Anthony Hobley CEO The Carbon Tracker Initiative The World Bank: The Carbon Bubble - Unburnable Fossil Fuels 3 rd March 2014 1
CARBON T ON TRACKER I INITIATIVE VE Our Mission Our Partners Financial experts making carbon investment risk visible in the capital markets today Our Team • Anthony Hobley (Chief Executive Officer) • Mark Campanale (Founder and Executive Director) • Jon Grayson (Chief Operating Officer) • James Leaton (Research Director) • Luke Sussams (Senior Researcher) • Reid Capalino (Senior Researcher) • John Wunderlin (Staff Attorney & USA) • Jeremy Leggett (Chair, Board of Directors) • Alice Chapple (Director) • Cary Krosinsky (Director)
CARB RBON T TRA RACKER I R INITIATIVE: E: DO THE HE MATH “ …an easy and powerful bit of arithmetical analysis first published by financial analysts in the U.K. has been making the rounds… (it) up-ends most of the conventional political thinking about climate change. And it allows us to understand our precarious position with…. simple numbers ” . Bill McKibben
LOR ORD ST STERN ON U ON UNB NBURNAB ABLE C CAR ARBON ON 2 2013 Unburnable Carbon: Wasted Capital & Stranded Assets , Carbon Tracker, April 2013 ‘This report shows very clearly the gross inconsistency between current valuations of fossil fuel assets and the path governments have committed to take in order to manage the huge risks of climate change’ Professor Lord Stern of Brentford, Chair, Grantham Research Institute on Climate Change and the Environment, London School of Economics ‘ Wasted capital and stranded assets’, made the front page of the Guardian, whilst being featured by most major press titles both in the UK and the US, including The Economist, Financial Times, Telegraph, Forbes, New York Times and Wall Street Journal . 4
WHAT D DOE OES T THIS AN ANALYSIS M MEAN? • Markets are based on a 6 degree trajectory • Investors are tied into the markets • The markets are not responding to climate policy • The financial world faces a systemic risk • Because financial markets have no “visibility” on the three possible outcomes • If we are clear on the scenarios there is an opportunity to address both financial & climate risk using financial transparency
Only ly P Possible le O Outcomes: T : The 3 e 3 Scen cenario ios The three possible outcomes: 1.The Goldilocks Scenario; Policy & regulatory signal in time to allow orderly transition & managed deflation of the carbon bubble 2.The Nightmare Scenario; Global community fails to send policy & regulatory signal, catastrophic warming of 3 to 6 degrees; 3.The Last Minute Scenario; Action delayed until events drive political shift, resulting action swift & severe – carbon bubble bursts resulting in massive financial shock.
2C BU 2C BUDGET: BR : BROKEN I IN J JUST A A FEW EW D DECADES? 80% probability limiting to 2C; IPCC estimate 2031 2045
CARBON BUDGET DE DEFI FICIT F FOR L LISTED C COM OMPANIES. Listed reserves are a Potential listed quarter of all known fossil reserves fuel reserves Current listed reserves Current listed reserves (762GtCO 2 ) far exceed a quarter of the total carbon budgets but could double (1541GtCO 2 ) If we break the 2 ° C budget we very quickly hit 2.5 ° C and 3 ° C 8
CURRE RENT R RESERVES O ON N STOCK CK E EXCHANG NGES MOSCOW GLOBAL KEY: LONDON ● TOTAL TOTAL: 113GtCO 2 144GtCO 2 ● COAL 273GtCO 2 762GtCO 2 ● OIL 388GtCO 2 ● GAS 101GtCO 2 TOKYO TORONTO SHANGHAI PARIS NEW YORK INDIA 215GtCO 2 SAO HONG KONG AUSTRALIA JO’BURG PAULO 9
POTENTIAL R L RESERVES W WITH ONGO NGOING C CAPEX MOSCOW LONDON GLOBAL 266GtCO 2 KEY: 286GtCO 2 TOTAL: ● TOTAL 1541GtCO 2 ● COAL 640GtCO 2 ● OIL 715GtCO 2 ● GAS TOKYO 186GtCO 2 TORONTO SHANGHAI PARIS INDIA NEW YORK 366GtCO 2 HONG KONG SAO JO’BURG PAULO AUSTRALIA 10
REBALA LANCING I IS NEEDED ED BE BETWEEN EEN FLOWS: T The he Ca Cape pex H Hung ungry Beas east 11
COAL L VERSUS OI OIL L VERSUS G GAS WHA HAT I IS AT MOST R T RISK O K OF STRANDI DING A AND D WHA HAT DO DOES S THI HIS MEAN F FOR FOSSI SIL F FUEL ASSET V VALUATIONS?
COAL L VS OI OIL L VS GAS GAS OIL COAL • Impact on price? Gas Oil Coal 1.5% 1.0% 0.5% 0.0% • Coal most exposed -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% -3.5% CAGR% 2010-2020 2010-2020 2020-2030 2020-30 “ Only 20% of global coal reserves can be developed by 2050 without CCS in the 450 scenario ” (IEA Redrawing the Energy Climate map 2013)
UNCONVENTIONALS S TO FALL O OFF T THE HE C COST ST C CURVE 100 Marginal LNG, Heavy Oil 90 Carmon Creek Joslyn Kashagan Ph 1 US unconventional Terre de Grace gas and LNG 80 Fort Hills Surmont Ph 2 projects Block 61 Oman RDS Unc Gas Bressay Usan Sunrise Ph 1 STL Marcellus Shtokman Ph 1 70 KKD Mariner Reganne Bolia-Chota GLNG Tengiz Exp Abadi FLNG FCCL Tanzania LNG QCLNG Carabobo Breakeven, $/bbl Mozambique LNG Kearl BG Haynesville OXY Bakken Ichthys LNG 60 BG Marcellus PSVM Yamal LNG Jack-St Malo HESS Eagle Ford Bonga N/NW/SW Sunrise FLNG Low-cost conventional Pazflor AOSP Debottle Shah Deniz Ph 2 Prelude FLNG Wheatstone Hebron STL Bakken Goliat giants: Brazil, Norway, COP Eagle Ford Ghana Gas Egina Gorgon LNG CLOV Bl. 15/06 West 50 Kaskida Laggan/Tormore North Alexandria Hub Iraq, Guyanas Tiber SkrugardVito Bl. 15/06 East Appamattox Clair Ph 2 India KG-D6 Clochas/Mavacola Shah Gas PNG LNG Sandridge JV Yamal Gas Big Foot 40 Hadrian Chuandongbei Uganda Bl. 1,2,3 Roncador Schiehallion Ph 2 Mars B West Qurna 2 Moho Nord GoM Tiebacks Peru Block 39 Perla Margarita-Huacaya Uvat Expansion Tempa Rossa Kinteroni Cepu Exp 30 Deepwater GoM Peregrino S/SW Guara Val D'Agri Ph 2 Aldous/Avaldsnes Gbaran Ubie Ph2 Lula Carioca Franco & W.Africa Iara Whales Park Zubair Zaedyus Ganal & Rapak CA Shale Oil Kern County 20 West Qurna 1 Campos Exp Rumaila Bahrain DPSA 10 0 0 2 4 6 8 10 12 14 16 2020e Net Production, Mboe/d (Citi: Global Integrated Oil to 2020)
GROWING CAP CAPEX F FAL ALLING P PRODUCT CTION Wall Street Journal, Jan 2014
DO DIVI VIDE DENDS DS A AND C CAPE PEX A ADD D UP? • Oil sector cannot continue to spend more just to maintain production levels. • E.g. Shell taking a haircut on its oil shale assets. 16
MANAG NAGEMENT ISSUES: O OIL • Denial • “We will see it coming” • “It will happen gradually” • Commercial concerns • Risk of backlash from investors for not pursuing value added investments • Management have flexibility over capital expenditure • Shareholder message? • Low return projects tend to be at greater risk from tax, costs and price – sensitivity scenarios please • Growth is over-rated • Conclusion? Be more disciplined on capital investment and return to shareholders if necessary
FOSSIL F L FUELS ELS: NEW B BUS USINESS MODELS LS R REQUIRE RED “ Carbon Tracker ’ s report “ makes it clear that 'business-as-usual' is not a viable option for the fossil fuel industry in the long term. Paul Spedding, Oil & Gas Management should already be looking Sector Analyst, to new business models that reduce the risk of stranded assets destroying April 2013 shareholder value . In future, capital allocation should emphasise shareholder returns rather than investing for growth . ” 18
FOSSIL F L FUEL EL CRED REDIT R RATINGS A AT RISK “ Financial models that only rely on past performance and creditworthiness are an insufficient guide for investors .” Analysis of oilsands operators: “ We note that under a meaningfully lower long- term oil price, the commercial viability of undeveloped reserves and hence the core What A Carbon-Constrained business model could come into question Future Could Mean For Oil unless development costs also fall. This Companies‘ Creditworthiness, 2013 could potentially result in a downgrade of more than one notch if we were to place less reliance on undeveloped or probable reserves than at present .” 19
UNW NWIND NDING NG T THE CARB RBON B N BUBBL BLE WHAT C CAN I INVE VESTORS A AND R REGULA GULATORS D DO?
OPTION ONS F FOR I INVEST STOR ORS: $ $7 TRILLION QUEST STION ON 1. Review valuation assumptions Commission equity and credit research which considers different future scenarios; what happens if 20% probability that Governments take preventative measures on climate? 2. Challenge CAPEX plans Question merit of Company Boards of spending shareholder funds to develop high cost high carbon projects 3. Disclosure Enhancement Listed corporate owners of fossil fuels should disclose embedded CO2 in reserves – future emissions 4. Regulation Address climate change as a systemic risk by collaborating with other investors in challenging financial regulatory framework 21
Recommend
More recommend
