It’s been a week bookended with bad financial news for the oil and gas industry. It began with Exxon getting the boot from the Dow Jones Industrial Average, and now comes news that energy companies are the tiniest piece of another venerable stock index, the S&P 500. These may be different indices, but they tell the same story: Big Oil is becoming a terrible investment.
The S&P 500 news comes courtesy of BloombergNEF chief content officer Nat Bullard, who tweeted the ignominious milestone on Thursday evening. The energy sector—which includes oil majors as well as refiners—dipped to just 2.34% of the overall S&P 500. That’s an infinitesimally small chunk compared to tech, which has marched steadily upward over the decade since the 2008 financial crash, as well as other sectors, from health care to real estate. Frankly, Big Oil just isn’t so big anymore.
The S&P 500 is designed to reflect the overall state of the economy, and it includes major companies from various sectors. Companies under the “energy” banner include familiar names found on gas stations across the country, like Exxon, Chevron, and Phillips 66, as well as firms like Halliburton and fracking giant Devon Energy. All of them have played crucial roles in building the American economy to what it is, though many have also spread lies about climate change, profited wildly off of war, and otherwise used their positions as incumbents to squash competition, including from renewable energy.
But despite these companies’ stranglehold on how we get energy, the pandemic has offered a crushing blow to business as usual. Oil demand took a huge dip at the start of the pandemic, which has created a growing crisis in the industry, including job losses, late loan payments, huge financial hits, and a general freakout about what comes next.
The question of what comes next is, of course, not driven just by the coronavirus’ impact on the world, but by the climate crisis as well. The oil industry as it exists is incompatible with a habitable climate. That’s been true for decades, but the financial world finally seems to be getting it. Even before the pandemic, oil and gas’ trajectory has been on a nearly uninterrupted downward line, something’s that’s clear as day in Bullard’s tweet. Initially clustered with health, technology, finance, and a number of other sectors, the market share of energy has steadily shrunk.
While the climate crisis and pandemic have played a role, so has a long period of cheap oil prices. Going forward, the finances of oil won’t get any rosier. Nearly every major American bank has pulled back from funding Arctic oil drilling despite the Trump administration egging it on. Oil sands are starting to falter, and pipeline projects are getting canceled. Activists have constrained fossil fuel companies’ social license to operate by making a case for the immorality of more extraction. Their case is based on the very real nuts-and-bolts problem that financing more oil and gas extraction will destroy the planet billions of humans currently occupy. That’s a problem whether you love making money or hugging trees (or both, which, good for you).
The end of the era of oil is beginning in earnest right now, and it’s vital that we come up with a plan for how to go about it rather than just letting the market decide. Left to its own devices, the companies making up an ever-smaller sliver of the S&P 500 are likely to prioritize shareholders and C-suite executives over the workers who made them what they are. Any just plan for life after oil involves ensuring those workers are part of the conversation about what that looks like and how they can be a part of it. Some plans are already out there, including employing highly skilled workers to cap the 2.1. million abandoned oil wells that dot the American landscape, emitting greenhouse gases all the while. It’s one of many solutions that can put people to work and help the climate. I’m not an economist, but that sure seems like a better return on investment than continuing to throw money at the industry as it currently exists.