Sustainability: “Big Oil’s Spend To Meet Climate Goals Will Be ‘Monumental’” – JP Morgan

If Europe’s eight largest oil companies want to meet the climate and carbon-reducing goals they have set, their spending on new, low-carbon energies must double by 2020, and then double again within five years, with total spending seen as ‘monumental’, according to JP Morgan.

Currently, Europe’s big oil—the eight largest companies Shell, Total, BP, Eni, Equinor, Repsol, OMV, and Galp—spend on average around 5 percent of their capital expenditures on “new energies,” JP Morgan said in a report, carried by Bloomberg.

According to the JP Morgan analysis on company statements and best practices in the industry, if Europe’s Big Oil were to meet climate goals and don’t lose credibility that they work toward their goals, they would need to raise the share of the ‘new energy’ spending to 9 percent of capital budgets by 2020, and to 17 percent of capex by 2025.

“If they’re really going to lower their carbon footprint, the dollars that they have to spend are monumental,” Chrystian Malek, head of European, Middle East and African oil and gas research at JP Morgan, told Bloomberg in an interview, discussing the analysis.

Some companies, like Repsol and Equinor, are in a relatively good position to face that challenge, according to JP Morgan.

Shell—which plans to more than double its new energies capex to US$4.5 billion annually in 2025 from US$1 billion-US$2 billion currently—can afford to channel capital to low-carbon energy and systems, JP Morgan’s analysis shows.

But others, like Total for example, can’t afford to take spending out of the oil and gas division and re-route it to new energies, so if it wants to meet its climate targets, it needs to boost its overall capital expenditure, according to JP Morgan. If, however, Total and companies in a similar position bump up their total capital spending, shareholder returns may suffer.

Yet, investors have grown increasingly climate goal-sensitive, and if companies opt to “kick the can down the road,” they could face unhappy shareholders at annual meetings, JP Morgan’s Malek told Bloomberg.

By Tsvetana Paraskova for Oilprice.com