Why is ExxonMobil Still Focused on Oil and Gas?

Despite a drastic downturn in demand, ExxonMobil remains firmly focused on oil and gas. The American-owned energy company maintains renewables are still too weak to offer meaningful returns, with Brazilian head Carla Lacerda asserting the company will continue to give precedence to its "core competencies" and prioritise hydrocarbons. The strategy differs significantly from European multinationals, which are shifting towards sustainable fuels, renewable energy and other low-carbon solutions.

“Our fundamental belief is that if we were to invest in solar or wind, for example, we don't have an engineering background business background of that type of business so we would have to joint venture or acquire a company to do so," explained Lacerda, President of ExxonMobil Brazil. “We believe in the fundamentals of the oil and gas business,” she added, speaking at the FT Commodities Global Summit.

ExxonMobil to focus on “value generation”

While the cost of developing wind and solar power has dropped significantly over the past few years, ExxonMobil has been unable to harness the same returns offered by its oil and gas projects. Lacerda also says demand for oil and gas remains strong and will continue to influence where the company directs its attention.

“We believe societies and economies will continue to need oil and gas. In the upcoming years, the alternatives really can only fulfill a small amount, or a relatively modest amount, of the overall demand that exists,” adds Lacerda. “As we look at it now in terms of business, many of these projects are really providing utility rates of return, so it doesn't seem like the value generation is exactly in that.”

Upstream exploration remains strong

The company is acting on its promises, with Lacerda confirming upstream projects in Brazil remain on track despite the oil price downturn triggered by the COVID-19 pandemic. “We have 28 blocks of which most of them are exploration. Although the company has gone through a capex reduction of 30% for 2020 ...the Brazilian projects remain on track largely because of the world-class play, because these are assets that we feel will perform well, pending discoveries, in the pricing environment that we're in.”

The comments from Lacerda follow a recent statement from Didier Casimiro, vice president of Russian integrated energy company Rosneft. Referring to the strong European focus on renewables, Casimiro warns the shift could emerge as an "existential threat" to the stability of oil and gas supply. As Europe starts to pivot, Casimiro says other countries may need to “step in” and fill the gap. BP is one of the latest majors to shift its focus, announcing plans to reduce oil and gas production by around 40% over the next 10 years.

To find out more about the latest developments shaping the face of the oil and gas sector, don’t miss ‘What’s happening on the surface?’ with insight from independent analytical consultant, Tom Lynch.