Business Essentials for Professionals


Report Says If Climate Targets Reached, Oil Firms Could Waste Trillions

Report Says If Climate Targets Reached, Oil Firms Could Waste Trillions
A think tank says that if international climate targets are to be met, there is risk that spending of more than a third of their budgets on oil and gas projects will not be feasible by 2025 for oil giants that include Exxon Mobil and Royal Dutch Shell.
According to a report by the Carbon Tracker thinktank and a group of institutional investors, if governments stick to targets to lower carbon emissions to limit global warming to 2 degrees celsius, more than $2 trillion of planned investments in oil and gas projects by 2025 risk becoming redundant.
For the report, analysis of costs of oil and gas projects planned for approval by 69 companies into 2025 was done. Then the 2 degree limit set by the 2015 Paris agreement, which would lead to a decline in fossil fuel consumption, was set as the comparison mark related to the carbon intensity that would be emitted by such projects.
The risk of spending of half its budget on new fields that will not be needed is run by Exxon, the world's top publicly-traded oil and gas company, according to the report. Up to 40 percent of their budgets outside the limits would be seen by Shell and France's Total.
Growing pressure to reduce carbon emissions and increase transparency over future investments from investors has been exerted on fossil fuel companies. Investments in six companies, including Exxon, which violates the Paris climate agreement, would be reduced by Sweden's largest national pension fund, AP7, which is also one of the authors of the report, said last week.
Support for the Paris agreement reached by nearly 200 countries was supported by the world's top fossil fuel companies. In order to support cleaner sources of energy such as gas, many of them have urged governments to impose a tax on carbon emissions.
Claiming that the Paris accord, would undermine the U.S. economy and weaken American national sovereignty U.S. President Donald Trump said this month he would withdraw the United States from the accord.
According to the report, becoming unnecessary within the 2 degree scenario would be projects that include the extension of the giant Kashagan field in Kazakhstan and the Bonga Southwest and Bonga North in Nigeria, said the report noting examples of five of the most expensive projects.
The report said that “how the risk is skewed towards listed companies rather than national oil companies," is demonstrated by around two thirds of the potential oil and gas production which is surplus to requirements under the 2 degree scenario is controlled by the private sector.
The report said that under the carbon emissions scenario, only up to 10 percent of its production becoming uneconomical will be seen by Saudi Arabia's national oil company Aramco, widely considered the lowest cost oil producer in the world.
To respond to future developments and possible changes in the oil price, they wanted to remain flexible, the report's authors said with relation to their discussions with oil companies.
Saying the reserves they hold are too small to be affected by any long-term decline in demand, some of their assets could end up redundant, said some of the international oil companies including Shell and BP who have rejected the idea.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc