As you may be aware, a big part of the recent strategy of environmental activists supposedly to address “climate change” has been a multi-front legal onslaught against the major oil producing companies. The onslaught has included everything from hundreds of lawsuits in as many jurisdictions, restrictive new laws, regulatory initiatives, proxy contests, and much else.

The past few days have brought news of what may appear to be a couple of major victories by the activists. In the U.S., insurgent shareholders on May 26 scored a victory in a proxy contest involving ExxonMobil, successfully electing two directors (out of twelve) to the board of the company. Separately, on the same day, in a lawsuit brought in the Netherlands by Friends of the Earth, a court in The Hague ordered Royal Dutch Shell to cut its carbon emissions by some 45% by 2030.

Various media sources, including the Wall Street Journal at the two links above, are reporting these developments as significant defeats for the oil and gas industry, and even as harbingers of its impending rapid decline in the face of mounting legal obstacles. But is such a decline really likely? The recent developments are certainly significant for the shareholders of Exxon and Shell respectively, but I will confidently predict that the industry of large-scale production of oil and gas is not going anywhere any time soon. Indeed, that industry is highly likely to continue to grow for many decades as fracking unlocks more and lower-cost resources, and as developing countries get a taste for things like automobiles, air travel, home heating and electricity.

If you look into the various branches of the legal attacks on the oil and gas business, you quickly realize that almost all of this is focused on one relatively small corner of the industry, which is the major oil companies headquartered in Western developed countries. Exxon in particular makes a great bogeyman for anti-fossil-fuel activists, and finds itself on the defense in most every legal attack. Others regularly on the defensive include Chevron, BP, Shell, and ConocoPhillips — with headquarters in either the U.S., UK, or the Netherlands. Thus, for example, in the many cases brought by local governments around the U.S. seeking to hold oil companies responsible for damages from global warming, the defendants are generally the five named, or some subset of them.

But take a look at oil production statistics, and it becomes clear that the major Western developed-country oil companies are just not that big a part of world production. Here is a chart at Wikipedia, with data from the U.S. Energy Information Administration. In 2020, the world averaged production of about 76 million barrels per day of petroleum liquids. (That figure represented a substantial pandemic-induced decline from a 2019 figure of over 90 million bbl/day. A big rebound is already under way.). Then, here are 2018 figures for oil production by the largest companies. The largest of the Western-developed-country majors, Exxon, produced about 2.3 million bbl/day, for a sixth place ranking and a market share of well under 3%. Ahead of Exxon were the likes of Saudi Aramco (11.0 million bbl/day), Rosneft (4.2 million bbl/day), Kuwait Petroleum (3.4 million bbl/day), National Iranian Oil Company (3.3 million bbl/day), and China National (3.0 million bbl/day). The only other Western major in the top ten was Chevron, at 1.8 million bbl/day, in ninth place, with a market share well under 2%. The top ten was rounded out by the national oil companies of Brazil, Abu Dhabi and Mexico. The top ten companies in the aggregate had a market share of under 35%, with the remainder of the market made up of hundreds of entities, many of which are small U.S. “frackers.”

Of course the litigation plaintiffs aren’t interested in attacking the companies with 90+% of the production who are either small or are located in unfriendly jurisdictions like Russia, China, Iran and Saudi Arabia that have not drunk the climate Kool-aid. The plaintiffs are looking for money and/or publicity. But if your real goal is to save the world, driving producers with 10% or so of the production out of business is a completely futile strategy. The remaining players will just gobble up the market share and move on as if nothing ever happened.

So then what exactly were the activist investors trying to accomplish with the proxy contest at Exxon? Some of the proxy materials put out by the insurgents can be found here, here and here. Although some of the reporting has suggested that the insurgents want Exxon to commit to exit from the oil business, you won’t really find that. Rather, it’s vague generalities like “Gradually but purposefully positioning company to succeed in a decarbonizing world.”

Who knows what that even means? I’ve got news for them in case they don’t already know it. Exxon has no ability to shift from the oil and gas business to some other business with any real hope of success. In particular, the decarbonization business (wind, solar, carbon capture, etc) are fundamentally different from the oil business. The oil business is a profit-driven business where expertise in oil and gas extraction and marketing is everything. The decarbonization business is all about mining government subsidies and handouts, where expertise means nothing and political connections are the key.

After the oil shocks of the 1970s, Exxon went through a previous round of thinking that it needed to transition out of the oil business. It created an affiliate called Exxon Enterprises to direct investments into somewhat-related businesses where Exxon thought it could leverage its existing expertise. (I was involved in litigation against this entity in the early 1980s.). Two businesses I recall that Exxon sought to enter were the nuclear power business and the “word processing” business. No sooner had they created the nuclear subsidiary than the Three Mile Island accident happened in 1979, ending all nuclear power plant construction in the U.S. for decades. Exxon’s nuclear business struggled as a replacement fuel supplier for years before getting sold at a big loss to Siemens. The word processing business was also a total bust, getting beaten badly in the marketplace in the 80s by others like Wang and Digital Equipment, before those also lost out to new rivals. Meanwhile, Exxon went back to oil.

There actually is one way that Exxon could fully “decarbonize” its operations in very short order: Sell the oil business. Same for Shell. World carbon emission won’t go down by a single ton, but they could put the assets somewhere that is less of a target for the litigation industry.

While the legal onslaught has no prospect at all of making the oil business go away, or even really of diminishing it much, it could have major implication for Americans. The oil majors are a big part of what makes our energy cheap and widely available. Predatory government regulation to restrict drilling and transport of fuel could make our price of energy soar and significantly impoverish Americans. Even as world oil production soars and all the worst actors of the world — China, Russia, Iran, Saudi Arabia, Venezuela, et al. — laugh at us.