Despite the best efforts of the puling potentate of Pennsylvania Avenue, coal has continued its steady decline as a source of power in the United States and around the world as the cost of renewable energy and grid scale storage continue to fall. Now the same slow slide into oblivion is beginning for oil as well. In an announcement this week, Royal Dutch Shell said it will cut up to 9,000 jobs — about 10% of its workforce — between now and the end of 2022 as it seeks to transition away from oil and toward renewable energy. About 1,500 of those jobs involve people who had already agreed to leave the company voluntarily.
“We have to be a simpler, more streamlined, more competitive organization that is more nimble and able to respond to customers,” CEO Ben van Beurden said in a statement. “Make no mistake: this is an extremely tough process. It is very painful to know that you will end up saying goodbye to quite a few good people,” he added. According to CNN, Shell expects the overhaul to save the company as much as $2.5 billion by 2022.
A precipitous drop in demand for oil and gas during the coronavirus pandemic is partially to blame for the transition. In June, the company took a $22 billion write down of its assets and significantly reduced its future oil price forecasts. It has also committed to achieving net zero carbon emissions from its own operations by 2050. [Note: that doesn’t mean net zero for the products it sells. It means net zero for the process of extracting petroleum and turning it into commercial products.]
Van Beurden said the company will still produce some oil and gas by 2050 but will “predominantly” sell low carbon electricity, low carbon biofuels and hydrogen by that date. “We have to be net zero in all our operations, which means major changes at refineries, chemicals sites, on-shore and offshore production facilities. But it also means that we have to change the type of products that we sell,” he added.
CNN reports the company will use its oil exploration and production business to generate cash that can be invested in lower carbon products. That’s pretty much what legacy automakers are doing as well — using the profits from selling gasoline and diesel powered vehicles to pay for the development of electric vehicles. The problem comes when startups like Tesla come along which have no legacy automobiles to sell, putting the old guard at risk of going out of business entirely.
Van Beurden says his company will no longer focus on how many barrels of oil or cubic feet of gas it produces and will shrink its refining business. “We will keep only what is strategically essential to us and integrate those refineries with our chemicals business, which we plan to grow.”
Plastics To The Rescue?
Before you think Shell is going all touchy feely in a green sort of way, consider this. Along with the rest of an industry that sees its time in the sun is over, it is planning a major increase in the production of plastics from petroleum to offset some of the lower demand for fuels. A report by the New York Times says oil companies are pushing US trade negotiators hafrto open Africa to more plastic bags and plastic trash. Kenya in particular has an almost complete ban on plastic bags the industry wants overturned.
“We anticipate that Kenya could serve in the future as a hub for supplying U.S. made chemicals and plastics to other markets in Africa through this trade agreement,” Ed Brzytwa, the director of international trade for the American Chemistry Council, wrote in an April 28 letter to the Office of the United States Trade Representative. That proposal would “inevitably mean more plastic and chemicals in the environment,” said Griffins Ochieng, executive director for the Centre for Environmental Justice and Development, a nonprofit group based in Nairobi that works on the problem of plastic waste in Kenya. “It’s shocking.”
With regard to Shell in particular, the New York Times piece points out it operates a 386 acre plastics plant outside Pittsburgh that is billed as a petrochemical hub in Appalachia. Such facilities turn natural gas derived from fracking into millions of plastic bottles, bags, fast food containers, drinking straws, and an assortment of other products made from the seemingly endless supply of cheap shale in America. Nationwide, almost 350 new chemical plants are in the works as part of Big Oil’s life or death bet on plastics as the road to their salvation.
A report by Carbon Tracker questions the “make more plastics” strategy. “The petrochemical industry already faces huge overcapacity, but is planning to spend a further $400 billion on 80 megatons of new capacity. Unless stopped, this will result in continued low prices and stranded assets,” it says.
As Vox points out, plastics have an enormous environmental impact which the industry currently pays nothing for. It’s one of those “untaxed externalities” economists are always talking about. Plastics have become a flash point for environmentalists in many nations and the corporate world is not quite so willing to embrace them now as it was a few years ago.
“Huge consumer product companies like Unilever are phasing out plastics And the public is turning against them,” Vox says. “If existing solutions are fully implemented, growth in plastics could fall to zero. And if that happens, then there is no remaining source of net oil demand growth and 2019 will almost certainly prove to be the year of peak fossil fuels.” Carbon Tracker says, “To have one sector planning on doubling its carbon footprint while the rest of the world plans to phase out emissions clearly makes no sense.” Then again, if things made sense, all industries would have to bear the cost of the waste products they create. Only in a deeply flawed economic system would avoiding those costs be condoned.
Carbon Tracker adds that the public and lawmakers are becoming more concerned and active on climate change, and “it is simply delusional for investors in the plastics sector to believe that the sector will be immune from attempts to resolve this issue.” All of which makes Shell’s protestations that it is going to reform itself into a lean green renewable energy machine seem more than a little suspect. An old dog may be able to learn new tricks but can a leopard really change its spots?
The Take Away
No one takes any pleasure from the prospect of job losses. They hurt local communities and are hard on the families involved. The issue is not to preserve jobs in dying industries but rather to help those affected transition to the good paying jobs of the future. No one proposes propping up wheelwrights, spokeshaves, and buggy whip makers, so why try keeping oil industry workers fully employed? The role of government is to protect its citizens in times of need and prepare for the future. Let’s get on with it.