ExxonMobil, Royal Dutch Shell, BP, and four other global fossil companies are leaving US$140 billion on the table at today’s oil prices by failing to plan for an average global warming limit below 2°C, the UK-based Carbon Tracker Initiative concludes in a report released last week.
Fossil investors “may be surprised at just how much value can be created by oil and gas companies in a carbon-constrained scenario,” the report states.
The study concludes that fossil majors “should ditch high-cost projects in deep water and Canadian tar sands to concentrate on cheaper schemes that make money at low crude prices,” the Guardian reports.
“A simple carbon sensitivity analysis shows that oil majors pursuing volume at all costs can deliver lower shareholder value than a more disciplined approach,” said Carbon Tracker Research Director James Leaton. He called on financial regulators to “make 2C° stress tests standard practice for the energy sector to help avoid companies wasting capital.”
The fossil industry “argues it is always trying to lower its carbon emissions while at the same time meeting the needs of a growing world population and helping to alleviate fuel poverty,” the Guardian notes. The Carbon Tracker analysis, by contrast, looks at the production that will still find a market in a world that uses less oil.
“In a 2°C world, the major oil and gas companies will need to manage declining demand for oil,” said co-author Mark Fulton, a former analyst with Deutsche Bank. “However, this can still prove to be a value-add proposition if they simply avoid developing high-cost, high-carbon projects.”
“By investing less you actually end up with more,” agreed Andrew Logan, director of oil, gas and insurance programs at Boston-based Ceres. “It’s counterintuitive, but the business-as-usual approach effectively destroys capital. You can end up with less than you started.”