Oil & gas firms ‘risking’ $2trn

According to the report, oil and gas companies that do not develop strategies that fall into line with commitments to limit climate change to 2?C will face substantially lower investment.

The report also highlights the “end of the road” for expansion in the coal sector, as existing mines will meet current demand.

Fossil fuel incumbents seem intent on wasting capital trying to hold onto growth

Carbon Tracker CEO Anthony Hobley

Jamie Leaton, head of research at Carbon Tracker and the report’s co-author, said too few energy firms recognise they will need to reduce their supply of carbon-intensive projects if global carbon reductions targets are to be hit.

“Clean technology and climate policy are already reducing fossil fuel demand – misreading these trends will destroy shareholder value,” Leaton said.

“Companies need to apply 2?C stress tests to their business models now,” he said.

The report suggests oil and gas companies in the US are most at risk of financial exposure, with $412bn of their “unneeded projects” becoming stranded assets by 2025.

That exposure is followed by Canada ($220bn), China ($179bn) and Russia ($147bn) who all face similar risks.

Carbon Tracker chief executive officer Anthony Hobley said business history is “littered” with those who fail to spot coming change.

“Fossil fuel incumbents seem intent on wasting capital trying to hold onto growth by doing what they have always done rather than embracing the energy transition and preserving value by adopting an ex-growth strategy,” Hobley said.

“Our report offers these companies both a warning and a strategy for avoiding significant value destruction,” he added.

In tackling the carbon emissions issue, the report highlights carbon capture and storage (CCS) as one technology that could capture up to 24 billion tonnes of carbon in the next 20 years – which would be in line with international targets.

The report states that CCS would need to grow to a level 150 times where it sits today in order to meet those targets.

However, countries such as the UK have recently announced plans to scrap funding for CCS. The UK government said last week it was removing its £1bn capital budget for the CCS competition.

The UK’s CCS competition was designed as a means of boosting the CCS industry and reducing industry emissions.

“To cut this competition is a ludicrous decision,” said Geoffrey Maitland, professor of Energy Engineering at Imperial College London, in reaction to the announcement.

“As we try to stimulate manufacturing industry in the UK, CCS provides the only realistic way to decarbonise this very important sector for the UK economy.”