Not-for-profit financial think tank, Carbon Tracker, has found that oil and gas companies have approved $50 billion of investment since 2018 in major projects that undermine climate targets and threaten shareholder returns.
The first study to identify individual projects that are inconsistent with the Paris Agreement outlines that no major oil company is investing to support its goals of keeping global warming ‘well below’ 2˚C and to ‘pursue efforts’ to limit it to a maximum of 1.5˚C.
Carbon Tracker’s repor, Breaking the Habit: Why none of the large listed oil companies are Paris aligned, warns that fossil fuel demand will have to fall to meet international climate targets, and only the lowest cost projects will deliver an economic return under these goals.
However, the report highlights that 18 projects worth $50 billion that have recently been sanctioned that will be ‘deep out of the money in a low-carbon world’.
An example is ExxonMobil’s $2.6 billion Aspen project in Canada – the first greenfield oil sands project in five years – which will require an oil price of over $80 a barrel to deliver a 15 per cent return.
The following table summarises recently-approved projects at the asset level, including European majors – Shell, BP, Total and Equinor.
Andrew Grant is a Senior Analyst at Carbon Tracker and the report’s author. Mr Grant said that every oil major is betting heavily against a 1.5˚C world and investing in projects that are contrary to the Paris goals.
“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 says that investors are increasingly concerned about the risks climate change poses to their portfolios and their clients’ lives as evidence grows of the dangers of warming beyond the 1.5˚C threshold. They are seeking to drive change in the companies they own through initiatives such as Climate Action 100+, backed by investors with assets worth $34 trillion.
Carbon Tracker applied the International Energy Agency’s (IEA) most ambitious low emissions pathway – the Beyond 2 Degrees Scenario [1.6 deg] and estimates that the world’s largest listed oil and gas companies like ExxonMobil, Chevron, Shell, BP, Total, Eni and ConocoPhillips, with Equinor, each spent at least 30 per cent of their investment in 2018 on projects that are inconsistent with a 1.6˚C world.
The report found projects already sanctioned by the oil and gas industry will take the world beyond a 1.5˚C warming pathway.
Moreover, the report finds that meeting the IEA’s 1.6˚C scenario will require companies to slash investment, even with significant Carbon Capture and Storage technology, which at present looks ‘very unlikely to be realised’.
Demand for oil can be satisfied with projects that break even at below $40 per barrel and pursuing higher-cost projects risks creating stranded assets that will never deliver adequate returns.
The report warns that oil and gas companies risk wasting $2.2 trillion by 2030 if they base investment decisions on current emissions policies announced by governments, which would lead to 2.7˚C of warming, instead of planning for continued momentum towards a low-carbon world and ensuing reduced demand for fossil fuels.
Major oil companies like Shell, BP, Equinor and Total have sought to reassure investors that they are responding to climate concerns. The first three have said they will test their new investments for consistency with low-carbon scenarios.
The report makes clear the change in behaviour that will be required for the industry to become truly ‘Paris-aligned’.
‘Breaking the Habit: Why none of the large listed oil companies are Paris aligned’ can be found here.