One of the ongoing tensions embedded throughout the years of efforts by mainly Western governments to subsidize their desired energy transition into existence has been the tension between these desires of the ruling class versus the demands of the global energy market.
Past efforts by governments in the west or any other part of the world to intercede into energy markets to produce desired outcomes have pretty much always resulted in epic failures and energy crises, and the prospects for this current multi-trillion-dollar charade do not appear to be shaping up any differently.
This reality set the writer of a special preview of Fortune’s CEO Weekly Europe Newsletter off on a bit of a rant this week, one that left him admittedly “wistful for the bygone era of state-owned energy companies.” The central conundrum at hand is that the biggest oil companies in Europe do not appear to be conforming their business priorities with the stated policy positions of the central planners at the European Union and of various European governments.
The stated policy positions by the EU and countries like Germany and the U.K. — and obviously preferred by Fortune’s writer — advocate that these big oil companies should be focusing their future capital investments on buying up and developing wind farms, solar arrays, building batteries and engaging in other “green” energy projects. Yet these big companies — the writer cites Shell, BP and TotalEnergies as examples — insist upon continuing to allocate the great majority of their capital budgets to investing in the things in which oil companies tend to invest, like drilling wells, finding new reserves and transporting and refining oil and natural gas-related products.
Matter of fact, all three of those companies announced significant strategic shifts in 2023 in which they pledged to invest an even larger percentage of their capital budgets in their core oil and gas businesses for two simple reasons: 1) to meet rapidly rising global demand for oil and gas products, and 2) because those core business projects are so much more profitable than spending billions of euros on buying wind farms and solar arrays.
Fortune’s writer laments this disconnect between government edict and companies pursuing actual profits in this remarkable paragraph:
“This situation is problematic because the following two things cannot be true at the same time: that Europe pursues a policy of rapid decarbonization, betting that this creates prosperity for its people, and that its largest companies continue investing in fossil fuels for the sake of their stakeholders.”
What the writer ignores is what the central planners also studiously ignore, which is the fact that companies like Shell, BP and TotalEnergies are not charitable organizations. They exist in the first place for one driving reason, which is to generate profits for their shareholders by producing products that are desired and needed by the public at large.
If European governments wish to convert Shell, BP and TotalEnergies into renewable energy companies, then the task at hand for the central planners is to find a way to create a situation in which investing billions of euros in capital generates higher profits than investing the same capital in those companies’ core business enterprises.
Obviously, just enacting hundreds of billions of euros and British pounds in tax breaks and subsidies for the preferred kinds of energy projects hasn’t done the trick, has it? Nor have efforts by central planners to render the finding and producing of oil and gas and their related products increasingly difficult and costly via overbearing regulation managed to tip the scales.
The problem there is that oil companies tend to be quite nimble and adaptive by nature and always seem to find ways to continue doing their business despite the regulatory state’s best efforts. Quite inconvenient, that.
Thus, in the end, we invariably arrive at the admission by this writer that he longs for the return of state-owned energy companies. Because, surely, the central planners can do a far better job of running and managing companies and better provide the needs of billions of human beings for affordable and reliable energy than the market can provide.
This writer at Fortune was just saying the quiet part of and driving philosophy behind this energy transition out loud.
David Blackmon on December 9, 2023