TADEAS:
This article has shown that while renewable energies may now be widely competitive with fossil fuels on price, it is far from clear that they are competitive in relation to the producer profits they afford. In fact, the evidence strongly indicates otherwise, even in the wake of the depressive impact of the coronavirus pandemic on oil prices. This suggests that there is good reason to be cautious about the pace and extent of the transition from being dirty fossil-fuel companies to clean energy companies that three of the West's biggest oil and gas producers – BP, Shell and Total – have recently said they propose to pursue
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Some environmentally-minded commentators have found hope in the fact that, in the midst of the coronavirus pandemic, the markets have turned against fossil-fuel producers. Total's shares have lost around a third of their value since the onset of the pandemic; BP's and Shell's have fared even worse, falling by 40–50 per cent. Seeing the loss of market confidence and unable to issue new equity on the favourable terms they were previously able, the companies, it is thought, will hasten their exit from a dying business.
But it is more likely that the reverse will be true. The majors self-finance most of their investments with cash-flow from operating activities as it is (see, e.g. Total 2020a, p. 75). If the markets really have soured on them, the necessity to self-finance will increase, not decrease, and where else – other than in their profitable core business of hydrocarbon production – will the companies be able to generate the cash needed to continue to invest? This, ultimately, is the terrible paradox: to fund the transition to being something else (renewable energy producers), the oil and gas majors are relying heavily on what they currently are. The more negative market sentiment becomes, the more important the hydrocarbon business becomes. ‘The cash generated by hydrocarbons will be key to supporting [our] transition’, concedes BP (2020b, p. 21). Surviving through, still less prospering from, the energy transition requires ‘allocating sufficient capital to our resilient hydrocarbons business to generate sustainable cash flow’ (p. 28). The sooner governments and regulators recognise this sobering reality, the sooner something substantive can be done about it.