Solar power plants like this one by SunPower are beginning to be a real threat to traditional energy. Image: SunPower.
ExxonMobil Corporation (XOM 0.02%) is unquestionably one of the leaders in the energy industry and is one of the largest companies in the world. The company has created incredible value for investors and the economy by extracting oil and gas around the world. It has done so with no apologies about the impact oil & gas extraction and consumption may have on the environment or the future of the planet.
That's fine if you're a highly successful company and ExxonMobil CEO Rex Tillerson recently said he wouldn't "fake it" when it came to renewable energy, solidifying the company's stance that it would stick to its core business instead of investing in new forms of energy.
I don't question Tillerson's skepticism about global warming or the harm fossil fuel may or may not cause -- but I do question his strategy to eschew new energy technologies in favor of the same old oil and gas his company has been producing for over a century. The downfall of big oil won't come because of global warming; it'll be because big oil doesn't see the force about to disrupt it before it's too late.
Rooftop solar will be on a million homes by the end of 2015. Image: SunPower.
ExxonMobil questions everything about renewable energy
At ExxonMobil's shareholder meeting, Tillerson said he was "not going to fake it" when it came to addressing climate change and carbon dioxide's impact on the globe. When asked about renewable energy he said, "We choose not to lose money on purpose."
It's no secret that ExxonMobil isn't fond of renewable energy, something Total (TTE -0.32%), BP (BP 0.13%), and Royal Dutch Shell (RDS.A) have invested in over the last decade. That strategy is clearly coming from the top as Tillerson's comments indicate.
What's interesting is that ExxonMobil doesn't seem to have any strategy for addressing these up and coming forms of energy. The common theme is bad mouthing the competition, but the backdrop the company is operating in isn't as rosy as some would like it to seem. Will oil & gas really be the best investment in energy 20 or 30 years from now?
Why putting your eggs in one basket is a bad idea
A lot is changing in the energy industry right now. Wind and solar combined to account for 55% of the new electricity generation built in the U.S. in 2014 and with costs declining year after year they're poised to become major forces in the electricity industry.
Electric vehicles, once thought of as a gimmick vehicle only tree huggers could love, are now a formidable force in the auto industry. Tesla Motors (TSLA 12.06%) is worth over $30 billion and its Model S has been names Motor Trend Car of the Year. Every major automaker either has an electric vehicle in production or coming soon. And with all of the investment in electric vehicles and battery storage the cost of batteries is dropping rapidly, which will make them even more competitive against gasoline engines.
While oil & gas still dominate our energy mix today, it's not like consumers are rushing out to consume more oil if they can help it. In the U.S. and Europe there's been a decade long decline in the amount of oil consumed, so ExxonMobil is already losing volume potential even if it's been making more money because of high prices over the same timeframe.
US Oil Consumption data by YCharts
ExxonMobil may want to dismiss the environmental threats to its business, but it's shouldn't dismiss the technologies that could upend demand for its product long-term.
Even car roofs could be sources of energy in the future, like this Ford C-Max Solar Energi. Image: SunPower.
Renewable energy could upend big oil faster than they know
What ExxonMobil shouldn't underestimate is how fast its business can be disrupted. Solar installations alone have doubled annually over the last four years and are now a major threat to utilities. When you add emerging technologies like energy storage we could see solar providing base load energy within just a few years, which would threaten natural gas demand.
Electric vehicles could be even more challenging for big oil companies. Automakers are starting to launch new models for under $30,000, a price point that will bring millions more consumers into the showroom, and technology advancements promise lower prices and longer range in the next few years alone. And the national electric infrastructure is actually bigger than that of oil, so if electric vehicles are affordable and practical consumers will skip the fuel pump for an at-home charger.
Big companies often times have a hard time seeing competitive threats as serious until it's too late. In the case of ExxonMobil I have to wonder if management just isn't taking the threats that exist seriously. Climate change, carbon taxes, or other environmental issues won't be the downfall for ExxonMobil but competitive energy technologies should be. The fact that management is dismissing their threat should be very concerning for shareholders.
