• 33 mins Syrian Rebel Group Takes Over Oil Field From IS
  • 3 days PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 3 days Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 3 days Syrian Rebels Relinquish Control Of Major Gas Field
  • 3 days Schlumberger Warns Of Moderating Investment In North America
  • 3 days Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 3 days Energy Regulators Look To Guard Grid From Cyberattacks
  • 3 days Mexico Says OPEC Has Not Approached It For Deal Extension
  • 3 days New Video Game Targets Oil Infrastructure
  • 3 days Shell Restarts Bonny Light Exports
  • 3 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 3 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 4 days British Utility Companies Brace For Major Reforms
  • 4 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 4 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 4 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 4 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 4 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 4 days Rosneft Signs $400M Deal With Kurdistan
  • 4 days Kinder Morgan Warns About Trans Mountain Delays
  • 4 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 5 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 5 days Russia, Saudis Team Up To Boost Fracking Tech
  • 5 days Conflicting News Spurs Doubt On Aramco IPO
  • 5 days Exxon Starts Production At New Refinery In Texas
  • 5 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 6 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 6 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 6 days China To Take 5% Of Rosneft’s Output In New Deal
  • 6 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 6 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 6 days VW Fails To Secure Critical Commodity For EVs
  • 6 days Enbridge Pipeline Expansion Finally Approved
  • 6 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 6 days OPEC Oil Deal Compliance Falls To 86%
  • 7 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 7 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 7 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 7 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 7 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
Alt Text

The U.S. Shale Play To Watch In 2018

The original U.S. shale gas…

Alt Text

Oil Prices Rise Amid Falling U.S. Rig Count

Oil prices inched higher on…

Alt Text

Oil Quality Issues Could Bankrupt Venezuela

Falling Venezuelan oil quality could…

Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

More Info

Big Oil Cannot Afford To Ignore Climate Change

Shale rig sunset

Investors have begun to take climate change more seriously now that the Paris climate agreement of December 2015 has created a new set of initials to watch, NDC for “nationally determined contribution”. A study sponsored by the biggest investors in the world claims that only 94 of the more than 1000 companies that answered the sponsored survey have developed coherent strategies to meet their goals and the fossil fuel companies had the most disappointing responses. That should not be a big surprise. And considering that so many of those investors have a policy of buying just about every large capitalization stock (they are index fund or closet index investors), it is not clear what most of them will do with the information until they make some serious investment policy decisions. But the heat is on, at least at the margins, and likely to grow hotter for those investment funds, especially if the regulatory agencies force corporations to discuss climate risk in their reports. Investment committees don’t want to have to explain, afterwards, why they ignored warnings.

That brings us to the energy marketplace. Moody’s Investors Services just issued a bond rating report explaining how and why it considers climate change risk in rating energy companies. Among the G20 economies, electricity production and central heating account for 45 percent of the country’s carbon emissions. This is, of course, the economic sector that can utilize renewables right now. The firms in the electric business are capital intensive and issue bonds often. If the rating agencies become negative on the sector and lower the bond ratings, companies will pay more to raise money and a few will not be able to raise money.

Moody’s argument could be boiled down to this. The cost of renewable energy is falling, and lower renewable prices will put pressure on wholesale energy prices just as carbon pricing adds to the costs of the carbon-fueled generators. Thus, margins will fall the most for the least efficient carbon-fueled facilities. Unregulated, inefficient and inflexible carbon fuel generators will suffer the most because they will lose market share, face falling margins and they have no regulatory protection. On the plus side, for them, the unregulated markets have had to create capacity payments to keep generators from closing down and leaving the system with insufficient capacity and capacity payments now make up 40 percent of generating gross margin in regions that have such a scheme to pay generators to keep open to prevent emergencies. Related: Will Electric Cars Be Cost Competitive By 2020?

Unfortunately, the impact of the new policies go beyond dirty generators. First, more renewable output may reduce the market for gas-fired electric generation. (If electricity sales were growing, there might be enough market for everyone, but sales are not growing. And gas as a fuel for generation has been the fastest growing segment of the gas market, so a slowdown will hurt.) Second, new technology enables local and on-site generation and storage, and that makes the transmission and distribution grid less valuable.

Moody’s entitled its report, “Carbon Transition Brings Risks and Opportunities” but makes clear that the opportunities go to the most efficient and flexible firms, regulated firms have some protection and the risks accumulate for those with old, inefficient and unregulated assets. We suspect that Moody’s has got it right, but consider this: if all the ratings agencies begin to think the same way, they will set ratings that affect the flow of capital and they could accelerate the trends that they foresee.

In sum, it appears that big money is beginning to speak, and it says, “Carbon emissions count and if you don’t believe that, you’ll pay dearly if you need money and you might not get our money at all.”

By Leonard Hyman and William Tilles for Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • MarkG on November 11 2016 said:
    ....and just follow the money trail.
    The climate has been changing for thousands of years before the human race on this planet, and it will be changing after the life on this planet is extinct due to wars or natural catastrophe.
    However this time in the 21st century, someone, somewhere decided to make a business out of this UNKNOWN climate changes. Because of this, lots of so called climate scientist on both sides of the debate, have got a field job with all kinds of computer modelling of climate change. Actually, just few years ago, it was a debate on GLOBAL Warming, but because they (climate scientists) could not develop a consistent computer model for that, they have decided to take a safer approach, and steer the agenda towards CLIMATE Change.
    From then on, everything they say is like a GOSPEL. And how can ,anybody be against it, when all the "smart" people, rich people like Leo DiCaprio, Al Gore are preaching this GOSPEL.
    Even Pope Francis lent his authority to the debate about UNKOWN.
    When a LIE is repeated by these "experts", with such an UNRELENTLESS media campaign (day in and day out), it will become the ONLY TRUTH we know it.
    Will the people like Al Gore, DiCaprio or Suzuki ever be held accountable for their outrages predictions 30, or 50 years from now? The corporate world does not really care about it. They will fit into the agenda to make a profit by adding few dollars for trading "HOT AIR", but the rest of us will be driven to the poor house. The socialist agenda will prevail, share the wealth, everyone must be the same poor. Only few will be laughing all the way to the bank. Follow the money trail......
    I guess Russian leaders like Stalin, Khrushchev, or Brezhnev were right. Socialists will prevail with New World Order.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News