‘Fossil fuel firms risk wasting $2tr on uneconomic projects’
Global fossil fuel companies risk wasting up to $2.2 trillion in the next decade, by pursuing projects that could be uneconomical in the face of the current realities. The realities, according to a report by Carbon Tracker Initiative, the industry think tank, also include international action to limit climate change to 2˚C and rapid advances in clean technologies. According to the report, no new coal mines will be needed, oil demand will peak around 2020 and growth in gas will disappoint industry expectations.
It warned that fossil fuel firms risk destroying investor returns and “if the industry misreads future demand by underestimating technology and policy advances, this can lead to an excess of supply and create stranded assets. This is where shareholders should be concerned – if companies are committing to future production which may never generate the returns expected.”
Head of Research and Co-author of the report, James Leaton, said: “Too few energy companies recognise that they will need to reduce supply of their carbon-intensive products to avoid pushing us beyond the internationally recognised carbon budget. Clean technology and climate policy are already reducing fossil fuel demand – misreading these trends will destroy shareholder value. Companies need to apply 2˚C stress tests to their business models now.”
“The companies that represent the biggest risk in a demand misread to the climate and shareholders alike in the next decade are a mix of state and listed companies, including oil majors Royal Dutch Shell, Pemex, Exxon Mobil, and coal miners Peabody, Coal India, and Glencore. Around 20 to 25 per cent of oil and gas majors’ potential investment is on projects that will not be needed in a 2˚C scenario, and cancelling them would mean going ex-growth”.
The report looked at production to 2035 and capital investment to 2025 and warned further that energy companies must avoid projects that would generate 156 billion tons of carbon dioxide (156Gt CO2), in order to be consistent with the carbon budget in the International Energy Agency’s 450 demand scenario, which sets out an energy pathway with a 50 per cent chance of meeting the UN 2⁰C climate change target.
Advisor to Carbon Tracker, former head of research at Deutsche Bank Climate Change Advisors, and co-author of the report, Mark Fulton, said: “Our work shows thermal coal has the most significant overhang of unneeded supply in terms of carbon of all fossil fuels on any scenario. No new mines are needed globally in a 2˚C world.”
The Chief Executive Officer of Carbon Tracker, Anthony Hobley, said: “Business history is littered with examples of incumbents who fail to see the transition coming. Fossil fuel incumbents seem intent on wasting capital trying to hold onto growth by doing what they have always done rather than embracing the energy transition and preserving value by adopting an ex-growth strategy.”