Oil Majors’ ‘Sunset’ Could Last a Century, Ex-Fossil Scientist Contends

Fossil fuels are “probably dead,” tar sand/oil sand operations are “not commercially viable,” but the international oil ‘majors’—global private sector giants like Exxon, BP, and Shell—are going to be with us for a long time to come, the latter’s former lead geoscientist argues.

“The majors may have entered old age but they are not dead yet,” writes Jilles van den Beukel, appraising the industry for The Energy Collective. Big international oil companies are being squeezed on some fronts: the currently low price of crude oil, low reserve replacement rates, and exclusion from the U.S. terrestrial oil and gas boom. But van den Beukel points out that many smaller companies active in the fracking-reliant North American unconventional oil play are unprofitable, while many of the majors’ established reserves boast low production and royalty costs. They also deploy capital and technologies capable of tackling some projects that smaller operators cannot.

Van den Beukel forecasts “sustainable’ crude prices in the range of $50 to $80 a barrel, and argues that the majors will opt to profit from extending the life of their existing low-cost reserves, rather than investing in more marginal, high-cost, unconventional fossil deposits. He also asserts that most of the majors’ existing reserves lie inside any hypothetical cap on ‘burnable’ carbon, and so will eventually be recovered.

Nonetheless, he concedes, “political support for oil companies is diminishing. Most governments realize all too well that the tolerance for pollution and risk amongst their voters is minimal.” Once oil prices rebound and begin pumping up profits again, as many observers expect by the end of the decade, van den Beukel warns that the global giants will become tempting tax targets for politicians looking to pay for adaptation to or recovery from the “adverse effects of global climate change.”

Overall, the former Shell geoscientist casts the oil majors as realistic about their long-term fate, but far from despair. “Basically, majors are going into sunset mode,” he writes. Even so, “they expect the energy transition to take the better part of this century, rather than the 25 years envisaged by some NGOs. They will accept a gradual decline of production and safeguard their profitability by being very disciplined in spending capital. Expensive marginal risky projects in new developments will be cut; squeezing production from existing developments will be the priority.”