A new report has found US$2.3 trillion of projected capital expenditure (capex) on upstream oil and gas projects would be wasted under a 2°C warming scenario.
Produced by Carbon Tracker in partnership with UN Principles for Responsible Investment (PRI) and leading institutional investors, the report ranks the world’s 69 largest publicly-listed oil and gas companies by their exposure to capex that would be outside the 2°C carbon budget. Australian companies Oil Search, Woodside, and Origin were all found to be heavily exposed. Santos was too small (by market capitalisation – that is total sharemarket value) to feature in the analysis.
Business as usual spending will lead to stranded assets
The analysis demonstrates that around a third of projected capex under a ‘business as usual’ scenario from 2016 to 2025 would be wasted on projects that are not economically viable under 2°C demand levels.
Australian companies among the most exposed
Of the three Australian oil and gas companies featuring in the report, Oil Search was found to be the most heavily exposed to potentially stranded capex. The analysis found that 50-60% of Oil Search’s projected upstream capex would be outside the 2°C carbon budget, which placed the company in the in the top 10 most exposed publicly-listed oil and gas producers in the world.
Woodside weren’t far behind, with 40-50% of their potential spend unable to fit within a 2°C demand levels. Origin Energy was found to have 30-40% exposure to potentially stranded capex, placing it in the top 30 most exposed companies.
Find out if your super fund invests in Oil Search, Woodside, or Origin
Investors must demand comprehensive climate risk disclosure
The report shows the gaping chasm between how oil and gas companies can operate under business as usual conditions versus the carbon-constrained future imposed by the Paris Agreement. Importantly, this analysis is based on just a 50% chance of keeping warming below 2°C. Increasing the probability and decreasing the warming limit to the ‘safer’ 1.5°C target outlined in the Paris Agreement drastically cuts the carbon budget.
It is imperative that fossil fuel companies undertake their own scenario analyses to determine how both the 1.5 and 2°C warming limits imposed by the Paris Agreement will impact their businesses. This information must be disclosed to investors as soon as possible.
Market Forces worked with shareholders earlier this year to produce a commitment from Oil Search to measure and disclose the risks posed to the company under both 1.5 and 2°C warming limited scenarios. Through similar work with Woodside shareholders, the company agreed to ‘review’ climate risk disclosure recommendations and ‘move towards full disclosure’. In a last ditch effort to defeat a Market Forces-coordinated shareholder resolution, Santos made a weak commitment to ‘review’ climate risk disclosure recommendations. It is now up to investors, including individual shareholders and super funds, to hold these companies to account over their approaches to climate risk.
Origin Energy is due to hold its annual general meeting in October, and Market Forces will again be working with shareholders to push the company towards full and frank climate risk disclosure.
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