If the world is to reach the climate objectives set out in the Paris Agreement, the world’s major fossil fuel companies will need to prepare to cut their extraction of oil and natural gas by half by the 2030s, according to a report.
Countries all over the world signed the Paris Agreement in 2015, pledging to keep global warming below 2°C over pre-industrial levels, with more aggressive objectives to keep it below 1.5°C.
Companies are still approving billions of dollars in large projects that are incompatible with these aims, according to a report by Carbon Tracker.
“Oil and gas firms are wagering against the effectiveness of global efforts to combat climate change,” said Mike Coffin, one of the report’s co-authors. “If they continue to invest as usual, they risk squandering more than a trillion dollars on projects that will be uncompetitive in a low-carbon society.
“Demand for fossil fuels must plummet if the world is to avoid global disaster. Companies and investors must plan for a world with lower long-term fossil fuel prices and a smaller oil and gas industry, and they must recognise the risk of stranded assets now.”
The report, which is Carbon Tracker’s fifth annual assessment of the risks associated with investing in oil and gas, warns that companies have yet to recognise the “seismic implications” of the International Energy Agency’s conclusion that no new oil and gas production is required if the world is to stay below 1.5°C.
According to the analysis, production at 20 of the world’s 40 largest publicly traded corporations will decline by at least 50% by the 2030s as present projects run out with no substitutes. The production of most large shale oil companies would plummet by more than 80%.
According to the analysis, ConocoPhillips, a shale oil specialist, is the oil major most vulnerable, with a reduction of 69%, followed by Chevron (52%), Eni (49%), Shell (44%), BP (33%), ExxonMobil (33%), and TotalEnergies (33%). (30 per cent).
Due to its substantial spare capacity from existing fields, Saudi Aramco is the only one of the world’s largest publicly traded oil and gas corporations that would see higher production.
“In general, no new projects and a rapid fall in production could provide a major shock to firm valuations, as new project options are rendered virtually worthless and future cashflows are reduced,” said Axel Dalman, Carbon Tracker Associate Analyst and report co-author.
“An increase in the cost of capital and the danger of insolvency would result from lower equity valuations. Companies must have a solid transition plan in place, winding down oil and gas operations in a controlled manner and either diversifying into low-carbon enterprises or returning funds to shareholders.”
Companies risk being left with stranded assets that are uneconomic in a low-carbon world if they continue to invest in projects anticipating a business-as-usual future of stable or rising demand, according to the paper. National climate policy and the rapid development of clean technology will reduce demand, drop prices, and result in lower revenues.
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