New Delhi: The energy transition to a net zero carbon world is an existential challenge for oil and gas majors but US companies are lagging way behind their European rivals in adapting their businesses, a report from financial think tank Carbon Tracker said on Friday.
It reveals that most European companies are starting to take a more holistic view of the energy transition.
They have made a string of recent transition plan announcements, cutting assumptions about the future oil price and setting increasingly ambitious climate targets, and this is reflected in more conservative project portfolios.
However, the US companies lag behind on all three measures.
ExxonMobil is one of the least well prepared companies with 80 per cent or more of its business as usual project portfolio would not be competitive if climate change is limited to 1.6 degrees Celsius and it has the weakest climate targets.
Eni and BP are amongst the best prepared companies but up to 50 and 60 per cent of their respective portfolios risk becoming stranded assets and losing value if they are developed.
The report ‘Fault Lines: How diverging oil and gas company strategies link to stranded asset risk’ warns that fossil fuel demand will have to fall to meet climate targets and only the lowest cost projects will deliver returns.
“The energy transition is an existential challenge that goes right to the heart of business strategy and hence requires a joined-up approach,” it says.
However, most of the oil majors have continued to approve investments in projects inconsistent with the Paris Agreement goal of keeping global warming “well below” 2 degrees Celsius and pursuing efforts to limit it to 1.5 degrees.
The report identifies 15 projects approved in 2019 worth $60 billion that suggest companies are betting on prices that are inconsistent with global warming targets and risk becoming stranded assets in a low-carbon world.
They include: ExxonMobil’s $10 billion Golden Pass liquefied natural gas project in the US; Chevron and Total’s $6.3 billion ultra-deep water Anchor oil project in the US; Shell and Total’s $3.9 billion ultra-deep water Mero Sepetiba project in Brazil; and BP, ExxonMobil and Equinor’s $3.3 billion deep water Azeri Central East project in Azerbaijan.
The report says the Covid-19 crisis has shown how a fall in demand leads to plunging prices and should spur companies to action.
The CEOs of both BP and Shell have suggested that global oil demand may have peaked in 2019.
Andrew Grant, Carbon Tracker Head of Climate, Energy & Industry Research and report co-author, said: “Very few parts of fossil fuel producers’ business models will be left unshaken by the energy transition.
“European leaders like Eni and BP are responding with an increasingly joined-up approach but for Exxon and others the only consistency is how completely they shy away from decarbonisation.”
‘Fault Lines’ responds to growing concern from investors about the transition risks that climate change poses to their portfolios and their clients’ lives as evidence grows of the physical dangers of warming beyond 1.5 degrees Celsius.
Investors are seeking to drive change through initiatives such as Climate Action 100+, backed by companies with $47 trillion in assets.
