The Oil Industry’s Big Bluff

In a recent Wall Street Week video report on oil industry methane emissions there was a great insight into what the oil industry plans to do when it comes to environmental liabilities and the world in general. After hearing how there was potential to plug old oil and gas wells and have that possibly be a money maker instead of a liability, an oil company CEO spoke honestly.  We should all pay attention to what he said: 

“Look I get it. You’re one hundred percent right, but don’t forget I can keep dancing for a very long time.”

This is the language of ponzi scheme artists and grifters. It is what we need to understand about the oil and gas industry. When it comes to paying to clean up the mess the industry has made they plan to “keep dancing” until the money stops and then they will walk away.Why would they do this? In the Wall Street Week piece we are told that the $4.7 billion of abandoned well cleanup funds in the Inflation Reduction Act represents between 1-3% of the total cleanup costs. So, potentially a half trillion dollars. You can see why they plan to walk away with the profits as a lot of their future profits would need to go toward that bill. Knowing this, let’s take a look at the current industry behavior and how they are going all in on the biggest bluff to support an industry-wide pump and dump scheme. 

Reality Denial is the New Plan

Last year the world spent a lot more money on investing in clean energy than on fossil fuels. Two thirds of the $3 trillion invested in energy went to clean energy technologies and one third went to fossil fuels. It almost would make a person think there was some type of energy transition in progress but the oil industry and their partners in the media are working hard to confuse the public on that issue. There are things like this in Forbes.

“The supposed energy transition from fossil fuels to a suite of government-supported alternatives like wind and solar has always seemed more of a marketing campaign than reality.”

They even dragged out Dan Yergin (who apparently needs a team of writers to help him these days) and gave him a big piece in Foreign Affairs to call the energy transition “troubled.”  They are clowns but this country is currently a clown show and the oil and gas industry is a big reason why we are here. Well funded co-ordinated disinformation? It’s all the rage with the oligarchs now but they are just using the playbook the oil and gas industry used for decades. It would be foolish to expect the oil and gas industry to start telling the truth now. And they are not. They realize they are in a tough spot despite having their favorite people running Russia, the U.S. and Saudi Arabia. If it wasn’t for that pesky China and their clean energy, the petrofascists would think they had died and gone to petroheaven. 

However, their normal playbook doesn’t work anymore because of the ongoing energy transition. A war in the Middle East used to be a proven formula for high oil prices. Active price manipulation by the OPEC cartel used to be a slam dunk. The current president of the U.S. openly offered to accept campaign donations from the industry to get rid of all regulations and now he is in power with his energy dominance nonsense and….nothing has happened. We were promised three million barrels a day of new oil production from Trump and his Treasury Secretary Bessent and in reality oil production will likely be flat this year in the U.S. The magnitude of Bessent’s ignorance and/or the level of blatant dishonesty for him to make this one of his three big ideas for the U.S. economy is stunning. And everyone now agrees that, even though the Saudis are actively manipulating the global oil market to keep prices higher than if it was left to the invisible hand of the free market, oil prices are likely to be around $60 next year.  That is below the price most U.S. oil companies can make profits. 

Source: Energy Information Administration

So the oil industry is at a crossroads. They could admit that the world is transitioning to clean energy and that the price outlook is not in their favor or they could pretend it isn’t happening, lie and bluff. Deny reality.

What does that look like? A lot like a Ponzi scheme.

“Weaker crude prices and refining margins are likely forcing four of the five supermajor oil companies to borrow money to fund $15 billion in share buybacks for the most recent quarter.”

They are borrowing money that they won’t have to pay back for decades and using it to do stock buybacks and pay dividends. This means they are borrowing money to pay their current investors which is the textbook definition of a Ponzi scheme. But as long as we allow this to go on, you can be confident they will “keep dancing.”

What Is a Ponzi Scheme? 

“A Ponzi scheme is an investment scam that pays early investors with money taken from later investors to create an illusion of big profits.” 

They are creating an illusion. What does that look like?

Double the value of and oil and gas company in the next five years?  Delusional. How does Murray try to instill confidence in this plan?

“We’re more American than an awful lot of the American companies are,” he said.

These days that is a not-so-subtle way of letting everyone know you are ok with grifting. 

Back to his plan. CEO Murray Auchincloss says there will be “tremendous demand” for oil and gas beyond 2050. What does he base this on?

“He said the growing electricity demands of datacentres would make gas, in particular, the fuel of choice. “The challenge is how do we decarbonise this stuff as much as you can”

Sadly for the planet, you can’t decarbonise this “stuff.”  However, the good news for the planet is we have carbon free ways of producing electricity so we don't need Murray's "stuff." The planned growth in the gas industry that Murray is selling is for Liquefied Natural Gas (LNG) which has worse emissions than coal.  If Murray doesn’t know that, he should be fired. But he does, so he should be held accountable. Do not mistake his delusions for commentary on the ongoing energy transition. He is bluffing. So, with all of this optimism about the oil and gas industry what does this booming industry look like in reality? Here is  a 2025 headline from Gas Outlook. 

“Chevron eliminates 20% of its workforce to fund shareholder returns”

Does that seem like the move of an industry poised for growth?  Where would the growth be coming from?  They all say it will come from gas. Murray said it. Yergin said it. The message is everywhere that LNG is the growth segment in oil and gas. 

Gas Boom Going Bust

In December I wrote this:

“The true hoax of this energy transition is the idea that the U.S. has unlimited oil and gas that is just waiting to be produced as soon as those tree-hugging liberals stop standing in the way.”

The tree hugging liberals were not in the White House and never have been. However, now we have Mr. “Oceans of liquid gold” in the White House and he put an end to Biden’s pointless LNG “pause” and we were assured it was time for rock and roll in the U.S. LNG industry! But what we’ve gotten is awkward silence. 

In early January the U.S. LNG company Venture Global announced it would conduct an Initial Public Offering for its stock and the press responded with reasoned coverage of the potential. I kid, they did nothing of the sort. Here was the WSJ on the deal.

Banking on Trump’s return it seemed like the U.S. LNG was set for a meteoric rise. And then despite all of the hype and having Goldman Sachs leading the Venture Global deal investors collectively said, “What?!”  They did not think the company was worth $110 billion. So Goldman and the other big banks cut the offered share price from $45 to $25 (erasing a good chunk of that $110 billion) and the IPO proceeded. Investors lucky enough to get in on the action sat back and waited to enjoy the meteoric rise at this auspicious time for the industry. So far they’ve lost over 40% of their investment.

The complete failure of this IPO despite all of the hype is a pretty clear signal that institutional investors are realizing that LNG and gas aren’t great investments despite what the BP CEO tells them.  I wrote about the serious problems in the Venture Global business model and how this was a classic pump and dump by Goldman Sachs.  It is certainly a canary in the LNG investment coalmine. There are a lot of LNG projects looking for funding right now and there are none announcing that funding has been secured.

What’s Wrong With Texas?

Texas is about as free market as you can get for the oil and gas industry. The industry is essentially unregulated. This is why the Permian is one of the worst methane emitting sites in the world. A study last year found that the two worst oil and gas fields in the world for methane emissions were one in Turkmenistan and the Permian. The air is full of methane in Texas and one reason is that there is so much of it that the price is often zero - or below zero.

So as we hear about the need for power for data centers it would make sense that if you had no environmental regulations to worry about and you had easy access to the world’s cheapest natural gas [methane], you would build gas power plants. The Texas politicians even set up a fund to give loans to anyone who wanted to build gas power plants. All of the ingredients for a gas power boom in Texas are in place. How’s that going?

Last week one company withdrew its application for the the loans for a gas power plant. I recommend reading the whole article to get all of the details but this quote gives you a good idea of what is happening.

“Nothing’s easy, but it’s definitely a lot more straightforward to deploy solar and storage — sometimes together, sometimes apart, but even when they’re apart, they’re complementary,” Lewin said. “And that’s really what’s happening in ERCOT.” 

No matter how much the policymakers may wish it weren’t so, gas peakers are struggling to compete against batteries. “They basically serve the same market, and batteries are better,” Lewin added “Usually markets speak pretty loudly, and the market is speaking very loudly that batteries are not only quick to deploy, but serve the need better.”

That almost sounds like the Texas energy industry is changing pretty radically. One could almost call it a transition of sorts. What’s that look like in a picture?

One reason they can bluff is that the media plays along. But when you see all of the facts, it’s pretty clear what is happening.

Cheaper wins in energy. Gas is expensive. The math is simple, the lies are epic. However, while it was easy for the industry to lie successfully about all kinds of science regarding health, environmental and climate impacts, it is harder to lie about economics. You can tell people gas is the future and it is economically competitive but it’s not hard for them to tell you are lying. Much like the price of eggs. 

When The Music’s Over

They know the music is going to stop and it will be time to "stop dancing" and they plan to be long gone when it does. And they also know that if they were to pay all of their liabilities, the profits disappear quickly. Look at California and its oil industry with liabilities that are greater than assets.  Did you know Chevron recently left California?  The music has stopped there and so they are gone. This is what they will do everywhere. They are doing it everywhere right now. 

The oil industry is planning to take what profits are left and then walk away and leave the public with the massive clean up bill. I’ve recommended that if the public wants to get that money they better do it soon. You don’t see the big oil companies borrowing to pay for their clean up liabilities that they legally owe the public, do you?

Woodside is an Australian company trying to get an LNG export facility built in the U.S. and is hoping to make a decision on that this month. But their investors got a surprise earlier this year when it came to clean up costs. 

RBC Capital Markets analyst Gordon Ramsay said the estimated restoration cost was “notably higher” than expected, about double the bank’s forecast.“New restoration cost guidance raises concerns about the outlook for future Woodside restoration costs beyond 2025,” he said.

What was the big concern about having to pay to clean up the mess they made?

“Woodside will need to spend up to $US1 billion this year decommissioning old assets as analysts worry what the bill will mean for dividend payments”

The reality is there would be few dividends for most oil and gas investors if the companies were paying to clean up the mess they made and setting aside the money to clean up the mess they are currently making instead of just deciding to “keep dancing.” This is one of the reasons the industry is bluffing right now — to be better positioned to walk away from these liabilities when the profits are gone from the oil and gas business. The industry is systematically doing this in the U.S.  It appears they will get away with it.

Unless…the people wake up to reality.  And the grim realities of the U.S. oil and gas industry are getting harder to ignore.  This week there was an impressive two part series from Inside Climate News that revealed the industry may not be able to hide the truth about its toxic and radioactive waste forever. The industry also has been able to hide its waste, radioactive and otherwise, in injection wells. But blasting so much waste underground eventually makes that waste want to return to the surface. It did again this week as another river of poison began to flow from an old oil and gas well in the Texas desert.

The U.S. oil industry has everything going for it these days except that troubled, co-called energy transition and its massive liabilities. I have watched for years as oil bros cackle over the prospects of the snowflakes and treehuggers they hate having to pay $150 for oil in the future. They were hopeful that the world would run out of oil and there would be no alternatives so they could profit off of people’s suffering with higher prices.  And they were very confident in this outcome. They had the stuff everyone needed and they were going to happily make the world pay. But their combination of ignorance and arrogance blinded them. The world is moving on to smarter and cheaper energy choices. The world has alternatives and that is making oil and gas less valuable.

And that means that shortage-driven profits they dreamed about are unlikely. They tried to tell everyone 2024 was just a normal economic slowdown and that China would be back to consuming more and more oil very soon. But it was a lie. Now prices are lower. They talk a lot about LNG and natural gas now instead of oil. The meteoric rise there they predicted is not going to happen. What options do they really have but to bluff?  How else can they keep borrowing money to pay investors?  How else can they keep kicking the can on cleanup liabilities? 

So they are doubling down. If you are a sociopath it would be the smart thing to do. So that is what they are doing.

Goldman Sachs knows all of this. How can I tell?  Because they tried to sell a financially risky company whose largest customers are basically suing it for not honoring contracts, which that same company admits could put it out of business. Why would they pitch this as a $110 billion IPO?  Because it was now or never. Wait any longer and the truth becomes pretty evident.

2025 America is a grifters paradise and the oil industry and its partners in government are setting up for the biggest pump and dump ever. These companies are not worth much at $60 oil when all of the liabilities are factored in. There is a well coordinated and very well funded ongoing effort to convince us all otherwise so we don’t hold them accountable to cleanup the mess they made. We shouldn’t let them get away with it.