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About 15 years ago, BP PLC, the oil and gas giant formerly known as British Petroleum, doused itself in green and invented a cheery new starburst logo adorned with "Beyond Petroleum." The message: BP would evolve from a fossil fuel company into a broad-based energy supplier with a thriving portfolio of renewable energy projects. The move earned praise from environmentalists, even if they knew BP's hydrocarbons business would never go gently into the night.

Just a few years later, however, BP quietly abandoned "Beyond Petroleum" and put its U.S. wind farms on the auction block. Today, BP's literature doesn't mention renewables much, and the company evidently thinks fossil fuels will endure forever. It predicts that renewable energy, excluding hydro power, will account for just 8 per cent of total world energy demand by 2035.

The de-greening of BP already looks like a bad move, not only because last December's Paris climate change conference took a serious step toward a low-carbon future, but because the Western world's oil companies are in danger of vanishing as oil companies. To survive, they will have to cut back on expensive drilling and get going on renewable energy. Geology is working against them, and so is increasing global oil market competition.

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Let's start with geology. Big, easy conventional oil discoveries, like Mexico's Cantarell and Alaska's Prudhoe Bay, are running out of puff. Those two and other old fogeys around the world are still pumping away, but, altogether, they produce about four million barrels per day less each year.

Aside from U.S. shale oil, the remaining potential big discoveries are very remote, very deep or in very hostile environments, meaning they are hideously expensive to find and connect to markets. In September, Shell abandoned the Chukchi Sea oil play in the Alaskan Arctic after spending an astounding $7-billion (U.S.) to find and drill a single well.

Shell, in effect, faces a slow-motion suicide. In 2014, despite its best efforts to find new reserves of oil and gas, it replaced just 26 per cent of the 1.2 billion barrels of oil equivalent (BOE) that it produced. But it's not alone. According to research firm IHS, the Big Five Western oil giants – BP, Chevron, Exxon Mobil, Total and Shell – replaced 84 per cent of the amounts they produced. As oil prices fall and exploration and development budgets are crunched, the so-called reserve replacement ratio is bound to keep falling. To be sure, any of these companies could find a monster field, but the odds of doing so decline every year.

Which brings us to economics. As late as mid-2014, Brent crude, an international price benchmark, was trading at $110 a barrel. By the end of 2015, the price was down near $37 – a 66-per-cent drop. The culprits were excess supply, as U.S. shale fields turned into gushers, and OPEC, which decided in late 2014 that it wouldn't try to boost prices any time soon by cutting output. OPEC (read: Saudi Arabia) took the view that high prices merely subsidized the development of expensive unconventional oil fields beyond its realm, notably U.S. shale oil and the Alberta oil sands. As that happened, OPEC's global market share dwindled. OPEC's strategy now, in effect, allows each member country to pump as much oil as it wants.

Low prices mean that the Big Five oil companies will have enormous trouble competing with the countries–among them Saudi Arabia, Iran and Russia–that have exclusive access to the world's cheapest fields. In many Saudi fields, it still costs just a couple of bucks to produce a barrel of oil. In the oil sands, Suncor is forecasting 2016 Canadian-dollar cash operating costs at $27 to $30 a barrel. Guess who is going to win over the long term? Not the Western oil companies, whose growth is now dependent on spending fortunes on unconventional reserves.

Meanwhile, shareholder activists are urging investors to dump their holdings in fossil fuel companies. To some degree, it's working and the pace of divestment should accelerate as the 195 countries that signed the United Nations' Paris agreement try to bring down their carbon emissions to prevent catastrophic global warming.

The Western biggies have nothing going for them at the moment. Yet their strategy is to keep drilling like mad for oil, apparently in the belief that prices and demand will rebound. A better idea would be to diversify their energy portfolios in recognition that they can't compete with OPEC's low-cost producers and that the oil era is coming to an end, even though it could endure for another few decades.

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Investments in renewable energy and innovation seem not just sensible, but a question of survival. The oil companies, of course, will resist. They will argue that they do only one thing well – drill wells – and that the renewable energy game should be left to companies like Tesla, Vestas, Suntech and General Electric. That would be a mistake. BP's "Beyond Petroleum" was years ahead of the curve. Time to resurrect it.

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