections. But they clearly state that the above technologies must be implemented to come anywhere near the more optimistic scenarios by the IEA and others. Electricity can’t address the emissions from heavy transportation and industries such as cement, steel, fertilizer, and petrochemicals that make up half the emissions from energy. They’re proceeding as if policy change will happen. We’ll see. But we haven't time to wait, and then develop the technologies.
The foregoing is my attempt to interpret XOM’s position as reflected in their outlook combined with what I know about their plans.
This is getting far too long, so I’ll stop. I hope it provides some understanding of XOM’s energy outlook, and how this is reflected in their business plans.
