As Oil Prices Rise, Resources Drop,
Companies Considering Renewable Energy
by Alan B. Nichols
The sharp spike in gasoline prices, particularly after Hurricane Katrina, has triggered charges that oil companies are engaged in price gouging and enjoying windfall profits at the public’s expense. Others cite the warnings that the era of easy oil is over, and moreover, if the world is to save itself from global warming, we need to curtail our addiction to fossil fuels and make a major commitment to renewable energy.
There have been reported cases of a few gas stations gouging their customers, but there is scant evidence of oil company profit hoarding, according to analysts, who contend that the rise in gas prices is simply the result of marketplace forces of supply and demand. Nevertheless, revenues among the oil behemoths are robust.
So what are the oil giants doing with their profits? Aside from continued oil exploration, are they hedging their bets by investing more on the research and development of new technologies, principally renewables—energy sources that include biomass, wind, geothermal, tidal and solar energy? A quick survey of the major oil companies reveals that all of them are investing in these new technologies, albeit wit
h a tiny fraction of their overall revenues. They see renewables as a growing part of the future energy mix but point out that the technology to make these sources commercially viable on a mass scale is still years away.
According to Jeremy Cohen, vice president of external affairs for Shell Renewables/Shell Hydrogen, the Shell Oil Co. invests roughly 1 percent of its revenue on renewables. “Renewables are an important part of our energy portfolio. Our corporate structure is composed of five core businesses and renewables is one of them, reflecting our view of how important renewables are. As we go forward, we need a lot more diversity in the energy mix. We develop our business strategies by developing scenarios, and we estimate that by 2050, renewables will be one-third of our energy mix.”
Jim Davis, president of Chevron Energy Solutions (CES), a subsidiary of Chevron, conducts energy audits and retrofits businesses, government entities, schools and universities to improve their energy efficiency and significantly reduce and manage energy consumption. Solutions include installing solar panels, on-site fuel cell-based power plants, cogeneration and other off-grid energy sources.
“Chevron is developing an increasingly diversified energy portfolio, which includes alternative and renewable energy sources, to complement and reduce the nation’s overall reliance on traditional hydrocarbon-based energy,” said Davis. “For instance, Chevron is using solar and wind power at two facilities to augment traditional energy sources.”
Annual CES revenue is about $200 million and company executives say they expect to invest approximately $110 million a year in the short term on renewable energy projects, according to Red Herring, a technology magazine, which noted that Chevron’s 2004 year profit of $13.33 billion was nearly double that of a year earlier. The company had revenue of $150.87 billion in 2004, a 26 percent increase over the previous year.
Some observers say that the search for commercially viable renewables should be more urgent, given the alleged link between fossil fuel burning and global warming. “For purposes of staving off the dangerous effects of climate change, [oil companies] are not going fast enough to diversify their portfolios,” said John Galloway, an energy analyst at the Union of Concerned Scientists, in the Red Herring article.
By revenue, number of employees and other measures, Marathon Oil Corp. is a lot smaller than the Shells, BPs, Exxons and Chevrons of the world. “Our primary focus is on developing gas and oil,” said Marathon Director of External Communications Paul Weeditz. “We have no campaign to develop alternative energy sources, but we are watching that sector with keen interest. However, we are going to be a fast follower of others.” If renewables and alternate energy sources prove viable from a market point of view, he said, “We will jump in.”
Marathon is putting many of its eggs in the natural gas basket. It sees great potential in developing technology to bring to market natural gas from remote localities where the infrastructure to transport gas has not yet been developed. In partnership with another company, it has a pilot plant in Tulsa, Okla., where it is experimenting with processes to liquefy natural gas on a commercially viable scale. The process involves freezing the gas to 260 degrees below zero, at which point it turns into liquid. Special liquefied natural gas (LNG) tankers are required to transport it. “Technology and economics of scale are making investment in remote locations viable,” according to Weeditz.
Overall, British Petroleum (BP) has heavily invested in renewables, notably solar energy development. Its facilities include a plant in Frederick, Md., that manufactures photovoltaic cells. Jerry Taylor, director of natural resource studies at the Cato Institute, said, “BP is one of the largest corporate entities engaged in solar power development. They are a major player in that industry.”
Exxon Corp., by contrast, invests modestly in renewables research, according to Taylor, who said the company has put several hundred million dollars into a joint research effort with Stanford University to develop hydrogen-powered fuel cells. “Exxon doesn’t think that the renewables market will be attractive for the indefinite future.”
According to Gregg Easterbrook, a visiting fellow at the Brookings Institution, oil companies would be in the renewables market in a minute if they saw it would be profitable, but they are gambling that it won’t be in the foreseeable future. According to Easterbrook, if ethanol could be made in high volumes and delivered through the existing delivery infrastructure, it would entice the oil giants to go into ethanol production in a big way.
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