Apr 8, 2009

Oil Giants Loath to Follow Obama’s Green Lead

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Oil Giants Loath to Follow Obama’s Green Lead

The Obama administration wants to reduce oil consumption, increase renewable energy supplies and cut carbon dioxide emissions in the most ambitious transformation of energy policy in a generation.

But the world’s oil giants are not convinced that it will work. Even as Washington goes into a frenzy over energy, many of the oil companies are staying on the sidelines, balking at investing in new technologies favored by the president, or even straying from commitments they had already made..........................

“In my view, nothing has really changed,” Rex W. Tillerson, the chief executive of Exxon Mobil, said after the election of President Obama.

“We don’t oppose alternative energy sources and the development of those. But to hang the future of the country’s energy on those alternatives alone belies reality of their size and scale.......................”

“The scale of their alternative investments is so mind-numbingly small that it’s hard to find them,” said Nathanael Greene, a senior policy analyst at the Natural Resources Defense Council. “These companies don’t feel they have to be on the leading edge of this stuff.”

Perhaps not surprisingly, most investments in alternative sources of energy are coming from pockets other than those of the oil companies.

In the last 15 years, the top five oil companies have spent around $5 billion to develop sources of renewable energy, according to Michael Eckhart, president of the American Council on Renewable Energy, an industry trade group. This represents only 10 percent of the roughly $50 billion funneled into the clean-energy sector by venture capital funds and corporate investors during that period, he said.

“Big Oil does not consider renewable energy to be a mainstream business,” Mr. Eckhart said. “It’s a side business for them.......................”

Industry executives contend that comparing investments in oil and gas projects with their research efforts in the renewable field is misleading. They say that while renewable fuels are needed, they are still at an early stage of development, and petroleum will remain the dominant source of energy for decades.

In its long-term forecast, Exxon says that by 2050, hydrocarbons — including oil, gas, and coal — will account for 80 percent of the world’s energy supplies, about the same as today............

Despite Washington’s newfound green enthusiasm, industry executives argue that replacing any significant part of the fossil fuel business will take decades, at best. Just to keep up with growth in demand for conventional sources of energy, producers will need to invest more than $1 trillion each year from now to 2030, according to the International Energy Agency.

“Many of these companies see the world is changing,” said Daniel Yergin, the chairman of Cambridge Energy Research Associates and a historian of the industry. “But the challenge for a very large company is to get critical scale. People tend to forget the scale of the energy business.......................”

The world consumes about 85 million barrels of oil a day. The United States alone would require six times its arable land — and 75 percent of the world’s cultivated land — to supply its needs with ethanol made from corn, according to calculations by Vaclav Smil,an energy expert at the University of Manitoba.

More realistic, and modest, targets are proving tough to reach. Congress’s ethanol mandate, which requires oil companies to use 36 billion gallons of ethanol by 2020, cannot be achieved, experts say, without major technological advances that are still years away.

To increase supplies, most companies are looking to tar sands in Canada or converting coal or natural gas into liquid fuels, technologies that emit far more carbon dioxide than conventional oil does........................

John M. Deutch, a professor at the Massachusetts Institute of Technology and a former director of central intelligence, said there was little point in criticizing oil companies without first establishing federal rules that set a price on carbon dioxide emissions. Once that happens, he said, companies will adapt their strategies.

“What role will oil companies play in the future in alternatives to conventional hydrocarbon? The correct answer is nobody knows,” Mr. Deutch said. “The important thing is for the government to establish a carbon policy. You can be absolutely confident that oil companies will pursue that, as will any other companies........................”

In the end, many analysts say they believe that oil companies are waiting for a winning technology to emerge. Alan Shaw, the chief executive of Codexis, a biotechnology company in Silicon Valley that works with Shell, said oil companies were not blind to the new political reality but they were also in the business of making a profit.

“Don’t lose heart with Big Oil,” Mr. Shaw said. “They aren’t at a point where they are ready to invest yet, but they are getting there. I think in the next 10 years, they will invest hundreds of times more than they have in the past 10 years.”

Published: April 7, 2009

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