Oil giants BP and Shell are among those at risk of wasting money on high-cost upstream projects which could be surplus to supply as carbon emission targets take hold, according to a new report.
The research, by Carbon Tracker, ranked oil and gas companies to identify where shareholders money could be exposed to the low-carbon transition.
Carbon Tracker’s research director James Leaton said: “The report finds companies are likely to perform better by aligning with a 2⁰C world because lower cost projects have higher margins.
“The oil price would need to average $100 a barrel over the long term for it to be profitable for companies to pursue projects that are not aligned with a 2⁰C world.
“Companies that have lower unneeded capex are seen as more aligned with the transition; companies with a greater percentage of unneeded capex warrant further attention from investors.”
The report analysed the upstream investment plans of 68 of the largest publicly traded oil companies up to 2025.
It found that $2.3 trillion of projects – about a third of business as usual investments to 2025 – are inconsistent with international objectives to limit climate change to a maximum of 2 degrees Celsius by 2100.
The report found that Shell had allocated 30% to 40% of spending to uneconomical projects.
BP had allocated slightly less, with 20% to 30% of investments at risk due to the energy transition.
ExxonMobil was found to be more exposed to the energy transition than any other oil and gas major with 40% to 50% of capex allocated to uneconomic projects.
The report is designed to give investors information to challenge companies on their investment strategy and approach to climate risk.
A Shell spokesperson said: “We believe our business strategy is resilient to the energy transition. We are convinced in the role for gas to help with the transition to a lower carbon world. With our Integrated Gas business, and our ability to unlock new markets, Shell is very well positioned to help governments secure a lower carbon, cleaner energy system.
“Shell has around 10.5 years of oil and gas reserves, part of about 25 years of resources in design, under construction or in operation. However, our assessment is that Shell’s reserves will not become stranded in the energy transition.”
BP declined to comment.
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