The economic fallout of the covid-19 pandemic has hit the oil industry hard, and Exxon in particular is feeling it. Internal documents show the company’s not expecting to make a grand recovery any time soon despite putting on a good face for shareholders.
Exxon is expecting oil prices to fall over most of the next decade. The firm has lowered its projections for future oil prices for each of the next seven years by between 11% and 17%, the Wall Street Journal reported on Wednesday, citing a report composed at September financial planning meetings it obtained.
The documents show that last year, the company forecasted that Brent oil prices—which the world uses as the benchmark for the price of oil—would run an average of $62 per barrel for the next five years, then jump to $72 in 2026 and 2027. But now, company analysts believe the price of a barrel won’t exceed $55 on average through 2025, and that in the two years after, it will only go up to $60. One analyst told the Wall Street Journal that “Exxon’s break-even is the worst among its peers and that, at current spending levels, its oil and gas production is poised to shrink.”
The new outlook comes amid a wildly awful year for the fossil fuel giant, which has lost more than $1 billion since the pandemic began. Last month, Chevron overtook Exxon as the biggest energy company in the U.S., and soon after, Exxon analysts said it is facing financial losses for the third quarter in a row.
Even as far as energy giants go, Exxon is truly despicable. Troves of evidence show that for decades, it knew that its products were causing dangerous global warming even as it waged a misinformation campaign to keep the public confused. The company has also faced a number of lawsuits for misleading shareholders and climate damages as well, though it has yet to be held accountable in those cases.
Still, Exxon’s new forecast isn’t exactly great news, because as much as I’d like to dance on the failing oil company’s grave, it’s not the most evil people at the firm who are suffering most. In typical corporate fashion, workers have seen the worst impacts from the downturn as the company lays off a wide swath of its workforce, while Exxon shareholders have gotten paid hefty sums.
The crash is also expected to leave the company with stranded assets, or oil and gas reserves that end up being worth less than anticipated when they were purchased and developed. That’s especially true because Exxon plans to continue to dig itself deeper into economic ruin by producing more and more oil. In fact, last month, another leaked document showed that Exxon plans to produce an additional 1 million barrels of oil a day over the next seven years, and thereby increase its carbon pollution by 17% by 2025. Some oil wells are falling into complete disrepair, and rather than spending the necessary funds to wind them down safely, some companies have merely left them to spew out planet-warming greenhouse gases. That means that as company’s abandon their projects, the public is suffering the damages and paying the cost of cleanup.
Now, it looks like things could get even worse for Exxon. The company plans to reduce its spending, but even if it makes dramatic cuts, analysts expect it would need oil prices above $55 a barrel next year in order to cover its capital expenses and dividends. Without those prices, it will likely make even bigger cuts to its workforce—in fact, it’s said it could lay off 15% of its staff, totaling some 14,000 jobs lost.
Exxon’s latest woes are the newest sign that the transition away from fossil fuels is already happening, and that renewable energy is the future. While the oil market is in shambles due to falling fuel demand, some forms of renewable energy are thriving. But how that transition happens has huge implications for working people and the planet.
DISCUSSION
Whatever the fate of US (and European) oil companies, it is probably something to not put too much focus on going forward. The focus should be on global coal, oil and gas (the fossil fuel family) as economic sectors in total.
Many US industrial companies with once household names have been merged and acquired, picked apart, and folded in pieces or the whole somehow into private and public ownership here, there and elsewhere. It’s not like folks these days spend too much time wondering why and how US lost its domestic hybrid corn seed prowess. Maybe only folks who grew up in the corn belt remember the household names of seed companies.
Think of the rise and decline of oil consumption as a bell shaped curve with annual consumption in terms of barrels per day on the y-axis and time on the x-axis from around the last quarter of the 19th century to somewhere around the start of the 22end century. Some entity somewhere is going to make a bunch of money on the decline side of the curve, almost regardless of rate of decline. It’s not like the world is going to get off of consuming around 100 million barrels per day sometime during the Biden administration. The folks making money off of oil’s decline will probably not be household names.
In the meantime, the newest and biggest refinery in the world at around 650,000 barrels per day throughput is soon to be starting up in Lagos, Nigeria. Owner of the refinery is probably not a household name.