Oil and gas ‘precarious’ as net zero circles

Royal Dutch Shell’s top executive in Australia has taken a swipe at a Dutch court ruling that it must accelerate towards net zero carbon emissions amid warnings the oil and gas industry is in a precarious financial position heading into the clean energy transition.

Tony Nunan, executive vice-president in Shell Australia, told the industry’s flagship conference in Perth that the massive investments needed for the clean energy transition would not be made unless they were profitable but that the ruling had singled the company out because it did not apply to rival oil and gas producers.

The comments come as debate rages over the oil and gas industry’s place in a global economy increasingly focused on achieving net-zero emissions by 2050.

Shell feels it has been singled out and could challenge the ruling, but in the meantime is redoubling its efforts to slash carbon emissions.

A court in The Hague last month ordered Shell to cut its emissions far quicker than the company had planned, rejecting its timetable for a 20 per cent reduction within a decade and for net zero by 2050.

Mr Nunan told the APPEA conference in Perth on Wednesday the ruling was another sign of society asking if the industry was moving fast enough.

“There are parts of that decision that are disappointing,” he said.

“The bits that are disappointing are that it is very difficult for one company alone to be able to change the outcome. We need to be in this together.”

Mr Nunan compared Shell to a petrol station that customers would just drive past on their way to a competitors’ facility in the wake of the decision directing Shell to cut carbon emissions by 45 per cent by 2030.

A day after Santos chief executive Kevin Gallagher and other oil and gas industry leaders warned that achieving net zero emissions would be critical for the natural gas industry to avoid coal’s fate of being blacklisted by equity investors and lenders, Mr Nunan said companies had to remain profitable in making the transition.

He said the massive amount of investment required to make the transition – estimated at anywhere from $US60 trillion ($78 trillion) to $US120 trillion – would not materialise otherwise.

McKinsey & Company director Kassia Yanosek said the oil and gas industry faced a perfect storm after underperforming for the past 15 years.

“The industry is in a very precarious position from a financial perspective and facing energy transition and really figuring out what are they going to do about it,” she said.

Ms Yanosek said there was growing negative investor sentiment around what role the industry could play in energy transition to net zero.

Big oil and gas players were dealing with the growing pressures in different ways.

Companies like ConocoPhillips had decided to focus on resilient hydrocarbons, low-cost production and maximising returns to shareholders.

“You might say they will be the last man pumping,” Ms Yanosek said.

Some, such as ENI, were splitting their portfolios and others were looking for a competitive advantage out of energy transition.

Investor Group on Climate Change director of corporate engagement Laura Hills hailed the International Energy Agency’s net-zero report calling for no new oil and gas investment as an important reference point.

Ms Hills said most investors would say gas had a place in energy transition, but there was a huge amount of financial risk embedded in companies with high emissions profiles.

“We are asking companies to tell us when they think gas exports will peak and when they’ll start to decline,” she said.

Depending on who you talk to, those estimates vary from the 2040s to them peaking in about 2025 followed by a steep decline.

“If talking to companies coming up to a final investment decision on a big gas project in Australia, for example, is that project actually a good bet when it is possible we might head down this pathway that does see a much more rapid decline in LNG demand?” she said.

Ms Hills said the IEA report was a “game changer” in finance for the oil and gas industry.

“The reason for that is many investors now have net zero 2050 targets themselves. When many of them set these target they sort of said, ‘we don’t know how we are going to get there’,” she said.

“Now they have this road map they can pick up and dust off and use, and start realigning their capital allocation decisions with what is set out in the IEA scenario.”

Extracted from AFR

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