The world’s largest listed oil and gas companies need to cut their production by at least 50% by the 2030s to align with global climate targets, a new report from the financial think tank Carbon Tracker released Thursday.
The report entitled Adapt to Survive, Carbon Tracker’s fifth annual analysis of the risks of investing in oil and gas producers said if these companies continue business as usual, they risk wasting more than $1 trillion on projects that will not be competitive in a low-carbon world.
The report warns investors that companies have not woken up to the 'seismic implications' of the International Energy Agency’s (IEA) findings in its net-zero roadmap published in May that no investment in new oil and gas production is needed if the world aims to limit global warming to 1.5°C.
However, Carbon Tracker’s report reveals that companies are still approving billions of dollars of investment in major projects that are inconsistent with the 1.5°C Paris climate target.
The report finds that these companies have net-zero commitments although they continue to explore new oil and gas.
In a year of the Covid-19 pandemic and as oil prices collapsed, the report identifies five major projects approved in 2020 that are not even compatible with a 1.65°C target with projected investments worth a total of $18 billion over the next decade.
These projects involve ExxonMobil’s $5.5 billion investment in the offshore Payara oil field and the $1.8 billion Pacora oil fields in Guyana, a $4 billion investment in the Itapu oil field of Petrobras in Brazil, Woodside’s $3.9 billion Sangomar oil field in Senegal, and Petrobras, Shell and Total’s $2.7 billion Mero 3 oil field in Brazil.
'Oil and gas companies are betting against the success of global efforts to tackle climate change. If they continue with business-as-usual investments they risk wasting more than a trillion dollars on projects which will not be competitive in a low-carbon world,' Mike Coffin, head of oil and mining at Carbon Tracker and co-author of the report, said.
Over $1 trillion business-as-usual investment is at risk, including $490 billion in shale and tight oil projects and $200 billion in deep-water projects.
- ConocoPhilips is most exposed oil major
The report said ConocoPhillips is the oil major that is most exposed, with 88% of its business-as-usual project portfolio likely to be uncompetitive, followed by ExxonMobil at 80%, Chevron with 60%, Shell with 53%, bp with 40%, TotalEnergies with 39% and Eni with 25%.
Coffin noted that if the world is to avert a climate catastrophe, demand for fossil fuels must fall sharply.
'Companies and investors must prepare for a world of lower long-term fossil fuel prices and a smaller oil and gas industry, and recognize now the risk of stranded assets that this creates,' he warned.
According to the report, this would see production at 20 of the world’s 40 largest listed companies drop by at least 50% by the 2030s as existing projects run down with no replacements.
Most large shale oil companies would also see production cut by over 80%, the report finds.
ConocoPhillips is the most exposed oil company facing a production drop of 69%. Chevron follows with the need to have a 52% production cut. Eni, Shell, bp and TotalEnergies with cuts of 49%, 44%, 33% and 30%, respectively are also vulnerable.
'Saudi Aramco is the only one of the world’s largest listed oil and gas companies that would see increased production because of its large spare capacity from existing fields,' the report showed.
'It is crucial for companies to have a strong transition plan, winding down oil and gas activities in an orderly manner and either diversifying into low-carbon businesses or returning capital to shareholders,' Axel Dalman, Carbon Tracker’s associate analyst and report co-author, said.
Although leading companies have adopted net-zero targets, only bp, Eni, TotalEnergies and Shell have acknowledged that their oil production will fall over the coming years, according to the report, while only bp has committed to falls in gas production, which Shell and Eni plan to grow.
'Investors have a crucial role to play in driving the changes to the oil and gas industry’s behavior necessary to reduce their exposure to transition risks. If they want to align with a 1.5°C climate target, it is crucial that they only hold companies with robust plans to reduce the production of oil and gas and approve no new projects,' he concluded.
By Nuran Erkul Kaya