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High-emission oil producers at risk from investor action

Monday 14th October 2019

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High-emission oil producers may be more at risk from investor action than carbon costs, a Canadian expert on sustainability finance says.

Barbara Zvan, chief risk and strategy officer at Ontario Teachers’ Pension Plan and a member of Canada’s expert panel on sustainable finance, says her country faces a massive challenge reducing emissions from its oil and gas industry, its biggest export earner and the fourth-largest producer worldwide.

She told delegates at the Climate Change and Business Conference in Auckland last week that investors’ impression of the Canadian industry is tainted by the high-emission tar sands operations that dominate its oil production.

Investors are already voting with their feet and the Canadian industry should be more worried about its future cost of capital than carbon costs unless they can slash their production emissions and shift into lower-carbon products, she said.

Global demand for oil and gas will contract, but the Canadian producers needed to see that they still had options, she said.

“What we said to those public companies is like, here’s your challenge: How can we be the cleanest producer? How can we show that we are much better in terms of environmental performance?

“There is only going to be so much that is going to be needed in the future, so how can we be the ones who actually provide it?

“There may be a lot that needs to be shut down. But you can be the leader in thinking through some of this. But you need to provide transparency and you need to show that you have commitment.”

Zvan’s presentation came a week after New Zealand Oil & Gas chief executive Andrew Jefferies highlighted Canada’s oilsands production as the type of resource this country should be targeting its own hydrocarbon production to displace. He was speaking at the New Zealand petroleum conference. 

Rather than choking off the sector, he said New Zealand should be exploring and developing its gas resources to displace coal use in Asia. The country’s typically light oils could provide a low-emission alternative so that extra heavy oils like those in Canada’s tar sands and in Venezuela’s Orinoco basin can be left in the ground, he said. Resources in Canada and Venezuela account for about half the world’s oil reserves.

Last week, Norway’s biggest pension scheme, Kommunal Landspensjonskasse, cut its holdings in four Canadian firms operating in the oilsands after tightening its investment rules for firms tied to coal or oilsands. It will no longer invest in companies getting more than 5 percent of their revenue from either, down from a previous threshold of 30 percent.

Delegates heard throughout the conference how the UK had almost squeezed coal out of its electricity generation through large-scale investment in wind generation and increased imports of liquefied natural gas.

As recently as 2012, coal produced 40 percent of the electricity in the UK, which also imports electricity and gas from Europe. It has also seen its electricity demand decline in the past decade due to the contraction of its manufacturing and steelmaking sector.

In contrast, Canada’s electricity sector is already more than 80 percent renewable – like that of New Zealand. That offers less scope for the relatively ‘easy’ emission reductions achieved in the UK.

Canada is working to accelerate the closure of coal-fired power stations which still produce about 9 percent of its power and has invested in carbon capture and storage technology. The five-year-old, C$1.35 billion Boundary Dam CCS plant funded by the province of Saskatchewan and the federal government has stored about 2 million tonnes of CO2 but operator SaskPower has halted further investment in the technology citing the cheaper alternative of natural gas.

Canada is also aiming to halve emissions from oil and gas production by 2030.

Zvan noted that only about 30 percent of the world’s oil and gas is produced by listed companies, with global output dominated by the national oil companies of countries including Russia, Saudi Arabia and Nigeria.

Even if Canada’s producers were more transparent, came up with emission-reducing innovations and were successful with carbon capture and storage, she doubted that would “cut it” with the investment community.

The country is a long way from having to deal with stranded assets in the sector, but she said there may come a time when a “bad bank” will have to be established to help manage the wind-down of those residual assets.


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