Carbon Tracker says oil majors must cut output 35 per cent through 2040

A new study has warned none of the major oil and gas companies are on track to be aligned with the United Nations sponsored Paris Agreement by 2040, with some needing to cut production by as much as 85 per cent

The new report by Carbon Tracker says the biggest publicly traded oil and gas companies need to slash their combined production by more than one-third in the next two decades to meet world climate commitments.

The report noted the industry needed to substantially reduce greenhouse gas emissions to protect shareholder value and save the planet.

It further said that none of the major fossil fuel corporations’ current targets align with the 2015 Paris Agreement.

Oil majors must cut output by 35 per cent overall by 2040, says the report, which notes that each company’s carbon budget depends on “the proportion of low-cost, low-carbon projects in their portfolio”.

Analysing current and future energy projects to determine which would still be economically viable if the global temperature rise is kept well below two degrees Celsius, the report’s authors argue that companies simply need to get smaller to balance their “carbon budgets”.

With project-level emissions data, the report moves for the first time from the idea of a global carbon budget, how much carbon emissions are within range for the whole world, to individual company carbon budgets.

“There is a finite amount of emissions we can make for a given amount of global warming,” said Andrew Grant, a senior analyst at Carbon Tracker.

Referring to the “logic of the market” and the rules of supply and demand, Mr Grant told Al Jazeera News that companies should concentrate on “creating value on a per-share basis, instead of getting bigger just to get bigger. From a shareholder point of view, it’s a rational thing to do.”

The report looked at the largest and best-known petroleum companies, not because they are the worst net polluters but “because investors have the most interest in and are most widely invested in [them]”.

Many of the biggest non-Western oil companies, Saudi Arabia’s Aramco, China’s Sinopec, and Russia’s Lukoil, rely on low-cost extraction to stay competitive.

However, they may be more sensitive to break-even points with fiscal budgets, in an effort to help fill government coffers, than to carbon budgets set by climate regulation.

While none of the main Western oil giants are on track to meet Paris Agreement goals, ConocoPhillips would need to make the biggest cuts of 85 per cent.

ExxonMobil, the largest oil major, faces a 55 per cent cut to balance its carbon budget.

Chevron and Total both would also need to cut production 55 per cent, while Eni requires a 40 perc ent cut and BP requires a 25 per cent one.

Shell, which is the most aligned with the Paris Agreement, needs to cut just 10 per cent of its output because it has the most low-cost, low-carbon projects that would still be economic in a scenario where the temperature rise is limited to 1.5°C.

“If companies and governments attempt to develop all their oil and gas reserves, either the world will miss its climate targets or assets will become ‘stranded’ in the energy transition, or both,” said Mike Coffin, the report’s author and an oil and gas analyst at Carbon Tracker.

“The industry is trying to have its cake and eat it, reassuring shareholders and appearing supportive of the Paris Agreement, while still producing more fossil fuels,” he added.

“If companies really want to both mitigate financial risk and be part of the climate solution, they must shrink production.”

The report assumes that “the projects with the lowest production costs will be most competitive, while high-cost projects relying on higher prices risk becoming ‘stranded assets’”.

A not-for-profit think-tank, Carbon Tracker seeks to align the financial system with the energy transition to a low-carbon future, so it urges investors to help promote and support plans for the sector’s rapid drop-off in production.