None of the $4.9tr forecast to be spent on new oil and gas fields in the 2020s is compatible with limiting global warming to 1.5C, a Global Witness analysis has warned
The oil and gas industry is forecast to spend a massive $4.9tr on exploration and extraction of new fossil fuel fields over the next decade, despite none of this activity being compatible with limiting global warming to 1.5C, the higher ambition goal of the Paris Agreement.
That is the central conclusion of a new analysis today by green NGO Global Witness, which compares the latest scenarios used by the world's top climate scientists at the IPCC with oil and gas industry forecasts for production and investment between 2020 and 2029.
It finds that any oil and gas production from fields not yet in production or development would blow a hole in the world's carbon emissions budget for limiting global warming to 1.5C by the end of the century.
Moreover, nine per cent of oil and six per cent of gas production from even existing fields is incompatible with a 1.5C pathway, Global Witness has said.
With every country in the world having signed up to the core goals of the Paris Agreement, the findings lay bare the extent of stranded asset risk which oil and gas companies are potentially exposed to, should the world follow through on its climate commitments.
US oil giant ExxonMobil is forecast to spend the most in new fields over the next decade, with $149bn on oil and $18bn on gas, followed by Anglo-Dutch firm Shell at $106bn and $43bn respectively, the analysis found.
Together with Chevron, Total, and BP, these five oil and gas majors are set to spend over $550bn on oil and gas exploration and extraction activities that are not aligned with international climate targets in the Paris Agreement, Global Witness said.
Report author Murray Worthy, senior campaigner at Global Witness, said the analysis demonstrated an "alarming gap" between oil majors' plans to extract more fossil fuels and what the latest science from the IPCC showed needed to happen to avoid catastrophic climate breakdown.
As a result, he said investors would be "rightly concerned that despite industry rhetoric to the contrary, the oil and gas sector's spending plans are so drastically incompatible with limiting climate change".
"This analysis should encourage the escalation of investor engagement efforts to challenge oil and gas majors to credibly align their business plans with the Paris goal," said Worthy. "Blindly pushing ahead comes with huge financial risks for investors, either as a result of the transition to a low carbon economy, or as the devastating consequences of a changing climate stack up."
Many oil majors base their future strategies on climate scenarios which rely heavily on the successful future development of technologies which can capture or remove carbon from the atmosphere, despite such technologies remaining largely unproven at scale, or at least in their infancy, the findings suggest.
Global Witness said some climate scenarios from oil and gas major's rely on nearly as much CO2 being capture in the 21st century as has been emitted since the start of the Industrial Revolution.
Meanwhile, the IPCC said in its 1.5C report last year that carbon removal and carbon capture and storage (CCS) technologies are largely absent from national climate plans under the Paris Agreement and are "lowly ranked in investment priorities".
The findings come ahead of Shell and BP's AGMs next month and at a time when pressure from investors and campaigners has been increasing on the oil and gas sector to step up its efforts to tackle climate risks. The pressure has delivered some results. BP recently agreed to disclose how it plans to align its business with the Paris Agreement, while Shell has agreed to introduce greenhouse gas reduction targets. Both have also been stepping up their investment in clean tech companies involved in renewable energy and electric vehicle sectors in recent years.
Some oil industry insiders have suggested they are aware of growing stranded asset risks and are developing more flexible investment strategies that will allow them to step up their interests in clean technologies and reduce their exposure to carbon intensive projects, as regulations and technology developments drive the low carbon transition.
Yet the oil sector's investment pipelines for new oil and gas fields still appear to run counter to forecasts from growing numbers of analysts and investors, who have warned the transition to clean technologies is accelerating faster than many of the oil majors appreciate. Earlier this month, Legal & General Investment Management, which manages £1tr of assets worldwide, said growth in demand for oil was likely to plateau by the mid-2020s, and it warned that if stronger climate regulations are enacted it could start to decline thereafter.
Similarly influential think tank Carbon Tracker last year predicted demand for oil and other fossil fuels would start tailing off in the 2020s, putting at risk trillions of dollars in investment in assets that would become stranded as the world shifts towards clean energy sources and electric vehicles.
Global Witness said the industry was "at a turning point", pointing out that capital investment in the sector has fallen by over a third since 2014, largely due to a slump in oil prices. Yet at the same time, investment in oil and gas is forecast to rise by over 85 per cent over the next decade, reaching more than $1tr per year, it said, two thirds of which is set to take place in new fields.
"Overinvestment in oil and gas creates risks for investors, regardless of whether the world is effective in tackling climate change," today's report states. "Either investors face assets being stranded as demand for fossil fuels falls in a transition to a low carbon economy, or the overinvestment contributes to excess emissions from fossil fuels, the failure to transition and the financial costs of a dramatically changed climate."
Evidence of a global Carbon Bubble, which means more oil and gas assets than can be extracted within the confines of the internationally agreed climate targets, continues to mount. It will be up to oil firms and their investors to orchestrate a managed low carbon transition that ensures the bubble doesn't burst - or, even better, is not overinflated in the first place.
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