Money: Oil groups face uncomfortable dilemma on climate change - PressFrom - United Kingdom
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MoneyOil groups face uncomfortable dilemma on climate change

14:05  14 march  2019
14:05  14 march  2019 Source:   msn.com

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Global climate change has been on the international agenda since at least 1992 when the United Nations Framework Convention on Climate Change Climate change can be viewed as a particularly nasty prisoners’ dilemma : Prisoner B stays silent (cooperates). Prisoner B betrays (defects).

Climate change occurs when changes in Earth's climate system result in new weather patterns that last for at least a few decades, and maybe for millions of years.

Oil groups face uncomfortable dilemma on climate change © Bloomberg Photographer: Callaghan O'Hare/Bloomberg

Climate change presents oil producers with an uncomfortable dilemma. If the world is to meet the goal of the Paris agreement and keep the rise in global temperatures to “well below” 2 degrees Celsius, it is very likely that by 2040 oil consumption will have to fall. But oil companies want both to say they are taking the threat seriously, in response to pressure from investors, politicians and the public, and to hold out the promise that they can continue to grow.

Many of the oil executives attending a major energy conference in Houston this week wanted to put across the same message about how they planned to tackle that dilemma. Even if demand does fall in the coming decades, they say, they will be resilient enough to thrive.

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Under the restrictions imposed by curbs on carbon emissions, it will be a case of survival of the fittest.

“We need to be able to be the last ones standing, as that production begins to decline,” said Wael Sawan, newly appointed as Royal Dutch Shell’s head of exploration and production.

Oil groups face uncomfortable dilemma on climate change © REUTERS/Bruno Kelly Wael Sawan poses for a picture before an interview for Reuters during an oil conference in Rio de Janeiro, Brazil October 24, 2017.

“I’m not in a position to guess whether that is going to be 2030, 2040 or 2050. What I can do is make choices today that build resilience in the portfolio that allows us to be robust when that happens.”

It is quite possible that governments will not, in fact, take sufficient action to achieve the 2C goal. Even the commitments for emissions cuts submitted to the Paris summit in 2015 would only limit warming to 2.7-3.7C, models suggest.

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But the threat of a decline in oil demand over the next 20 years, well within the lifetime of many energy projects now under development, is forcing every producer to respond.

The International Energy Agency’s “sustainable development” scenario, consistent with limiting the temperature increase to 2C, envisages oil consumption of 70m barrels a day in 2040, a fall of roughly 30 per cent from today’s levels.

To secure the future of their businesses, oil companies are trying to make their barrels the lowest cost to produce.

Part of the work has already been done in the years since the 2014 price downturn. The energy majors have reduced costs by about 40 per cent, are making better use of existing infrastructure, rather than building new offshore platforms, and are more reluctant to plough billions of dollars into megaprojects that will take many years to complete.

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The oil sands, sometimes referred to as "dirty oil ", have long been a target of climate change campaigners who insist that the energy-intensive extraction of oil sands and the greenhouse gas emissions it generates, mean most of the remaining deposits must stay in the ground.

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BP chief executive Bob Dudley said in a speech at the conference: “We have also developed a level of discipline on costs and capital that I think is here to stay, one that’s helping drive improving returns and is reassuring shareholders.”

Costs have fallen partly because of increased use of technologies such as advanced seismic imaging, which are making it possible for oil and gas companies to drill more efficiently.

Geraldine Slattery, who is in charge of BHP’s petroleum business, said these technologies were “big levers” that can be pulled to improve the chance of commercial success for a project from the outset. Referring to “appraisal” wells, which are used to assess oil flows and quality, Ms Slattery said: “Let’s assume you need eight wells today and you reduce this to six . . . These things start to take $2, $5, $6 [a barrel] out of your development cost.”

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Robinson calls for climate change action, says current system is 'underpinned by rampant capitalism' Robinson calls for climate change action, says current system is 'underpinned by rampant capitalism'

Climate change skeptic blogs are awash with the theory that that there has been no discernible warming of the earth for years – since 1998. These fluctuations in the surface temperature of oceans can cause major climatic changes across the globe, from heavy rains in Peru to severe droughts in

For some companies, a push for resilience has meant reshaping their portfolios to offload higher cost assets.

John Hess, chief executive of the US exploration and production company Hess Corporation, emphasises that oil and gas will continue to be essential to energy provision even in a 2C world, but says he has prepared the company for weaker demand and lower prices by selling reserves with high production costs.

Oil groups face uncomfortable dilemma on climate change © Thomson Reuters John Hess Photo by REUTERS/Maria Caspani

“We didn’t want to rely on a particular oil price to make sure we have a sustainable business,” he said. “One of our key objectives has been to get to break even at $40 Brent by 2025.”

Others are planning for a world of stricter controls on greenhouse gases, where companies will need to account for regulations, taxes and other costs attached to carbon emissions. Eldar Saetre, chief executive of Norway’s Equinor, said the companies that succeed in the future would be the ones that develop not only the cheapest barrels, but also the cleanest ones.

In Equinor’s Norwegian oil portfolio, carbon dioxide emissions are 9kg a barrel of oil equivalent, compared with a global average of around 18kg.

Oil groups face uncomfortable dilemma on climate change © Thomson Reuters REUTERS/Nerijus Adomaitis

“All the assets we sanctioned last year have less than 1kg per barrel,” he said. “If you compare that to an oil sands project, it’s a 100th of what you would typically see there . . . That distinction is going to be more and more important.”

The listed European and US energy companies, however, produce only a fraction of the world’s oil. Big state-owned enterprises have access to prolific, low-cost reserves and need only to please their governments, so they may not face the same long-term pressures over greenhouse gas emissions.

Oil groups face uncomfortable dilemma on climate change © Copyright 2018, dpa (www.dpa.de). Alle Rechte vorbehalten Photo: Stefan Sauer/dpa (Photo by Stefan Sauer/picture alliance via Getty Images)

Some of those national oil companies already have relatively low emissions. A study last year by Mohammad Masnadi of Stanford University and other academics found that Saudi Arabia releases little carbon dioxide for each barrel produced, in part because it has a low rate of flaring of excess gas.

Khalid Al Falih, the kingdom’s energy minister and chairman of state oil company Saudi Aramco, said last month: “Saudi Arabia is the most prolific basin for oil and gas. We have the best resources and the best capabilities and we are going to produce the last drop of oil.”

Oil groups face uncomfortable dilemma on climate change © Thomson Reuters Saudi Arabia's Energy Minister Khalid al-Falih. Photo by REUTERS/Anushree Fadnavis

If every oil company in the world believes they can win this contest, holding out to be the last producer standing, they cannot all be right. A 30 per cent drop in consumption would mean that some would have to lose out. In the Darwinian struggle to adapt to a new energy system, some will inevitably become extinct.

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Robinson calls for climate change action, says current system is 'underpinned by rampant capitalism'.
Robinson calls for climate change action, says current system is 'underpinned by rampant capitalism'

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