Fossil Fuels

Published on April 1st, 2014 | by Tina Casey


ExxonMobil Discloses Stranded Carbon Asset Risks, Almost

April 1st, 2014 by  

In a first-of-its kind report released to shareholders yesterday, ExxonMobil took a “crucial step” toward acknowledging its shareholder exposure to stranded carbon asset risks, and if you haven’t heard that turn of phrase before you’re going to hear a lot more about it soon. Stranded assets refers to the fact that in order to cap global temperature rise to 2 degrees Celsius, about two-thirds of current fossil fuel reserves must be left untapped through 2050.

Unless ExxonMobil takes steps to diversity its energy harvesting operations into low and zero carbon fields, investors could be left holding the bag for stranded assets in the form of oil and gas reserves that cannot be brought to market. That’s the motivator behind Arjuna Capital and the shareholder activist organization As You Sow, which pressured ExxonMobil to release the report.

ExxonMobil discloses stranded asset risks

Oil barrels by Sergio Russo.

By the way, this is not an April Fool’s article. Sorry…

The ExxonMobil Stranded Carbon Asset Risk Report

ExxonMobil released the carbon asset risk report in exchange for the withdrawal of a shareholder resolution brought by Arjuna and As You Sow.

The two groups give ExxonMobil brownie points for producing the report, which is a first-of-its kind acknowledgement that there is a potential risk.

They also credit ExxonMobil for agreeing on some basic points about climate change. Here’s their summary of key ExxonMobil quotes in a joint press release (breaks added):

First, “ExxonMobil takes the risk of climate change seriously,” as do shareholders.

Second, ExxonMobil “continues to take meaningful steps to help address the risk” including “improving energy efficiency and reducing emissions at our operations,” being “on the forefront of technologies to lower greenhouse gas emissions” and a host of other actions to reduce climate change impacts.

Third, with regard to global policy to address climate change, most shareholders and ExxonMobil would tend to align:

“ExxonMobil advocates an approach that ensures a uniform and predictable cost of carbon; allows market prices to drive solutions; maximizes transparency to stakeholders; reduces administrative complexity; promotes global participation; and is easily adjusted to future developments in climate science and policy impacts.”

Stranded Assets: What — Me Worry?

However, the big fail occurs where the rubber hits the road, namely, measuring the risk to ExxonMobil shareholders for stranded carbon assets.

The two groups specifically asked ExxonMobil to measure their risks under the 2 degrees Celsius/two-thirds untapped reserves scenario, and that question was left dangling.

Rather than responding to the question, according to the two groups ExxonMobil “said it believed that any future capping of carbon-based fuels to the levels of a ‘low carbon scenario’ is highly unlikely due to pressing social needs for energy.”

Social Needs For Energy

Oh, so now we’re getting somewhere. When we hear the phrase “social needs for energy,” what we’re really hearing is the global race to tap into burgeoning energy markets in developing countries.

The race basically breaks down into two groups. One is conventional energy companies like ExxonMobil, which could take advantage of the skyrocketing demand for fossil gas and cheap diesel generators to grow their market.

The other group is exemplified by clean energy startups like Israel’s Arava Power. We got a chance to tour Arava’s solar farm at Kibbutz Ketura in the Arava region last year and speak with co-founder and Nobel prize nominee Yosef Abramowitz, who had some interesting things to say about this whole “social need for energy” thing.

Abramowitz noted that currently, diesel accounts for about nine percent of electricity generation. His company’s business strategy is to position solar power as a “diesel-killer,” and the aim of the Ketura operation is to create an exportable solar farm business model that can compete with diesel in developing nations.

In fact, while we were visiting Kibbutz Ketura the Ambassador from South Africa happened to be on site checking out the possibilities.

Speaking of the Ketura solar farm, last we heard they had hooked up with solar panel cleaning innovator Ecoppia to boost efficiency with a corps of 100 automatic, centrally operated solar powered cleaning robots.

When Will ExxonMobil Start Worrying?

ExxonMobil doesn’t seem to be in much of a hurry to start worrying about stranded carbon assets. That certainly applies to petroleum reserves, if that “social need for energy” thing is any indication.

As for natural gas, just yesterday we noted that aside from the environmental issues surrounding shale gas fracking, financial concerns and competition from alternative energy are catching up with the US shale market.

ExxonMobil doesn’t seem too concerned about that, either. The company has been hot to acquire shale assets in the US and it has embarked on a major expansion of its Baytown, Texas refinery, with an eye to tapping into the gas-to-plastics market.

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About the Author

specializes in military and corporate sustainability, advanced technology, emerging materials, biofuels, and water and wastewater issues. Tina’s articles are reposted frequently on Reuters, Scientific American, and many other sites. Views expressed are her own. Follow her on Twitter @TinaMCasey and Google+.

  • Bob Lyman

    What a bizarre practice! An oil company agrees to provide a report acknowledging that, if a fundamentally flawed view of climate science and economics becomes broadly accepted public policy, so as to lead governments across the world to impose economic disaster on all of us, this will will adversely affect the value of the company’s stock. You have to be kidding me. This cannot be taken as evidence that the managers of Exxon believe the nonsense spewed by the IPCC and other global warming alarmists, but perhaps it can be taken as evidence that the views of so-called “green” investment funds and advisors are affecting the market. Let us be clear, however, about what the IPCC is recommending. It is not just saying that two-thirds of the fossil fuel resources now discovered will “have to be” left in the ground to avoid catastrophic warming. It is also saying that GHG emissions in the OECD countries, including the USA, will “have to be” reduced by 80% from 2010 levels by 2050. That is, in 36 years, Americans must reduce their use of oil, gas, and coal to less than 10% of what they would otherwise be by that time. That is not a threat to only the oil, gas and coal producing companies. That is an enormous threat to every company is every sector of the economy. If you really believe the IPCC thesis, and you think that companies should begin to act now as though governments will be insane enough to act on it, then you had better invest heavily in horses and buggy whips, because they are about to make a major comeback.

    • Bob_Wallace


  • dbr2

    ExxonMobil’s response shouldn’t be that much of a surprise – it is very consistent with the energy outlook they publish every year. It’s hard to read the exact numbers on their charts, but it looks like their view is that gasoline demand in North America peaked somewhere in the last decade, and will decline 30-40% from the peak by 2040 – offset by growth in Asia – worldwide light duty vehicle consumption looks flat.

    In 2040 they project the light duty fleet to include ~~100M electric cars and ~600M full hybrids. Elon Musk, with his gigafactory, is going to double current worldwide battery production to make .5M electric cars / year. That will require expansion of the supply chain to feed it – I was reading today 4 new cobalt mines need to come on line to support the gigafactory. So to get 100 M electric cars and 600 M hybrid cars on the road we need to be producing about 10M electric cars / yr and 60 M hybrids. The hybrid batteries are maybe 3% of the capacity of the fully electric car??? so we need something like 20-25 gigafactory equivalents and all of the upstream supply chain by say 2035?.

    • Bob_Wallace

      My crystal ball says very few non-electric cars by 2040. At the minimum most new cars will be electrics. It might take about ten years to flush out the last of the ICEVs.

      We will have to build a lot of battery factories but we won’t be replacing worn out ICE factories as we would if we stuck to fueled engines.

  • jburt56

    The emerging solar energy infrastructure is putting a ceiling on the total value of the carbon infrastructure. Currently assuming a 20% capacity factor and $2 per peak watt the energy infrastructure < $200 trillion. That comes down rapidly over the next 10 years. Now you know why the Kochs are jumping up and down like Rumpelstiltskin.

  • TinaCasey

    Thanks for your comments. “Fudging the issue” is a good way to put it, given the company’s history previous as a funder of climate denial lobbyists (most explicitly as Exxon, before it became ExxonMobil). Plowing another kind of misinformation into the issue is at least an internally rational approach for ExxonMobil. It will be interesting to see what other global fossil companies come up with, if and when they agree to produce a carbon risk report.

  • Bob_Wallace

    From a purely business standpoint it’s important to recognize the possibility of stranded assets in the future and start planning. But, at least with oil and NG, it’s too early to start changing the business model.

    We have less than 400,000 electric vehicles on the road at this time. That’s out of about 1 billion cars, light trucks, heavy trucks and buses. It will probably take a decade to start impacting new car purchases at a serious level and another decade or more to get a serious number of fueled vehicles off the world’s roads.

    There’s a good 20 years of business to be done by the oil industry.

    The trick will be to not build refineries and other infrastructure that won’t pay off before they are no longer needed.

    In the short term demand for oil will likely rise due to rising economies in less developed nations and people buying their first car. There’s money to be made in oil for a while.

    It’s too early to send someone up the mast to the crow’s nest to watch for land. But the navigator needs to keep checking the ship’s position so that they won’t wait too long.

    • Matt

      True Bob, but if you will not admit to the long term risk. Then you will build that LNG export port. And other long term investments that will loose money for you stock holders. And yes we should look at leaving the nastiest (tar sands) a most expensive (Arctic circle) in the ground.

      • Rick Kargaard

        Actually Alberta oil sands are one of the reasons that Opec nations no longer have a stranglehold on the market..Just as Canadian diamonds have weakened the DeBeers monopoly. The oilsands are still essential to North American energy security. It is ,however, likely soon time to slow development.

        • Bob_Wallace

          OPEC’s hold was broken long before we started cooking tar sand.

          • Rick Kargaard

            Oil sands production history goes back a long ways, As far back as OPEC in fact.

    • Doug Cutler

      Alright, so peak oil demand may not arrive for another 20 years. But at some point, say in 10 years, perhaps it becomes obvious to all its coming. Is that enough to cause a partial collapse of the oil market – at least to the point that high price extraction like the Alberta Oilsands is no longer viable? Lower gas prices would also slow advance of EVs so it cuts both ways.

      We’ve had discussion here at CleanTechnia about gas pump prices being squeezed between increasing extraction costs and looming EV competition. But perusing oil stock blogs I’ve also seen commentary that price of oil, even now, is artificially manipulated upwards. Demand is relatively flat due to efficiency gains etc. Meanwhile, there’s a glut of crude in reserve but the familiar bottleneck at vertically integrated refineries and other factors help prop up the market.

      As a Canadian with our Prime Minister Harper acting mainly as point man for the oil patch we search for signs of the Slide. Right now oilsands are still expanding at a pace.

      • A Real Libertarian

        “As a Canadian with our Prime Minister Harper acting mainly as point
        man for the oil patch we search for signs of the Slide. Right now
        oilsands are still expanding at a pace.”

        He’s just being loyal.

        Why would he violate his programming to Skynet after all?

      • Bob_Wallace

        If the current high price of gas is due to inadequate refinery capacity then the price isn’t being kept artificially high. It’s a low supply issue caused by low processing ability.

        Peak oil wouldn’t cause the oil market to crash. Just the opposite. If supply were to tighten because our oil fields were running dry the price would climb. And that, in turn, would mean that we’d find more oil because it would pay to extract it. (Can’t go on forever, but the end is not nigh.)
        When (if) EVs start taking over the market oil use will drop. And the price of fuel will probably drop. But even at $2/gallon EVs will be a better economic choice. People won’t buy a same-model ICEV in order to pay 2x as much per mile and the privilege of standing beside a gas pump. I’m assuming we are well under ten years away from EVs and ICEVs selling for about the same amount of money.

        As for things like the Alberta tar oil, greedy people are going to put money first. I’m not sure we have any ability to do much about that. Best we can do, IMHO, is push as hard as we can to get as many people as possible into EVs and PHEVs.

        • Doug Cutler

          Far be it from me to fully grasp these matters but the manipulation of oil price may go well beyond mere refinery bottlenecks. I suppose its no surprise; this issue has gone back and forth for years. Here’s just one example of recent discussion regarding possible industry collusion:

          • Bob_Wallace

            I’m not saying that there’s no price manipulation going on. But I highly doubt it’s having a big general effect on oil prices. There are too many players in the game now. It’s not like when the Middle-eastern oil producers were able to get together and control the market.

            Where I live gas prices are being kept artificially high. We have a single distributor who brings most of the fuel in by barge. That company insists that stations sell high or it wont supply them. Things eased a bit when Costco moved in but we still pay a premium price. When the highest prices in the US are announced (usually San Francisco or Hawaii) we’re almost always higher. But we’re just a tiny portion of the market.

  • Matt

    Rather than responding to the question, according to the two groups ExxonMobil “said it believed that any future capping of carbon-based fuels to the levels of a ‘low carbon scenario’ is highly unlikely due to pressing social needs for energy.”

    ExxonMobil, think that we will blow past the 2 degree change because they need to make money.

  • JamesWimberley

    Fudging the issue is not a win for Exxon-Mobil. Investors want to see realistic scenarios and strategies, not waffle. If they won’t run the numbers in-house, outside analysts will have a go, and they will be less sympathetic. Imagine you are one of the trustees of the Harvard endowment or the Norwegian sovereign wealth fund. Would you be satisfied with Exxon’s paper?

  • Kyle Field

    Very interesting to see the turning of the tides happening in real time. Shifting from the most profitable of industries to the most risky of industries is great to see but a bit crazy as well from an economic standpoint.

  • Will E

    Investers will desinvest in fossil companies and are investing in Wind and Solar , happening now, because of the profits made by Wind and Solar. When the big seven cannot get money from investers they will be soon out of busines.
    advice; sell stock, buy Solar.

    • Rick Kargaard

      Actually investment follows profit. Until profits start to fall there will be no shortage of investment. A lack of new investment only serves to limit growth. Lower stock prices do not bankrupt companies, but companies going broke definitely lowers their stock price.

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