An oil flame burns at Repsol’s oil refining complex in Cartagena, Spain. Repsol was among the top sellers of assets between 2017 and 2021 in EDF’s analysis.
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Oil and gas giants are increasingly selling dirty assets to private companies, raising concerns that the traditional dealmaking of the fossil fuel industry is not compatible with the net-free world.
This comes at a time when the major oil and gas companies are under intense pressure to set short- and medium-term goals in line with the goals of the Paris Agreement. It is widely acknowledged that this agreement is crucial to avoiding the worst of the climate crisis.
Research published last week by the nonprofit Environmental Protection Fund shows how oil and gas consolidation and acquisitions, which could help energy giants implement their conversion plans, do not help reduce global greenhouse gas emissions.
To be sure, the leading drivers and researchers of the climate crisis, burning fossil fuels such as coal, oil and gas, repeatedly stressed that limiting global warming to 1.5 degrees Celsius would soon be out of reach without immediate and deep emission reductions. Across all sectors.
EDF’s analysis of more than 3,000 deals between 2017 and 2021 shows how the stimulus and exit promises disappear when thousands of wells are sent from publicly traded companies to private companies that require no oversight or reporting to shareholders.
These same often vague private companies reveal very little about their activities and may be committed to increasing fossil fuel production.
The number and scale of such transactions is increasing, with EDF research reaching $ 192 billion in 2021 alone.
“These transactions may indicate that vendors have reduced emissions, when in fact pollution is only being transferred to substandard companies,” said Andrew Baxter, EDF’s director of power change.
“Regardless of the sellers’ intentions, the result is that millions of tons of emissions effectively disappear from the public eye, perhaps forever. And as these wells and other resources age, environmental challenges become worse,” he added.
The report said the increase in the number and scale of oil and gas dealings was matched by growing fears among investors about the company’s ability to assess risk or hold operators accountable for their climate commitments.
It also suggests implications for some of the world’s largest banks, many of which have set net-zero financed issuance targets. As of 2017, six of the six largest U.S. banks have consulted on upstream deals worth পাঁচ 5 billion.
As a result, the analysis calls into question the integrity of Big Oil and Wall Street’s promise of planned energy change, a change that is important to avoid a catastrophic climate situation.
What power change?
EDF’s analysis uses industry and financial data on consolidation and acquisition to track changes in how emissions may change after sales. This is thought to be the first time that extensive data has been collected on how large oil and gas companies transfer emissions to private buyers.
In one case, publicly owned companies, including Britain’s Shell, France’s TotalEnergy and Italy’s Annie – Net-Zero Target – sold their interests last year to a private-equity-backed operator in a coastal oil mine in Nigeria.
The EDF says top vendors like Shell, for example, are in a better position to transfer pilot climate-linked resources.
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According to EDF’s analysis, between 2013 and 2021, almost no routine flirting took place under the stewardship of TotalEnergies, Eni and Shell, the top sellers of assets, between the point of transfer.
Almost immediately, however, the flooring increases dramatically. The case study highlights climate risks arising from upstream oil and gas transactions.
Gas flirting is the burning of natural gas during oil production. It releases pollutants such as carbon dioxide, black carbon and methane into the atmosphere – a powerful greenhouse gas.
The World Bank says the cessation of this “waste and polluting” industrial practice is at the heart of a broader effort to decarbonize oil and gas production.
CNBC has contacted Shell, TotalEnergies and Eni for comment on EDF’s analysis.
A ‘nod nod, nod nod approach’
Andrew Logan, senior director of nonprofit Ceres Oil and Gas, told CNBC that EDF research has shown that there is some “wink wink, node node approach” to relocated emissions to date, allowing energy companies to sell high-polluting assets without worry. Buyers are likely to call everyone who looks appropriate, if there are only a few.
“But the funny thing is that those private equity firms are backed by public money. You know, it’s public pension funds that are partners of those firms so there’s leverage,” he added.
Larry Fink, CEO and chair of Blackrock, the world’s largest asset manager, sharply criticized oil and gas giants for selling to private companies at the COP26 climate conference in Glasgow, Scotland last year.
Fink said the practice of publicly disclosed companies selling high-polluting assets to opaque private enterprises “does not change the world at all. It actually makes the world worse.”
In July 2021, some of the world’s largest oil and gas companies were ordered to pay millions of dollars as part of a $ 7.2 billion environmental liability bill to retire aging oil and gas wells in the Gulf of Mexico they owned.
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Ceres Logan said a significant portion of responsible asset transfers must be calculated with the cost of closing the well at the end of their lives. In North America, for example, he highlights the “huge problem” with so-called “orphan wells.”
These are oil and gas wells abandoned by the fossil fuel extraction industry that could fall into the hands of the company without any cleaning capacity or purpose.
“It’s interesting to see how the process of selling most of the assets in North America differs from the assets in the Gulf of Mexico, because in the Gulf of Mexico, there are federal rules that basically say that if you sell an asset and the next company – or the next, next, next company – does not clear it.” That responsibility comes back to you, “Logan said. “So, you have a very strong interest in choosing your partners wisely and making sure they have the money to clean the well.”
In July last year, some of the world’s largest corporate emitters were ordered to pay millions of dollars as part of a $ 7.2 billion environmental liability bill to retire aging oil and gas wells in the Gulf of Mexico they owned. The case was considered a watershed moment for future legal battles over the cost of cleaning.
“I think in the rest of the world we need something where there is a recognition that that responsibility has to be traveled. It has to be paid for and we have to be aware at every stage of the process,” Logan said.
What can be done to address the problem?
The EDF report says concerted action by asset managers, companies, banks, private equity firms and civil society groups could help reduce oil and gas consolidation and acquisition risks.
“This research is important because when we engage with companies in this sector, it is definitely on the agenda,” said Dor Elkayam, ESG analyst at Legal and General Investment Management, a major global investor and one of Europe’s largest assets. Of managers
When asked if there is a recognition among oil and gas chiefs that they should be at least partially responsible when transferring their resources, Elkayam said: “So, that’s a matter of debate, isn’t it?”
“I think we will definitely benefit from a larger level of disclosure on these resources,” he told CNBC via video call. This may include comparing emissions related to these resources or biological degradation to meet the farm’s climate targets through resource disposal. “This is an important area to find out, I would say,” Elkayam said.