Report: Oil and gas industry failing to invest in low-carbon projects
Global oil and gas firms have collectively invested just 1.3% of their combined capital expenditure (CAPEX) into low-carbon technologies and projects since the start of 2018, new research from CDP has concluded.
The corporate reporting body has today (12 November) published its inaugural ‘beyond the cycle’ report, ranking 24 of the largest publicly listed oil and gas firms on the measures they are taking to prepare for the low-carbon transition.
Leading the rankings are European companies, with CDP finding that oil and gas majors with headquarters in the EU had invested up to 7% of their respective CAPEX into low-carbon projects so far this year.
Norwegian firm Equinor took the top spot in the rankings, which assess companies according to their performance against the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations. Equinor rebranded itself as a “broad energy company” earlier this year and has since pledged to invest 15-20% of its CAPEX into low-carbon energy solutions by 2030.
The top three is completed by Total and Shell, with China’s CNOOC ranking in last place.
“Low-carbon technologies and regulatory change are disrupting the established order of the energy industry,” CDP’s senior analyst Luke Fletcher said.
“The shift to a low-carbon economy presents the question of what role oil and gas companies will play in this transition, and what their strategic options are in the more immediate and longer term.”
The global picture
The CDP report comes at a time when the oil and gas industry is estimated to account for more than half of the global greenhouse gas emissions associated with energy consumption, with some research suggesting that the sector is responsible for as much as 71% of global CO2 emissions.
While the transition away from carbon-heavy technologies, services and products is underway, CDP found that companies in Asia and the US are lagging behind.
Of the 24 companies listed, 15 were found to have set climate-related targets in their sustainability strategies, with European giants Repsol, Total and Shell ranked as the three firms with the “most ambitious” goals.
The report claims that 70% of the EU’s renewable energy capacity is accounted for by European gas and oil majors.
US firms Apache, ExxonMobil, Chevron and Marathon Oil, as well as China’s CNOOC and UK firm BP, meanwhile, did not respond to the CDP’s questionnaire.
The key drivers beyond these global trends include a lack of capital flexibility across Russia and China and a lack of domestic pressure to divest from fossil fuels across Asia and the US, according to the CDP.
A further factor is pressure from investors, with the CDP finding that votes for climate shareholder resolutions at company AGMs in Europe had doubled between 2014 and 2018.
This finding comes at a time when insurers are thought to have divested more than £15bn from fossil fuel projects over the past two years, amid fears that the next financial crash will be climate related.
“With improved efficiency, lower costs and higher prices, free cash flow for the sector is at its highest level since the first quarter of 2012,” CDP’s Fletcher added. “However, companies are now facing increasing scrutiny from investors to look beyond the current cycle and deliver value in the long-term.”
Paris Agreement peril?
CDP’s analysis comes on the same day that the Transition Pathway Initiative (TPI) has released a report claiming that just two of the ten largest global oil and gas firms – namely Total and Shell – have set long-term targets for decarbonisation.
The report, which assesses the efforts taken by the world’s 10 largest oil and gas companies to adopt low-carbon technologies, claims that half of these firms are yet to implement carbon targets in any form. They are Chevron, EOG Resources, ExxonMobil, Occidental and Reliance.
The remaining three companies – BP, ConocoPhillips and Eni – were found to have set targets covering only their direct (Scope 1 & 2) emissions, with no long-term targets in place.
The TPI’s analysis reveals that despite the progress made by half of the companies, none of them have set targets in line with the Paris Agreement’s 2C trajectory.
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