Tag Archives: The Carbon Tracker Initiative (CTI)

Oil price crash: companies shelved or delayed 26 schemes, including 9 tar sands projects

Repost from Business Green

Report: Oil price crash stalls more than $100bn of fossil fuel investment

Research on behalf of the Financial Times shows oil majors have shelved or delayed 26 schemes, including nine tar sands projects
By Jessica Shankleman | 19 May 2015
Tar sands in Canada
Tar sands in Canada

Oil majors have put more than $100bn of investment in new projects on ice in response to the plunge in oil price, new analysis by consultancy Rystad Energy revealed today.

The study, commissioned by The Financial Times, shows that 26 projects in 13 countries have been delayed or axed since oil prices started to tumble last year, including nine Canadian tar sands schemes.

The revelation follows warnings from analysts such as the Carbon Tracker Initiative that capital and carbon intensive projects such as tar sands developments and deep sea drilling operations will struggle to turn a profit if oil prices remain low.

The price of oil crashed to $45 per barrel in January from a high of $115 in June 2014 as a result of surging output of US shale oil and lower than expected demand in Asia. The downward trend in prices was further accelerated by the decision of the Organization of the Petroleum Exporting Countries (Opec), led by Saudi Arabia, to resist calls for it to curb supplies in a bid to protect prices.

As a result, companies such as Royal Dutch Shell, BP and Statoil have been forced to shelve some of their costlier projects.

The analysis shows that at least $118bn of investment has been hit, which is likely to delay future production by as much as 1.5 million barrels per day. This in turn could lead to a substantial rebound in the price of oil, said Rystad.

The report follows a series of studies that have warned capital intensive fossil fuel projects could become stranded assets if the transition to a low carbon economy leads to tighter environmental regulations and reduced demand for fossil fuels.

The findings come after a report from the Institute for Energy Economics and Financial Analysis (IEEFA) yesterday showed how coal company stock prices have collapsed in recent years, concluding that the industry now faces a “grim outlook” as a result of tightening environmental legislation and increasing stranded asset risks.

Moreover, yesterday saw the University of Oxford confirm it will not invest in coal and tar sands as part of its ethical policy to fight climate change.

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    Bank Advises Clients Against Fossil Fuel Investment

    Reprint from Time Magazine

    HSBC Advises Clients Against Fossil Fuel Investment

    By Nick Cunningham / Oilprice.com, April 29, 2015
    The HSBC logo on the facade of HSBC France headquarters in Paris on Feb. 9, 2015.
    The HSBC logo on the facade of HSBC France headquarters in Paris on Feb. 9, 2015.

    The bank wrote to its clients that fossil fuel companies will become “economically non-viable”

    The fossil fuel divestment campaign is picking up steam.

    Often dismissed as unwise by oil industry proponents and criticized as a distraction even by supporters of action on climate change, the divestment movement is no longer being ignored.

    Look no further than CeraWeek, an annual get-together of North America’s fossil fuel elite. On April 22, amid discussion panels such as “Asia: Still the Promised Land for New Energy Investment?” or “Canada’s role in the rising North America energy powerhouse,” there was also a session dedicated to divestment and the implications for energy companies. The conversation analyzed how sustainable the business model is for fossil fuel companies as the world moves towards regulating carbon emissions.

    The attention paid to the divestment at CeraWeek suggests that the growing publicity and success from the environmental movement’s ability to secure divestment commitments from universities, banks, pension funds, churches, and other wealth funds are starting to be perceived as a threat by the fossil fuel industry.

    A few weeks earlier, The Guardian made a splash with its “Keep it in the Ground” campaign, a very firm declaration in support of divestment. The Guardian Media Group vowed to divest its £800 million fund as well.

    The growing concern over carbon pollution raises the possibility of a regulatory or tax crackdown, both at the national and international level. Newsweek reported on April 21 that HSBC wrote in a private note to its clients that there is an increasing risk that fossil fuel companies will become “economically non-viable.” As a result, HSBC advised its clients to divest from fossil fuels because they may be too risky. If investors fail to get out of fossil fuels, the bank says, they “may one day be seen to be late movers, on ‘the wrong side of history.’” As the divestment campaign builds up steam, major oil and gas companies are starting to see the writing on the wall.

    But there could be a way to adapt. The Carbon Tracker Initiative (CTI) just published a “blueprint” for fossil fuel companies to adapt to a carbon-constrained world. The blueprint provides several recommendations. For example, oil companies should avoid high cost projects such as the struggling Kashagan field in Kazakhstan or expensive oil sands projects in Canada. High-cost projects put companies at risk when they are hit with unforeseen events, such as an oil price crash, a decline in demand, or a change in tax regimes. Instead, companies should invest in lower risk projects with higher rates of return, CTI says. CTI also insists that corporate governance within fossil fuel companies is critical – management needs a clear-eyed prognosis of how exposed their assets are to a potential scenario in which their oil and gas reserves are no longer wanted.

    It is far from clear whether or not the oil majors will heed CTI’s advice on adapting their companies. In mid-April, 98 percent of BP’s shareholders voted in favor of an initiative that would force the company to disclose which of its assets would become “unburnable” in a low-carbon world. The results of that analysis will be much anticipated. ExxonMobil undertook a similar study, but summarily dismissed the likelihood that its assets would be affected in the future by climate action.

    “Our analysis and those of independent agencies confirms our long-standing view that all viable energy sources will be essential to meet increasing demand growth that accompanies expanding economies and rising living standards,” William Colton, ExxonMobil’s vice president of corporate strategic planning, said in a March 2014 statement. In other words, investors have little to fear — ExxonMobil will be fine.

    However, much has changed since then. The divestment movement has gathered quite a bit of momentum as protests hit more campuses and city halls. The U.S. and China reached a landmark agreement to reduce their greenhouse gas emissions. More countries will set policies to reduce energy demand ahead of international negotiations in Paris later this year. Oil prices have crashed, highlighting the vulnerabilities of many over-leveraged oil companies. And clean energy continues to make inroads, amid falling costs for solar, wind, and energy storage.

    Oil companies ignore the divestment campaign – and other threats to their business models – at their own peril.

    This article originally appeared on Oilprice.com.

     

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