Latest study from Carbon Tracker shows that while US firms are particularly exposed, all oil and gas firms would face massive stranded asset risk in the event of a successful energy transition
US companies are lagging way behind their European rivals in adapting their business models to a low-carbon future which would see demand for fossil fuels drastically reduced, a new study released today by Carbon Tracker demonstrates.
But while some oil and gas companies are far less prepared for the clean energy transition than others, all of the world's biggest oil majors are operating with project portfolios that expose them to massive stranded asset risk, the report argues.
Titled Fault Lines: How diverging oil and gas company strategies link to stranded asset risk, the study warns that fossil fuel demand would have to plummet to meet agreed climate targets and, consequently, only the lowest cost oil projects would deliver reliable returns. Reiterating many of its previous studies, the think tank warns that most of the world's oil majors are continuing to approve investments in projects that are inconsistent with the goals of the Paris Agreement.
The latest study uses three main measures to assess different companies' preparedness for the energy transition: assumptions on future oil prices, the ambition of climate targets, and the extent of their current fossil fuel project portfolios. "European producers clearly outperform their US counterparts on all three factors," it concludes.
Casting an eye across the globe, the report selects 15 projects which it argues are at particularly high risk of becoming stranded assets as the energy transition progresses and demand for oil is curbed. These include ExxonMobil's $10bn Golden Pass liquefied natural gas project in the US; Chevron and Total's $6.3bn ultra-deep water Anchor oil project in the US; and Shell and Total's $3.9bn ultra-deep water Mero Sepetiba project in Brazil.
The report offers ExxonMobil as an example of a company that is lagging badly far behind sector leaders. The analysis suggests that 80 per cent or more of its business-as-usual project portfolio would not be competitive were emissions to be curbed in line with a 1.6C warming trajectory, noting that the Texan oil giant also has some of the weakest stated climate targets of any oil major.
However, while other firms have made ambitious climate pledges - with BP committing to cut the oil and gas it produces by 40 per cent, and Eni releasing detailed carbon reduction plans - the report argues that even the best-prepared oil firms face extensive stranded asset risk. For example, the study suggests 50 per cent and 60 per cent of Eni and BP's respective portfolios risk becoming stranded assets and losing value if they are developed and the clean energy transition continues to accelerate.
"Very few parts of fossil fuel producers' business models will be left unshaken by the energy transition," said Andrew Grant, head of climate, energy and industry research at Carbon Tracker. "European leaders like Eni and BP are responding with an increasingly joined-up approach but for Exxon and others the only consistency is how completely they shy away from decarbonisation."
The report's analysis reflects growing concern among investors about the risks the energy transition poses to their portfolios, with initiatives such as Climate Action 100+ seeking to drive change.
Earlier this year, asset manager BlackRock - once accused of being "full of greenwash" by former US Vice President Al Gore - joined the pressure group, bringing the total value of assets under management by those participating to over $41bn. Last month, Climate Action 100+ sent out letters urging more than 160 of the world's largest greenhouse gas emitting firms, including almost all the biggest oil producers, to set net zero targets for 2050 at the latest, alongside interim emissions goals.
Carbon Tracker suggests investors draw on the measures used in Fatal Lines - climate targets, expectations of future oil prices, and project portfolio resilience - to assess the exposure of firms within their portfolios to an effective energy transition.
"A growing number of oil and gas producers have recognised the fundamental impact the energy transition will have on their core business models and are setting climate targets, lowering price forecasts and writing down assets," said Mike Coffin, who co-authored the study. "However, there is a long way to go before they can be viewed as aligned with the Paris Agreement and the risk of stranded assets is still very real."
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