Big Oil made big bucks. Will the windfall fund green energy?
"Big divisions loom over fossil fuels as COP28 talks head into final phase"
Big divisions as always. Could say the world is a very unequal democracy, and inequality breeds division. At least some in the oil industry are making some effort:
By Benjamin Storrow | 11/29/2022 06:35 AM EST
Oil pump jacks work behind a natural gas flare near Watford City, N.D. The oil and gas industry is seeing record high earnings. Eric Gay/AP Photo
Few companies capture the contradictions of the oil industry like TotalEnergies. The French oil major is moving quickly into businesses outside of oil, snapping up large renewable companies in Brazil and the United States, even as it pushes to develop new oil fields in Africa and grow its liquefied natural gas division.
So goes the energy transition in the oil sector, where a handful of European oil giants are seeking to balance the world’s short-term need for fossil fuels with its long-term goal of achieving net-zero emissions.
The industry is basking in record profits two years after a handful of large European oil companies announced plans to transition their business and zero out emissions. The windfall has prompted questions about whether companies intend to spend their profits on their traditional business or on green technologies needed to meet their climate goals.
The choice is a stark one. The world is short on oil today. Inventories are down and investment in new production is limited, but demand has shown no signs of slowing down amid growing fears of a recession. Those factors would traditionally be a recipe for more oil production.
But the planet also can ill afford the additional emissions that come with new oil projects. The International Energy Agency in its 2022 World Energy Outlook .. https://www.iea.org/reports/world-energy-outlook-2022 .. said there is little room for new oil and gas investments if the world is to limit global temperature increase to 1.5 degrees Celsius by 2050. It estimates fossil fuel projects approved in 2021 will add 25 billion tons of emissions to the atmosphere over their lifetimes, or 5 percent of the world’s remaining carbon budget.
“It seems they don’t see high enough returns in their new businesses, but are also afraid to double down or to be seen to invest in oil and gas,” said David Doherty, an analyst who tracks the oil industry at BloombergNEF.
So far, the European majors have chosen a third option for their record profits, with most electing to pay down debt and return money to shareholders in the form of stock buybacks and enhanced dividends. Goldman Sachs estimates that European energy firms have seen debt levels fall from 2.3 times revenues in 2020 to 0.5 times revenues this year.
Oil companies have profited mightily from the uptick in energy prices this year. Total posted a profit of $9.86 billion in the third quarter, more than double the $4.77 billion it earned in the same time last year. BP recorded a profit of $8.2 billion, up from $3.3 billion in the third quarter of 2021, while Shell’s profits rose from $4.1 billion to $9.45 billion over the same period.
All three companies have committed to achieving net-zero emissions by midcentury. That makes them outliers in the oil industry. Wood Mackenzie said in October .. https://www.woodmac.com/news/opinion/how-will-oil-and-gas-companies-get-to-scope-3-net-zero/#form .. that only 10 oil companies have set climate targets for Scope 3 emissions, with European majors accounting for half of those pledges. Scope 3 emissions, which covers emissions associated with customers that burn oil and gas products, account for 80 to 95 percent of oil and gas emissions.
Tom Ellacott, a Wood Mackenzie analyst, believes the European majors have made considerable progress on their climate goals. Total recently acquired the Clearway Energy Group in the United States, boosting its renewable generating capacity from 4.4 gigawatts in the second quarter of 2022 to 16 GW in the third quarter. The French oil major also announced a joint venture with Casa dos Ventos, a Brazilian renewable developer with 6 GW of renewable capacity in operation, construction or development.
The investments put Total at the forefront of oil industry investments in renewables. But it is hardly alone in plotting a shift to cleaner energy sources.
BP paid more than $4 billion for the biogas producer Archaea Energy Inc. and acquired a 40 percent stake in a massive Australian green hydrogen project. Shell, for its part, paid $1.55 billion for Solenergi Power Pvt. Ltd., one of India’s largest renewable developers, and announced a joint venture to develop hydrogen refueling stations in China. Even Chevron, the American oil giant, has dipped its toes into the transition waters with the $3.15 billion acquisition of the Renewable Energy Group, a biofuel company.
“I would argue the European majors have made a tremendous amount of progress in diversifying into low-carbon themes and provided a nice foundation to scale up beyond 2030,” Ellacott said.
Others are less sure. Even as Total is pursuing a build-out of its renewable business, it is pushing to start a pair of new oil fields in Africa, which are projected to come online in 2025 and 2026. The fields will increase Total’s crude production by roughly 15 percent, or 200,000 barrels a day. Total is also pushing to increase its LNG production 40 percent by the end of the decade, in a move mirrored by other oil majors.
Such increases are inconsistent with the goal of limiting global warming to 1.5 or 1.7 C, said Guy Prince, an oil analyst at Carbon Tracker. In its most recent energy outlook, the International Energy Agency said investment in new oil infrastructure needs to be restricted to existing fields or those with relatively short production time frames for the world to meet its climate goals.
“It seems like many are banking on business as usual, but at least some of the European majors have conceded that production will have to fall eventually,” Prince said. “In the short term, that has not been reflected in their decisionmaking.”
In a presentation outlining the company’s strategic vision, Total CEO Patrick Pouyanné in September described an all-of-the-above energy approach. The French giant is seeking to profit from its oil assets in the short term, while building its business around LNG and renewable electricity in the medium to long term, Pouyanné said.
“It’s a balanced strategy,” he told financial analysts at the time, adding that “we think that all these three energies — oil, LNG/gas and electricity — will need investments.”
The big question for climate is where the industry goes next. Recession fears could put a damper on crude demand in 2023, though the world’s appetite for crude has shown no signs of abating. Many analysts think oil companies will boost their spending on oil and gas if fossil fuel markets remain tight. At the same time, most expect spending on green investments will climb, as well.
The question is whether macroeconomic conditions will prompt a wider reassessment. The European oil majors have been undeterred by economic uncertainties roiling the world this year and seem intent to continue their green pivot, said Doherty, the BloombergNEF analyst. Yet green investments will be less profitable than what the European majors are expecting, he said.
“As a result, the main thing to look out for is at what stage might oil companies, or investors, decide that returns from new energies will not suffice,” he said. That could prompt them to halt their green investments or sell them off. When it comes to making money, Doherty said, “the message is clear: Renewables and power are no oil and gas.”
USA and china didn't go as far as I've read because supposedly they commented that opec was just doing the regular crap of denial and refusal and uses the cop28 as a sales seminar and threat event. And as your article shows, Biden was right.
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Thu 19 Jan 2023 01.00 AEDT Last modified on Thu 19 Jan 2023 02.54 AEDT
A burning area of Amazon rainforest reserve, south of Novo Progresso in Pará state, Brazil. Composite: Guardian Design/Getty Images/AFP
At the Cop26 UN climate summit in Glasgow in 2021, governments around the world made a striking new pledge on saving the world’s forests. The $12bn (£9.8bn) commitment to protect and restore forests was hailed as a historic step – the “largest ever public climate finance pledge of its kind”, said the UK’s Lord Goldsmith.
Protecting forests, which store about 400 gigatonnes of carbon, is essential to staving off the worst ravages of the climate crisis, and keeping global temperatures to within 1.5C of pre-industrial levels.
Deforestation rates, despite serial pledges over years to reduce them, are still staggering, and the impacts of global heating are now compounding the problem, drying out swathes of the remaining forests so that they store less carbon, in a vicious feedback loop.
But achieving the commitment to protect forests will actually cost an estimated $393bn annually by 2055 .. https://www.rti.org/news/cost-planting-protecting-trees-fight-climate-change-could-jump . The amounts committed by governments and multilateral development banks so far are “a drop in the bucket”, says Nat Keohane, the president of the Center for Climate and Energy Solutions in the US.
That is why many climate experts are pinning their hope on the global carbon markets to provide the funding needed to halt, and even reverse, deforestation in the most vulnerable countries.
Globally, the voluntary carbon markets .. https://www.theguardian.com/environment/2021/may/04/what-is-carbon-offsetting-and-how-does-it-work – so-called because they are not regulated by governments, which in some regions issue permits or credits for companies to produce carbon – are worth only about $2bn a year today, mainly driven by companies seeking to offset their greenhouse gas emissions through the purchase of carbon credits.
Those funds will be essential, as governments are unlikely to provide anything like the sums needed. “We need to use every channel we can for funding,” says Keohane. “We can’t leave anything on the table. We know that we will not be able to meet even 2C if we do not end tropical deforestation.”
That is an understatement.For nearly two decades there have been innumerable cases of malpractice .. https://www.theguardian.com/environment/2021/may/04/carbon-offsets-used-by-major-airlines-based-on-flawed-system-warn-experts , from the outrageous – projects that never existed, forests that were being cut down, trees that had died or were being counted twice or several times over – to the legal but disreputable, such as companies re-selling high-priced offsets based on “hot air”, carbon credits granted almost for free by governments.
But it is often hard to say whether a forest is under genuine threat, and this is complicated still further as some projects allow a limited amount of logging to occur in areas where carbon credits are being claimed – a seeming contradiction,but justified on the basis that the income from credits alone is not enough to compensate for foregoing the logging value of the forest.
Annette Nazareth, a trained lawyer with experience of regulating public markets, is now co-chair of the Integrity Council for the Voluntary Carbon Markets (ICVCM), and hopes she can tidy things up, bringing “transparency and credibility” to the markets.
“We need more standardisation of what a high-quality credit looks like,” she told the Guardian. “We want to take out the uncertainty and create a market of high integrity, so that there can be much greater confidence and corporations can invest.”
But Keohane says it is also critical to tackle the demand side – to ensure that companies are not using offsets as a “get out of jail free” card, so that they can carry on emitting as much as ever, while claiming carbon neutrality by buying cheap credits. “Carbon credits should be complementary, not a substitute [for cutting emissions],” he says.
Nazareth believes that the standards system to come from the ICVCM will be “regulator-like”. But the system is voluntary, not overseen by governments – so why not?
That would take too long, she says. Governments have failed over three decades to act, so unless companies are encouraged to act, it will be too late. “Time is of the essence,” she says. “We don’t have the luxury of waiting.”
And that is the heart of the problem. It may never be possible to say whether a tree would have been cut down, if not for the protection provided by a carbon credit, or to prevent every fraudster out to make a quick buck from a nonexistent project, or to eliminate every greenwashing company.
The most worrying thing of all is that waiting for more perfect ways to keep the world’s increasingly threatened and fragile forests standing may be an unaffordable luxury.
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