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INDUSTRY TREND

Oil Firms Run Climate Gauntlet in Egypt

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For some, the presence of oil and gas firms at the COP27 climate change conference is entirely inappropriate: fossil fuel producers are one of the main causes of the damage the proceedings are trying to reverse. But with energy security having taken on added importance since the last UN climate gathering one year ago, national and international oil companies have had a strong presence in Sharm el-Sheikh, where they have sought to stress that they can be a part of the climate solution. Here are our main takeaways on how their engagement with events in Egypt has gone so far.

  • Oil companies sent more representatives to Sharm el-Sheikh than to Glasgow.

There are no oil company tents or pavilions but majors such as Shell, Exxon Mobil and TotalEnergies have all had several representatives in Sharm el-Sheikh. That’s according to a list compiled by advocacy group Global Witness, which said it had identified 636 “fossil fuel lobbyists” at COP27 — more than the 503 who attended COP26 in Glasgow. Most were able to register as part of nongovernment organization (NGO) delegations, although BP CEO Bernard Looney was apparently part of the delegation from Mauritania — the African country with which the UK major recently agreed to assess potential to develop green hydrogen at scale. State-run Abu Dhabi National Oil Co. (Adnoc) had the highest turnout among oil companies with 22 delegates, the list showed. Its home country, the United Arab Emirates, will host COP28 next year and had 11 people from Adnoc partner Occidental Petroleum in its delegation. China National Petroleum Corp. and Russia’s Gazprom were also represented in Egypt.

  • They got a mixed reception but their work in hydrogen has drawn praise.

The reception given to oil companies at COP summits has evolved and even become warmer over the past 27 years. Veteran attendees often remark that the first COPs in the 1990s simmered with a strong anti-oil industry presence, particularly from environmental activists, and that this sentiment continued for many years. It still exists to some degree: anti-fossil fuel demonstrators were on site in Sharm el-Sheikh and Total CEO Patrick Pouyanne was heckled by activists accusing the French major of making “blood money” from its operations in Russia and over its work in Uganda, where it is backing the controversial East African Crude Oil Pipeline.

But while many COP participants keep challenging the oil industry to do better, the tone on Egyptian soil has shifted somewhat toward constructive solutions and inclusivity. Oil firms were applauded for investing in the hydrogen sector, and the companies themselves have been equally upbeat. Petronas CEO Tengku Muhammad Taufik told a COP27 event that hydrogen is a strategic play for the Malaysian company because it aligns well with its existing technical experience in hydrogen and ammonia, and also because hydrogen is an area that some of its prime customers, like Japan and South Korea, are eyeing. Petronas signed up to the UN Environment Programme’s Oil and Gas Methane Partnership 2.0 at COP27 and — like Colombia’s Ecopetrol — to the International Renewable Energy Agency’s global Alliance for Industry Decarbonization.

  • Heavyweight producers called for a balanced energy transition.

Pouyanne and Saudi Aramco CEO Amin Nasser, whose companies are partners in the Satorp refinery in Jubail, shared a stage at a Saudi-sponsored COP27 event. They had a clear message: they want to help solve the climate crisis and could bring their financial clout and know-how to the cause, but the world needs to be realistic and not suddenly slam the brakes on oil and gas investment. If the industry doesn't invest enough in conventional energy, it will be “accused of causing scarcity and the oil and gas prices will go up higher and higher,” Pouyanne said.

Nasser agreed that there was a “balanced path where you need to invest and decarbonize existing resources like oil and gas, while building your renewables sector." He expressed a need to scale up carbon capture “big time.” Saudi Arabia, the world’s biggest oil exporter, announced at COP27 an ambition to capture 44 million tons of carbon annually by 2035. A carbon capture and storage hub in Jubail involving chemicals firm Linde and services giant SLB, formerly Schlumberger, will contribute to this goal. It is set to be capable of capturing 9 million tons of CO2 per year, with Aramco contributing 6 million tons.

Equinor CEO Anders Opedal was another COP27 attendee to talk of the need to find a balance between keeping energy affordable and investing in the transition, which he said would require “trillions of dollars in capital.” Writing on LinkedIn, he admitted that, despite recent progress, “there is still a gap in our tools to enable investment in transitioning companies delivering progress.”

  • The pressure on oil firms continues from all sides.

Despite their overtures in Egypt, oil majors know the pressure from financiers, environmental groups and climate-conscious investors won't go away. “Why should the UN allow companies that haven’t embarked on the goal of the conference to have any influence on the outcome?," asked Mark van Baal, founder of activist investor group Follow This. "Since no single oil major has Paris-aligned emission reduction targets, the UN shouldn’t risk that they will continue to slow down progress, like in the previous 26 COPs,” he said.

When investors speak to oil companies, “more and more, the call is 'don't start new fossil fuel projects,'” said Kirsten Spalding, vice president of the Ceres Investor Network, which comprises more than 220 institutional investors managing more than $60 trillion in assets. Despite that, the 2022 edition of the Global Oil & Gas Exit List, compiled by a group of NGOs and released during COP27, found that 96% of upstream companies covered by the list have expansion plans. Those with the highest net-zero 2050 overshoots are Aramco, QatarEnergy and Adnoc, followed by Exxon, Total and Chevron, the report said, noting that the industry’s short-term expansion plans have increased by 20% since 2021. Such behavior “creates a high economic risk, for their financial backers and for themselves,” Katrin Ganswindt, a fossil fuel finance campaigner at German nonprofit organization Urgewald, said in the report. “A financial institution that takes its net-zero commitments seriously cannot provide financing to companies that are recklessly busting our climate budget.”

Topics:
Low-Carbon Policy, Carbon Capture (CCS), Corporate Strategy , Methane Emissions
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