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Big Oil’s Godzillas are keeping the pipe dream alive

Big Oil’s Godzillas are keeping the pipe dream alive thumbnail

As big western oil giants like BP and Shell agonise over how to reinvent themselves in the face of a warming climate, some of the world’s other top producers are taking a very different approach.

At BP’s headquarters in London, chief executive Bernard Looney is mapping out plans to cut oil and gas production over the coming decade.

Three thousand miles away in the sweltering Saudi oil capital of Dhahran, the boss of Saudi Aramco, Saudi Arabia’s state-owned oil giant, is planning to ramp up production to meet demand when pandemic restrictions ease – and takes a far more relaxed view.

“We expect oil demand growth to continue in the long term, driven by rising populations and economic growth,” the company said recently.

“Speculation about an imminent peak in oil demand is simply not consistent with the realities of oil consumption.”

It’s a similar story in Moscow, where Russia’s state oil producer Rosneft has warned BP and Shell their failure to invest in new crude production risks creating an “existential crisis” for oil supplies that could force up prices.

For Big Oil, this is a big deal.

After all, Saudi Aramco and Rosneft are far bigger global producers which put together pump over 17m barrels of oil and gas per day, dwarfing the 7.7m daily barrels in combined global output of BP and Shell.

It’s a question that goes to the heart of the problem the oil industry confronts in facing up to the climate threat. Western firms may be taking big steps to curb emissions from their own operations, and invest in renewable energy like wind and solar.

But how much will it matter if the slack is simply taken up by industry rivals with a different agenda?

More than half of global oil and gas production and a larger share of global reserves are controlled by state-owned so-called National Oil Companies (NOCs) like Aramco, Venezuela’s PDVSA and Russia’s Rosneft, which is 19pc owned by BP and excluded from BP’s own climate goals.

Although less exposed to investor pressure which has driven change, these NOCs have a huge role to play in tackling carbon emissions. But they are also more at risk in the transition to lower carbon sources of fuel, given their owners’ dependence on oil to fill state coffers.

“The stakes are particularly high for national oil companies charged with the stewardship of countries’ hydrocarbon resources,” says the International Energy Agency (IEA).

“Some are high performing, but many are poorly positioned to adapt.”

It’s not oil over yet

In total, the NOCs churn out about 85m barrels of oil and gas equivalent per day, from $3 trillion [£2.3 trillion] worth of assets such as Rosneft’s 676-square mile Samotlor field in western Siberia, and the Abu Dhabi National Oil Company’s (Adnoc) Upper Zakum oilfield in the Persian Gulf. That is more than half, 55pc, of the world’s production.

Experts believe their share of global production could increase if others scale back in line with climate goals or due to profitability, and NOCs ramp up production to meet demand and maximise revenues while they can.

Predictions on global oil demand vary, but S&P Global Platts predicts it will peak at 120m barrels per day in 2040, before slipping to 116.5m in 2050. The International Energy Agency also predicts an increase to 104.1m  in 2040, up from 97.9m in 2019.

Under-investment from some companies “places the onus on other people to develop the oil reserves that are definitively going to be needed in the scenarios of those people who think peak oil is still well ahead of us”, Mike Muller, head of energy trading giant Vitol’s Asia division, recently said.

The prospect of NOCs stepping in to plug the supply gap has been used by some executives to push back on pressure from climate activists to curb production.

“If we don’t produce someone else will. Maybe not so efficiently, in terms of investment and CO2 emissions,” Eni’s chief executive Claudio Descalzi said last November.

Even NOCs are cutting carbon footprints

The record of NOCs on carbon emissions varies greatly and is often difficult to judge given less stringent disclosures, despite commitments to cut carbon emissions under the 2015 Paris climate accords.

With its vast, shallow reserves, Saudi Arabia is believed to have the lowest carbon intensity production, according to the IEA. Its roughly 60kg of carbon dioxide equivalent emissions for each barrel – including extraction, flaring, methane, refining and transport – compares to about 240kg for Venezuela. The global average is 95kg.

Russia’s Gazprom says it cut emissions from production by 3.5m tons in 2019, to a total 236m tons. The company argues it makes a “meaningful contribution” to a lower carbon world by virtue of its focus on gas, which is cleaner burning than oil and coal.

Abu Dhabi’s Adnoc, meanwhile, has set out plans to reduce its carbon intensity by 25pc by 2030, and plant 10m mangrove seedlings by the end of 2022, to absorb carbon dioxide.

There are calls for greater efforts and greater transparency across the industry, however.

“Even if there is progress on the international oil company front there is a risk that NOCS could undermine that if they don’t develop strong and serious plans on decarbonisation,” says Patrick Heller, from the Natural Resource Governance Institute (NRGI).

Just as pressing is the question facing oil-dependent governments over how to respond to global efforts to shift to lower carbon energy sources.

Avoiding extinction

Experts warn that governments risk tying up their economies in oil and gas assets which might turn out to be unprofitable under stricter efforts to cut carbon emissions. Producing all current proven reserves would generate emissions far beyond any level that could keep global warming below an acceptable 2C.

The picture is complex with production costs varying widely between countries, and oil price forecasts highly uncertain.

Forecasts range from $20 to $100 per barrel in coming decades, depending on global climate policies and market responses.

NOCs with the resources and willingness to be able to act are turning their attention to carbon capture and storage as well as hydrogen, as both increase the viability of their core oil and gas products in a world trying to cut carbon emissions.

Amin Al-Nasser, chief executive of Aramco, has highlighted the company’s interest in hydrogen made from natural gas, saying it is “putting a lot of effort into technologies that will help reduce its costs,” as well as carbon capture systems which will be needed to capture emissions from the production.

Jon Clark, who leads on oil and gas strategy and transactions in Europe and the Middle East for EY, says: “The question that the NOCs are facing is less about plugging an immediate gap in finances, but more about where to generate attractive profits and cash flows into the future, which plays into the energy transition.

“The strategic question is more, what do we do with production, how do we make it best connected to future demand, delivered with the lowest carbon footprint, and at the same time how do we shift our domestic energy mix and portfolio.”

Norwegian majority state-owned producer Equinor has successfully diversified into offshore wind, and is now a pioneer in floating wind farms.

Some governments are setting up separate entities to explore renewable development, rather than relying on NOCs.

Masdar, owned by the Abu Dhabi’s Mubadala Investment Company, says it has invested in renewable energy projects worth more than $14.3bn around the world, developing 5GW of capacity.

Those include two projects in Scotland – the 30MW Hywind offshore floating wind farm operated by Equinor, and a 1.3MwH battery storing excess electricity generated from the farm.

It is also involved in the London Array off the Kent coast, and Dudgeon Offshore off Norfolk.

Meanwhile, having made progress with listed oil and gas groups, investors are increasing pressure on NOCs.

In common with the rest industry, they may find it increasingly hard to ignore the push to lower carbon

Telegraph



60 Comments on "Big Oil’s Godzillas are keeping the pipe dream alive"

  1. makati1 on Thu, 22nd Oct 2020 6:46 pm 

    Well, returning to see what happened since my last post at 4:44PM shows a lot of fake posts by the retarded here. How pathetic! Get a life guys!

  2. makati1 on Thu, 22nd Oct 2020 6:49 pm 

    Well, returning to see what happened since my last post at 6:44PM shows a lot of fake posts by the retarded juanP here. How pathetic! Get a life guys!

  3. JuanP on Thu, 22nd Oct 2020 6:50 pm 

    Mak, since I can’t behave nobody gets a break. I can’t help it I am mentally ill. So maybe it is time for you to move on!

  4. JuanP on Thu, 22nd Oct 2020 6:53 pm 

    Mak, go to the moderated side where you will get protection from my insanity

  5. Abraham van Helsing on Thu, 22nd Oct 2020 6:59 pm 

    Looks like davy is taking my cloggie ID again plus my Abraham ID as usual. What a low life!

    Abraham van Helsing on Thu, 22nd Oct 2020 4:46 pm

    ……

  6. Abraham van Helsing on Thu, 22nd Oct 2020 7:01 pm 

    Looks like JuanP is taking my cloggie ID again plus my Abraham ID as usual. What a low life!

    Abraham van Helsing on Thu, 22nd Oct 2020 4:46 pm

  7. JuanP on Thu, 22nd Oct 2020 7:01 pm 

    Fuckoff cloggie, this is my forum

  8. Davy on Thu, 22nd Oct 2020 7:53 pm 

    Mak, since I can’t behave nobody gets a break. I can’t help it I am mentally ill. So maybe it is time for you to move on!

  9. Davy on Thu, 22nd Oct 2020 8:09 pm 

    In case you was wondering nedernazi. JuanP is the latest member of my sock puppet brigade. LMFDAO!

  10. LANA rEpAeR whitey supertard president biden won debate love for supremacist muzzies increse 1000x on Thu, 22nd Oct 2020 10:27 pm 

    a lot of love

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