Low-carbon transition: Even best-prepared fossil fuel majors ‘to see half of portfolios become uncompetitive’

With around half of global GDP covered by net-zero targets

new analysis from Carbon Tracker seeks to compare how fossil fuel firms in Europe and the US are approaching the low-carbon transition in light of Covid-19, which has put a major dampener on oil demand.

The organisation’s ‘Fault Lines’ report assesses whether companies’ climate targets are aligned with the Paris Agreement and whether their pipeline and existing projects are compatible with capping the global temperature increase at 1.6C – a level positioned between the two Paris pathways. It also looks at how companies are forecasting carbon pricing and oil pricing

Across all of these metrics, ExxonMobil, Equinor and ConocoPhillips were given low scores. Up to 90% of their ‘business-as-usual’ project portfolios are incompatible with a 1.6C world, both in that they would push warming past this level and would not be supported by key investors, Carbon Tracker claims. Chevron also fared poorly and failed to disclose its oil price forecasts.

At the top of the table are Eni, BP and Repsol – businesses with net-zero targets and oil price expectations at $60-68 per barrel through to 2050. Recent weeks have seen BP unveilng plans to sell off its petrochemicals business ahead of schedule and to cut fossil fuel production by 40% by 2030. It has also adjusted its energy outlook forecasts dramatically, suggesting that the world may have already passed peak oil demand.

Nonetheless, all of these “leading” companies are likely to see at least 40% of their portfolios becoming uncompetitive in a 1.6C world, rising to up to 60% for BP. The report notes the company’s involvement with a $3.3bn deepwater project in Azerbaijan, which was approved in 2019. Carbon Tracker believes it could become a stranded asset in a 1.6C world.

“Very few parts of fossil fuel producers’ business models will be left unshaken by the energy transition,” the report warns.

“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,” report co-author Mike Coffin said. “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.”

Fuel to the fire

The Transition Pathway Initiative (TPI) also has a major new report out this week covering fossil fuel companies’ progress on Paris Agreement alignment.

The organisation assessed 59 of the world’s largest publicly listed oil, gas and coal firms on their historic emissions intensity – and what their emissions intensity would need to look like in a 2C world. It found that none are on track to bring their emissions intensity down to a Paris-compatible level by mid-century.

While seven companies – Glencore, Anglo American, Shell, Repsol, Total, Eni and Equinor – have set climate targets in line with the Nationally Determined Contributions (NDCs) of the nations in which they are headquartered, the TPI has long taken the stance that current national climate commitments will result in at least 3C of warming. The UN’s Environment Programme (UNEP) has calculated that 3.2C of warming is likely given current levels of national action.

Nations are expected to submit updated NDCs by the end of 2020, even though COP26 has been postponed by a full year.

Like Carbon Tracker, the TPI found that European corporates are genuinely responding more holistically to the low-carbon transition than their US-based counterparts.

“Investors have witnessed a flurry of significant climate announcements by fossil fuel majors this year, so it is striking this independent research still shows those commitments do not yet align with limiting climate change to 2C,” TPI co-chair Adam Matthews said.

Sarah George

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