Presentation at the Follow This / PRI conference in the City of London 'What can investors do to help oil giants commit to Paris", 22 Feb 2018

1. Oil companies and the
global energy transition
Including source urls as notes
Jeremy
Leggett
22 Feb 2017

2. ….and up to 70% cuts by 2050, 34 years from now
When the G7 agreed to push for decarbonisation in
the Paris Agreement, few believed it would happen
8th Jun
2015

3. Unexpected result: a clear signal in the Paris
Agreement - decarbonisation, as soon as possible
12th Dec
2015

4. 7th Jan
2016
17th Nov
2016
“Momentum is irreversible – it is being driven not only by governments,
but by science, business and global action of all types at all levels”
195 nations issue Marrakech Action Proclamation
deeming Paris commitments an “urgent duty”

5. 7th Jan
2016
28th Jun
2017
“Three years to safeguard our climate”:
Christiana Figueres + a host of climate experts
Decarbonisation
by 2040

6. 7th Jan
2016
20th Feb
2018
BP projects demand for oil & gas in 2040 +/- same
as today even with fast transition to RE and EVs
Oil demand - and global emissions - in 2040 higher than today’s even
with an ban on petrol engines by 2040 and a “renewables push”

7. 7th Jan
2016
26th Oct
2017
Potential emissions from reserves of the Carbon
Underground 200 are > 6 times their carbon budget
The CU 200 are the top 200 publically-quoted companies
in size of fossil-fuel reserves
2017 -2050
The Carbon Underground 200TM
allocated carbon budget
i.e. their pro-rata share of
IPCC’s 80% chance of 2˚C
(598 GtCO2)
80.4 GtCO2
2017
The Carbon Underground 200TM
potential emissions in reserves
491.9 GtCO2
Coal reserves
341.2 GtCO2
Gas reserves
79.3 GtCO2
Oil reserves
71.4 GtCO2

8. This isn’t “just” about climate change

9. Global pollution kills 9 million a year
and threatens “survival of human societies”
7th Jan
2016
20th Oct
2017
Commission on Pollution and Health, published in the Lancet
…most comprehensive medical study to date
• Triple AIDS, malaria and TB combined
• Almost certainly a significant underestimate
• Welfare losses: e $4.6 trillion/year, 6% of GDP
• Air pollution is the single biggest cause of death

10. 7th Jan
2016
2nd Dec
2016
Paris, Mexico City, Madrid and Athens vow at
C40 summit to ban diesel vehicles by 2025
David Koch
Paris smog

11. China to ban production of petrol and diesel cars
“in the near future”, Vice Minister for Industry says
7th Jan
2016
11th Sep
2017

12. 7th Jan
2016
28th Jun
2017
Mayors of 7,400 cities vow to meet Obama's
climate commitments
First meeting of global covenant of mayors, co-chaired by
Michael Bloomberg and Maroš Šefčovič

13. 7th Jan
2016
5th June
2017
Michael Bloomberg: US cities, states and businesses
will still meet Paris targets
1,000+ cities, states & businesses, representing a
third of US GDP, have joined “We Are Still In”

14. 7th Jan
2016
26th Jun
2017
250 US mayors endorse switch to
100% renewable energy by 2035
Resolution at the US Conference of Mayors, a
bipartisan gathering in Miami Beach

15. 7th Jan
2016
12th Jul
2017
Corporations pledging 100% renewable power
now top 100
RE 100 club now creating around 146 terawatt-hours (TWh) in demand
for RE annually…about as much as it takes to power Poland

16. 7th Jan
2016
23rd Jan
2018
If RE100 were a country, it would be 24th biggest
in the world in terms of electricity use
122 members now. Their demand for renewable electricity is up 49%. 25
of them achieved 100% by end 2016. 4x PPA increase in a year.
Source: RE100 Progress and Insights report

17. 7th Jan
2016
12th Dec
2017
Funds managing $26 tn pledge to pressure worst
100 companies on emissions, = 2/3rds global total
225 institutions incl. HSBC Global Asset Management, Calpers, Axa ++,
pressing for disclosure and more from Exxon, Coal India, Glencore ++

18. 7th Jan
2016
12th Dec
2017
ExxonMobil bows to shareholder pressure on
climate: will disclose impact of Paris on business
At the company AGMs, the board had long opposed such disclosure
despite resolutions supported by some of the biggest pension funds
New President Darren Woods, replacing Rex Tillerson 14 December

19. 7th Jan
2016
12th Dec
2016
Fossil fuel divestment doubles to $5tn in a year, and
80% of total funds are now commercial / pension

20. 7th Jan
2016
16th Nov
2017
Norwegian Central Bank, manager of the oil fund,
tells government it should divest from oil and gas
Biggest holding end 2016:
$5.3 bn in Shell

21. 7th Jan
2016
12th Dec
2017
World Bank announces it will end financial support
for oil and gas exploration from 2019
At present, 1-2% of the Bank’s $280bn per year portfolio goes to oil and
gas projects. 28% of its lending will go to climate action by 2020

22. “Big Oil must pay for climate change. Now we can
calculate how much”: leading climate scientists
7th Jan
2016
7th Sep
2017
“Nearly 30% of the rise in global sea level between 1880 and 2010
resulted from emissions traced to the 90 largest carbon producers”
Myles Allen, Oxford University, et al

23. San Francisco and Oakland sue five oil companies
for damages from rising seas
7th Jan
2016
21st Sep
2017
Public nuisance cases requiring payment for sea walls etc
Against BP, Shell, Chevron, ConocoPhillips, and ExxonMobil

24. Lawyer who helped extract $200 bn from
Big Tobacco is now taking on Big Oil
7th Jan
2016
22nd Dec
2017
Steve Berman represents Oakland and San Francisco in a lawsuit vs
Exxon, Shell, Chevron, ConocoPhillips, and BP for causing sea-level rise

25. 7th Jan
2016
10th Jan
2018
New York sues big oil companies for climate change
damage and “deliberate deception”
ExxonMobil leads rebuttals: “a complete fabrication that was conceived,
paid for, and executed by anti-oil and gas activists”
Mayor Bill de Blasio

26. 7th Jan
2016
15th Feb
2018
ExxonMobil sues its suers, alleging a conspiracy to
suppress its freedom of speech on climate
At least 30 people and organizations are targeted, including the
attorneys general of New York and Massachusetts

27. 7th Jan
2016
10th Jul
2017
Just 100 companies are responsible for 71%
of greenhouse gases since 1988
Source: Carbon Disclosure Project

28. 7th Jan
2016
18th Sep
2015
A new dimension in corporate lawsuits
…all about cheating on emissions limitations

29. 350
300
250
200
150
100
50
0
7th Jan
2016
5th Jan
2017
“Solar Could Become the Cheapest
Power on Earth”
In recent auctions solar at <$30 MWh
Is already < half average price of coal
Average solar price may be < coal by 2025
2009 2012 2015 2018 2021 2024 2027 2030 2033 2036
2039
CCGTSolar Wind Coal
$MWh

30. 7th Jan
2016
1st Dec
2017
US coal-fired power plant to be shut down
and replaced by solar
Wisconsin utility WEC Energy’s 1,190MW Pleasant Prairie
plant to be replaced by a 350 MW solar farm

31. 7th Jan
2016
6th Jul
2017
EVs will be cheaper than conventional cars
in most countries by 2020-2025
54% of new vehicles & 33% of all light vehicles on roads by 2040
….Bloomberg New Energy Finance hikes its annual prediction again

32. 7th Jan
2016
2nd Oct
2016
Carmakers embrace an electric future
at Paris motor show
Daimler Chairman Dieter Zetsche
unveils the Mercedes-Benz EQ

33. 7th Jan
2016
5th Jul
2017
First major carmaker calls time on ICE-only cars:
Volvo to use electric motors in all cars from 2019
x
Jean Claude Van Damme in a famous Volvo ad

34. China's Chongqing Changan to sell only EVs
from 2025
7th Jan
2016
19th Oct
2017

35. 7th Jan
2016
12th Mar
2017
National Grid and Google: investigating DeepMind
AI in balancing supply and demand on the UK grid

36. Crown Prince Shaikh Mohammad Bin Zayed Al Nahyan, Abu Dhabi:
“I promise you, my brothers and sisters, we will be celebrating.”
7th Jan
2016
16th Jan
2016
“In 50 years, when we ship off the last barrel
of petrol, we will not be sad”

37. “Saudi Arabia Plans $2 trillion
Megafund for Post-Oil Era”
7th Jan
2016
1st Apr
2016
Mohammed Bin Salman, Deputy Crown Prince: “Within 20 years,
we will be an economy or state that doesn’t depend mainly on oil.”

38. First major utility business model U turn:
E.On to pursue renewables and energy services
7th Jan
2016
1st Dec
2014

39. 7th Jan
2016
6th Dec
2017
More than half of EU’s coal-fired power stations
are lossmaking, and almost all will be by 2030
Analysis of >600 power plants by Carbon Tracker estimates €22bn
of losses could be avoided by phasing out coal by 2030

40. 7th Jan
2016
5th Dec
2017
All major EU power utilities commit to carbon-
neutral power ‘well before’ 2050
Eurelectric secretary-general Kristian Ruby

41. 7th Jan
2016
11th Nov
2017
“GE and Siemens: power pioneers flying too far
from the sun”
2010: Analysts expect 300 large gas turbines to be sold each year
2017: 122 sold
Joe Kaeser, CEO, Siemens John Flannery, CEO, GE

42. 7th Jan
2016
12th Feb
2018
“A Powerful Mix of Solar and Batteries
Is Beating Natural Gas”
e.g. Arizona PS Co opts for a First Solar solar-battery project cheaper
than gas / California PUC requires PG&E to use batteries over gas

43. 7th Jan
2016
6th Feb
2018
“How Tesla's big battery is bringing Australia’s
gas cartel to heel”
RenewEconomy: gas companies manufacture shortages to hike prices
for frequency control …and the big battery kicks in much cheaper

44. “If $100 was too high for the world, $50 is too low for the
industry. It will have to be somewhere in between.”
John Hess
CEO, Hess Corporation
Despite huge cuts, most oil majors couldn’t even
cover their costs at $50 oil in 2016
7th Jan
2016
2nd April
2017

45. “Energy companies buy time by paying debt
interest with more debt”
7th Jan
2016
25th July
2016
W&T Offshore: offering bondholders 45% of equity plus
more debt notes deferring cash payments due
7th Jan
2016
25th July
2016

46. Oil and gas extraction has been the least profitable
US industry over the last year
7th Jan
2016
24th Sep
2017
Negative net profit averaging almost 7%
on average over the 12 months to end July

47. 1940: 6 in 7 barrels used by Allies
in WW2 come from the US
1950: Car use and oil imports
soar
Nov 1990
Peak
1977
Alaska
2008:
Fracking
in shale
2014 Price
collapse
…recovery
7th Jan
2016
31st Jan
2018
Shale pushes US oil output above 10 mbd:
to heights last seen in 1970

48. The shale business hasn’t funded itself
at any oil price
7th Jan
2016
27th Dec
2017
Even at $100 oil prices in 2012 and 2013, the 33 companies spent more
money producing shale energy than they made from operations
33 shale-weighted E&P companies in the 4 main shale oil plays:
Free cash flow
Source: Bloomberg

49. 7th Jan
2016
1st June
2017
Michael Bloomberg: US cities, states and businesses
will still meet Paris targets
“The Global Oil & Gas Industry Is Cannibalizing Itself
To Stay Alive”
75% of operating
cash flow just to
pay interest
The Debt Wall
Amount of bonds below investment grade that the US
energy companies need to pay back each year

50. “Has the US shale drilling revolution peaked?”
7th Jan
2016
18th Oct
2017

51. 7th Jan
2016
29th Apr
2017
“More Rigs Don't Mean More U.S. Gas …producers
are running hard to stand still.”
Rigs double since August…
…and production drops

52. Long awaited EPA study concludes that fracking
does contaminate US drinking water
7th Jan
2016
5th June
2016
Both industry and EPA had said it did not until this report

53. 7th Jan
2016
2nd June
2016 Scottish parliament bans fracking

54. 7th Jan
2016
24th June
2016 Germany bans fracking

55. 7th Jan
2016
15th Feb
2018 Netherlands bans fracking
Shale gas “not an option”, economics minister tells parliament

56. France bans fracking and oil extraction
in all of its territories
7th Jan
2016
20th Dec
2017
• President Macron says
he wants to lead the
world in race for
renewables
• Lawmakers hope the ban
will be “contagious”

57. 7th Jan
2016
9th Nov
2016
Monterey county, a significant drilling target, votes
to ban fracking despite oil industry lobbying blitz

58. 7th Jan
2016
3rd Feb
2018
Exxon publishes its climate risk assessment: growth
through 2040 while burning almost unfettered
Current reserves of 20 BBOE will need replacing with a further 35 BBOE
…and all of this 55 BBOE is burnable with a 2˚C scenario, they say
Energy mix 2016 to 2040
Average annual
growth rate: 0.9%
Growth rates 2016 to 2040

59. 1 Electric Vehicle = 15 barrels of oil / year
Source:Bloomberg
20
10
15
5
0
2010 2020 20252015 2030 2035 2040
Millionsofbarrelsofoilperday
Oil displaced by projected rise
of electric vehicles
Previous crashes happened with
excess supply of 2m barrels/day
2023
Another
oil crash?
24th Feb
2016
$31
Demand under “threat”: “Another oil crash is
coming and there may be no recovery”

60. 7th Jan
2016
2nd Feb
2017
Carbon Tracker: Electric cars and cheap solar
“could halt fossil fuel growth by 2020”
COAL …demand peak 2020
GAS …demand curtailedOIL …demand plateau from 2020
TOTAL FOSSIL FUELS …demand peak 2020
Least fossil-fuel intensive
scenario: High PV / EV low
2012 2020 2030 2040 2050 2012 2020 2030 2040 2050
2012 2020 2030 2040 2050 2012 2020 2030 2040 2050
Source: Expect The Unexpected

61. The core oil and gas climate
(and indeed survival) argument….
….is that burning gas is less bad for global
warming than burning coal

62. True
….depending
on leakage

63. “Future of natural gas hinges on staunching
methane leaks”
7th Jan
2016
11th July
2016
EPA data collection programme underway on 10s of 1000s of oil and
gas operations. Some drillers have committed to <1% emissions.

64. “The data confirm that we can and must
do more on methane.”
2nd Mar
2016
2nd Mar
2016
29th Feb
2016
xEPA Chief: Methane emissions from oil and gas
“substantially higher than we thought”

65. 7th Jan
2016
28th Apr
2016
The U.S. oil and gas boom is having global
atmospheric consequences, NOAA reports
Fully 2% of rising global ethane concentrations from Bakken Shale

66. NASA-led team shows oil & gas industry responsible
for largest share of recent rising methane emissions
7th Jan
2016
20th Dec
2017
New measurements reconciling isotopic data suggest fossil fuels
contributed 12–19 Tg CH4 per year of c. 25 Tg CH4 per year since 2006

67. “The long twilight of the big oil companies”7th Jan
2016
27th May
2016
FT View: “Fossil
fuel producers
face a future of
slow and steady
decline”
2nd Mar
2016
2nd Mar
2016
27th May
2016

68. 7th Jan
2016
19th Sep
2016
“Big Oil was never that big a money-maker,
Goldman Sachs says”
Oil price
(Brent, real)
CROCI
BP
Shell
ExxonMobil

69. 7th Jan
2016
3rd Aug
2017 “Oil has a crisis of faith”
“The likeliest culprit is fear that, even if oil prices aren't falling further,
they are low enough to affect E&P firms' growth plans”

70. 7th Jan
2016
1st Jul
2017
“Oil Company Wins Over Investors by Promising to
Stop Looking for Oil”
“Suncor shares outperformed every major North American oil company
from June 2016 to May, as well as the S&P 500 index”

71. 7th Jan
2016
21st Jun
2017
c. $2.3 trillion of capex should not be deployed
by 2025 if the OGI is to keep to a 2˚C budget
Within 2˚C budget (IEA 450)
…50% probability
Business
as usual
Capex($bn,real2017:
69publicallytradedcompanies)
Historic
Latest report: Two Degrees of Separation
Based on CTI & Rystad analysis
$1.6 tn oil
$700 bn gas
…of which
$200bn LNG

72. 7th Jan
2016
16th Aug
2017
“Shell takes $14bn gas gamble with world’s biggest
floating structure”
FLNG vessel Prelude
Length 488 metres

73. 7th Jan
2016
20th June
2016
Shell puts revamped shale arm
at heart of future growth strategy

74. 7th Jan
2016
7th Jan
2018
Growth of Shell’s oil and gas operations in the next
decade will depend on shale production: CEO
With “a little bit of help from the oil price going up, we now see that we
can significantly accelerate investment into this opportunity”

75. 7th Jan
2016
1st Aug
2013 Shell writes off $2 billion in shale
The idea of a shale revolution spreading from the US across the world
is “a little bit overhyped,” says CEO Peter Voser

76. 7th Jan
2016
29th Jun
2017
After $13bn of writedowns, BHP chairman says
$20bn US shale investment was “a mistake”
Jacques Nasser: “If we knew (in 2011) what we knew today,
we wouldn't do it, of course we wouldn't do it”

77. 7th Jan
2016
3rd Oct
2016
“Big oil should exercise capital discipline as prices
rise” …& appoint a Head of Memory
So says Paul Spedding, ex Global Co-Head of Oil And Gas Research
at HSBC, now an advisor to Carbon Tracker

78. 7th Jan
2016
3rd Nov
2016
Shell CEO: “no-one makes money
from renewables”
Ben van Beurden

79. 7th Jan
2016
3rd Nov
2016
“I did talk to him …to point out that we are making
profits …with solar energy priced at $0.05 per kWh.”
Paddy Padmanathan
CEO, ACWA Power

80. Shell and Eni face trial in Italy in March 2018 over
alleged billion-dollar corrupt payment in Nigeria
7th Jan
2016
20th Dec
2017
Global Witness alleges “The Nigerian people lost out on over $1bn,
equivalent to the country’s entire health budget.”
Shell e-mail forwarded to then CEO Peter Voser

81. Big oil and gas companies are unsurprisingly
taking out hedge bets…

82. 7th Jan
2016
18th Oct
2017
Statoil powers up world's first floating windfarm
off coast of Scotland
The $200m 30 MW Hywind project

83. Statoil takes first stake in utility-scale solar
7th Jan
2016
19th Sep
2017
Their first major move in solar is a 40% stake
in a 162 MW Scatec project in Brazil
(when you do, its still
all about oil & gas)

84. 7th Jan
2016
7th Aug
2017
Shell to supply electricity to commercial
users in the UK from 2018

85. Shell to supply energy to UK households after
takeover of First Utility
7th Jan
2016
21st Dec
2017
£200 – 300 million for access to 850,000 homes to compete with the
vulnerable Big 6 and create a platform for expansion to other markets

86. Shell buys electric car charging company
7th Jan
2016
12th Oct
2017
One of Europe’s largest, with 30,000 electric charge points

87. 7th Jan
2016
15th Dec
2017
BP to reenter solar market with 43% $200m stake
in developer Lightsource

88. 7th Jan
2016
6th Feb
2018 BP CEO Bob Dudley: “Its not a race to renewables”
Only $0.5 bn of its $15-16bn capex will be invested in clean energy.
DAC test site, Squamish, Canada
Not like in
2000 then…
A BP “Beyond
Petroleum”
advert, 2000

89. One (former) oil and gas company has already
shown that total transition is possible….

90. 7th Jan
2016
13th June
2016
Dong Energy - Danish Oil and Natural Gas - now 75%
renewables …enjoys most successful IPO of 2016
$16.5 bn market cap, $2.6 bn proceeds of IPO

91. DONG changes its name to reflect
near-100% transition to renewables
7th Jan
2016
2nd Oct
2017
Named after the Danish electricity pioneer, to reflect its
“profound strategic transformation from black to green energy.”
on track for
a 95%
renewable
footprint
by 2023

92. It can
be done!

93. It must
be done!

94. …a saga spanning 2013-2017
www.jeremyleggett.net
As told in…
Update edition
published 15.2.18.