Investing in oil and gas projects is an investment against the planet and against a healthy future, one expert argues.
ANKARA: At a time when the effects of climate change and global warming are hard to ignore, experts believe the only way to counter this impact for a brighter future is for fossil fuel companies to halt oil and gas investments and focus on clean alternatives.
The world must be fossil fuel free by 2050 at the latest, Daniel M. Kammen, director of Renewable and Appropriate Energy Laboratory at UC Berkeley, told Anadolu Agency on Monday.
Any current oil and gas investment must be capable of being shut down in two decades, Kammen said, and argued that since virtually no developer will want to do that, “it is thus better never to do this investment, and far better to invest in renewables and storage.”
The oil and gas industry is forecast to invest $3.3 trillion and $1.6 trillion in new projects, respectively over the next ten years, according to data from international NGO Global Witness.
“Investing in oil and gas projects is “an investment against the planet and against a healthy future,” Kammen said.
He highlighted alternative projects that fossil fuel companies could target, such as grid-scale renewables, storage, geothermal and non-hydrocarbon petrochemicals.
“The vast majority of long-lived fossil fuel infrastructure, particularly coal, is incompatible with the Paris Agreement and tackling climate change,” Ben Caldecott, director of Oxford Sustainable Finance Program and associate professor at the University of Oxford said.
In April 2016, 195 countries came together to sign the Paris Agreement to keep global temperature rises below 2°C and to limit it to 1.5°C. Accordingly, countries that are signatories to the Paris agreement are expected to create a road map for setting emission targets.
Global energy-related carbon emissions rose by 1.7% to a historic high of 33.1 gigatonnes in 2018, according to recent data from the International Energy Agency.
Emissions play a major role in increasing global temperatures, and according to the Intergovernmental Panel on Climate Change’s (IPCC) 2018 report, human activities already caused approximately 1°C of global warming above pre-industrial levels.
If a fundamental change is not made in the energy sector, the IPCC says the temperature rise will likely reach 1.5°C between 2030 and 2052.
International oil and gas companies face a number of structural challenges from climate change – new technologies such as electric vehicles, as well as competition from nationalized companies, Caldecott pointed out.
“They need to diversify and they will need to use their free cash flow to invest in that diversification, which will reduce dividends and their yield profile for some time,” Caldecott said.
Consequently, companies and their shareholders need to have a “grown-up conversation,” he argued.
Government role in halting fossil fuels
All or nearly all fossil fuel production will cease in 30 to 50 years, according to Edward A. Parson, Dan and Rae Emmett professor of environmental law at the UCLA School of Law.
Fossil fuel companies should prepare for a huge shakeout in the industry, Parson warned.
“A few oil firms will probably survive by developing expertise in carbon removal and working on closed-cycle, zero-emissions pathways to sell fuels with lifecycle emissions fully offset by removals elsewhere. The rest will be gone,” Parson contended.
Speaking on the role of government, Parson said: “governments not only can but must enact policies that squeeze down fossil fuel production and use to limit climate change.”
Acknowledging that climate-safe technology is, and is likely to remain, more costly than conventional greenhouse-gas-emitting technology, Parson said, “private enterprises facing competitive and investor pressures mostly can’t make the required changes on their own. Governments have to do it.”
Oil and gas companies have difficulties in making long-term investment planning due to oil demand uncertainty, caused by the accelerating energy transition, according to Valentina Kretzschmar, director of corporate analysis at Wood Mackenzie.
All oil and gas companies have to prepare for the energy transition, she said.
Each oil and gas company will have to consider “shifting their portfolios to the lower end of the cost curve and working towards carbon neutrality,” to ensure their survival in a low-carbon future, she underlined.
“It is prudent to consider scenario analysis when allocating capital to long-term investments and test the resilience of their portfolios against more stringent carbon scenarios,” Kretzschmar said.–AA