Flawed energy forecasts risk huge investor capital
A review of the energy forecasts by international oil companies shows that the forecasts are systematically skewed and rest on extreme assumptions about energy trends, reflecting what oil companies want decision makers to believe will occur.
Oil companies, including ExxonMobil, BP and Shell, are risking billions of dollars of investor capital, by basing decisions on distorted claims about the future of energy, according to a new report from Oil Change International.
A review of the energy forecasts by international oil companies shows that the forecasts are systematically skewed and rest on extreme assumptions about energy trends, reflecting what oil companies want decision makers to believe will occur, rather than a realistic potential future. The oil company forecasts assume a global failure to cut greenhouse gas emissions at internationally agreed levels that would prevent catastrophic climate change.
They apply selective scepticism about technology, assuming best-case outcomes for oil and gas, and worst-case outcomes for alternatives. In outlooks published over the last five years, the three companies have highlighted barriers to renewable energy 35 times, and challenges for oil and gas just four times.
BP has wrongly predicted a sudden slowing of renewable energy growth every year. Its latest forecast predicts solar will still be more expensive in 2050 than the actual cost of solar today.
ExxonMobil’s first published Outlook in 2005 projected that wind and solar would account for just one percent of total world energy production by 2030. Wind and solar achieved a one percent share in 2012, after only seven years rather than 25.
All of the companies ignore government action as a driver of change in the energy system.
“Oil company forecasts are riddled with implausible assumptions and elementary errors. Far from objective analyses, they seem created to reinforce a public message that growth in demand for oil is inevitable, in spite of the climate crisis and technological change,” said Greg Muttitt, senior advisor, Oil Change International, and the author of the report.
“It is essential for shareholders that capital allocations made by oil companies to multi-decade, high-cost projects are based on robust judgments about the future,” said Charlie Kronick, senior climate advisor, Greenpeace UK. “Yet the oil industry continues to serve up wishful thinking as objective forecasts of future energy demand. Investors must challenge oil industry business plans, which appear to be built on fast crumbling foundations,” added Kronick.
Recent examples show the risks of getting it wrong. Shell repeatedly pointed to its forecasts to justify nine years of costly offshore exploratory drilling in the Arctic. In 2016, Shell was forced to scrap those plans, wasting US$7 billion in shareholder capital.
Last month, ExxonMobil and Conoco Phillips were forced to write down 4.65 billion barrels of proved oil reserves, wiping US$183 billion of high-cost tar sands assets from their books. ExxonMobil, Shell and BP alone are expected to invest US$250 billion of new capital in the next five years.