The attack on two Saudi oil facilities this weekend injected a new element into discussions on the future of energy.

Those watching the rise of renewable power and electric vehicles often point to cost reductions from mass-manufacturing and a growing will to act on climate change as key drivers of the shift to lower-carbon energy. The physical vulnerability of global oil supply lines has gotten less airplay in recent years.

“That’s been absolutely put back on the agenda,” said Ed Crooks, longtime energy editor at the Financial Times and now Wood Mackenzie's vice-chairman of energy in the Americas, speaking at the Energy Disruptors Unite conference in Calgary Tuesday.

The attack in Saudi Arabia took 5 percent of the world's crude oil production out of commission, and precipitated the biggest jump in oil prices since Saddam Hussein invaded Kuwait in 1990.

By Tuesday evening, the price of Brent crude had dropped to a few dollars higher than it was prior to the attack, as Saudi Arabia and the U.S. signaled they would not go to war in retaliation. But the attack proved that surprise disruptions can happen, leaving open the possibility it could happen again.

That’s just one of several stresses facing the biggest oil and gas companies, said Crooks. Shareholder and market pressures are pushing some companies to diversify from fossil fuels, in order to stay dominant in a changing energy landscape.

Shareholder pressure building

Those oil majors that are not state-owned enterprises must contend with shareholder sentiment, and shareholder action related to climate change has increased in recent years.

In 2011, 2012 and 2013, climate-related shareholder proposals to U.S. companies numbered in the 30s, Crooks said. That figure rose through the decade, culminating in 90 proposals in 2018; 2019 saw 55 through July.

Not all of these pass, but many have succeeded, prompting companies including BP, Equinor and Shell to disclose climate risks facing their portfolios and report on how their investments track with the Paris climate accord goals.

“There’s been a big difference in the way the companies think about climate change and the way they talk about it, and that’s really been in response to the shareholder pressure,” Crooks said.

Oil and gas companies have further reason for concern about shareholder sentiment: Their stocks are not doing well.

Setting the start of 2014 as a baseline, Crooks noted, the S&P 500 index has gained 81 percent. In that same interval, the S&P 500 energy stocks have lost 22 percent.

“The oil and gas sector has been a really terrible investment,” Crooks said.

Electric power offers growth opportunity

Oil and gas companies concerned about those stresses could do worse than moving into the electric power sector.

For one thing, global demand for electricity will grow about 50 percent through 2040, according to WoodMac’s forecast, and that outpaces all fossil fuel growth. Coal consumption will stay flat, oil consumption will rise roughly 12 percent relative to 2018, and gas will grow 35 percent.

“If you want to be where the growth is...electricity is really where you want to be,” Crooks said.

At the same time, even market leaders in the power sector look miniscule compared to the leading oil and gas players.

NextEra Energy, the largest U.S. power company by market capitalization, is half the size of Shell or Chevron, and little more than a third the size of ExxonMobil. One renewables company explicitly targeted growth on the order of an oil and gas giant — but that was SunEdison, and it collapsed after sinking money into a string of acquisitions. The global electricity supermajor remains elusive.

Some energy incumbents have taken initial steps in that direction. Shell acquired its way into a retail electricity business, electric vehicle charging and energy storage. BP made a major investment in Lightsource, the biggest solar developer in Europe. Total bought battery manufacturer Saft and a majority stake in solar manufacturer SunPower.

For most of these companies, clean energy investment amounts to low-single-digit percentage points of its investment in new oil and gas resources over the last three years, according to WoodMac analysis.

“A majority of their spending over that period is going to oil and gas,” Crooks said. “Oil and gas is still where the profit is made. And oil and gas is undoubtedly going to have a future for decades to come.”

The oil and gas companies, some of which attended the Energy Disruptors event in the heart of Canada’s fossil fuel industry, could keep doing what they’re doing, and could stay profitable for some time yet.

But in a world where a critical mass of governments has committed to putting pressure on carbon emissions, sticking with the old business model could lead these companies down a path they can’t escape.

“You have to be ready for a potential range of outcomes,” Crooks said. “What companies are doing with these investments in renewables is buying themselves options where they could be in a world of much greater renewable energy, much tougher controls on emissions, and they could remain successful.”

Today’s supermajors could become energy dinosaurs — dominating the landscape only to fade with surprising speed. But, Crooks pointed out, the extinction event that wiped out the dinosaurs did not eliminate all of them. Their descendants survived and evolved into the birds we know today.

“It’s certainly possible that the energy dinosaurs could survive in a new world, but they may just need to grow feathers and learn how to fly,” he said.