It sounds counterintuitive but a megamerger between oil giants Exxon Mobil and Chevron could provide big environmental payoffs by making it easier for President Joe Biden to take aggressive action on climate change.
President Biden wants to kick the oil habit but even the most aggressive plan will take decades and require trillions in new infrastructure and technology investment. And while policymakers can’t end demand overnight – even the most bearish long-term forecasts expect demand for oil and natural gas to continue for decades – they can make it more expensive.
That would be a mistake since energy consumption and economic growth are closely tied.
A marriage of America’s two largest oil companies might be just the ticket to keep a lid on energy prices while giving policymakers more room to rein in carbon emissions. While the talks reportedly went nowhere last year, a merger between Exxon and Chevron makes strategic sense in an increasingly carbon-constrained economy.
As carbon-cutting goals become more aggressive and investors press public companies for better environmental, social and governance (ESG) performance, the market will naturally favor those oil basins with the lowest lifecycle carbon footprint. That’s where Exxon and Chevron see an opportunity to gain a competitive advantage.
The Middle East’s conventional oil reserves top the list of least carbon-intensive fossil resources, including those of OPEC’s Saudi Arabia, the United Arab Emirates and Kuwait. But U.S. oil reserves rank well ahead of several other major producing countries, including OPEC members Nigeria, Iraq, Iran, Venezuela and Algeria, based on the average carbon intensity of producing a barrel of oil.
An Exxon-Chevron merger would create an oil giant capable of producing roughly 7 million barrels of oil equivalent per day – second only to Saudi Aramco. The Exxon and Chevron are also among the most efficient exploration and production firms, adept at operating under the world’s strictest environmental regulatory regime.
A more focused capital program would allow the merged Exxon-Chevron to focus on development of low-cost, low carbon reserves while dropping projects that fall short on environmental grounds. It would also result in increased investment in transformative technology projects, like Exxon’s push to commercialize more than 20 carbon capture and sequestration projects globally. That could help convince investors that Big Oil is serious about addressing climate…