French oil giant concedes oil sands projects are becoming too expensive and warns that 'beyond 2030' peak oil demand beckons
French oil and gas giant Total yesterday announced an $8bn write-down of its most carbon-intensive fossil fuel assets, as the havoc wrought by Covid-19 on on the industry continues to push down oil prices and bring forward predictions of peak demand.
Teh bulk of the write down - $7bn - applies to its Canadian oil sands assets, the firm said in a statement. Oil sands are more expensive and carbon-intensive than conventional oil fields, and as a result Total said it will not add any further oil sands capacity going forward, in addition to withdrawing from Canada's oil industry lobby group CAPP.
Oil sands projects at Fort Hills and Surmont are set to be "stranded", the firm concluded in an internal review carried out off the back of the firm's 'Climate Ambition' plan to reach net zero by 2050 announed earlier this year.
The write-down follows similar moves in recent months by BP and Shell, with BP expecting to slash the value of its oil assets by $17.5bn in the second quarter of this year and Shell anticipating cuts as deep as $22bn in the same period.
The Coronavirus pandemic has sent oil prices tumbling, with Total concluding it expects the trading price of international benchmark Brent to average $35 a barrel this year, before tending back to a long-term price of $50, which Total claims is "in line with the 'well below 2C' scenario" set out by the International Energy Agency.
"Beyond 2030, given technological developments, particularly in the transportation sector, Total anticipates oil demand will have reached its peak," the Total said, in a hugely significant admission from one of the world's leading oil and gas companies which demonstrates the disruptive influence of electric vehicles on the global economy.
Oil and gas firms have been hit hard by the pandemic, with speculation mounting that demand could be permanently hit by a shift to home working, a reduced flight travel, and an acceleration in the development of clean technologies catalysed by green stimulus packets and policy promises to "build back better".
As well as writing down fossil fuel assets, BP, Total and Shell, have also all recently unveiled net zero transition goals, as the firms embark on reshaping their business model for the future green economy. BP recently sold off its petrochemical business, while Shell has announced plans to double its green energy investment.
However, even after the write-downs announced over the past month, climate analysts warn that most oil majors' assumptions for future oil demand remain far above levels that would be in line with the Paris climate agreement. According to analysis by Carbon Tracker, levels of oil demand consistent with the Paris Agreement can only be satisfied by oil projects generating a 15 per cent internal rate of return at an oil price in the late $40s. Total comes closest to this in today's announcement, with its valuation over the period 2020-50 of $56.8. But Shell has assumed a long-term oil price of $60, Equinor of $80 - while no US companies publicly disclose their impairment assumptions, leaving investors in the dark on the risks faced by giants such as ExxonMobil and Chevron.
It suggests that, despite growing willingness to accept the dwindling value of oil assets, the risk of stranded assets across the oil and gas sector is only set to increase further, according Carbon Tracker's head of oil, gas and mining Andrew Grant.
Oil sands and liquefied natural gas (LNG) projects are particularly high risk assests in the sector, and there is "no space for any new oil sands projects at all in the low carbon world on the basis of their economics," Grant said, warning that major North American pipeline expansion projects such as Keystone XL and Trans Mountain could soon be in jeopardy.
"Total has now recognised that some of its oil and gas assets cannot be produced as the world decarbonises, a belated but welcome development for those worried about risks to both the environment and their investments," he explained. "Total will want to reassure that the slate has been wiped clean, but only a few months ago it was trumpeting its increases in reserves and production. Until it gives some indication of ending the pursuit of fossil fuel growth, stakeholders will likely remain nervous."
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