Rising sea levels, wild-fires, heat waves and extreme weather events are already wreaking havoc everywhere and could cost the global economy hundreds of billions of dollars in crumbling infrastructure, reduced crop yields, health problems, and lost labor. When most people think about climate change, the oil and gas industries tend to take the lion’s share of the blame due to their high levels of CO2 and GHG emissions. Few people, however, pause and consider that the same ecological fallout that is hurting communities is also taking a toll on the fossil fuel industry.
Climate change is making it costlier for oil and gas companies to operate. Indeed, climate-related supply threats have already begun to manifest in the oil and gas industry, with more than 600 billion barrels equivalent of the world’s commercially recoverable oil and gas reserves, or 40% of total reserves, facing high or extreme risks. According to UK-based global risk and strategic consulting firm Verisk Maplecroft, the risk of climate-related events disrupting the flow of oil to global markets is highest in Saudi Arabia, Iraq and Nigeria.
On a brighter note, a rapidly changing climate is creating numerous opportunities in sectors such as clean energy, water treatment and smart grids, among others. Here are 5 companies that are poised to benefit from global warming and climate change.
1. Brookfield Renewable Partners L.P.
Market Cap: $14.9B
YTD Returns: 21.9%
Brookfield Renewable Partners L.P. (NYSE:BEP) owns a portfolio of renewable power generating facilities primarily in North America. The company’s impressive portfolio of renewable energy assets has been helping the company maintain decent growth.
With more money set to flow into the solar sector than the oil sector in the current year, renewable energy companies with large solar portfolios like Brookfield have been surging.
In its latest results, Brookfield Renewable reported Q1 revenue of $1.33B (+16.7% Y/Y), beating the Wall Street consensus by $50M while Q1 FFO of $0.43 beat by $0.02. Better still, the company could continue to exceed expectations,"We acquired a scarce platform which we know well and remains well-positioned to continue to deliver returns within or above our target range. Based on our acquisition price for the remaining 50%, which we expect will deliver mid-to-high teen returns, our initial investment has generated an IRR of almost 30% and over two times invested capital in our three years of ownership," the company’s management said during its earnings call.
BEP is one of the few renewable energy companies that pay a dividend, with the yield currently at 4.5%.
2. Energy Recovery Inc.
Market Cap: $1.9B
YTD Returns: 44.4%
Energy Recovery Inc. (NASDAQ:ERII), together with its subsidiaries, designs, manufactures, and sells various solutions for the seawater reverse osmosis desalination and industrial wastewater treatment industries worldwide.
ERII stock is trading at an all-time high after B. Riley Securities maintained its Buy rating and raised its price target to a Street-high $32 from $28, saying "continued positive updates around CO2 refrigeration will be key for investor confidence in the opportunity, which appears to be quite real and compelling."
ERII is the only publicly traded company that is nearly 100% focused on desalination. Fortune Business Insights has projected that the global market size of water treatment will grow from $301.8 billion in 2022 to $489.1 billion in 2029, good for a 7.1% CAGR.
3. Exxon Mobil Corp
Market Cap: $420.0B
YTD Returns: -0.4%
While trees and other plants naturally remove carbon dioxide from the atmosphere, most climate change experts now agree that we are just not capable of planting enough, fast enough, to limit the damage to our ecosystems. Carbon capture is one technology that has been proposed to limit global warming and climate change. Both the Intergovernmental Panel on Climate Change (IPCC) and International Energy Agency (IEA) consider carbon capture, utilization and storage (CCUS) an ideal solution for many hard-to-abate sectors such as aviation, hydrogen production and cement from fossil fuels.
Over the past few years, big oil firms have started investing heavily in CCUS, which some argue is simply Big Oil’s way of extending the life of oil and gas fields because captured carbon is used for enhanced oil recovery (EOR). One such company is E&P giant, Exxon Mobil Corp. (NYSE:XOM). Back in April, Exxon CEO Darren Woods told investors that the company’s Low Carbon business has the potential to outperform its legacy oil and gas business within a decade and generate hundreds of billions in revenues. Woods outlined projections showing how the business has the potential to hit revenue of billions of dollars within the next five years; tens of billions in 5-10 years, and hundreds of billions after the initial 10-year ramp-up. However, whether Exxon is able to actualize its goal will depend on regulatory and policy support for carbon pricing, as well as the cost to abate greenhouse gas emissions, among other changes, Ammann said.
Exxon believes that this will result in a "much more stable, or less cyclical" that is less prone to commodity price swings through predictable, long-term contracts with customers aiming to lower their own carbon footprint. For instance, Exxon recently signed a long-term contract with industrial gas company Linde Plc. (NYSE:LIN) that involves offtake of carbon dioxide associated with Linde’s planned clean hydrogen project in Beaumont, Texas. Exxon will transport and permanently store as much as 2.2M metric tons/year of carbon dioxide each year from Linde’s plant. Back in February, Linde unveiled plans to build a $1.8B complex which will include autothermal reforming with carbon capture and a large air separation plant to supply clean hydrogen and nitrogen.
4. Schlumberger Ltd
Market Cap: $79.8B
YTD Returns: 9.6%
Just like its bigger peer, oilfield services company Schlumberger Ltd (NYSE:SLB) is betting big on carbon capture. Back in February, oil field services giant Schlumberger discussed its newly carved SLB New Energy unit with Bloomberg New Energy Finance (BNEF). According to SLB New Energy president Gavin Rennick, the unit is expected to hit revenue of $3 billion by the end of the current decade and at least $10 billion by the end of the next decade. SLB will focus on five key niches, each with a minimum addressable market of $10 billion.:
•Geothermal and geoenergy
Of these segments, Rennick says carbon capture, utilization and sequestration (CCUS) is the fastest growing opportunity thanks to the significant boost it got from the U.S. Inflation Reduction Act (IRA).
5. Occidental Petroleum Corp.
Market Cap: $54.2B
YTD Returns: 2.6%
To achieve our climate goal, McKinsey has proposed the creation of CCUS hubs, essentially a cluster of facilities that share the same CO2 transportation and storage or utilization infrastructure. Currently, there are only 15 CCUS hubs across the globe; McKinsey estimates that there’s the potential to build as many as 700 CCUS hubs globally, located on, or close to, potential storage locations and Enhanced Oil and Gas Recovery (EOR/EGR) sites.
The U.S. government is currently backing four hubs, with two major Occidental Petroleum Corporation’s (NYSE:OXY) projects seen as strong contenders. The government is offering three levels of funding, ranging from $3 million for early stage feasibility studies to $12.5 million for engineering design studies to up to $500 million for projects ready to complete the procurement, construction and operation phases.
Swiss start-up Climeworks, which has raised more than $800 million to date, is among the most active CCUS firms so far.
By Alex Kimani for Oilprice.com
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