The industry has expressed that as the pressure from society and investors continues to increase, will the pace of climate action by traditional oil and gas giants be "forced" to accelerate?

 

The court's "heavy hammer" calls for more efforts to reduce emissions

 

Recently, a court located in The Hague, the Netherlands, ruled that Royal Dutch Shell must cut its net carbon emissions by 45% from the 2019 level by 2030, which greatly increased the Shell’s “will be based on the 2016 basis by 2030. 20% reduction in emissions” target.

 

Coincidentally, recently, the two major US oil giants Exxon Mobil and Chevron have also encountered pressure from investors. Among them, hedge funds with the goal of promoting sustainable development have successfully won at least two board seats of ExxonMobil, while Chevron’s general meeting of shareholders passed an overwhelmingly advantageous resolution to reduce emissions.

 

In fact, the lawsuit urging Shell to increase emissions reduction was formally submitted to the court as early as April 2019, and was jointly initiated by a number of environmental NGOs and more than 17,000 individuals. The litigation party believes that Shell has not taken sufficient measures to control greenhouse gas emissions. After two years, Shell has now lost the case.

 

In recent years, under the general trend of “carbon neutrality”, the traditional fossil energy industry has also set off an upsurge of low-carbon transformation. Up to now, oil and gas giants such as Shell, bp, and Total have announced the goal of “net zero emissions”. In fact, compared with American oil and gas companies such as Exxon Mobil and Chevron, which are less aggressive in reducing emissions, Shell's initiatives in the green and low-carbon transition are already very active.

 

In April 2020, Shell put forward the goal of "net zero emissions" for the first time. Up to now, Shell has invested a lot of money in the fields of hydrogen production from renewable energy, offshore wind power and energy storage. Just recently, Shell also invested 2.5 billion US dollars in the Australian photovoltaic sector.

 

However, the above measures are still insufficient in the court's view. The court in The Hague, the Netherlands, wrote in its judgment that Shell is obliged to implement company policies to ensure that the carbon emissions of Shell, its suppliers and consumers are reduced. Subsequently, Shell issued a statement saying that it "expressed disappointment" with this result and will appeal.

 

The judgment of the Dutch court in The Hague caused waves of waves. It is understood that this is the world's first corporate emission reduction target ruled by a court, and this case has also become a landmark case in which the law promotes the emission reduction of oil and gas giants.

 

Liz Hypes, senior environmental and climate change analyst at Verisk Maplecroft, a risk consulting firm, pointed out: “This case will open the way for litigation against the traditional high-emission oil and gas industry. Not only environmentalists, but also dissatisfied investors, can Emission companies are even the "funders" behind them to file a lawsuit."

 

The climate problem is highlighted, and the pressure on the giants doubles

 

It is worth noting that recently, another multinational oil and gas giant has also been questioned by investors due to its inadequate climate action. On May 26, two representatives of "Engine 1", a hedge fund holding a small share of ExxonMobil, formally joined the ExxonMobil board of directors. "Engine No. 1" pointed out on its website: "In the U.S. oil and gas field, no public company is more influential than ExxonMobil, but the company's failure to develop with the transformation of the industry has led to serious Poor performance has harmed the interests of shareholders. In order to protect and increase shareholder value, we believe ExxonMobil must make changes."

 

It is understood that the two representatives who joined this time have extensive experience in energy and low-carbon transition. Subsequently, ExxonMobil’s board of directors voted to allow the company to fully disclose its political lobbying and climate lobbying measures.

 

On the same day, at the annual meeting of Chevron, another oil and gas giant in the United States, about 61% of investors ignored the company’s board of Product carbon emissions. Since then, Total also issued an announcement saying that due to investor pressure, Total proposed at the shareholders meeting to change the company's name to "Total Energy", demonstrating its determination to develop diversified energy.

 

Up to now, major economies in the world have successively put forward the goal of "carbon neutrality". In May of this year, the International Energy Agency (IEA) also called for the world to no longer invest in any new fossil energy projects in order to achieve the goal of net zero emissions. The industry generally believes that in the past few days, many multinational oil and gas companies have encountered challenges from the law, society and even investors, indicating that the traditional oil and gas industry has been accumulating pressure to reduce emissions.

 

The demand for oil and gas is still there, and the industry has huge challenges

 

Industry analysts believe that Shell, which has received a court decision, may need to re-examine its greenhouse gas emission reduction targets, and may even be forced to start cutting production. The Guardian quoted an analyst in the oil and gas industry as saying that this court decision is likely to force Shell to cut production by about 1 million barrels per day per year, and the amount of funds paid each year may even reach billions of dollars. Biraj Borkhataria, an analyst at Royal Bank of Canada Capital Corporation, also said: “A radical reduction in oil and gas production may have a significant impact on Shell’s cash flow. A sharp cut in fossil fuel production is likely to cost Shell US$6 billion a year.”

 

For Exxon Mobil, whose board of directors has "changed", its carbon reduction strategy has been more closely scrutinized. The industry generally predicts that the addition of new members is likely to allow the board of directors to further review the current ExxonMobil’s decarbonization plan, and it will also affect ExxonMobil’s long-term development strategy. Egypt, which has always been quite conservative in the field of low-carbon transformation, XxonMobil's transformation efforts may increase.

 

Many market research institutions have analyzed and pointed out that in the face of huge pressure to reduce emissions, the fastest and most cost-effective way for traditional oil and gas companies to reduce emissions is to sell their high-polluting related assets. However, the measures to reduce production are "stopping the symptoms, not the root cause." . The analysis believes that forcing oil and gas giants to reduce fossil energy production will not completely solve the problem of greenhouse gas emissions. Taking into account the global crude oil demand, the market share of the oil and gas giants’ reduction in production is likely to be lost to small and medium-sized oil and gas companies and major oil-producing countries. The “partitioning” of the state-owned oil and gas companies in China is not beneficial to global greenhouse gas emission reduction.

 

ExxonMobil CEO Darren Woods also said that even if the world is gradually moving away from fossil energy, a large amount of oil is still needed.

 

Bloomberg wrote: “The pressure from climate issues may cause companies such as Exxon Mobil, Shell, and Chevron to reduce their oil sales, and will also allow them to produce oil in a cleaner way, but only force a small part of it. The company’s changes in operating methods are not enough to achieve the global net zero emissions target. The real change should come from the demand side. Providing consumers with affordable, reliable and convenient alternatives to fossil fuels can promote changes in oil production methods, and Ultimately promote the transformation of the global energy transition."