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Responding to Shell - An Analytical Perspective.
The Carbon Tracker Initiative (CTI) and Energy Transition Advisors (ETA) have today produced a thorough response to Shell’s stranded assets statement published on May 16th. The think tanks’ reply is based on a detailed technical analysis of Shell’s argument. Overall, we welcome the engagement with these issues, but Shell’s approach is based on dismissing potentially weaker demand for its oil due to tougher climate policies, technological advances and slower economic growth. It also selectively applies different timelines to fit its business strategy.
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Carbon Supply Cost Curves (May 8th).
Evaluating financial risk to oil capital expenditures.
This analysis assists investors to continue their engagement with companies over carbon asset risk. It introduces the concept of a carbon supply cost curve to global oil projects – highlighting that many make neither financial or carbon sense when stress-tested against demand, price and emissions scenarios.
We intend to follow up this oil sector overview with more detailed company-specific information, moving on to analyse global coal assets and then gas.
CTI China Report (5th June launch)
The Great Coal Cap: China’s energy policies and the financial implications for thermal coal.
This report from Carbon Tracker and ASrIA (the Association for Sustainable and Responsible Investment in Asia) evaluates the environmental and economic regulatory drivers serving to slow China’s coal demand growth to a potential peak.
The report goes on to reveal that this lower-than-expected Chinese coal demand could create significant stranded assets and wasted capital both for those within China’s coal sector and international coal exporters.
Carbon Supply Cost Curves – Evaluating Financial Risk to Oil Capital Expenditures
Given that over the next decade private-sector oil companies will invest $1.1 trillion in new upstream capex, controlling carbon asset risk ought to be a priority for stewards of capital. With falling returns and rising capital intensity (capex/barrel of production capacity), investors should scrutinize company investment plans more thoroughly than they have in the past. For more information see Energy Transition Advisors
Oil Demand: Comparing Projections and Examining Risks
To complement our recent report on carbon asset risk in the oil industry (Carbon Supply Cost Curves – Evaluating Financial Risk to Oil Capital Expenditures), this note compares projections of future oil demand under “business-as-usual” and carbon-constrained scenarios from a variety of sources.
This report recommends, to manage carbon asset risk in their portfolios, investors should engage with oil companies to advocate for incorporating such risks into their long-term demand projections and business planning.
From Capex Growth to Capital Discipline? - Cost, Risk, and Return Trends in the Upstream Oil Industry
To complement our recent report on carbon asset risk in the oil industry (Carbon Supply Cost Curves – Evaluating Financial Risk to Oil Capital Expenditures), this note examines recent trends in the upstream oil industry related to project costs, financial returns, and technical/geopolitical risks.
As the transition to a low-carbon world is likely to bring increasing structural pressure on future oil demand and prices, cost-control and capital discipline will be essential strategies for oil companies to protect shareholders from carbon asset risk. The analysis in this note is intended to further the dialogue between investors and industry on that topic.
Carbon Tracker Launch Event 8th May 2014, London - New Report on OIl
Carbon Tracker Initiative is publishing a new report, Carbon Supply Cost Curves: Evaluating financial risk to oil capital expenditures, realised in partnership with ETA – Energy Transition Advisors, led by Mark Fulton, ex head of research at Deutsche Bank.
Carbon Cost Curves: Evaluating risk to oil projects
Investors now need more market insight in order to understand how to manage the carbon asset risk. The first report of the new research series is focused on oil.
“The carbon cost curves report enhances the ability of investors to hedge against risks and capture rewards in a carbon constrained world. Governments have agreed to limit global temperature rise to less than 2 degrees Celsius. Governments have also agreed to put in place the pathways to deliver this with a new and universal agreement in Paris towards the end of 2015. In order to reach this goal, large amounts of coal and oil will have to stay in the ground, unburnt. Carbon Tracker’s new Curves report indicates where in respect to the oil industry some of those stranded assets and some of those red lines will lie.”
Executive Secretary, United Nations Framework Convention on Climate Change (UNFCCC)
“As a pension provider and long term investor, understanding climate risks and opportunities is a prerequisite for securing long term returns. Providing standardized data across peers, this report improves our ability to understand risk exposure of potential investment targets, as well as adding to our evidence that sustainability research is highly relevant to financial performance today and perhaps even more so in the future.”
Christine Tørklep Meisingset
Portfolio Manager and Head of ESG Research, Storebrand
“Many investors are concerned about the growing amount of capital that the oil companies have thrown at low return, carbon heavy projects. The majors’ strategies need to be challenged. As this report shows, returns are falling and costs are rising. To reverse this, a greater focus is needed on higher return, lower cost assets. If this means lower capital investment and higher dividends or buybacks, so much the better. This analysis is important as it provides the data investors need to challenge proposed investments on the basis of returns as well as carbon content.”
ex-Global Co-Head of Oil And Gas, HSBC
“CTI’s research has created a new debate around climate change and investment. Numbers are the bedrock of financial markets and it is the numbers that allow you to move from the general to the specific in the investment world. This analysis is another critical tool from CTI to help financial experts identify carbon investment risk in the capital markets today.”
CEO, Carbon Tracker Initiative