Fossil companies have a poor track record anticipating future energy demand and build “unlikely assumptions” into their forecasts, creating jeopardy for investors and inhibiting action on climate change, Oil Change International and Greenpeace conclude in a report released yesterday.
“Companies like ExxonMobil, Shell, and BP routinely use their in-house energy forecasts to justify investments in multi-decade, high-cost projects, from the Arctic to the tar sands.” But “while the companies present their published forecasts as objective analyses, the forecasts rather reflect the future they want us to believe in,” the two research organizations state.
The organizations’ analysis of fossil majors’ current approach to energy futures analysis shows “that the companies are highly vulnerable to disruption by clean energy technologies, and that their forecasts are playing an unhelpful role in the climate debate.”
The report charges that oil companies are “selectively skeptical about technology”, showing “systematic bias” in their renewable energy forecasts, expressing greater pessimism for electric vehicle uptake than the auto industry, and presenting “implausible forecasts of technology costs”. It states that the fossils’ incorrect forecasts “give false confidence while masking underlying trends”, ignoring political drivers of a changing energy system and encouraging investors to do the same.
“The companies have repeatedly underestimated growth in renewable energy,” the organizations note. “For example, ExxonMobil’s Outlook in 2005 projected that wind and solar would account for 1% of total world energy production by 2030. Wind and solar achieved this share in 2012, after seven years rather than 25. In 2010, as this underestimate had become clear, ExxonMobil predicted that wind and solar would then reach 1.5% in about 2022, a level that was in fact reached in 2016.”
But ever so strangely, the fossil analyses “are not skeptical of technologies that would boost their business, such as fracking, petrol/diesel engine efficiency, or CCS [carbon capture and storage],” the authors note. “The continued growth of oil and gas faces structural challenges, but these are glossed over or (more often) ignored, in contrast to the challenges for clean energy technologies.”
These gaps in fossils’ analysis add up to significant risk for investors, Oil Change and Greenpeace warn. “The history of technological change is littered with companies who confidently but mistakenly believed there would be ever-growing demand for their product. Think of Kodak, or Blockbuster,” they write. Oil companies are still investing their shareholders’ money in projects expected to break even in 15, 20, or 25 years. But “even a relatively small decrease in demand could translate into falling prices during that period, and delay breakeven or reduce returns.”
Moreover, by creating “a fatalism that fossil fuels will necessarily dominate the energy mix for decades to come,” the industry forecasts produce a lose-lose for investors. “Climate change creates the greater risk to investment portfolios,” the organizations write. So “if the forecasts are wrong, investors stand to lose on their oil investments. But if they are right, long-term investors stand to lose on the rest of their portfolio. This is why it is vital that investors engage with companies on their energy forecasts.”