Page 5 - EurOil Week 24 2021

EurOil COMMENTARY EurOil

Activists hug in Dutch
court after the judge
delivered the verdict.

$8-9bn on integrated gas, chemicals and prod- (GHG) emissions, relating to the use of a com-
ucts. Its upstream business will receive only pany’s products, as a “fundamental, long-term
$8bn annually, marking an historical low for the threat” to ExxonMobil’s business model.
company. Meanwhile, Chevron shareholders
Shell will likely respond to the ruling with voted almost 61% in favour of a proposed
further divestments. Reuters reported on June 14 to force the supermajor to cut its Scope 3
that the firm was considering the sale of its assets emissions. The proposal does not define a
in the Permian shale basin. The portfolio yielded precise timeline for reducing the emissions,
193,000 barrels of oil equivalent per day in 2020, however, nor does it impose any particular
or 6% of Shell’s total, versus 250,000 boepd in the measures that Chevron must implement to
previous year. Citing sources, Reuters said the reach this goal.
deal could be worth as much as $10bn. Nevertheless, the shift in focus towards Scope
3 emissions is significant. Oil companies can
A trend address their Scope 1 and 2 emissions without
The ruling comes after the International Energy making radical changes to their business model,
Agency (IEA) concluded in a recent report that through solutions such as electrification, leak
investment in new oil and gas production should repairs and zero flaring. But tackling Scope 3
stop immediately, in order for the world to reach emissions means they will have to downsize their
net-zero emissions by 2050. That conclusion oil and gas operations significantly or invest in
that has been roundly dismissed by the oil and substantial carbon capture and storage (CCS)
gas industry and hydrocarbon-producing coun- and hydrogen production capacity. Neither of
tries as impractical and a risk to global energy these technologies have been proved to be eco-
security. nomically feasible yet.
However, the Shell ruling sets a precedent Faced with these uncertainties, the expecta-
that could trigger legal action against energy tion is that many IOCs will simply divest large
companies across the world. The majors may swathes of their oil and gas operations and invest
find themselves having to adopt more stringent more in renewables and lower-carbon technolo-
targets on emissions as a result, and this could gies. This will create a significant opportunity for
force them to axe more oil and gas investment national oil companies (NOCs), less beholden
plans. to climate-conscious international investors, to
International oil companies (IOCs) also face expand, especially if oil demand is more robust
increasing pressure from their own investors. US over coming decades than the IEA and others
majors Chevron and ExxonMobil, whose transi- project.
tion strategies are less radical than many of their The IEA itself acknowledges that NOCs will
European counterparts, both suffered defeats at grow their market share significantly as a result
the hands of their shareholders in climate votes of the energy transition, especially those with the
last month. lowest costs like Saudi Arabia and Russia. The
In ExxonMobil’s case, a relatively small Paris-based-agency, set up at the time of the oil
activist investor hedge fund called Engine No.1 supply shocks caused by OPEC in the 1970s, has
succeeded in having at least two of its nominees forecast that the oil producers’ cartel will account
elected to the company’s board. Engine No.1 for at least half of the world’s oil production in
is campaigning to “re-energise” ExxonMobil, 2050. A similar trend is likely to play out in gas
which it says is geared towards enhancing its markets, with the likes of Qatar and other low-
long-term profitability in a decarbonising world. cost producers consolidating their already dom-
The fund has identified Scope 3 greenhouse gas inant positions. ™

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