Exxon "Most Exposed" Major Oil Company Under Paris Goal

ExxonMobil expressed support for the Paris Agreement, but a new report from the respected Carbon Tracker think tank suggests that the company's business model is inconsistent with the Paris goal of limiting global warming to less than 2 degrees Centigrade above pre-industrial levels. The report covers 69 of the largest publicly traded oil companies plus Saudi Aramco, Saudi Arabia's national oil company, under the 2⁰C scenario. It finds that ExxonMobil is exposed to high risks from unneeded future projects -- and its risks are higher than any other major company.

The disconnect between ExxonMobil's public posture on the Paris Agreement and its future plans is even more pronounced considering the company's new role as a founding member of the the Climate Leadership Council. That group formed in February as a platform for lobbying in favor of a U.S. carbon tax.

Carbon Tracker sees clouds in ExxonMobil's future

The new Carbon Tracker report is titled 2 Degrees of Separation. It was produced in collaboration with the investment organization PRI and institutional investors.

The goal is to provide critical information to pension funds and other investors with broad fiduciary duties as the global economy transitions to a low carbon model:

Investors are through an unprecedented commitment taking steps to reduce the risk of stranded assets within the oil and gas industry. Lack of transparency at company level has, however, been a bottleneck to understanding how companies are responding to the considerable changes in the energy market...

Companies that fail to change their plans are facing a scenario in which their projects cannot compete with low carbon energy.

High cost oil and gas projects -- including oil sands, deepwater operations, U.S. and European gas, and liquified natural gas are the most likely doomed to unprofitability.

According to Carbon Tracker, ExxonMobil has allocated 40-50 percent capex (capital expenditures) to these and other "uneconomic" projects, based on "clear signs" that peak oil demand will occur some time early in the next decade.

In comparison, Shell,Chevron, Total and Eni all came in at the average of 30-40 percent exposure. BP performed slightly better than average at  20-30 percent.

Although these companies do come out looking a little more prepared than ExxonMobil for the transition to a low carbon economy, Carbon Tracker has a warning for all of them:

...companies need to start taking project options that would come onstream then off the table, and be transparent about how they are aligning with a low carbon future. Sticking with the growth-at-all-costs scenario just doesn’t add up for shareholder value when the policy and technology momentum is heading in the opposite direction.

Although the spotlight tends to focus on ExxonMobil and the larger companies, many small companies also face high risks. Carbon Tracker puts the exposure at up to 70 percent for 10 companies of various sizes.

The bottom line, according to Carbon Tracker, is that companies can't continue to pin their hopes on rising oil prices:

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.

An opportunity for ExxonMobil to shift gears...

Carbon Tracker notes that as a group, energy companies are under increasing pressure from shareholders to disclose their climate change plans.

That kind of pressure is a familiar environment for ExxonMobil, which has been under withering criticism for years partly due to its role in funding climate change denial.

The company has also been under investigation by the Securities and Exchange Commission for allegedly failing to account for climate policy impacts and falling oil prices in financial projections.

Just last month several major ExxonMobil shareholders scored an important victory, leading a successful drive to approve a shareholder resolution in favor of requiring ExxonMobil to issue annual reports on its future plans under the 2⁰C scenario.

The vote provides ExxonMobil with an opportunity to start moving in a more transparent direction.

However, days after the May 30 vote Bloomberg reported that New York State Attorney General Eric Schneiderman accused the company in court of continuing to perpetuate climate fraud, with new evidence indicating that the company may have been keeping two sets of books:

"That evidence suggests not only that Exxon’s public statements about its risk management practices were false and misleading, but also that Exxon may still be in the midst of perpetrating an ongoing fraudulent scheme on investors and the public," Schneiderman said.

If Schneiderman's allegations bear out, the new shareholder resolution puts ExxonMobil in an extremely difficult position and undercuts the company's public support for a carbon tax.

...but it's complicated

Another complication for ExxonMobil is its role as a global company with a long history of business ties in Russia, a relationship that gains another layer of complexity now that former ExxonMobil CEO Rex Tillerson is U.S. Secretary of State in the Trump Administration.

With that in mind, Carbon Tracker teases out one interesting detail about ExxonMobil's exposure to uneconomic assets:

Exxon, Total, Eni and Shell are all involved in the single biggest uneconomic asset, the $33.5 billion Kashagan Phase 2 in Kazakhstan which will need [oil] prices of at least $110 a barrel to break even.

Phase I of the offshore Caspian Sea project went online in 2016, after years of delays and cost overruns. That was partly due to the construction of artificial islands to accommodate unconventional drilling operations in the harsh environment.

The field has been developed with an eye to exporting production through existing rail and pipeline routes.

One of those pipelines is Russia's massive Transneft system, which already carries product from other Kazakh oil fields. Product from Kashagan Phase 1 began flowing into the system last fall.

That interdependency makes it difficult to foresee a scenario under which ExxonMobil would willingly abandon Kashagan Phase 2.

Further complicating matters, while OPEC and other oil companies struggle to boost prices by curtailing production, Kazakhstan is apparently sticking with its long term plans to ramp up production through the Kashagan field.

Even if ExxonMobil does change course on climate change -- and shows its commitment through action, not just words -- its progress will be like turning around the proverbial ocean liner: slowly, and perhaps not in time to avoid damage.

Image (screenshot): via Carbon Tracker.