Posted July 22, 2014
Interesting question: Might climate change laws and regulations negatively impact the value of oil reserves held by energy companies, to the point of “stranding” them, ultimately affecting shareholders? Two companies, ExxonMobil and Shell, essentially have told their shareholders, no – because projected increases in global energy demand will continue to require all viable energy sources, including oil and natural gas, into the foreseeable future. From ExxonMobil’s report to shareholders:
For several years, our Outlook for Energy has explicitly accounted for the prospect of policies regulating greenhouse gas emissions (GHG). This factor, among many others, has informed investments decisions that have led ExxonMobil to become the leading producer of cleaner-burning natural gas in the United States, for example. Based on this analysis, we are confident that none of our hydrocarbon reserves are now or will become “stranded.” We believe producing these assets is essential to meeting growing energy demand worldwide, and in preventing consumers – especially those in the least developed and most vulnerable economies – from themselves becoming stranded in the global pursuit of higher living standards and greater economic opportunity.
Against that backdrop, The Economist had an article last week suggesting that oil and natural gas companies are clashing with shareholders who have concerns that climate change could affect the value of held energy reserves.
Certainly, activists trying to inspire reporters on this subject embrace such a clash. But it fails given a set of realities: consensus that global energy demand will keep growing; the reliability, energy density and availability of oil and natural gas to meet that demand – now and in the future; and significant progress on emissions because of increased natural gas use.
The reality is that oil and natural gas are primary energy sources for the present and future, supporting economic growth and individual mobility while already helping to deliver a better environment. The real clash is between activists and reality, multiple realities. A short list follows.
The Reality of Current and Future Supply
The U.S. Energy Information Administration (EIA) projects that in 2040 the U.S. will get 62 percent of its energy from oil and natural gas – compared to 64 percent in 2012. (Include coal and the share rises to 80 percent, vs. 82 percent in 2012.) EIA’s chart:
EIA’s projection is based on history and economics. Our economy runs on oil and natural gas for a simple reason: They are the best fuel sources in terms of availability, reliability, portability, affordability and energy density. America needs and will continue to need all available sources of energy, but oil and natural gas are and will continue to be the workhorse.
Not only for the U.S., but for the world as well. The International Energy Agency (IEA) projects rising global demand – increasing by one-third in the period to 2035 – will be met by oil, natural gas and coal, 75 percent in 2035 compared to 82 percent today.
Both projections support the position that oil and natural gas reserves will retail value as assets.
The Reality of Progress on Emissions
The United States already is reducing its energy-related emissions of carbon dioxide. Last year EIA reported U.S. energy-related emissions in 2012 were at their lowest level since 1994. A major reason is increased use of natural gas, made abundant by surging shale development with advanced hydraulic fracturing and horizontal drilling. EIA’s chart:
Not only has shale energy from fracking launched an energy revolution in the United States, natural gas from shale is helping reduce our emissions. This is reiterated in a new study by a group of researchers with the Joint Institute for Strategic Energy Analysis and the Strategic Analysis Center at the National Renewable Energy Laboratory:
Through a meta-analytical procedure we call harmonization, we develop robust, analytically consistent, and updated comparisons of estimates of life cycle GHG emissions for electricity produced from shale gas, conventionally produced natural gas, and coal. On a per- unit electrical output basis, harmonization reveals that median estimates of GHG emissions from shale gas-generated electricity are similar to those for conventional natural gas, with both approximately half that of the central tendency of coal.
The Reality of Leading the Way on Emissions-Reducing Technologies
From 2000 through 2012, the oil and natural gas industry was the leading investor in greenhouse gas emission-reducing technologies, according to a report by T2 and Associates.
Industry invested an estimated $81 billion in GHG mitigating technologies (not including shale gas investments) – nearly as much as the rest of private industry combined ($91.2 billion) and more than the federal government ($79.7 billion). These investments include efficiency improvements, advanced vehicle technology, wind, biofuels and solar.
The Reality of a Strong Investment
The reality is America’s oil and natural gas companies are a good investment, broadly benefiting their actual owners – the millions of Americans who own these companies through investments in public and private pension and retirement funds, including 401(k)s and IRAs, as well as individual investments. A 2011 study found that investments in oil and natural gas companies within the two largest public employee pension funds in 17 states strongly outperformed other assets in those funds. The share of the funds’ returns attributable to oil and natural gas investments was, on average, 3.4 times greater than their share of the funds’ assets.
Oil and natural gas are key to economic growth, job creation, modern living and greater national security. Our industry is doing its part to develop the energy the U.S. needs to remain prosperous and strong – and it will not leave Americans stranded.
ABOUT THE AUTHOR
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.