ExxonMobil (XOM -2.78%) firmly believes the world will need its oil for a long time. The company doesn't think the global economy will reach its target of achieving net-zero emissions by 2050 by pivoting to lower-carbon sources like renewable energy. That led the company to resist an investor-led effort to have it report on the potential risks from future restrictions on greenhouse gas emissions.
That doesn't mean the oil giant is ignoring the potential threat of climate change to its business. It's taking a balanced approach to continue supplying the world with low-cost fossil fuels while investing in producing the lower-carbon fuels of the future.
An unlikely scenario
ExxonMobil is pushing back on a shareholder proposal to report on the cost of abandoning fossil fuel investments that could be obsolete if the world reaches its aim of net-zero emissions by 2050. Some investors have concerns that Exxon could face significant financial risks if the world achieves that goal.
However, Exxon has concluded: "It is highly unlikely that society would accept the degradation in global standard of living required to permanently achieve a scenario" to limit emissions. Thus, the company doesn't believe the path to net-zero emissions is achievable. It thinks limiting fossil fuel production to below demand to force a change would drive up energy prices.
The company noted that to achieve the net-zero emissions scenario, the oil industry would have needed to stop exploring for oil in 2021. Further, nations would have had to switch to renewable energy from fossil fuels, resulting in a significant decline in oil production and driving up prices.
Taking a balanced approach
Continuing to invest in the fuels needed today
Exxon believes the world will need fossil fuels for the next few decades. That's driving the company's strategy of continuing to invest in exploring for new sources of oil and gas. These investments will enable it to meet growing demand in the coming years and help offset the natural decline of existing wells as those resources deplete.
The company's long-term plan is to invest $20 billion to $25 billion annually through 2027 to help meet the world's future energy needs. These investments include several major long-term projects, like Guyana. Exxon and its partners recently approved another phase of their offshore Guyana development at a cost of $12.7 billion. The project won't start production until 2026 and should pump oil for two decades. Exxon has additional developments in Guyana in the pipeline, further showcasing its belief that the world will need oil for a long time.
Building a lower-carbon business for the future
However, Exxon isn't ignoring the global push toward lower-carbon energy. The company launched a low-carbon solutions business a few years ago. It plans to invest about $17 billion into that business through 2027, putting the money into reducing its emissions and producing lower-carbon fuels.
By 2030, Exxon aims to reduce its greenhouse gas emissions by 40%-50% from 2016. In addition, the company plans to grow its biofuels and hydrogen production. Finally, Exxon is building out carbon capture and sequestration (CCS) capabilities.
The oil giant sees massive potential in CCS, believing it will become a $4 trillion global market by 2050. That fuels Exxon's view that it could be a multibillion-dollar business. CCS could supply the company with very stable income backed by long-term contracts, helping offset some of the volatility of its oil and gas business. Further, CCS could extend the life of fossil fuels by significantly reducing their carbon footprint. That adds more fuel to Exxon's belief that its exploration efforts won't end up being wasted investments.
Standing firm on its belief that fossil fuels will remain vital
ExxonMobil doesn't believe the global economy can reach net-zero emissions by 2050. That's driving its strategy to continue investing in fossil fuels.
However, it's also investing in lower-carbon fuels as part of the solution. It sees enormous potential in CCS, which could extend the life of its legacy fossil fuels business while supplying a sizable and stable lower-carbon income stream. Exxon believes its balanced approach will enable it to continue growing value for shareholders in the decades to come.
