The war in Ukraine has been good for oil companies.
Look no further than Shell’s first quarter earnings. It made record profits in the first three months of the year: $9.1 billion, nearly three times what it made in the first quarter of 2021.
Shell, the world’s largest private oil trader, took advantage of high global energy prices and market volatility, my colleague Stanley Reed explained. The company’s chief executive, Ben van Beurden, made a note of the Russian invasion of Ukraine. He said it had shown “that secure, reliable and affordable energy simply cannot be taken for granted.”
The rest of us are paying for those profits in at least two ways. Gas prices are way up, which means the price of everything else that relies on gas to get from point A to point B, is way up — including food. I’m feeling the pinch at the grocery store.
To state the obvious, the global economy is built on fossil fuels. Still.
We’re also paying for the damage caused by the combustion of oil and gas, in the form of greenhouse gases in the atmosphere that warm the planet and exacerbate extreme weather. Consider the heat wave in India and Pakistan and the drought in parts of Chile and California. You know this. You’ve been reading this newsletter.
Shell isn’t the only oil company having a very good first quarter. Exxon Mobil doubled its profits from the year earlier period, reporting $5.48 billion last week. Chevron boosted its profits to $6.3 billion. BP’s $6.2 billion first quarter profits were the highest in more than a decade. (In a statement, Exxon noted it doesn’t have the power to set prices of oil and gasoline.)
So what do these upbeat earnings mean for our future on a climate-changed planet?
History moves in a jagged line.
This time last year, Big Oil was under unusual pressure. A court in the Netherlands, where Shell was based, told Shell to sharply cut greenhouse gas emissions from all its global operations by 2030 — in effect, to change its core business — on climate grounds. (Shell said it would fight the ruling. It has since moved its headquarters from the Netherlands to Britain.)
There was shareholder pressure, too. Exxon Mobil faced an insurrection by a tiny activist shareholder group pressing the company to pivot away from fossil fuels faster.
Also last May, the International Energy Agency declared that no new oil and gas projects should be built if the world is to neutralize carbon emissions by midcentury and slow down climate change.
Big Oil’s future is still uncertain.
Two things can be true at the same time. That’s how the world works.
It’s true that oil company profits are booming. It’s also true that the energy transition away from fossil fuels is well underway.
Oil companies aren’t rushing to drill for more oil. Not quite yet. They’re cautious, as my colleague Clifford Krauss wrote recently. They fear prices won’t remain high for long enough for them to justify opening new wells. Many investors are instead opting to put their money on clean energy. Exxon isn’t planning on changing its drilling strategy, as Cliff explained, based on what it said was “high short term demand.”
Nor does Chevron expect these high oil prices to last forever. “There is a lot of uncertainty,” its chief executive, Michael Wirth, said.
There’s still mounting pressure on Big Oil.
Shareholders are increasingly concerned about climate change. Asset managers, including BlackRock, the world’s biggest, have set their own climate targets. The United States Securities and Exchange Commission is poised to release new rules compelling companies to release more data about their climate plans.
In the past couple of weeks, amid news of oil company profits, came renewed calls for extra levies. “Anyone wondering why US and Europe don’t tax windfall profits?” Robert Reich, a former US secretary of labor, wrote on Twitter.
Keep an eye on what these companies do next.
One big question for me is whether the oil companies will pump their profits into the energy transition.
Oil companies are diversifying their portfolios to add renewable energy sources, like wind farms, and investing in carbon capture technologies. But by and large, they’re not budging from their core business: the extraction of fossil fuels.
In a statement to my colleague Manuela Andreoni, Shell said it’s transforming its business to reduce emissions from its oil operations. Exxon said its future investments “will keep pace with the energy transition.”
Shell spent $2.4 billion, or 13 percent of its investments, toward the energy transition last year. In the first quarter of 2022, the company spent $985 million on energy transition. That’s barely a tenth of its first quarter profits.
Shell’s climate targets include reducing the carbon intensity of its operations, which means that it could still continue to expand oil production, but with lower emissions for every barrel.
Essential news from The Times
Not in my backyard: The US will need new infrastructure to meet its climate targets. But a dispute over hydroelectricity on the Canadian border shows it won’t be easy to build it.
The ‘new computer science’: John Doerr, the tech venture capitalist, is donating $1.1 billion to fund a new climate school at Stanford University.
Visible from space: Images captured by a National Oceanic and Atmospheric Administration satellite show the destructive power of wildfires and a dust storm.
Uncharismatic carbon sinks: The Times is publishing a special series on peatlands. Start with this article, about a Scottish billionaire’s efforts to save them.
Floating life: Plastic waste has created great garbage islands in the ocean. New research shows they are now full of sea creatures.
From outside The Times
Many countries have stopped accepting waste exports from the United States. Now the recycling rate is dropping, Reuters reported.
India’s brutal heat wave has a new victim: mangoes. Much of the country’s output is exported, the Gaon Connection explained, so the low yields may affect several countries.
The Biden administration has unveiled a plan to address the effects of pollution and other environmental issues on sensitive communities, according to E&E News.
The AP tells the story of a remote Indigenous community in the Amazon that is using social media to pressure authorities to stop the destruction of their land.
A nine-inch bat flew from Russia to the French Alps, a record that has been fuddled researchers, National Geographic reported.
Before you go: Burning through history
Simon Romero, a national correspondent for the Times, never expected to cover raging wildfires in northern New Mexico, where he grew up. But a megafire has ravaged more than 165,000 acres of the region this year, threatening a centuries-old culture. Fighting the fire is becoming increasingly difficult, and challenging strategies that once worked. Many of the fleeing people are descendants of Hispanic settlers in New Mexico, who arrived long before the United States existed as a country. Their communities have survived economic slumps and conquering armies that burned down villages during the Mexican-American war. They hope to overcome this disaster, too.
Thanks for reading. We’ll be back on Tuesday.
Manuela Andreoni, Claire O’Neill and Jesse Pesta contributed to Climate Forward.
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