Welcome back.

Today we discuss the possible role of the oil companies in

the energy transition. This is a delicate topic
because many people expect that the
oil companies should play a major role in
the energy transition, but it is not at all clear what exactly this role should be.
So let's look at the details
of this discussion and ask ourselves what should we expect from our oil companies.
It is important to
discuss the role of companies because decisions
about investment, production, and trade in oil and gas are made by
the companies in the end. So governments establish
policies and companies respond to inputs that they receive information that they
receive
that comes from the market, from governments,
from the science, and also from
the broader environment in which they operate. So they have to take into
account all these decisions, all this information
in order to come up with decisions about
where to invest, how much to invest, how much to produce. So what should be the
role in shaping
the future of energy? We have had a simple
doctrine dominating the field for several decades. This simple doctrine was
asserting that companies
should maximize profits. The only thing they
should look at is the interests of their owners,
the shareholders, okay? So they should not worry
about anything else. They should consider
all the information that they have and take the path that maximizes
their profits and the benefit of
their shareholders. But in recent times, there has been
a growing dissatisfaction about this line of thinking. So more and more frequently,
it has been asserted that companies must pursue
the interest not just of the share holders
but all their stakeholders, which means their workers, which means the society
they work for, their customers, and
so on and so forth. So the number of
stakeholders is much wider. It is much diverse. The polity,
the characteristics of the stakeholders are diverse. Their interests are not
necessarily converging. So exactly defining
which stakeholders are more relevant
for the companies and how they should balance conflicting interests
is something that is not easily achieved. So if we speak specifically
of the oil and gas companies, there is widespread
expectation that they share responsibility for advancing the energy transition and
supporting decarbonization. In several cases, this
has led to calls for institutional investors
to divest from the stock of
oil and gas companies. So pension funds, large universities and
their endowments have been requested or even regular
financial institutions and certainly public financial
institutions such as multilateral lending
institutions have been called to put pressure on the companies that they should
play a role in the
energy transition, invest less in oil and gas and more in alternative
energy sources. So this kind of activity
has succeeded in forcing several prominent
oil companies to publish information about
their carbon footprint, how much emissions they generate, information about
their investment in alternative energy sources, and adopt and publish
decarbonization targets
of their own. So what should we
expect companies to do? In this discussion, we
need to take into account that there are different kinds
of oil companies. There are the so-called
international oil companies. These are normally privately owned and they invest
in many countries. There is a second group of so-called independent
oil and gas companies, which are normally smaller and more
aggressive risk-takers, and finally, there are
the national oil companies which are owned by
the producing countries. It is a traditional
categorization which has tended to become blurred because some of the national oil
companies have become international
and so on and so forth, but nevertheless remains the one that most people referred
to. So if companies belong to one or the other
of these categories, they will behave differently
because they have different inputs and
different mandates so to speak. The national oil companies are based in oil and gas
producing countries. There are in
most cases entirely or majority owned by
their relevant government, so they have to respond
to their governments, and governments tell them what they expect from the
companies. So the main
institutional purpose of the national companies is to realize the value of
hydrocarbon resources. An oil-producing country wants to achieve the highest value
possible for the exportation and utilization of
its oil resources. So this is normally
the main goal, the main mandate which is assigned to this oil
and gas companies. But they may also
be called to pursue other objectives and they are frequently called to
pursue other objectives. So the broader development
of the national economy, training of the
national workforce, provision of
various social services, development of infrastructure, all of these things,
governments frequently ask from their national
oil companies. In this context maybe, they are also asked to invest in alternative
energy sources, but it depends on the government. It's the government
that has to give them the inputs that this is
what they should do. National oil companies are not primarily profit maximizers.
They maximize profit
within the constraint of the mandate of the requests of
their national governments. Independent oil companies
are in all cases relatively small even when they
are publicly owned, in other words, their stock
is quoted on some exchange. The main goal is
always to aggressively explore and produce oil and generate value in the short
term. This is also because
in most cases, they never become
large companies. If they are very successful, they end up being taken
over by other companies, larger companies, and
this is a way in which their shareholders make
a gain in their capital. So this is what they
are expected to do, they are high risk takers and they look for an increase in
the value of their shares. They are not likely
to become involved in any development of
new energy sources. This leaves us with
the international oil companies. This international companies are the target of
societal criticism, they have been frequently
criticized because of their past and
also present behavior. Some of them have been
subjected to special criticism. For example ExxonMobil
has being the target of a lot of criticism
because they, for a long time, maintained that the science of climate change was
not well established. It was not sure that we are facing a danger
of climate change, and they may have done so
even against the opinion of their own scientists
which is something that would of course be
particularly worrying. But other companies have taken a much more
forward-looking position and have been trying to position themselves in a positive
manner vis-a-vis climate change and the need to develop
alternative energy sources. But in the end, when you analyze
their investment budget, you find out that they
all primarily still invest in exploration and
production of oil and gas.