In trying to figure out why major oil and gas companies operating in the U.S. seem to be more interested in controlling their emissions of methane than are the federal agencies that are supposed to be regulating them, it helps to remember the old journalism maxim – follow the money.
The EPA under President Trump recently rolled back Obama-era rules to require oil and gas companies to track and limit the volumes of the potent greenhouse gas they pumped into the atmosphere. While many small to midsized independent operators hailed the regulatory rollback, in general the integrated international companies such as ExxonMobil
and BP largely panned the regulatory rollback, saying they favored the regulatory certainty of a universally accepted set of rules.
In its 2019 annual report, Chevron
listed among potential risks faced by the company: “international agreements and national, regional, and state legislation and regulatory measures that aim to limit or reduce greenhouse gas (GHG) emissions.” ExxonMobil, in its most recent annual sustainability report, said that as of August 2019, methane emissions from its U.S. unconventional production and midstream operations were down by nearly 20% compared to 2016, and added that the company was on track to meet its company-wide methane reduction commitments by the end of this year.
“To achieve this progress, we implemented cost-effective methods that included structured leak detection and repair programs, which use optical natural gas imaging cameras to identify leaks for prompt repair, and replacement of high-bleed, pneumatic devices with lower-emission technology,” the company said.
BP, in its 2019 sustainability report said it is deploying drone-mounted sensors to inspect equipment in its U.S. onshore gas operations, because the drones are more efficient and safer than the use of hand-held sensors. The British supermajor said the innovation was part of its goal to install methane measurement at all its large oil and gas processing sites by 2023, targeting a methane intensity of 0.2%.
Companies want to keep investors happy
One of the primary reasons that all three big companies are so focused on reducing their emissions of methane and other greenhouse gases is simple — they view it as being in the best economic interest, rather than risk seeing investors flee to other industry segments seen as being more environmentally friendly.
Activist investor groups, like As You Sow, have made great strides in recent years in convincing oil and gas companies to reduce their carbon footprints, Lila Holzman, energy program manager of the “green” shareholder advocacy organization, said in an interview.
She said the group focuses on reducing emissions of methane, because of the impact that the significant greenhouse gas has on global warming. “Methane has a much greater warming potential than carbon dioxide, especially when we look at the upstream side,” she said. In addition, getting methane emissions under control is technically within the grasp of most oil and gas companies. “It’s like a no-brainer, the low-hanging fruit.”
Holzman said that in recent years, As You Sow has seen a greater transparency on the part of energy companies as to the extent of their methane emissions and efforts to contain them. “We feel like we have seen an improvement in this area. In general, we see a shift in companies acknowledging they are responsible for these emissions and taking voluntary action to respond to our concerns,” she said.
“What we’ve seen, especially with some of the larger companies like Exxon and Shell, they are taking action voluntarily, but they publicly agree that methane should be regulated. It’s one of those instances where the regulation has gone even more lax than what industry would have wanted,” she said.
The most powerful tool that the activist shareholder groups wield is the shareholder resolution, which can be brought to a vote at the companies’ annual shareholder meetings.
“The last time we filed with an oil and gas company was with Chevron in 2018. At that time, the resolution received a 45% vote, which is really strong,” Holzman said. While it’s rare for these types of resolutions to get a majority vote, a vote of 45% result can give corporations a real showing of what a lot of their investors care about, she said.
Big Oil sees declining share of overall economy
Oil and gas companies can hardly afford to lose any more investors than is currently the case, if analysis by the Institute for Energy Economics and Financial Analysis, a non-profit think tank focused on the transition to cleaner energy, is correct.
“These companies have been in decline for at least a decade,” Kathy Hipple, an IEEFA financial analyst, said. “Even as the world economy is growing, the industry is shrinking.”
In 1980, oil and gas companies’ stocks comprised 28% of the S&P 500 while today they make up only about 2.5% of that index, she said. “The rest of the economy has grown and this industry on a relative basis has shrunk by more than 90%. Investors have said this industry is not the future and finance is all about the future.”
All that is not to say that Big Oil players are going to fade away overnight, she said. The biggest companies in the sector are still posting capital expenditure budgets of anywhere between about $10 billion to $20 billion annually. “That’s still a lot of money,” Hipple said.
The lion’s share of those investments, particularly on the part of U.S.-based companies are still going toward developing oil and gas assets, rather than greener forms of energy. “Exxon and Chevron are putting almost all of their capital investments to oil and gas. Some European companies have started to pivot a little bit, but at most, 5% to 8% of their capital expenditures are going toward renewables,” she said.
Perhaps a greater long-term worry for the oil and gas industry than meeting the concerns of environmentally minded shareholders is the growing movement led by universities and other big institutional investors to divest themselves of fossil fuels altogether.
“The divestment movement is really about challenging the power of fossil-fuel companies and challenging their ability to continue to hold us back from having effective climate policy, climate regulation,” said Richard Brooks, a senior strategist at 350.org, one of the leaders of the divestment campaigns.
Those campaigns started on university and college campuses about a decade ago and were modeled after the successful divestment campaign aimed at bringing down the apartheid system in South Africa. “We now have 1,200 institutions, with $14 trillion in assets who have made commitments to divest from fossil fuels,” Brooks said.
Just in the last few months three large well-funded university systems stepped up the anti-fossil fuel crusade. In April the U.K.’s Oxford University passed a motion requiring its endowment fund, amounting to almost $4 billion, to sell off all of its direct investments in fossil fuel companies, and to stop all future investment in funds that primarily hold stock in fossil fuel companies. In May the University of California announced that it had completed the divestment of more than $1 billion in assets from oil and gas-related companies.
Just last month, Harvard University alumni elected three anti-fossil fuel advocates to the school’s Board of Overseers, the governing body indirectly in charge of the university’s massive $40.9 billion endowment.
Brooks said unlike the activist investor movement, the divestment movement has taken the fight against climate change directly to what advocates consider the source of the problem, the fossil fuel industry itself.
“That’s where shareholder engagement has largely failed and continues to fail,” he said. “What does an oil company do if you ask them to stop drilling oil?