Global momentum towards action on climate change is building in the lead up to international negotiations, set to take place later this year in Paris. With the writing on the wall, some of the largest oil companies are banding together in order not to be left out in the cold.
The agreement emerging from Copenhagen in 2009 was widely seen as a failure. While the likelihood of a stringent international agreement with binding emissions targets resulting from the Paris talks is extremely low, the world appears to be mustering up the motivation to do something.
Whether that has a real impact on the fortunes of the oil and gas industry remains to be seen, but to avoid being left out of the conversation, oil companies including Total, Eni, Saudi Aramco, BG, Royal Dutch Shell, and others have come together to form an industry group to weigh in on the negotiations. The group will announce the establishment of a think tank in June. Related: Shell Approval May Trigger Resource Race In The Arctic
Sensing an emerging threat from climate action, the new think tank will establish common industry-wide positions on responding to climate change, such as pushing natural gas as an alternative to coal. By speaking together they hope to have their collective voice heard and avoid being caught flatfooted in the event that aggressive emissions reductions policies get put into place.
Thus far, the group appears to consist of European companies, with oil majors ExxonMobil and Chevron staying out.
But ExxonMobil is eyeing the rising green tide as well. ExxonMobil even sent lobbyists to Vatican City as it became known that the Pope was going to write an encyclical – or a letter that lays out Catholic teachings – ahead of the Paris negotiations in favor of environmental protection. ExxonMobil wanted to brief the Vatican on its take on the future of energy.
Unlike in years past, it has become increasingly difficult for oil and gas companies to maintain a dismissive stance on climate change. Recognizing that denying the science is an untenable position, the new industry group will both acknowledge that something needs to be done on emissions but at the same time, will insist that oil and gas will be needed for the long-term.
The change in tone is telling. Look no further than Saudi Arabia. The desert kingdom’s oil minister recently stated that his country would eventually be transitioning towards cleaner sources of energy. For a country whose entire economy depends on fossil fuels, that is a shocking admission. Related: Saudi Arabia Planning For Transition To Renewables
But it is not just Saudi Arabia. Shell’s CEO Ben van Beurden also admitted that the days of fossil fuels could be numbered. He said that by the end of the century the world economy will be “zero carbon,” and that Shell will need to earn most of its revenues from renewable energy.
While such a statement could be dismissed as mere words, an empty gesture for positive publicity, he also went further than virtually any other energy company has to date. He said that unless carbon capture and sequestration can be developed, the world cannot burn through all the known oil and gas reserves.
“We cannot burn all the hydrocarbon resources we have on the planet in an unmitigated way and not expect to have a CO2 loading in the atmosphere that is often being linked to the 2C scenario,” van Beurden said on May 22 in an interview with The Guardian.
It is not as if Shell is going to unilaterally give up its right to produce all of its oil and gas reserves, nor is it likely that the company will shift towards renewables in any meaningful way anytime soon. Related: Drilling Efficiency To Keep Oil Prices Low
Still, the boss of Shell implicitly – and almost explicitly – acknowledged the credibility of the “carbon bubble” argument, which says that financial assets in oil and gas reserves will drastically fall in value once it becomes apparent that they will not be developed due to limits on carbon emissions.
The argument has fueled calls for divestment, which for quite a while was ignored or rejected by oil companies.
But with some of the largest oil companies coming together in response to rising climate action, and Shell’s subtle admission that some oil and gas could become “unburnable,” it appears that the industry is starting to feel the heat from climate activists.
By Nick Cunningham of Oilprice.com
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