Sulphur 396 Sept-Oct 2021
30 September 2021
Oil assets and ‘net zero’
“The focus on supply is putting the cart before the horse…”
Mining giant BHP’s decision this August to dispose of its oil and gas assets to Woodside Petroleum (see Industry News, page 11) in a deal estimated at $29 billion is certainly eye-catching. But it is also part of a larger pattern of divestment of fossil fuel assets by oil and gas companies who have dominated the industry for decades. It follows divestment by investors, institutional and otherwise, as efforts to tackle climate change consistently point towards a future where we will be using gas, and especially oil, far less – indeed, where many are talking about achieving ‘net zero’ carbon emissions by the middle of the century or shortly thereafter.
Fossil fuel companies are by and large valued on their reserves, and if those reserves will not be exploited, then those assets become ‘stranded’, and the valuation must fall. The net worth of companies like ExxonMobil, Shell and BP are currently only around half that of their peak value a few years ago, and last year, Exxon was dropped from the Dow Index. ExxonMobil, Chevron, BP, Shell, Total and Eni have between them sold $28 billion in assets since 2018, and are targeting further disposals of more than $30 billion. Industry-wide, Wood Mackenzie puts the value of oil and gas assets for sale at $140 billion. In April this year, seven European countries, including France, Germany, and the United Kingdom, announced that they would halt public funding for certain fossil fuel projects abroad, and Norway’s sovereign wealth fund – itself largely garnered from the country’s oil and gas royalties – last year said cashed out of positions in major mining and energy companies. Ireland said in 2018 it would divest totally from fossil fuels.
Under those circumstances, BHP’s decision to get out of that business and focus upon mining potash for fertilizer instead might look prudent, although paradoxically, its share price actually fell after the announcement. But of course, there are two sides to every deal, and one group’s disposal is another’s acquisition. Woodside said that it sees the BHP acquisition as increasing economies of scale and options for their LNG assets. Other companies have also been looking for bargains. Ineos Energy has also been deliberately buying unwanted fossil fuel assets; in March picking up Hess Corporation’s oil and gas assets in Denmark for $150 million, in spite of the Danish government stating that it intends to end all oil production by 2050.
And all of this disguises the fact that oil and gas production, and with it sulphur output, has steadily moved from the control of western ‘majors’ over the preceding decades towards national oil companies (NOCs). Publicly listed energy majors now account for only 12% of the world’s oil and gas reserves, 15% of production and 10% of estimated carbon emissions from industry operations, according to the International Energy Authority. The assets remain, but they are increasingly in the hands of NOCs, many of whom have not made any commitment to reduce emissions, or at least which have far less ambitious targets to do so than publicly traded companies. It is a shell game. Some argue that the focus on supply is putting the cart before the horse – selling an oil field does not reduce oil-related emissions if demand for oil globally remains unchanged. In order to meet climate goals, we will need to reduce oil demand.
Even so, the lack of investment money available for oil and gas projects is already becoming problematic in places such as Africa, where governments complain of ‘climate imperialism’ as money to fund e.g. LNG projects which would bring much needed development cash starts to become more difficult. It is easier, they argue, for western nations, where only an average of 2% of GDP comes from natural resources, to move out of fossil fuels, than African countries where the figure averages 25%. Innovation and technical know-how in the sector has also traditionally come from the majors, such as with shale gas production, which has changed the industry, while expertise with sour gas production gained in Europe and North America has been an invaluable component of more recent sour gas exploitation in the Middle East, Central Asia and China.
Investor activism and fossil fuel divestment is changing the way that the oil and gas majors operate, but to have any meaningful impact upon emissions and climate, a more globally-based, joined-up strategy is needed, and that can only come from governments.
