Welcome back. Today we discuss the possible role of the oil companies in the energy transition. This is a delicate topic because many people expect that the oil companies should play a major role in the energy transition, but it is not at all clear what exactly this role should be. So let's look at the details of this discussion and ask ourselves what should we expect from our oil companies. It is important to discuss the role of companies because decisions about investment, production, and trade in oil and gas are made by the companies in the end. So governments establish policies and companies respond to inputs that they receive information that they receive that comes from the market, from governments, from the science, and also from the broader environment in which they operate. So they have to take into account all these decisions, all this information in order to come up with decisions about where to invest, how much to invest, how much to produce. So what should be the role in shaping the future of energy? We have had a simple doctrine dominating the field for several decades. This simple doctrine was asserting that companies should maximize profits. The only thing they should look at is the interests of their owners, the shareholders, okay? So they should not worry about anything else. They should consider all the information that they have and take the path that maximizes their profits and the benefit of their shareholders. But in recent times, there has been a growing dissatisfaction about this line of thinking. So more and more frequently, it has been asserted that companies must pursue the interest not just of the share holders but all their stakeholders, which means their workers, which means the society they work for, their customers, and so on and so forth. So the number of stakeholders is much wider. It is much diverse. The polity, the characteristics of the stakeholders are diverse. Their interests are not necessarily converging. So exactly defining which stakeholders are more relevant for the companies and how they should balance conflicting interests is something that is not easily achieved. So if we speak specifically of the oil and gas companies, there is widespread expectation that they share responsibility for advancing the energy transition and supporting decarbonization. In several cases, this has led to calls for institutional investors to divest from the stock of oil and gas companies. So pension funds, large universities and their endowments have been requested or even regular financial institutions and certainly public financial institutions such as multilateral lending institutions have been called to put pressure on the companies that they should play a role in the energy transition, invest less in oil and gas and more in alternative energy sources. So this kind of activity has succeeded in forcing several prominent oil companies to publish information about their carbon footprint, how much emissions they generate, information about their investment in alternative energy sources, and adopt and publish decarbonization targets of their own. So what should we expect companies to do? In this discussion, we need to take into account that there are different kinds of oil companies. There are the so-called international oil companies. These are normally privately owned and they invest in many countries. There is a second group of so-called independent oil and gas companies, which are normally smaller and more aggressive risk-takers, and finally, there are the national oil companies which are owned by the producing countries. It is a traditional categorization which has tended to become blurred because some of the national oil companies have become international and so on and so forth, but nevertheless remains the one that most people referred to. So if companies belong to one or the other of these categories, they will behave differently because they have different inputs and different mandates so to speak. The national oil companies are based in oil and gas producing countries. There are in most cases entirely or majority owned by their relevant government, so they have to respond to their governments, and governments tell them what they expect from the companies. So the main institutional purpose of the national companies is to realize the value of hydrocarbon resources. An oil-producing country wants to achieve the highest value possible for the exportation and utilization of its oil resources. So this is normally the main goal, the main mandate which is assigned to this oil and gas companies. But they may also be called to pursue other objectives and they are frequently called to pursue other objectives. So the broader development of the national economy, training of the national workforce, provision of various social services, development of infrastructure, all of these things, governments frequently ask from their national oil companies. In this context maybe, they are also asked to invest in alternative energy sources, but it depends on the government. It's the government that has to give them the inputs that this is what they should do. National oil companies are not primarily profit maximizers. They maximize profit within the constraint of the mandate of the requests of their national governments. Independent oil companies are in all cases relatively small even when they are publicly owned, in other words, their stock is quoted on some exchange. The main goal is always to aggressively explore and produce oil and generate value in the short term. This is also because in most cases, they never become large companies. If they are very successful, they end up being taken over by other companies, larger companies, and this is a way in which their shareholders make a gain in their capital. So this is what they are expected to do, they are high risk takers and they look for an increase in the value of their shares. They are not likely to become involved in any development of new energy sources. This leaves us with the international oil companies. This international companies are the target of societal criticism, they have been frequently criticized because of their past and also present behavior. Some of them have been subjected to special criticism. For example ExxonMobil has being the target of a lot of criticism because they, for a long time, maintained that the science of climate change was not well established. It was not sure that we are facing a danger of climate change, and they may have done so even against the opinion of their own scientists which is something that would of course be particularly worrying. But other companies have taken a much more forward-looking position and have been trying to position themselves in a positive manner vis-a-vis climate change and the need to develop alternative energy sources. But in the end, when you analyze their investment budget, you find out that they all primarily still invest in exploration and production of oil and gas.
