This Warning Could Mean Big Trouble Is Ahead for Oil Stocks by 2030

That led the IEA to issue a stern warning to oil companies. Here's a look at the IEA's medium-term oil market outlook and what that means for leading oil stocks Chevron (NYSE: CVX), ExxonMobil (NYSE: XOM), and Occidental Petroleum (NYSE: OXY). 

The peak is near

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The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance. Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition.

Not heeding the warning, yet

Despite a widespread desire among nations to pivot to clean energy, most oil companies plan to continue investing heavily in growing their fossil fuel output. For example, late last year, ExxonMobil announced its capital spending plans through 2027. It expects annual capital investments to be between $20 billion and $25 billion. However, it only expects to invest $17 billion in total through 2027 on lower-emission projects. Meanwhile, it will only direct 40% of that spending to build its lower-carbon businesses, including expanding its biofuel production and carbon capture and storage projects. The rest will go toward lowering its corporate emissions.  

ExxonMobil remains firmly committed to growing its oil production. It recently approved its fifth offshore oil production platform in Guyana -- the Uaru development. The company and its partners will invest $12.7 billion in the Uaru field, which won't start producing until 2026. It will have the capacity to produce around 250,000 barrels per day for about 20 years.

Meanwhile, Chevron plans to invest $14 billion to $16 billion annually on capital projects through 2027. It recently boosted that range by $1 billion after agreeing to acquire PDC Energy in a $7.6 billion deal to bulk up its oil and natural gas reserves. Chevron only plans to spend a total of about $10 billion through 2028 on lower carbon projects, including $1 billion annually to grow its renewable fuels production capacity. Chevron is also investing in carbon capture projects.

Occidental Petroleum also continues to invest heavily in growing its oil production. The company plans to spend $5.4 billion to $6.2 billion on capital projects this year. The bulk of that spending ($4.3 billion to $4.7 billion) will be on oil and natural gas projects. It only plans to invest $200 million to $600 million on lower-carbon projects this year, largely to build out its carbon capture and sequestration capabilities.

One recurring theme among these large oil companies is that while they're investing in lower-carbon energy, they're betting big on carbon capture and sequestration. That technology would capture carbon dioxide from its emissions source or directly from the air, reducing the total amount in the atmosphere. The industry hopes this technology will reduce the need for cleaner alternatives to replace carbon-emitting oil.

However, carbon capture might not prevent oil demand from falling sharply, given the accelerating adoption of EVs, the growing production capacity of renewable energy sources, and the potential emergence of emissions-free fuels like green hydrogen and sustainable aviation fuel. Because of that, the industry needs to "pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition," as Birol warned. 

Transition to avoid getting left behind

The IEA expects oil demand to peak by 2030. Given that forecast, it believes oil companies need to recalibrate and invest more capital into cleaner energy solutions. While industry leaders like Chevron, ExxonMobil, and Occidental Petroleum are investing some capital in lower-carbon energy projects, those outlays amount to only small percentages of their total capital spending. Further, carbon capture is a big area of their focus, and one that could be a risky bet if oil demand falls. Because of that, they might need to make big strategic changes in the coming years to better position their businesses for the clean energy economy.