Climate and ESG narrative choking the life out of the oil and gas industry
A report by Morningstar
Market action suggests the end of the global oil and gas industry is in sight. No longer should discounted cash flow forecasts exist in perpetuity. Under the weight of climate change and the ESG (environment, social and governance) narrative, investors are shunning the sector with the increasing belief that oil and gas will not have a future beyond 2040. Is that a realistic conclusion or could there be an opportunity?
Recently, the District Court of The Hague ruled Royal Dutch Shell should cut its greenhouse (CO2) gas emissions by 45% by 2030 against 2019 levels. The ruling means Shell is liable for its contributions to climate change after finding its fossil-fuel operations violated basic guaranteed human rights. The climate-change industry is a mega-billion-dollar industry, and more cases are certain to follow.
The judgement reads, “The court acknowledges that Royal Dutch Shell cannot solve this global problem on its own, however, this does not absolve RDS of its individual partial responsibility to do its part regarding the emissions of the Shell group, which it can control and influence.” It adds, “RDS does bear an individual responsibility, which it can and must effectuate through its corporate policy for the Shell group.”
The ruling followed on the heels of a report Net Zero by 2050: A Roadmap for the Global Energy Sector from the International Energy Agency (IEA) which espouses over 400 milestones to guide the global journey to net-zero by 2050. They include the immediate cessation of investment in new fossil-fuel supply projects and no further final investment decisions for new unabated coal plants; no sales of internal combustion engine passenger cars by 2035; and the global electricity sector reaching net-zero emissions by 2040.
With passenger cars having at least a 10-year life, petrol and diesel will still be required as we approach 2050. How much is the question, as to the quantum of electricity required to energise the global electric vehicle fleet as well as industry and households. It is a massive job for more unreliable, non-baseload renewables, but not an insurmountable one.
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