The world’s most colossal fossils can look forward to a financial windfall as greenhouse gas controls drive up the price of the remaining oil they produce, according to a note to clients issued Monday by Goldman Sachs Group Inc.
The note concludes that “carbon-intensive assets like refineries and Canada’s oil sands will have to be deemphasized or abandoned,” and the industry as a whole will have to “shift toward cleaner fuels or be left behind by investors,” Bloomberg reports. But “major producers including ExxonMobil Corporation, BP Plc, and Royal Dutch Shell Plc can slash carbon emissions and still see ‘materially higher’ returns on drilling projects, in part because greenhouse gas limits will make oil more expensive.”
The surge in revenue will give fossils a chance to “re-imagine their business” and shift to renewable energy and natural gas, the Goldman analysts concluded. “Their core business of oil and gas becomes in some ways so under-invested by the broader market that the returns in the legacy business go up a lot and fund what is going to be a series of investments in lower-return technologies like renewables and carbon capture,” lead analyst Michele Della Vigna told Bloomberg. “They can and they will have to reshape their business, and I believe they can do it profitably.”
The analysis showed the world’s seven biggest oil companies cutting their emissions 20% by 2030—far behind the across-the-board 45% target in the special report on 1.5°C pathways released by the IPCC on the same day—and boosting profits on their biggest megaprojects by about 5%. “Oil and gas would account for about 45% of their production at that point, down from 59% in 2014.”
But while the Goldman Sachs analysts’ ambition fell far short of what the IPCC laid out as the necessary pathway to 1.5°C, they recognized the growing pressure on fossils to respond to the climate crisis. “The fossil fuel divestment movement is gathering pace, with the number of institutions divesting coal investments up five-fold in the past four years,” they wrote. “We believe it is very important for Big Oils to lay out a strategy towards becoming Big Energy.”
