The carbon bubble “continues to inflate,” according to a new report from Carbon Tracker. And yet no major oil company has aligned its operations with the goals set out in the Paris Climate Agreement.
This is not just a matter of bad corporate behavior. The oil industry is charging ahead with oil and gas projects that completely defy climate targets, which means that they are taking on serious financial risk. “Companies who continue to sanction higher-cost projects which do not fit with a lower demand scenario risk destroying significant shareholder value through the creation of stranded assets,” Carbon Tracker warned. The more companies delay, the greater risk they take on.
The Paris goals call for limiting warming to “well below” 2 degrees C while striving for 1.5 degrees C. Companies have set out various goals of cutting their own emission, perhaps trimming methane emissions or using more efficient technologies and the like.
But the bottom line is that the carbon budget means the oil market will need to shrink. Carbon Tracker estimates that not only will reserves need to be left in the ground, but major oil and gas companies will need to slash production by 35 percent by 2040 in order for warming to be maintained at 1.6 degrees Celsius.
The industry is on track to blow past these targets. Carbon Tracker has been on this beat for a while, and most recently, found that the global oil and gas industry spent roughly $50 billion on projects since just last year that were not aligned with the Paris targets.
The latest report adds more granular detail, offering up additional company-specific analysis.
“We believe that companies cannot be considered ‘Paris-compliant’ if they are prepared to sanction assets that would take the world past Paris limits,” the Carbon Tracker report said at the outset. Global proved reserves vastly exceed what can be burned in order to meet the Paris climate targets. But more than that, recent investment decisions are an indication that the industry plans to take the world far beyond those targets. Related: Protect The Oil: Trump’s Top Priority In The Middle East
The report used a “least-cost framework” to analyze which oil and gas projects around the world can survive in a low-carbon world and which ones cannot. In other words, the volume of oil and gas output needs to shrink in order to slash global greenhouse gas emissions, and costly projects will be the ones that have to be scrapped.
Carbon Tracker says this way of looking at the situation is both the cheapest way to achieve emissions reductions also the one that maximizes shareholder value.
The analysis focuses on the seven oil majors – ExxonMobil, Royal Dutch Shell, Chevron, BP, Total, Eni and ConocoPhillips. “For all seven, the only way to achieve future production reductions is by not sanctioning those project options” that are not compliant with a carbon-constrained world.
But the limits hit the majors in different ways. For instance, Royal Dutch Shell only needs to scale back production by 10 percent to align its operations with Paris. ConocoPhillips and ExxonMobil, on the other hand, face much more serious financial risks. Conoco will need to cut output by a whopping 85 percent and Exxon will need to reduce production by 55 percent. Related: How Much Oil Is Up For Grabs In Syria?
“ConocoPhillips’ production in particular is impacted by the lack of sufficiently low-cost projects in their portfolio to replace rapidly declining shale and tight liquids production,” Carbon Tracker said.
Shell (10 percent reduction) and BP (25 percent reduction) are in a much better position.
“If companies and governments attempt to develop all their oil and gas reserves, either the world will miss its climate targets and assets will become ‘stranded’ in the energy transition, or both. The industry is trying to have its cake and eat it – reassuring shareholders and appearing supportive of Paris, while still producing more fossil fuels,” Mike Coffin, co-author of the report, said in a statement.
By Nick Cunningham of Oilprice.com
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But in the final analysis, they are business entities looking for the best investment opportunities for their shareholders.
Renewable Energy’s inconvenient truth is that it will never be able to replace oil, and natural gas now or ever. This truth is underpinned by four pivotal principles. The first is that there will be no post-oil era throughout the 21st century and probably far beyond.
The second principle is that there will be no peak oil demand either. The third principle is that the notion of imminent energy transition looks like an illusion.
The fourth principle is business opportunities. Oil and gas will remain the core business of Big Oil well into the future or at least until returns on clean energy start making commercial sense but doesn't mean that they will ignore climate change targets.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
The majors in their demand analysis projections for 2040 and 2050 have the advantage of accurate demand increases and decreases over the past 50 years plus, all of these companies, have projections where they are going to alter their supply from one product to another or most likely, switching from gasoline production to yielding chemical production. Yes , refineries can yield different products!! In addition, during turnarounds every year, they continue to reduce any pollution.
Earlier this year, July 5th, to be exact, a very liberal news network, ABC News published a scientific study that has been ongoing for a year. This study was trying to determine what was the most efficient, in terms of capex and time, what was the cheapest alternative in trying to meet future targets that various parties are trying to meet.
The study determined, that by far the cheapest way to reduce the carbon problem, yet protect the world's economy, is to mount a worldwide effort to plant a trillion trees. They also studied whether it would be possible to plant this many trees and learned that a earlier program had planted 350 million trees , so a trillion trees is not out of the question.
More importantly this effort would reduce by two/thirds the amount of CO2 that has been released by human's during the Industrial Revolution. The cost of this project is infinitely cheaper than other alternatives at $.30/tree and that cost estimate may be to high.
We continue to see articles that the end of the world is coming and that oil companies, airline companies, and trucking corporations should be shutdown immediately, because they do not know what they are doing. Last time I heard we still considered this nation to exist in the free enterprise system and that companies are free to invest wherever their management thought was an excellent opportunity.
If you read between the lines, this author and other authors, believe that governments should be free to shut down companies and industries, even if their government employees have not determined that there are ways to solve this problem. If you will just let the free market work, it will resolve this issue. What we cannot allow is for individuals or authors to be pushing an agenda, even when they do not have all of the facts, that wrecks the entire economy worldwide.
It would be best if we allow the free market to work before printing articles calling for governments to shutdown various industries, or we need to "eat the babies", when there exists better alternatives. (Yes at an AOC press conference when the carbon issue was being discussed, a lady supporting AOC suggested as a way to curb the carbon problem was to eat your babies). What a bunch of different people supporting wacko ideas.
Thank you for allowing me to voice my opinion, as we need to protect the bill of rights for individual's. and also protects a corporations right to invest in their alternatives.
If we are not careful, we are going to have committee's from the government, telling the individual and corporation what we can and cannot do.
Based on recent investment in shale extraction, I think I've seen that investment can be blind to risk based on assumptions about declining production cost that was mistaken.