“Big Oil” Fiddles While Earth Burns
While concerned citizens joined Global Divestment Day activities over the weekend, the finance world has raised further questions about the long-term viability of the fossil fuel industry. But it seem to be falling on deaf ears as the industry’s biggest players press on with rampant exploration and development of reserves. But then Ben van Beurden, chief executive of Royal Dutch Shell, has argued that big energy companies have not been assertive enough in the global warming debate and that they must advocate more strongly for climate action in the lead-up to the Paris Climate conference later this year. Read more
Fossil fuel industry oblivious to predictions of its own demise
By Will van de Pol for Renew Economy (17 February 2015)
While concerned citizens joined Global Divestment Day activities over the weekend, the finance world has raised further questions about the long-term viability of the fossil fuel industry.
However, these nervous rumblings seem to be falling on deaf ears as the industry’s biggest players press on with rampant exploration and development of reserves.
On Thursday, US-based Fossil Free Indexes (FFI) released a report titled The Carbon Underground 2015: The World’s Top 200 Public Companies Ranked by the Carbon Content of their Fossil Fuel Reserves. It found that far from acknowledging and acting to reduce their exposure to potentially unburnable reserves of fossil fuels, the potential CO2 emissions from the top 200 coal, oil, and gas companies’ reserves have increased to 555 Gigatonnes, 10% more than at the end of 2010.
While demonstrating the fossil fuel industry’s continued disregard for climate change targets, these figures are also totally at odds with dire market analysis and predictions that continue to surface from within the financial sector.
According to Jag Alexeyev, Director of Research at FFI, “Institutions and individuals increasingly recognise the risks that fossil fuel reserves could be unburnable and stranded, and are taking steps to reduce their holdings of coal, oil, and gas investments.”
Likely explanations for such a financially motivated move away from fossil fuel investment have been presented in a recent Deutsche Bank Research House report titled Peak Carbon Before Peak Oil, which provides an analysis of the drastic decline of oil prices throughout 2013.
Published late last month in Deutsche Bank’s market analysis magazine Konzept, the report hypothesises a sharp drop in fossil fuel demand as a result of increasing global political action to curb carbon emissions.
“A deal with stringent CO2 emission limits in order to honour previously agreed climate change targets means accepting that the entirety of the world’s known fossil fuel reserves cannot be extracted and burned,” explain the report’s authors Rinesh Bansal and Stuart Kirk.
While this is hardly breaking news for anyone who has kept a discerning ear to the climate change debate, it is yet another example of the financial sector’s growing malaise regarding the economic viability of fossil fuel companies and projects.
Recent market evidence, such as China’s most recent import figures, which surfaced last week, also hints at a shift away from fossil fuel dependency.
According to Chinese government customs data, the country’s coal imports throughout January 2015 were 53% less than the same period last year. While it is impossible to interpret this as definitive evidence of waning demand, put in the context of an 11% fall in year-on-year imports and an overall fall in Chinese coal consumption by 2-3%, statistics like these appear more and more like the beginnings of a decoupling of the economy with coal that the industry will be dreading, and those who value a safe climate rejoicing.
This pressing issue of future fossil fuel demand, and its relationship to political climate change action, is neatly summarised within the Deutsche Bank report; “If the currently agreed climate change targets are to be met with any reasonable certainty, over half the proven fossil fuel reserves would have to stay where they are – underground”, a sentiment that carries all the conservatism of a large financial institution. After all, just last month University College London provided a geographical breakdown of the world’s unburnable carbon and that could only lead to the conclusion that if Australia has not already dug up its last “safe” lump of coal, it will do any second now.
Subsequently, this notion of ‘unburnable carbon’ raises perhaps the most pertinent question currently facing the fossil fuel industry – if demand is constrained to less than the amount that current reserves can provide, why does such continued emphasis and expenditure on exploration and development of further reserves remain? Greater book value in the short term? It just doesn’t seem to be fooling the finance sector.
There seems to exist a worrying cognitive dissonance between the actions of the fossil fuel industry’s biggest players and the ominous market analysis that is mounting to dissuade these actions. And, frankly, the institutions providing this advice on the incompatibility of most fossil fuel reserves with a safe climate are proving to be equally out of touch with themselves.
Encouraging though it is to see Deutsche Bank wade in on ‘unburnable carbon’, they remain the tenth biggest lender to coal worldwide. Seems that Deutsche’s specialised finance team needs to pick up its own analysis!
If the industry continues to ignore the writing on the wall, then sustained community action becomes evermore important in ensuring these environmentally devastating and financially unsustainable projects are unable to proceed – whether that be due to political intervention or, more likely, a lack of willing financiers.
With public activities such as Global Divestment Day, the increasingly vocal divestment movement continues to apply pressure to investors, adding to their growing list of reasons to discontinue funding of the fossil fuel industry. It might even force a few resource analysts to pick up their colleagues’ research.
The author is a researcher with Market Forces.
Shell chief calls for climate action, but what are the firm’s motives?
By Peter Burdon in The Conversation (17 February 2015):
In a speech last Thursday at International Petroleum Week – one of the biggest events on the industry’s calendar – Ben van Beurden, chief executive of Royal Dutch Shell, argued that big energy companies have not been assertive enough in the global warming debate and that they must advocate more strongly for climate action in the lead-up to the Paris Climate conference later this year. He argued that:
The outcome of the political process is uncertain, but the trends behind it are unmistakable. Even more than the oil price, these trends will shape the future of the industry over the coming decades. For a sustainable energy future, we need a more balanced debate.
The issue, Beurden argued, is “how to balance one moral obligation, energy access for all, against the other: fighting climate change. We still need fossil fuels for a lower carbon, higher energy future.”
His comments came as negotiators from more than 190 countries met in Geneva to agree on a draft climate agreement that diplomats will take to the Paris summit in search of a deal.
Beurden has a significant platform from which to speak. His words will be weighed and considered by politicians around the world. But while he seeks to position Shell as a leader on climate advocacy, it is important to consider what motivations underlie his speech.
Is he seeking to build industry momentum to come to terms with climate science? Is his speech a reflection of growing tendency for oil and gas companies publicly to point the finger at coal producers? Or is Shell positioning itself to tap into the lucrative business to be made from the deleterious effects of climate change?
Context is crucial
To answer this question, we need to put Beurden’s speech into context and consider Shell’s record on climate change. In his instructive book, Windfall, US journalist McKenzie Funk notes that Shell was an early proponent of future scenario planning. This involves envisaging multiple versions of what the future could look like, and making plans in preparation for each of those alternatives.
Using this practice, Shell was able to predict and position itself to benefit from the twin OPEC oil shocks, the fall of the Soviet Union, the uprising against the World Trade Organization in Seattle, and the rise of global environmentalism.
Shell has been thinking about climate change since the 1970s. Unlike Exxonmobil, Shell did not plough huge funds into climate denial, and between 1998-1999 it even implemented an in-house version of the Kyoto protocol. According to Funk, this initiative included:
Plans to reduce the company’s own greenhouse-gas emissions by 10% by 2002, an internal cap-and-trade scheme, a shadow carbon price and a commitment to evaluate projects on the basis of not only the profit they would make but the carbon they would emit.
Climate change became an even higher priority in 2005 when Beurden was appointed as chief executive. He wanted his futurists to rock the boat and ask questions that would be deeply inconvenient for an oil multinational, like: what does the emerging reality of climate change mean for Shell?
In 2008 Shell published its view of a future under climate change. The report, Shell Energy Scenarios to 2050, describes two different scenarios, called Blueprints and Scramble.
Blueprints represents a future in which grassroots advocacy results in timely action on climate change. Governments legislate a price on carbon, shift energy toward natural gas, and deploy industry-developed technology for carbon capture and storage.
Scramble is the opposite scenario, in which industry becomes embroiled in a race for scarce resource, while an energy crunch prevents governments from coming together on a climate deal. Politically, the United States and its allies point the finger at China, while China continues increasing its greenhouse emissions well into the 21st century.
While neither scenario was a completely accurate forecast of where we are now, we are certainly living in a Scramble world.
The financial imperative
The important thing to understand from this is that for the most part, Shell is not transforming into a “green” company for the sake of it (except perhaps in its PR department). The company itself just wants to make money as best it can in the future, and if there is going to be a future price on carbon, that becomes something to factor into its strategy.
Shell may have wanted the Blueprints scenario to materialise because that made for a less volatile world – and because it has more natural gas than its rivals. But when Blueprints became unrealistic the company switched gears and said “if it’s a Scramble world, we’re going to Scramble too.” In fact, it was just after the collapse of the 2009 Copenhagen climate talks that Shell started to make big moves in search of Arctic oil. Shell plans to drill for oil in the Arctic this year.
In presenting this perspective, I want to make clear that Shell is not maniacally burning the Earth just to find a financial upside. Rather, the reality is that if governments are not going to act with sufficient urgency on climate change, figures like Beurden will attempt to use their influence to achieve certainty and satisfy their imperative for growth.
In the long term, anyone who looks seriously at climate change understands that this is only bad for society as a whole. As Naomi Klein argues in This Changes Everything, “the green billionaires won’t save us”.
We can add Beurden to the long list of chief executives, celebrities and media conglomerates who have promised an enlightened form of “green capitalism” but are also sticking closely to a path that leads to profit.