If governments around the world stick to the Paris Agreement targets for CO2 emissions, big oil companies stand to lose US$2.3 trillion in the period until 2025. This is the striking outtake from a new report by Carbon Tracker, a climate change think tank, which partnered with a group of institutional investors to compile it.
The authors of the report analyzed the 69 biggest public oil and gas companies, and compared how they will fare in terms of capital expenditure on a business-as-usual basis and on a basis that involved full compliance with the core target of the Paris Agreement: reducing the rise of global temperatures by 2 degrees Celsius (the D2 scenario). According to the report, there was some very bad news for these companies.
In a D2 scenario, potentially unviable new oil and gas projects range from below 10 percent to as much as 70 percent for some companies in the lineup. The US$2.3-tillion figure represents about a third of the 69 companies' combined capex until 2025. In other words, under a D2 scenario, these companies could waste a third of their combined capital budgets on oil and gas output that will simply not be needed.
The worst affected companies under this D2 scenario would be Apache and Southwestern Energy, both with a 60-70 percent exposure to unviable projects. Things don't look much better for Exxon - its exposure is between 40 and 50 percent. Shell and Chevron are both in the 30-40 percent band of exposure, as are Total, Noble Energy, and Rosneft. Anadarko, Occidental Petroleum, BP, and Lukoil are with an even lower exposure, at 20-30 percent.
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It's worth noting that full compliance with Paris Agreement targets are only a possible future. In fact, in its recent Energy Technology Perspectives, the International Energy Agency warned that at the moment, just a tenth of renewable energy technology globally is up to the task of meeting the agreement's targets. So, the D2 scenario is by no means a given.
On the other hand, Big Oil might see investor outflows. Reuters notes in its report on the Carbon Tracker document that Sweden's largest pension fund, AP7, has cut its exposure to six energy companies, among them Exxon, on concern that they are in violation of the Paris Agreement.
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. More
Comments
And remember- capital flight and bankruptcies will always come before production volumes fall significantly.