Big Oil’s climate defeats deepen risks for Australian producers

Australia’s biggest oil and gas companies could find it harder to sell down stakes in projects and sanction new production fields amid an escalation in investor-led climate pressure targeting oil majors in Europe and the United States.

In a landmark ruling this week, a Dutch court found in favour of environment groups and ordered Royal Dutch Shell to set deeper and faster emissions cuts targeting a 45 per cent reduction by 2030. The case, which industry experts say may serve as a precedent for other European oil majors, came the same day as ExxonMobil was dealt a blow with an small hedge fund unseating two board members in a bid to force the US company to diversify beyond fossil fuels and fight climate change.

“An extraordinary 24 hours,” said Dan Gocher of the Australasian Centre for Corporate Responsibility, a shareholder activist group. “It will have massive implications for the Australian oil and gas industry.”

Credit Suisse energy analyst Saul Kavonic said the investment bank believed the most likely fallout for the industry in Australia was the intensifying climate pressure leading to a sector-wide spending pull-back from major companies.

This risk, he added, would be compounded by the International Energy Agency’s latest findings that investors should not fund any new oil and gas fields if the world is to achieve the Paris agreement’s aspirational target of limiting global temperature rises to 1.5 degrees above pre-industrial levels.

“We see increased risk that further caution and scrutiny may be applied towards deploying more oil and gas capital expenditure by some of the larger listed oil and gas companies,” Mr Kavonic said.

Although this may benefit the supply-and-demand dynamics for Australian producers, the more “limited buyer pool” could imperil plans by ASX-listed Woodside, Oil Search and Santos to sell stakes in their projects in Australia and overseas.

In addition, it could also pose a risk to Australian companies partnering with major US or European companies on developing new oil and gas projects that are yet to receive the financial go-ahead, Mr Kavonic said.

Industry representatives for oil and gas producers on Thursday said Australian companies were doing “heavy lifting” in the decarbonisation push by producing and shipping natural gas – a comparatively cleaner alternative energy source than coal that was displacing coal power around the world.

“The Australian government estimates that our exports of liquefied natural gas (LNG) can help reduce emissions in importing countries by about 170 million tonnes a year, the equivalent of almost one-third of Australia’s total emissions,” Australian Petroleum Production and Exploration Association chief Andrew McConville said.

“Natural gas makes it possible for Australia to meet the world’s growing energy needs over the coming decades while incorporating a strategy to curb emissions and address the risks posed by climate change.”

As the push to neutralise emissions accelerates, gas producers and the Morrison government have billed natural gas, one of Australia’s biggest exports, as the necessary “transition fuel” – burning with fewer emissions than coal, but still capable of dispatching on-demand energy to support wind and solar farms during periods when their weather conditions are unfavourable.

Investors, however, are increasingly questioning the future role of gas, concerned about its emissions footprint and worried that new fossil fuel fields risk becoming stranded assets under the Paris agreement’s goals to slow global warming.

The dual upheavals for Royal Dutch Shell and ExxonMobil are among the biggest activist victories in recent years, and underscore how the oil and gas industry has become vulnerable to the deepening pressure over its contribution to global warming. In the case of ExxonMobil, the contest demonstrates global institutional investors’ preparedness to take action to force heavy emitters to actively participate in the transition to clean energy.

“This is a day of reckoning,” said Anne Simpson, managing investment director at the $500 billion California Public Employees Retirement System, following the Exxon vote.

“Climate change is a financial risk and, as fiduciaries, we need to ensure that boards are not just independent and diverse, but climate-competent.”

The court ruling against Shell was hailed by climate campaigners as a landmark victory for climate justice.

“Our hope is that this verdict will trigger a wave of climate litigation against big polluters, to force them to stop extracting and burning fossil fuels,” Friends of the Earth Australia’s Sam Cossar said.

Although Shell had already set itself among the industry’s most ambitious emissions-reductions target, the court ruled that they largely amounted to “rather intangible, undefined and non-binding plans for the long term” and upheld the argument that Shell had a duty to the people of the Netherlands to move faster on emissions.

The ruling is likely to apply only in the Netherlands, and may have limited relevance to other jurisdictions where activists are suing fossil fuel companies. Shell said it intended to appeal the court’s ruling.

Extracted from The Sydney Morning Herald

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