Is the FT right to carry misleading advertisements from Exxon?


Anyone browsing the Financial Times web site this week may have seen a startling juxtaposition. An article on New York state’s lawsuit against ExxonMobil for allegedly misleading investors over its response to the threat of climate regulation was accompanied by a large advertisement trumpeting the same company’s commitment to low-carbon biofuels derived from algae.

In fact, the algae advertisement has been plastered over the FT web pages for weeks, often placed at two different points in the same article. Its unsubtle purpose has been to offer readers a different vision of Exxon. Instead of the raw climate denial that characterised the company’s public statements a decade ago, today’s Exxon has decided to market itself as a leader in alternative fuels.

 Source: New York Times front page

Source: New York Times front page

I think the Exxon advertisements present a highly partial and inaccurate view of the company’s actions and intentions. I question whether responsible media owners should accept advertising which is as misleading and incomplete as this.

This article tries to make my case that the Financial Times should have demanded more evidence to support its advertiser’s assertions.

(The Appendix at the end gives a bit of background about Exxon’s ambitions and actions). 

·      The scale of Exxon’s plans, and the company’s commitment to carrying them out

Exxon has been working on algae for at least nine years. In mid 2018, Exxon said that it would enter a new phase in the research by farming algae in outdoor ponds. It suggested that ‘the goal is to reach the technical ability to produce 10,000 barrels of algae biofuel per day by 2025’. This choice of words is important; it is not a promise to invest in production capacity, nor a commitment to harvest algae, but a statement of intent to get to a position where it might be possible to produce a volume of fuel. Exxon is not suggesting that a decision to invest in building a commercial facility is close.

Is 10,000 barrels a day a significant amount? World oil production is now about 100m barrels a day (b/d), or approximately ten thousand times as much. Exxon alone processes about 5m b/d through its refineries, meaning that the algae biofuels would account for 0.2% of its throughput if did go ahead and build a 10,000 barrel a day farm.

Exxon’s advertisements in the Financial Times make no mention of the relatively small scale of algae’s potential even if the company does decide to press ahead with commercial production.

·      The financial commitment of its research

Exxon announced in 2009 that it would conduct sustained research into the viability of growing and then harvesting algae as a source of oils from which to make motor fuels. Its partner since then has been Californian company Synthetic Genomics, which has genetically engineered a common form of algae to maximise its oil production.

Exxon indicated in 2009 that it would spent about $600m on the quest for commercially viable production.[1] It intended to work with Synthetic Genomics for ‘five to six years’to create the knowledge that would allow full scale commercial manufacture’.[2] (Five to six years from 2009 would be 2014/2015).

To provide some sense of the scale of the proposed investment, the expenditure of $600m over ‘five to six years’ would equate each year to approximately half of one percent of the yearly profits of Exxon in 2017, which amounted to just under $20 billion.

The advertisements focus on a research activity of Exxon which it suggests is fundamental to its future but which is actually a trivial use of its free cash flow.

·      The possible demands for land for tanks to grow algae

How much land would a farm producing 10,000 barrels a day use? Exxon states that it expects to grow algae that will produce about 15,000 litres of fuel per hectare per year (1,600 US gallons an acre).[3] That means a 10,000 b/d farm would occupy around 39,000 hectares, about 95,000 acres. Very roughly, this would be equivalent to a square of 20 km by 20 km, about four times the size of Paris. Although Exxon might have the ‘technical ability’ to build a facility of this size by 2025, it is vanishingly unlikely to be able to create a plant of anything more than a small fraction of this.

At Exxon’s claimed levels of algae productivity - which are higher than many scientists believe are possible - it would take about 18% of the UK’s land area given over to agriculture to provide enough fuel for the country’s transport.[4]

The ubiquitous advertisements on the FT made no mention of the huge land use implications of a switch to algae.

·      Are algae biofuels ‘low-carbon’?

Exxon probably wants us to assume that biofuels made from algae are good for carbon emissions. On its websites it says that ‘algae biofuels could be the low-emissions fuel of the future’.

Yes, we can expect some reductions in CO2 from diesel made from algae. But on other Exxon web pages the company says that ‘on a life-cycle basis, algae biofuels emit about half as much greenhouse gas as petroleum-derived fuel’. Algae need to be fed with nutrients, grown and harvested with machinery and converted into oil in a refinery. All these activities have carbon costs.

Transport today emits about 8 billion tonnes of CO2 a year, approximately 25% of total energy emissions. This would fall to 4 billion tonnes, according to Exxon, if oil were replaced by algae. But, as we now understand, the world needs rapidly to move to zero-carbon transport.

Algae biofuels help, but not by much. They certainly do not take the world safely towards a zero-carbon future. Nowhere in the advertising is this mentioned.

·      How does algae production compare with other sources of power?

What about the alternatives? For most parts of the world, electricity made from solar power will provide a far more effective source of energy for transport.

First, let’s look at the cost of electricity compared to the price of oil. In sunny countries, solar PV is now providing power at a cost of around 3-4 US cents per kilowatt hour. At today’s price of around $75 a barrel, the raw cost of the energy contained in oil is somewhat higher at about 4-5 US cents/kWh.

More importantly, internal combustion engines are about a quarter as efficient as electric motors in terms of the energy needed to move the car at a standard speed. So oil today is over four times as expensive as energy from solar in a sunny country. Even in the UK PV is cheaper as a source of motion. And, by the way, Exxon never contends in its advertising or on its web sites that biofuels will be any less expensive than fossil oil.

What about the energy collected per unit of land area? Solar energy collection needs space, just like algae tanks do. But even assuming Exxon’s statements about the energy productivity of its proposed algae farms are correct, solar PV will typically be at least 4.5 times as efficient in the use of land.

Taking into account the greater efficiency of motors when compared to internal combustion engines, that difference becomes eighteen-fold. This means instead of using 18% of the UK’s agricultural land area to grow the algae to make fuel, we need only give over 1% to solar PV to generate enough power for all the country’s transport needs. (Much of this energy would have to be stored, of course, so this is not a full comparison).

The huge inefficiency of using biofuels rather than electricity to power transport vehicles is never discussed in the Exxon advertising or one the Exxon websites to which the advertisements link.

Implications

The advertisements that trumpet Exxon’s role in pushing algae seem to have been the most frequent ads on the FT for the last weeks and months. Most of us have a deeply held view that freedom of speech demands that media such as the Financial Times are obliged to accept advertisements from whomever wants to advertise. So we reluctantly accept the Exxon insertions.

Are we correct in this opinion? In view of the existential threat from climate change, written about very effectively by the FT’s chief economics commentator Martin Wolf just this week, should not the newspaper demand that its fossil fuel advertisers present a fuller and more accurate view?[5] Should large companies be allowed to push marketing at us that distorts the reality of what they are doing? Exxon is one of the five most important polluters on the planet. Is it right that it is able to use advertisements that are intended to artificially inflate the public perception of the seriousness of its own efforts to wean itself off fossil fuels?

I find this a very uncomfortable dilemma but I’m beginning to think that polluters may need to be restrained.

 

Appendix: algae as the source of fuel

The oil we extract from the ground today largely comes from the decomposition of prehistoric algae. These tiny organisms contained about 20% lipids, a form of fat, which eventually pooled into the oil that is being produced today from fields around the world.

Exxon is trying to find ways of replicating the natural process. It wants to grow algae in large open-air reservoirs, harvest the product, dry it and then extract the fats efficiently. The fat can be relatively easily converted to liquids that can fuel conventional cars. Its research since 2009 has been focused on increasing the fat content of the organism. Genetic engineering of a particular strain of algae has pushed the percentage up to 40%, with only a small diminution in the rate of growth, the company claims.

 As it grows, algae use photosynthesis to convert CO2 in the atmosphere into useful oil. When extracted from the organism, the oil can therefore be said to be low-carbon. In fact, as I mention above, Exxon says that fuel derived from algae is approximately half as carbon-intensive as conventional oil. Others are far more sceptical about the carbon benefits of this route to making fuels.

[1] https://www.nytimes.com/2009/07/14/business/energy-environment/14fuel.html

[2] https://archive.nytimes.com/www.nytimes.com/gwire/2009/07/14/14greenwire-exxon-sinks-600m-into-algae-based-biofuels-in-33562.html

[3] http://www.biofuelsdigest.com/bdigest/2018/05/24/back-to-the-future-all-over-again-exxonmobil-targets-algae-fuels-at-scale-by-2025-as-oil-prices-rise/

[4] https://theconversation.com/algal-biofuel-production-is-neither-environmentally-nor-commercially-sustainable-82095

[5] https://www.ft.com/content/b1c35f36-d5fd-11e8-ab8e-6be0dcf1871