The global oil and gas industry has crashed. In mid-June, BP – formerly British Petroleum – slashed the value of its assets by US$17.5bn and revealed plans to cut its workforce by 15%. It forecast the price of oil would be a third lower than expected for decades to come and said it may be forced to leave new fossil fuel discoveries in the ground.
It was later joined by Royal Dutch Shell, which announced its own US$22bn writedown, with its vast gas business – including major liquefied natural gas (LNG) developments in Australia – expected to take the heaviest toll.
Wood Mackenzie, a global energy research and consultancy group, says the fall in value is industry-wide, estimating US$1.6tn has been wiped from the sector this year, with more to come.
While oil and gas are not alone in struggling in the face of biggest economic slump in nearly a century, WoodMac says its carnage cannot solely be blamed on Covid-19. The economic reality of the climate crisis is also starting to bite.
“It’s about fundamental change hitting the entire oil and gas sector,” WoodMac’s vice-president for corporate analysis, Luke Parker, said.
“Just a few years ago, few within the oil and gas industry would even countenance ideas of climate risk, peak demand, stranded assets, liquidation business models and so on. Today, companies are building strategies around these ideas.”
If that reflects the global picture, the story among Australia’s oil and gas businesses – which until recently have been enjoying booming growth selling LNG to Asia, and driving most of the increase in national greenhouse gas emissions – is less clear.
The idea of stranded assets due to climate change is not new. It suggests carbon-intensive projects potentially worth trillions risk becoming next-to worthless – stranded – if investors abandon them in favour of emissions-free technology, as required to meet the goals of the Paris climate agreement.
In Australia, the risk is recognised by the country’s major financial institutions and regulators, and has increasingly become a focus of shareholders. Earlier this year they gave resolutions calling for climate action and transparency at oil and gas companies Woodside Energy and Santos more than 50% and more than 40% support, respectively. Activist shareholders are not persuaded by suggestions support for gas is justified as it emits less than coal when burned, and point to studies suggesting it may release more emissions than previously thought.
On coal, where the concept of climate risk is increasingly accepted, Australia’s second-largest superannuation fund, First State Super, last week announced it would divest from any company that earns more than 10% of revenue from thermal coal mining. It followed an earlier, similar statement by Hesta, and three of Australia’s four major banks promising to soon stop supporting thermal coal.
But the possibility of major assets being stranded is only occasionally acknowledged across politics, media and the industry. The federal resources minister, Keith Pitt,…