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Big Oil’s Groundhog Day: Will it see looming shadows?

Posted by Shanna Cleveland at Feb 02, 2015 07:55 AM |
Last week, in advance of fourth quarter earnings reports, investors and industry analysts voiced growing concern about excessive industry spending on high-cost, high-carbon fossil fuel projects that may be bad financial bets as the world continues to reduce its reliance on fossil fuels, accelerate renewable energy and reduce overall carbon emissions to counter the threat of climate change.
by Shanna Cleveland, Director, Carbon Asset Risk (CAR) Initiative Ceres Posted on Feb 02, 2015

A recent article on plunging oil prices resurrected an old adage, spoken by a Saudi oil minister, that “The stone age didn’t end for a lack of stone.” With the world’s proven and probable fossil reserves equaling more than three times the amount of greenhouse gas emissions that can be released if we are to prevent catastrophic climate change beyond 2°C, it is clear that the age of fossil fuels will not end for a lack of oil.

Fortunately for the planet, it is equally clear that the world’s governments are finally getting serious about shifting rapidly to a clean energy future. The U.S. and China and more recently, the U.S. and India have announced major commitments in advance of international climate negotiations in Paris this year.

Meanwhile, oil prices have plunged due in part to oversupply, but also due to lagging global demand. Recent earnings reports from three oil majors have focused on slashing capital spending and overall belt tightening. But it remains to be seen whether the majors will recognize, as the Saudis already have, that “Nobody should imagine the world will continue to demand oil as long as you have it in your fields.”

Last week, in advance of fourth quarter earnings reports, investors and industry analysts voiced growing concern about excessive industry spending on high-cost, high-carbon fossil fuel projects that may be bad financial bets as the world continues to reduce its reliance on fossil fuels, accelerate renewable energy and reduce overall carbon emissions to counter the threat of climate change.

Wall Street’s biggest names are also jittery. Citigroup has called for ExxonMobil, Shell, and Chevron to recognize that it is time for Plan B and that investors should be wary of sticking with companies that fail to adapt to this shifting landscape.

Goldman Sachs recently identified nearly $1 trillion of oil and gas projects that would not be profitable with oil prices at $70 a barrel. (Today it’s less than $60*).

We recognize that the transition to a clean energy world will not happen overnight, but fossil fuel companies must also understand that they ignore the long shadow of a future with lower demand and lower prices at their own peril.

ExxonMobil hosts its earnings call today – on Groundhog Day. Will it see the looming shadow, or will it continue to expect a quick return to business as usual and ever growing demand, climate be damned? The fossil fuel age will surely end. The question is whether any of the oil majors will respond to the signs and adapt quickly enough to avoid extinction along with it

Shanna Cleveland directs the Carbon Asset Risk project at Ceres. The project is a joint effort by Ceres and the Carbon Tracker Initiative, with support from global investor groups, INCR, IIGCC and IGCC. For more information, visit http://www.ceres.org/issues/carbon-asset-risk.

*UPDATE: This blog was updated from less than $50 a barrel to less than $60 based on market changes.

Meet the Expert

Shanna Cleveland

Shanna Cleveland is a Director at Ceres where she leads the work on the Carbon Asset Risk (CAR) Initiative. The CAR Initiative, launched in 2013 in collaboration with the Carbon Tracker Initiative and with the support of the Global Investor Coalition on Climate Change, aims to prevent shareholder capital from being wasted on developing high-carbon, high-cost fossil fuel reserves that cannot be burned if the world is to avoid catastrophic climate change and drive fossil fuel companies to acknowledge and plan for the escalating physical impacts of climate change such as sea level rise, stronger storms and more severe droughts.

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