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Big Oil companies need to reduce their oil production by 35 percent by 2040 in order to preserve shareholder value in a changing world, think-tank Carbon Tracker has warned.
The changing world involves sticking to the Paris Agreement targets of keeping the rise of average global temperatures to below 2 degrees Celsius. To do that, Big Oil needs to seriously reduce the amount of carbon dioxide that it releases as it pumps oil and gas out of the ground.
Exxon, for instance, needs to reduce its annual emissions from close to an estimated 600 million tons this year to about 450 million tons by 2040, Carbon Tracker says. For Shell, the reduction needs to be from over 500 million tons to below that number in the next 20 years. The average emission reduction percentage across the Big Oil group is 40 percent, the think-tank has estimated.
These reductions, however, are calculated on the basis of what Carbon Tracker calls company carbon budgets. Yet these are not the companies’ actual budgets. In September, Carbon Tracker again sounded an alarm on Big Oil. It said the supermajors were betting $50 billion on oil and gas projects that would be unviable in a low-carbon world.
That report, titled “Breaking the Habit – Why none of the large oil companies are ‘Paris-aligned’, and what they need to do to get there”, the think-tank said Big Oil was not preparing for that low-carbon world and this could cost it dearly.
Under a scenario where global warming is arrested at 1.6 degrees Celsius, the energy industry would need an 83-percent lower capex, Carbon Tracker said. Under a 1.7-1.8 degrees scenario, oil and gas capex would need to be 60 percent lower.
The second report ties things together. Cutting capex is directly related to cutting production of fossil fuels. However, Big Oil might disagree that the world is changing as fast as Carbon Tracker and the International Panel on Climate Change would like.
As Shell’s Ben van Beurden notably said in a Reuters interview last month, the world “demands” oil, and until this is the case, the energy industry will continue to invest in the production of that oil.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.