Oil and Gas

A Framework for 2 Degrees Scenario Analysis: A Guide for Oil and Gas Companies and Investors for Navigating the Energy Transition

Karen Rivera — 2016-12-06T23:20:00Z

With few exceptions, the world’s leading fossil fuel companies have based their long-term business plans on an assumption that demand for fossil fuels will continue to grow robustly for decades to come.

In the past year, however, experts ranging from the CFO of Shell to analysts at Citi to the head of CNPC, the largest oil producer in China, have raised doubts about this business-as-usual approach to planning. As the Wall Street Journal recently pointed out, the prolonged oil price downturn, accelerating implementation of global climate policies, rapid evolution of clean energy technologies and a wide range of other economic, regulatory and societal conditions are raising the possibility that global demand for oil could peak much earlier than expected, with profound implications for the industry and its investors.

In light of these shifting market dynamics, investors have begun calling on oil and gas companies to assess the resilience of their portfolios to climate- and technology driven shifts in demand, and to disclose how climate risks are being addressed as part of the strategic planning process.

To help illuminate this complex set of risks, Ceres and global energy expert Amy Myers Jaffe have developed this new resource entitled, A Framework for 2 Degrees Scenario Analysis: A Guide for Oil and Gas Companies and Investors for Navigating the Energy Transition.

Download the report to learn about the framework, how it enhances the current practice of scenario analysis, and how it can provide decision-useful insights that will help fossil fuel companies mitigate the vulnerabilities they face as energy markets transition to a low carbon future.

Accelerating U.S. Clean Energy Deployment: Investor Policy Priorities

Laura Devenney — 2015-09-08T04:00:00Z

International investment to mitigate climate change is far below levels needed to reach the two-degree target. The International Energy Agency estimates that an average of an additional $1 trillion in incremental financing for clean energy is needed to meet the temperature target. In September 2014, over 350 investors representing $24 trillion in assets issued the Global Investor Statement on Climate Change, calling on governments to create an ambitious global agreement that includes a meaningful price on carbon — the “Clean Trillion.”

This paper connects the Clean Trillion goal to the current United States climate and clean energy policy framework, which is a mixture of federal, state, and local initiatives. The paper outlines the 2015 U.S. policy priorities of the Policy Working Group of the Investor Network on Climate Risk (INCR), a network of more than 110 institutional investors primarily based in the U.S., focused on investment risks and opportunities associated with climate change.

Carbon Asset Risk: A Review of Progress and Opportunities

Megan Doherty — 2015-06-30T13:15:00Z

The concept of carbon asset risk – that the world’s fossil fuel companies hold at least three times more oil, gas and coal reserves than can realistically be burned in order to avoid potentially catastrophic climate warming – has risen to the forefront as Wall Street analysts, investors, regulators and governments increasingly recognize carbon asset risk as an actionable, systemic financial risk that must be brought under control.

In September 2013, Ceres and the Carbon Tracker Initiative launched the Carbon Asset Risk (“CAR”) Initiative with support from the Global Investor Coalition. The CAR Initiative was launched as 75 investors representing $3.5 trillion in assets called on 45 of the world’s largest fossil fuel companies to come clean on the risks of stranded assets.

This report chronicles major shifts in the financial landscape since the CAR effort began. Some of these changes can be linked directly to actions or progress achieved through the CAR Initiative or its many collaborative partners, while others are more indicative of the increased relevance of the carbon asset risk framing around wasted capital, stranded assets and unburnable carbon.

Hydraulic Fracturing & Water Stress: Water Demand by the Numbers

Megan Doherty — 2014-02-05T13:20:00Z

This Ceres research paper analyzes escalating water demand in hydraulic fracturing operations across the United States and western Canada. It evaluates oil and gas company water use in eight regions with intense shale energy development and the most pronounced water stress challenges. The report also provides recommendations to investors, lenders and shale energy companies for mitigating their exposure to water sourcing risks, including improvement of on-the-ground practices. The research is based on well data available at FracFocus.org and water stress indicator maps developed by the World Resources Institute, where water stress denotes the level of competition for waterin a given region.

Investing in the Clean Trillion: Closing The Clean Energy Investment Gap

Megan Doherty — 2014-01-15T15:35:00Z

In 2010 world governments agreed to limit the increase in global temperature to two degrees Celsius (2 °C) above pre-industrial levels to avoid the worst impacts of climate change. To have an 80 percent chance of maintaining this 2 °C limit, the IEA estimates an additional $36 trillion in clean energy investment is needed through 2050—or an average of $1 trillion more per year compared to a “business as usual” scenario over the next 36 years.

This Ceres report provides 10 recommendations for investors, companies and policymakers to increase annual global investment in clean energy to at least $1 trillion by 2030—roughly a four-fold jump from current investment levels.

Flaring Up: North Dakota Natural Gas Flaring More Than Doubles in Two Years

Megan Doherty — 2013-07-29T08:00:00Z

In its World Energy Outlook 2012, the International Energy Agency projected that the United States would become the world’s largest oil producer by 2020, a position the U.S. last held in the 1970s. This dramatic resurgence is being driven by technological advances like directional drilling and hydraulic fracturing, which are unlocking shale gas and tight oil resources that were previously uneconomic to recover.

This recent boom has been perhaps most evident in North Dakota, where oil production from the state’s Bakken formation increased 40 fold between 2007 and mid-2013, from 18,500 to 760,000 barrels per day (bpd). In May 2012, North Dakota surpassed Alaska to become the second-largest oil producing state in the U.S. after Texas.

The tremendous growth of unconventional oil production in North Dakota has also led to a rapid rise in the production of associated natural gas. However, state authorities report that a large percentage of this gas does not ultimately go to market. Nearly 30 percent of North Dakota gas is currently being burned off, or flared, each month as a byproduct of oil production.

Hydraulic Fracturing & Water Stress: Growing Competitive Pressures for Water

Megan Doherty — 2013-05-02T03:55:00Z

This Ceres research paper analyzes water use in hydraulic fracturing operations across the United States and the extent to which this activity is taking place in water stressed regions. It provides an overview of efforts underway, such as the use of recycled water and nonfreshwater resources, to mitigate these impacts and suggests key questions that industry, water managers and investors should be asking. The research is based on well data available at FracFocus.org and water stress indicator maps developed by the World Resources Institute.

The research paper provides valuable insights about potential water use/water supply conflicts and risks, especially in basins with intense hydraulic fracturing activity and water supply constraints (due to water stress and/or drought). Given projected sharp increases in production in the coming years and the potentially intense nature of local water demands, competition and conflicts over water should be a growing concern for companies, policymakers and investors.

The bottom line: shale energy development cannot grow without water, but in order to do so the industry’s water needs and impacts need to be better understood, measured and managed. A key question investors should be asking is whether water management planning is getting sufficient attention from both industry and regulators.

Investor Expectations for Improving Environmental & Social Performance in Canadian Oil Sands Development

Megan Doherty — 2012-10-22T12:50:00Z

A group of 49 investors with $2 trillion in assets under management are calling on Canadian oil sands developers to dramatically reduce the environmental and social impact of their operations by lowering greenhouse gas (GHG) emissions, managing water use, promoting land reclamation and consulting fully with First Nations and other communities affected by oil sands projects. The investors argued that these performance improvements “should be prioritized ahead of unmitigated growth ambitions for oil sands development.”

Oil sands development is significantly more resource-intensive than traditional oil development, creating environmental and social concerns that investors argue may threaten the sector’s long-term viability and growth.

In their statement, investors specifically called on Canada’s Oil Sands Innovation Alliance (COSIA) to:

Set goals and timelines for reducing the greenhouse gas intensity of oil sands production to at least that of conventional oil production, while also providing greater disclosure on research and development efforts and supporting provincial and federal regulations that would lead to significant reductions in GHG emissions.
Manage water risk by setting goals and timelines for minimizing net surface and groundwater withdrawals, and keeping withdrawals within science-based ecosystem limits.
Reduce the rate of land disturbance and increase reclamation, provide disclosure of liabilities, establish wetlands and biodiversity offsets and accept limits to the amount of land available to oil sands development at any given time.
In cooperation with government authorities, fully incorporate the principle of Free, Prior, and Informed Consent in their responsibilities to First Nations, Metis, Inuit and other communities affected by oil sands operations.

Sustainable Extraction? An Analysis of SEC Disclosure by Major Oil & Gas Companies on Climate Risk and Deepwater Drilling Risk

Megan Doherty — 2012-08-02T11:55:00Z

This report, based on annual financial filings submitted in Q1 2011 by 10 of the world’s largest oil and gas companies, finds that companies making extensive capital investments related to climate change and deepwater drilling are failing to adequately disclose their substantial material risks in areas such as new regulations, adverse environmental impacts and water availability constraints.

Investors are looking for substantial improvement in these disclosures. The SEC’s guidance for disclosure does not yet require complete, and therefore completely accurate, assessment of companies’ climate or deepwater drilling performance or risks. This report contains detailed recommendations for improving both disclosure and performance.

Investor Risks from Oil Shale Development

Megan Doherty — 2012-05-30T13:15:00Z

May 2012 - The Department of the Interior’s Bureau of Land Management (BLM) recently proposed limiting federal leases for development of oil shale to Research, Development, and Demonstration (RD&D) leases instead of commercial leases. Given the many risks surrounding oil shale development, including technological uncertainties, regulatory risks, and water constraints, BLM’s proposed RD&D approach makes sense. Investors should be similarly cautious in evaluating future investment in this technology.

New Jobs - Cleaner Air (Part II): An investment in American Businesses and American Jobs

Brian Sant — 2011-11-17T15:55:00Z

This report is a follow-up to the February 2011 study, New Jobs - Cleaner Air: Employment Effects under Planned Changes to EPA's Air Pollution Rules, which demostrates how new air pollution rules proposed for the electric power sector by the Environmental Protection Agency (EPA) will provide long-term economic benefits across much of the United States in the form of highly skilled, well-paying jobs created through infrastructure investment in the nation's fleet of power plants.

This follow-up report supplements the original economic study by highlighting specific case examples of the companies involved in building a modern generating fleet. It breaks the supply chain into its component pieces and shows the vital role that American workers play in installing and maintaining sophisticated emission control systems.

State Fact Sheets

Download fact sheets detailing how investments to clean and modernize power plants create new jobs and boost the economy in the following states:

More Jobs Per Gallon: How Strong Fuel Economy/GHG Standards Will Fuel American Jobs

Brian Sant — 2011-07-30T05:30:00Z

This Ceres report focuses on the economic impacts of strengthening fuel economy and greenhouse gas (GHG) emission standards for passenger vehicles sold in the United States. The analysis finds that stronger standards—more miles and fewer emissions per gallon—would lead to greater economic and job growth, both within the auto industry and in the broader economy as a whole.

Report Fact Sheets

National Fact Sheet

State Fact Sheets

New Jobs-Cleaner Air: Employment Effects under Planned Changes to EPA’s Air Pollution Rules

Brian Sant — 2011-02-01T23:35:00Z

February 2011 - This study demonstrates how new air pollution rules proposed for the electric power sector by the Environmental Protection Agency (EPA) will provide long-term economic benefits across much of the United States in the form of highly skilled, well paying jobs through infrastructure investment in the nation's generation fleet. Significantly, many of these jobs will be created over the next five years as the United States recovers from its severe economic downturn.

State Fact Sheets

Download fact sheets showing how investments to clean and modernize power plants create new jobs and boost the economy in the following states:

Investor Risks from Development of Oil Shale and Coal-to-Liquids

Brian Sant — 2010-12-01T23:20:00Z

December 2010 - This report shows that coal-to-liquid (CTL) and oil shale technologies face significant environmental and financial obstacles - from water constraints, to technological uncertainties to regulatory and market risks - that pose substantial financial risks for investors involved in such projects. Authored by David Gardiner and Associates, the Ceres-commissioned report recommends that investors closely scrutinize their portfolios for exposure to these projects and press companies leading the ventures to provide better disclosure on wide-ranging risks and steps for managing such risks.

Canada's Oil Sands: Shrinking Window of Opportunity

Brian Sant — 2010-05-14T18:40:00Z

May 2010 - Oil sands production is expensive and faces significant risks associated with its environmental and social impacts. This report examines how carbon and land reclamation regulations, climate change and other environmental and social issues may adversely affect the future of oil sands development in Alberta and concludes that if the industry does not take steps to aggressively manage these risks, its long-term growth is in doubt.