FT View from the Financial Times (London), May 27, 2016

The annual meetings of some of the world’s largest oil companies this week were like therapy sessions for an industry that is suffering from existential angst. The international objective of holding the increase in global temperatures to “well below” 2C, agreed at the Paris climate talks last year, implies the obsolescence of all fossil fuel production within the next few decades. The oil companies have not yet reconciled themselves to quite what this means.

If governments stick to that commitment, fossil fuel companies will either have to find ways to stop greenhouse gas emissions from their products, or shift into renewable energy, or go out of business. At the annual meetings of oil groups including ExxonMobil and Royal Dutch Shell, that prospect was argued over by executives and shareholders, without conclusive result.

In their public presentation, at least, the European groups including Shell and Total are more willing to face up to the threat of climate change than their US rivals. While accepting the conclusions of climate science, Exxon and Chevron stress the importance of energy security and affordability over reducing emissions.

Calls from investors for the US companies to assess how their operations would fare under policies for a 2 degrees temperature rise were opposed by their boards and rejected in shareholder votes, albeit with substantial minority support. The leading European oil companies have started publishing their views of how such constraints would bite, but they remain reluctant to explore in detail what that outlook would mean for their investment decisions and future profits.

Modelling published in the journal Nature last year suggested that to stay inside the 2 degree limit, about a third of the world’s oil reserves and half its gas reserves would have to remain unburned. That does not mean oil companies have to give up on all investment in future production. Different reserves have differing prospects, depending on production costs. Shale oil in the US, for example, probably has more growth potential than Canada’s oil sands.

Overall, though, the message is one that is always hard for investors and management teams to hear: room for growth is tightly constrained, and in the long term output will have to fall rather than rise.

One option for escaping those limits is for the big oil companies themselves to take part in the energy transition. Total, which has the most ambitious plans for diversification, has set a goal of having 20 per cent of its assets in low-carbon energy by 2035.

But decades of unsuccessful ventures into alternative energy — such as BP’s Beyond Petroleum initiative — suggest that is a long shot. Disruption in other industries, from computers to taxis, has generally been led by new entrants, not incumbents.

Rather than investing in potentially stranded oil and gas projects, or gambling on new technologies that they do not fully understand, the oil companies would do better to continue returning money to shareholders through dividends and share buybacks.

The commitments made by Chevron, BP and most other groups to maintaining their dividends during the downturn, even if they have to borrow to do so, is an encouraging acknowledgment of that reality, even if the companies do not put it in those terms.

Instead of railing against climate policies, or paying them lip-service while quietly defying them with investment decisions, the oil companies will serve their investors and society better if they accept the limits they face, and embrace a future of long-term decline.

[A related article states that Calpers raises heat on Exxon over climate: US state pension fund wants greater access to oil group’s board]

Source: https://next.ft.com/content/701c3e74-23fb-11e6-aa98-db1e01fabc0c

Exxon, Chevron Shareholders Narrowly Reject Climate-Change Stress Tests — Update

By Bradley Olson and Nicole Friedman, Morningstar, May 25, 2016

Shareholders at Exxon Mobil Corp. and Chevron Corp. narrowly voted down resolutions calling for stress tests to determine the risk that efforts to curb climate change pose to their businesses.

Despite the defeat, the proposals drew more support than any contested climate-related votes in the history of the two biggest U.S. oil and gas companies. Preliminary results showed 41% support from Chevron investors that cast ballots and 38% support at Exxon, an indication that more mainstream investors are starting to take more seriously the threat of a global weaning from fossil fuels.

The number of shareholders supporting the climate-risk measures “is significant, and it will continue to grow,” said Beth Richtman, investment manager at the California Public Employees’ Retirement System, which manages about $290 billion.

“There’s a groundswell of share owners who are going to keep pushing this forward,” she said. “We need to see them rise to the realm of best practices in terms of climate risk reporting, and we’re not there yet.”

While the shareholder votes are not binding, supporters of the measures declared victory even in defeat after the oil companies’ annual shareholder meetings Wednesday.

“You have to read this as a shot across the bow of the industry,” said Andrew Logan, director of the oil and gas program at Ceres, a Boston-based nonprofit group that advocated for the proposals.

Exxon and Chevron had fought to keep the measures off the ballot, a push that the U.S. Securities and Exchange Commission rebuffed.

Rex Tillerson, chief executive of Exxon, said Wednesday the company includes in its energy outlook a proxy cost on carbon.

“It’s really the only way we know to accommodate in our financial decision-making the impacts of future policies that are yet to be formulated,” he said, adding that most Exxon projects are either too short-term or too large to not be economical even when that cost of carbon is used for planning purposes.

Exxon has also noted it published a 2014 report on managing climate risks that said none of the company’s oil and gas holdings are threatened by a global push to reduce carbon emissions.

Chevron told investors the proposed climate measure was flawed because efforts to limit warming could allow some energy producers, such as those who sell natural gas, to benefit while others fall out of favor, including coal mining companies. Chevron is a large producer of natural gas and factors in a theoretical future price of carbon when deciding which projects to sanction, making a stress test unnecessary, the company said.

“We don’t think this proposal will advance our thinking,” Chevron Chief Executive John Watson said Wednesday.

Measures of this sort have been pushed in prior years by environmental groups and activist investors, but now more traditional shareholders are putting their muscle behind the proposals as concern spreads over the effect that policies to mitigate climate change could have on energy company financials.

Those who led the filing of the Exxon resolution were the Church Commissioners for England and the New York State Common Retirement Fund, along with others. The lead filers for the Chevron resolution were Hermes Equity Ownership Services and Wespath Investment Management, a division of the United Methodist Church.

Investors representing more than $10 trillion in assets pledged to support the climate proxy measures, which assert that Exxon, Chevron and other big oil companies should be transparent about how their drilling prospects would suffer if the world turned away from carbon-intensive fuels, including crude oil.

The New York State Common Retirement Fund, Norway’s sovereign-wealth fund, the Church of England, Calpers and others actively campaigned for the proposals.

In December, nearly 200 countries pledged in Paris to hold the rise in average global temperatures to less than 2 degrees Celsius above preindustrial levels. This is the yardstick many shareholder resolutions have used to urge the companies to take greater action and show how such a goal will affect their business units.

Supporters of that effort say more investors want to see how companies are preparing for climate change impacts. A stress-test measure at Occidental Petroleum Corp. received 49% of votes, and similar proposals passed overwhelmingly last year at two other big oil companies, BP PLC and Royal Dutch Shell PLC.

In a report on climate released this month, Total SA, the French energy company, said it has reduced activity in Canada’s oil sands region and is avoiding Arctic exploration over concerns that some fossil fuels will have to stay in the ground if the goals set forth in Paris are achieved.

ConocoPhillips and Statoil ASA have issued projections that global oil demand could fall significantly by 2040 if measures to reduce climate risk are put in place. By contrast, Exxon’s projection for global oil demand in that year is 28% higher than peers’ forecasts.

“There’s an awful lot of shareholder disquiet about how Exxon is approaching climate change,” said Edward Mason, head of responsible investment for the Church Commissioners for England, which manages the assets of the Church of England.

Also on Wednesday, the White House said it plans to propose a new rule that companies with federal contracts must disclose whether they share information about the risks that a changing climate could pose to their operations, as well as their goals to reduce greenhouse gas emissions.

That rule, expected to be completed this fall, would affect most federal contracts. The U.S. government is a major buyer of oil products, including jet fuel and diesel used by the military.

Also at the Exxon annual meeting, shareholders did approve one proposal, giving investors greater power to propose director candidates. None of eight proposed shareholder measures passed at Chevron’s meeting.

See also: http://www.FrackCheckWV.net

We Must Revolt Against the Unrelenting Propaganda of the Fossil Fuel Industry

By Lorraine Chow, EcoWatch.com, May 5, 2016

During an interview at the World Energy Innovation Forum (WEIF) at Tesla’s Fremont, California factory Wednesday, Elon Musk criticized fossil fuel subsidies as well as the alleged “propaganda” tactics deployed by Big Oil and Gas to tarnish his companies, including Tesla, SolarCity and SpaceX.

“The fundamental issue with fossil fuels is … every use of fossil fuels comes with a subsidy,” Musk said in his talk with forum organizer and DBL Partners venture capitalist Ira Ehrenpreis.

According to the Tesla CEO, cheap oil and gasoline prices not only prevent drivers from switching their gas-guzzlers to electric cars, it also deters the fight against climate change.

Musk explained that the well-funded fossil fuel industry isn’t even paying for their contribution to environmental destruction. “It would be like if you could just dump garbage in the street and not pay for garbage pickup,” he said.

Citing data from the International Monetary Fund (IMF), Musk lamented he’s “competing against something that has a $6 trillion per year subsidy,” and that the low gas prices that subsidies create are “weakening the economic-forcing function to sustainable transport and clean energy in general.”

Musk suggested that a carbon tax would help curb Dirty Energy’s emissions but passage of such a policy would be “hugely politically difficult” and that politicians usually pick the easier path of providing subsidies for electric cars, “even though gas cars are getting a bigger subsidy.”

Although the electric vehicle maker said he was “encouraged by the Paris talks,” he still thinks that the transition to clean energy and sustainable transportation isn’t happening quickly enough.

Musk gave an example of how the fossil fuel industry has been feeding negative stories to the press about his many companies.

As Electrek explained: The CEO implied that the LA Times article from last year that misleadingly asserted that Musk’s companies received $4.9 billion in subsidies originated from the fossil fuel industry.

Musk suggested that the report was planted to counter the IMF study that found that the fossil fuel industry was receiving the equivalent of ~$5 trillion in subsidy a year. Both reports came out around the same time.

“After the IMF came out with their study showing that fossil fuels are subsidized to the tune of $6 trillion a year [it’s was actually $5.3 trillion in 2015]–like $6 trillion per year,” Musk said. “Then some representatives from the oil and gas industry added up all the incentives that Tesla had received and will receive in the future, which happens to coincide with the $6 billion figure.”

“We need to appeal to the people–educate people to sort of revolt against this and to fight the propaganda of the fossil fuel industry which is unrelenting and enormous,” he concluded.

Earlier in his talk, Musk also predicted that autonomous cars are the future of transportation. “It’s going to become common for cars to be autonomous a lot faster than people think,” Musk said, adding that half of all new cars will have self-driving technology within seven to 10 years.

“It’ll just be something where it’s odd if it’s not in your car. Like not having GPS or something like that, but even bigger. It’ll just be normal,” he said.

The entire interview was captured by Electrek in a video.

Note: Will Elon Musk’s Tesla Model 3 Recharge the U.S. Electric Vehicle Market?

See also: http://www.FrackCheckWV.net