Half of the world's 40 largest listed oil and gas companies face production declines of 50% or more by the 2030s if they are to align with global climate targets, new analysis has found.
In a report published today, financial think tank Carbon Tracker warns that oil and gas firms risk wasting more than $1trn (£0.7trn) on projects that will be uncompetitive in a low-carbon world if they continue with business-as-usual investment.
ConocoPhillips, a shale specialist, is the oil major most exposed to the transition, facing a drop in production of 69% by the 2030s, followed by Chevron, Eni, Shell and BP, on 52%, 49%, 44% and 33%, respectively.
Saudi Aramco is the only one of the world’s largest listed oil and gas companies that could see increased production because of its large spare capacity from existing fields.
Despite this, the 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, and even those with net-zero commitments are continuing to explore for new oil and gas.
Mike Coffin, one of the report's co-authors, said that oil and gas companies are “betting against the success of global efforts to tackle climate change”.
“If the world is to avert climate catastrophe, demand for fossil fuels must fall sharply,” he continued. “Companies and investors must prepare for a world of lower long-term fossil fuel prices and a smaller oil and gas industry, and recognise now the risk of stranded assets that this creates.”
The report warns investors that companies have not woken up to the “seismic implications” of the International Energy Agency’s finding that no investment in new oil and gas production is needed if the world aims to limit global warming to 1.5°C.
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. Only BP commits to falls in gas production, which Shell and Eni plan to grow.
The report explains how national climate policies and rapid growth of clean technologies will reduce demand, drive down prices and lead to significantly lower revenues.
This could leave more than $1trn of business-as-usual investment at risk, including $490bn in shale and tight oil projects, and $200bn in deep water projects.
“No new projects and a rapid decline in production could deliver a serious shock to company valuations,” said Axel Dalman, another of the report's co-authors.
“Lower equity valuations would in turn increase the cost of capital and insolvency risk. 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.”
Image credit: iStock
Author: Chris Seekings