THE BIG PICTURE

A February cover story from The Economist hones in on the disconnect between climate imperatives and oil majors’ plans to continue investing in more oil and gas extraction.

“[ExxonMobil] plans to pump 25% more oil and gas in 2025 than in 2017. If the rest of the industry pursues even modest growth, the consequence for the climate could be disastrous,” the article warns, concluding that, “[T]he market cannot solve climate change by itself. Muscular government action is needed.”

Where The Economist misses the mark, however, is in defining “muscular government action” (i.e., it will take a lot more than incremental carbon taxes). The cutting edge of climate policy lies in active government intervention to manage the decline of fossil fuels and ramp up renewable energy.

Steps in this direction are gaining momentum. Youth plaintiffs suing the U.S. government recently requested a court injunction to halt new fossil fuel leases on federal land. As envisioned, the Green New Deal would mobilize mass government resources to invest in a just transition away from fossil fuels. As covered previously in OilWire, countries like New Zealand and Costa Rica have already taken steps to phase out or ban new oil and gas exploration.

Read on for more February updates, and forward the OilWire subscription link to anyone you think would be interested.

–The OilWire Team

P.S. Previous OilWire editions are available here.

THE DATA


Both wind and solar beat the most common type of gas plant, combined cycle gas turbine, on price, as shown in the chart below based on Lazard’s latest levelized cost of energy (LCOE) analysis. The continuing drop in costs for utility-scale wind and solar is a key factor behind the “vanishing need” for new gas infrastructure projects in the United States and around the world.

November 2018 data from Bloomberg New Energy Finance similarly found that wind and solar, rather than gas, are the technologies that are most able to challenge coal in providing new bulk electricity in major emerging economies, including China and India.

Gas Loses to Wind & Solar:

Selected Historical Mean Unsubsidized Levelized Cost of Energy Values

Levelized energy cost comparison

Source: Lazard Levelized Cost of Energy Analysis Version 12.0, November 2018

WHAT WE’RE TRACKING


Trends in the Right Direction

Irish court quashes offshore oil exploration permit, puts LNG terminal on hold
Irish environmental non-profit An Taisce reached a court settlement last month quashing an oil exploration permit issued last October by Ireland’s Department for Climate Action. The group argued that the agency’s environmental impact assessment had failed to comply with European standards. In a separate case brought by Friends of the Irish Environment (FiE), the Irish High Court this month paused planning for the EUR 500 million Shannon liquefied natural gas (LNG) terminal. FiE argued that the Irish planning board had failed to consider its obligations under Ireland’s Climate Act of 2015 in extending planning permission for the project. The court deferred the case to the European Court of Justice, putting the project’s future in further doubt.

Youth plaintiffs seek injunction to halt U.S. fossil fuel approvals
Youth plaintiffs suing the U.S. federal government over climate change (Juliana v. United States) filed a motion in early February seeking a preliminary court injunction against new federal leases, permits, and approvals for fossil fuel projects. Specifically, the filing asks the court to halt new coal mining on federal lands, offshore oil and gas development, and fossil fuel infrastructure, including pipelines and export terminals. Expert testimony submitted with the motion estimates that the injunction would, at minimum, apply to 100 new fossil fuel infrastructure projects. View the motion and expert declarations (including from Joseph Stiglitz and Peter Erickson on the economic and climate imperatives, respectively).

Canadian Supreme Court: ‘Bankruptcy is not a license to ignore rules’
As oil firms in Canada face market pressure from limited export capacity and falling prices, bankruptcies are on the rise. At the end of January, Canada’s Supreme Court ruled that oil and gas companies cannot use bankruptcy to avoid liabilities over the cleanup of abandoned extraction operations, reversing a lower court decision. “Bankruptcy is not a licence to ignore rules,” wrote the Court’s majority. According to the National Observer, the ruling “has sweeping implications across the country.” An internal analysis by Alberta’s energy regulator estimated that liabilities from existing oil and gas facilities, including pipelines, could be as high as CAD 260 billion.

Insights

How should the U.S. align fossil fuel production with climate limits?
A new working paper from researchers at the Stockholm Environment Institute puts forward a framework to inform a rapid and equitable phase-out of U.S. fossil fuel extraction, noting that the United States should be leading in this direction. The paper considers three principles that U.S. federal and state policymakers could apply to tackle this imperative in line with science and informed by economics, equity, and other social dimensions: (1) reduce fossil fuel production at a pace consistent with climate protection; (2) accelerate the phase-out in economies that are the most resilient; and (3) safeguard human rights, cultural resources, and the local environment.

New report exposes fossil fuel interests behind geoengineering
A new report from the Center for International Environmental Law and Heinrich Boell Foundation documents how geoengineering could undermine climate goals while locking in fossil fuel infrastructure for decades to come – contrary to a growing belief in its necessity. The report, Fuel to the Fire, details the fossil fuel industry’s long history and continued role in promoting key geoengineering concepts and technologies. It exposes how these technologies serve to protect the industry and promote new emissions from fossil fuels.

A Green New Deal must cut fossil fuel supply and demand
Shaye Wolf, climate science director at the Center for Biological Diversity, looks at the urgent need for U.S. climate policy to tackle fossil fuel extraction and supply – and avoid repeating the “fatal flaw” of the last three decades. She underlines that will require confronting the political power of the fossil fuel industry.

Campaign News

Shell warned over deadline to avoid climate lawsuit
Milieudefensie (Friends of the Earth Netherlands) and a coalition of Dutch environmental groups recently reaffirmed their intention to take Shell to court if the company continues to undermine the Paris Agreement goals. Shell faces a deadline of April 5 to commit to shift away from its fossil fuel business model – or be served a lawsuit. Unlike other climate cases seeking financial damages for the climate harm caused by Shell and other oil majors, the groups are seeking to force Shell to shift its business actions and begin winding down oil and gas extraction. Learn more about the case.

U.S. county moves to ban new fossil fuel infrastructure
The “thin green line” against fossil fuel expansion in the U.S. Pacific Northwest grew stronger in late January, as the King County Council in Washington State passed a six-month moratorium on new fossil fuel infrastructure. The measure kicks off a regulatory review process aimed at permanently banning major new fossil fuel infrastructure. The measure could ultimately help slow or stop new fossil gas pipelines, oil train traffic, and refinery expansions in the region.

EIB challenged over faulty climate review behind major pipeline loans
Bankwatch, Counter Balance, Friends of the Earth Europe, and Re:Common filed a formal complaint with the European Investment Bank (EIB) this month to challenge the inadequate climate review underpinning the bank’s decision to finance two fossil gas pipelines: the Trans Adriatic Pipeline (TAP) and Trans Anatolian Natural Gas Pipeline (TANAP). The pipelines are key links in the Southern Gas Corridor mega-project. EIB’s EUR 1.5 billion loan for the TAP project was the bank’s largest ever for an energy project. The groups’ complaint details EIB’s substantial underestimation of the climate pollution impact of the pipelines. As EIB undergoes a review of its energy lending criteria in 2019, climate advocates are calling on the bank to cease financing fossil fuel projects.

More Headlines

Head of Norway’s Central Bank says country must plan for end of oil
In a speech to government and business leaders last week, the governor of Norway’s central bank, Oeystein Olsen, warned of the “need to develop other legs to stand on” economically in anticipation of climate policies driving down demand for fossil fuels. “We have always known that oil and gas activities will be phased out sooner or later. Oil and gas are non-renewable resources. A stricter global climate policy may mean that this will occur sooner than foreseen earlier,” said Olsen.

Canadian oil subsidies, Trans Mountain price tag under renewed scrutiny
Despite its pledge to phase out fossil fuel subsidies by 2025, Canada still has yet to quantify how much its government spends subsidizing the oil and gas industry, the National Observer reports, throwing into question the seriousness of its commitment. Other reports indicate subsidies are growing. The Trudeau government may have overpaid by CAD 1 billion to purchase the troubled Trans Mountain pipeline project last year. A pending pipeline toll proposal, if approved by the National Energy Board, would amount to a CAD 2 billion taxpayer-funded subsidy to oil companies purchasing capacity on the Trans Mountain project. In the province of Alberta, subsidies to the oil and gas industry are rapidly rising and exceeded CAD 2 billion in fiscal year 2018, according to a report released today by Environmental Defence and the International Institute for Sustainable Development.

World Bank weighs finance for Exxon-driven oil development in Guyana
Political backlash to the terms of oil contracts granted to Exxon and other majors played a role in a recent no-confidence vote in Guyana’s governing coalition, which triggers a new election. As previously covered in OilWire, Guyanese lawyers are also challenging oil licenses in court, alleging that they were granted illegally without proper environmental review. Yet, the World Bank is now considering financing support for oil development in Guyana, just before the bank’s commitment to cease support for oil and gas extraction goes into effect at the end of 2019. The proposed project will be considered by the World Bank Executive Board on March 28, 2019. The current contract documents do not mention climate change. Nor do they clarify how the World Bank will ensure its involvement supports sustainable development goals rather than oil companies.

Permian production outpaces most OPEC countries
The New York Times provides the latest in-depth look at the “drilling frenzy” in the U.S. Permian basin, spanning the states of Texas and New Mexico, but omits the climate implications. Oil companies increased production by a million barrels a day in 2018, and the Permian now produces more oil than every OPEC country except Saudi Arabia and Iraq. More than a dozen pipelines are in various stages of development and could enable exports to increase fourfold by the early 2020s.

The recent Oil Change International report Drilling Towards Disaster looked at the climate consequences of this U.S. drilling spree, finding that the ongoing drilling expansion in the Permian could unleash more than 50 billion tons of carbon pollution through 2050, close to 10 percent of the world’s carbon budget for staying within 1.5 degrees Celsius of warming.

Industry News

Total touts ‘significant discovery’ in deep waters off South Africa
Total announced this month that it has made a “significant” gas condensate discovery from exploratory drilling in the Brulpadda area of the Outeniqua Basin, difficult deepwater terrain off the coast of South Africa. According to Bloomberg, South Africa’s largest offshore find to date “may prompt a rush of activity offshore by competitors.” South Africa’s parliament is expected to consider legislation to spur exploration this year. Experts and advocates are raising concerns about the potential climate impact of new oil development and the degree to which it would benefit oil majors or South Africans.

Despite lower prices, oil majors boast strong end of 2018 profits
Despite a swing downward in oil prices, the world’s largest oil companies posted some of their strongest quarterly profits of the past four years at the end of 2018, providing another reminder that markets alone will not drive the transition off of oil. For Exxon and Chevron, results were driven by Permian output. The Wall Street Journal reports that, “Exxon, Chevron, Shell, BP, and Total are on track to post combined annual profits of about $84 billion, 13% higher than four years ago, when oil sold for more than $100 a barrel.”

But is fracking still a losing financial game?
Recent analysis from Sightline Institute and the Institute for Energy Economics and Financial Analysis (IEEFA) looks at the “fracking depreciation dodge.” The analysis unpacks how fracking companies use a “variety of accounting tricks to distract investors from the fundamental weakness of their business models.”

RESOURCES


Doubling Down with Taxpayer Dollars: Fossil fuel subsidies from the Alberta government
A new report from Environmental Defence and the International Institute for Sustainable Development reveals that subsidies to Alberta’s oil and gas industry are rapidly rising, despite Canada’s commitment to eliminate inefficient fossil fuel subsidies by 2025.

IEEFA: Financial case builds for fossil fuel divestment
A new briefing note from IEEFA examines the growing financial weakness of the fossil fuel sector. In 2018, the oil and gas sector had the lowest stake in the S&P 500 in more than 40 years, occupying just 5.3 percent compared to 29 percent in 1980.

Global Witness: Susan Combs, oil money, and the dismantling of a U.S. agency
This new briefing exposes the conflicts of interest at the heart of efforts to reorganize the primary U.S. agency that regulates oil and gas drilling on federal land. The research shows that, “Some of the same companies that think they will benefit from the changes have paid large sums in rent or royalties to the reorganization’s main architect, Susan Combs.”

Q&A for Investors: The IEA and the Paris goals
Oil Change International and Greenpeace UK released a new resource for investors this month. It reviews why International Energy Agency (IEA) scenarios, including the Sustainable Development Scenario, do not yet provide a useful guide for assessing the alignment of energy investments with the Paris Agreement goals.

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