Climate change is endangering the business model of traditional energy companies. US oil companies are least prepared for this, as a study by the British think tank Carbon Tracker shows. According to this, European energy companies are significantly better prepared for the transition to a low-carbon economy; the Italian ENI and the British BP come off best in the study, ahead of the Spanish Repsol.
The authors identify the US companies ExxonMobile and ConocoPhillips as clear potential losers. In particular with these two groups, investors threatened high losses in value.
Carbon Tracker sees itself as a non-profit think tank that, according to its own statements, “has set itself the goal of creating a climate-safe global energy market by adapting the capital market to today’s climatic reality”. Carbon Tracker was founded by a number of non-profit foundations. In the current study, the nine largest private energy companies from Europe and North America were considered. Dea Wintershall, established in 2019 with major shareholder BASF, was not taken into account.
“Very few parts of the business models of fossil fuel producers will remain unshaken by the energy transition,” says Andrew Grant, who heads climate research at Carbon Tracker. European leaders like Eni and BP are increasingly reacting to the challenges of climate change, “but with Exxon and others the only consequence is to shy away from decarbonisation”.
It is becoming apparent that most European companies are starting to look at the energy transition more holistically. They have recently announced a series of transition plans, cut assumptions about the future oil price and set more ambitious climate targets. “US companies are lagging behind in all three measures,” says the study.
Even with European corporations, there is still room for improvement
However, the Europeans have not yet arrived completely on the “green” side. According to the study, around half of their funding portfolio is not compatible with the goal of increasing global temperatures by a maximum of 1.6 degrees Celsius. ENI and BP are best positioned here, while 80 percent of Exxon Mobile are not compatible with this goal.
The value of 1.6 degrees refers to the Paris climate protection agreement, in which global warming of “far below” two degrees is aimed for. However, many of the big oil companies have made investments that are incompatible with this goal.
The report said it was in response to “growing investor concerns about the transitional risks climate change poses to their portfolios and the lives of their clients as evidence mounts of the physical dangers of warming above 1.5 degrees Celsius.” “. Investors are looking to drive change through initiatives like Climate Action 100+ by companies with $ 47 trillion in assets under management. Dollars are supported.
The study examines the resilience of companies based on three indicators: resilience of the project portfolio, climate targets and price expectations.
According to Carbon Tracker, companies with at least the risk of value destruction are those with the highest proportion of project options that remain economically competitive when demand falls. For ExxonMobil, ConocoPhillips and Equinor, 70 to 90 percent of the project portfolio would no longer make sense if global warming were limited to 1.6 degrees Celsius. BP, Total, Eni and Repsol have a much smaller percentage of 40 to 60 percent.
US oil companies anticipate increasing demand
With regard to climate change, European corporations “now recognize that the Paris Agreement will require them to set absolute limits on the carbon they emit from the use of their products”. US companies have weaker goals that do not impose production restrictions, so they are more likely to “develop costly projects that are at greater risk of destroying value.”
Companies’ expectations of future demand are reflected in the price assumptions in their models of possible depreciation. In the period up to 2025, Shell, BP and ENI were expecting a maximum price of $ 60 per barrel of crude oil. If the price is well below this mark, companies have to make write-offs.
The higher this threshold value, the higher the oil demand a company expects. Equinor (formerly Statoil) from Norway sets this mark at $ 82, so it is preparing for more oil demand than, say, BP. “US companies have not disclosed their depreciation prices, but their project portfolios imply that they continue to expect higher demand and higher prices than most of their European rivals,” the study said. Against this background, many exploration projects, for example in the deep sea, are questionable.