Oil companies seem to be moving towards an acceptance that some hydrocarbon assets may never be developed
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When under pressure, is it better to rigidly resist or to prove pliable? Resistance could entail the risk of a sudden collapse if the pressure becomes too much, but pliability could ultimately mean giving in.
This is the dilemma faced by oil and gas majors over climate change. The industry has a bad reputation as a rigid resister – lobbying against regulation and funding climate sceptic think-tanks, for example.But the picture is not black-and-white.
Take BP, for example. In the 1980s and 1990s, BP funded extensive research into renewable energy and energy efficiency. In 1997 it went “beyond petroleum”. More recently, in 2005, it committed to spend $8bn on renewable investments by 2015.
A step back…
But then the 1980s and 1990s programmes were closed down, “beyond petroleum” was dropped and much of the renewable investment in the last decade ended up being sold off. BP has not made any post-2015 renewable investment commitment.
It’s almost like someone trying to beat their bad habits by getting fit at the gym. They know it would be good for them, but lack the willpower to really go for it.
Now it looks like BP is at it again. At its AGM on 19 April, the company backed a resolution requiring it to disclose from 2016 more information about what it is doing to stress-test its business against the risk that its fossil-fuel assets will become stranded. This could happen if there are dramatic greenhouse-gas emissions cuts. The resolution was overwhelmingly adopted.
BP’s move has been welcomed by some. The Church of England’s responsible investment team, for example, characterises it as “a step change in engagement between institutional shareholders and the oil and gas industry on the strategic challenge that climate change poses to the industry”.
Others will take more convincing, seeing the resolution as an attempt to head off the increasing fossil-fuel divestment movement. Campaign group 350.org, for example, says that BP is doing little so far to change its operational focus from oil and gas drilling.
What is most likely, however, is that BP’s resolution is what it is: an acknowledgement of increasing pressure on its core business, and that it must address the concerns of shareholders about this pressure.
Other companies look set to similarly take account of shareholders’ concerns. Shell and Statoil are likely to adopt identikit resolutions in the near future.
The moves come ahead of the United Nations climate conference in Paris later this year, where politicians could make emissions-cutting pledges. Other regulatory measures are encroaching and will continue to encroach on the oil business.
For example, the day after the BP resolution, 62 institutional investors with about $2tn in assets wrote to the US Securities and Exchange Commission asking for tougher rules on disclosure of climate-related risks by oil and gas companies.
BP’s Energy Outlook 2035, published in January 2015, forecast a 37% rise in energy demand by 2035, with fossil fuels meeting most of that.
But with the AGM resolution, the company has in effect accepted that things might not turn out like that and it could be left with stranded assets on a vast scale. In the interests of shareholders, agreeing to assess this risk would seem to be the least it can do.
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First published at: http://innovation-forum.co.uk
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