A new report from Carbon Tracker reveals that oil and gas companies have approved US$50 billion (AU$73 billion) of investments for new projects that undermine climate targets and threaten shareholder returns, and no major oil company is currently investing to support the Paris Agreement goals of keeping global warming well below 2˚C.
Carbon Tracker, a not-for-profit financial think tank, says its new report Breaking the Habit: Why none of the large listed oil companies are Paris aligned – is the first study to identify individual projects that are inconsistent with the Paris Agreement.
It was this “first of a kind” analysis which revealed that no major oil company is investing to support the goals of the Paris Agreement of keeping global warming “well below” 2˚C and to “pursue efforts” to limit it to a maximum of 1.5˚C.
The report warns that fossil fuel demand must fall to meet international climate targets and that only the lowest-cost projects will deliver an economic return under these goals. Despite this, however, Carbon Tracker’s report shows 18 projects worth a total of US$50 billion that have recently been approved and sanctioned that will nevertheless be “deep out of the money in a low-carbon world”.
The projects highlighted include ExxonMobil’s US$2.6 billion (AU$2.82) Aspen project in Canada – the first greenfield oil sands project in five years – which would require an oil price of over $80 per barrel to deliver a 15% return. Additional projects include:
- Shell’s US$13 billion (AU$19 billion) liquefied natural gas project in Canada.
- BP, Chevron, ExxonMobil and Equinor’s US$4.3 billion (AU$6.3 billion) ACG deepwater oil project in Azerbaijan.
- BP, ExxonMobil, Total and Equinor’s US$1.3 billion (AU$1.91 billion) Zinia 2 deepwater oil project in Angola.
Utilising the International Energy Agency’s most ambitious low emissions pathway – the ‘Beyond 2 Degrees Scenario’, which outlines a pathway of global warming of 1.6˚C – Carbon Tracker estimates that the world’s largest listed oil and gas companies each spent at least 30% of their investment in 2018 on projects that are inconsistent with a 1.6˚C world.
These companies include ExxonMobil, Chevron, Shell, BP, Total, Eni and ConocoPhillips, with Equinor.
Further, the report found that projects already approved and sanctioned by the global oil and gas industry will take the world beyond a 1.5˚C warming pathway.
“Every oil major is betting heavily against a 1.5˚C world and investing in projects that are contrary to the Paris goals,” said Andrew Grant, Senior Analyst at Carbon Tracker and report author.
“Investors should challenge companies’ spending on new fossil fuel production. The best way to both preserve shareholder value in the transition and align with climate change goals will be to focus on low-cost projects that will deliver the highest returns.”
Carbon Tracker’s latest report concludes that, if we are to meet the IEA’s 1.6˚C scenario, oil and gas companies must “slash investment” – even projects with “significant Carbon Capture and Storage technology” – and with projects that satisfy demand for oil at below $40 per barrel. However, unsurprisingly, this looks unlikely at present.
The report also highlights concerns being faced by investors who are under significant pressure to determine which energy companies are “Paris-compliant” and which are not.
The risk of stranded fossil fuel assets is a real fear for investors at the moment, and these concerns only grow as more evidence is presented. Carbon Tracker believes that investors should challenge investment in projects which are inconsistent with a low-carbon world. “These projects represent an imminent challenge for investors and companies looking to align with climate goals,” the report warns.
With regards to company specific risk of stranded assets, it should come as no surprise that ExxonMobil has the greatest risk of stranded assets in a low-carbon world with more than 90% of potential 2019-2030 spending on new projects sitting outside a 1.6˚C pathway. ExxonMobil is then followed by Shell with 70%, Total with 67%, Chevron with 60%, BP with 57%, and Eni with 55%.
The various scenarios do not paint a pretty picture, as can be seen below: