US Majors Sell Their Brand of Decarbonization

The global energy crisis has not derailed demands for decarbonization, but it has afforded the oil and gas industry some buffer against calls for more immediate and extreme energy transition measures. Arguably, the biggest potential winners are Exxon Mobil and Chevron. The US majors have the opportunity to find a more receptive audience for their brand of decarbonization, which aims to deliver higher oil and gas production to meet still-rising demand — albeit with reduced carbon intensity — while favoring synergistic low-carbon businesses like carbon capture and storage (CCS), hydrogen and biofuels over solar and wind. But there are still skeptics to assuage. In the near term, the hydrocarbon bias has paid off big: Their shares have more than doubled over the past two years amid skyrocketing oil and gas prices, compared to roughly 50%-60% gains for their more transition-minded European peers. But with the investor love affair with hydrocarbons likely fleeting given ever-rising climate risks — and lower forward earnings projections — Chevron and Exxon have reaffirmed commitments to invest billions to decarbonize their oil and gas operations while putting the building blocks in place for material businesses in CCS, hydrogen and biofuels. Some would rather they not: Truist Securities recently decried Exxon’s low-carbon spending given returns of “just over 10% at best, which is not comparable to most traditional energy for years to come.” Yet others question the efficacy of these industry-friendly solutions for opposite reasons — the potential for electrification to leapfrog their use.