INDEBTEDNESS OF FOSSIL COMPANIES, 42% OWNED BY STATES, MAJOR OBSTACLE TO CLIMATE ACTION

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2 august 2017


State petroleum and climate change


Gerardo Honty, Lagtin America in Movement, 02/08/2017

The biggest iceberg in history just broke off in Antarctica, while in the Arctic, the present temperatures are the highest ever registered. Heat waves are once again roasting the Northern Hemisphere, while in the South, the glaciers are losing mass. In spite of this, the world continues to invest enormous sums of money in the exploitation of petroleum, gas and coal, according to the report published a few days ago by the International Energy Agency (World Energy Investment, 2017).

Total investment in Energy was 1.7 trillion USD in 2016, 40% of which was destined to investment in oil and gas. After the deceleration in 2015, due to falling crude-oil prices, investments in the hydrocarbon “upstream” recuperated in 2017. The preferred destinies were US shale, the great petroleum zones of the Middle East and the offshore basin of Mexico.

The role of State actors in energy investments continues to be high, reaching 42% in 2016, above the level of 39% attained in 2011. State oil companies are fulfilling an increasingly important role in expenditure for exploration and exploitation of petroleum and gas. Conversely the costs of governmental energy efficiency programmes are equivalent to less than 15% of energy efficiency expenditure.

The fall in petroleum prices did not significantly affect the financing of investment in oil and gas, although most of it significantly increased the leverage, that is to say, taking out credits. In spite of the cuts in investment and a better discipline of costs, the biggest oil companies increased their debt by more than 100 billion dollars between the end of 2014 and the beginning of 2017.

The US companies are the most indebted. According to data from Bloomberg (taken from the SRSrocco Report), the amount of bonds below the degree of investment that the US energy companies should pay in 2017 will increase to 70 billion USD, much more than the 30 billion dollars that they should have paid in 2016. The outstanding debt (in bonds) will jump to USD 110 billion in 2018, and to 155 billion in 2019, and then it will shoot up to USD 230 billion in 2020.

Public investment

The former Executive Secretary of the Climate Change Convention, Christiana Figueres, has just published, along with other authors, a letter in which she warns that, in order to have a chance of reducing the threat of climate change, the changes in the energy sector should take place before 2020. This is hardly new. Already other reports of the Intergovernmental Panel on Climate Change, the International Energy Agency and independent institutions have given the same warnings.

But – as one can see from the amounts of future debts assumed by energy companies – the oil companies, public and private investors, banks and debt agents continue to bet on increased extraction and commercialization of hydrocarbons, beyond the restrictions that climate change demands.

According to the report, already mentioned, of the International Energy Agency, in the last three years, emissions of greenhouse gases were stabilized thanks to investment in energy efficiency. But the investments in new low carbon technologies are now stagnant. Although the participation of wind and solar energy grew in the past five years, their contribution is practically nullified by the deceleration of investments in hydroelectric energy over the same period, that were reduced by over half in the same period of time. Investment in the new generation of technologies with low carbon emissions should increase at least to maintain their proportion of participation in the energy matrix.

Half of the gases accumulated in the atmosphere from the beginning of the industrial era were emitted after 1988. That is to say, in the last thirty years the same quantity of gases were released into the atmosphere as in the previous 250 years, which gives us an idea of the enormous increase in the rate of emissions. Barely 100 energy companies are responsible for over half of these emissions, according to the recent Carbon Majors Report 2017, elaborated by the Carbon Disclosure Project (CDP). That is to say, these companies are those that have extracted and commercialized sufficient oil, gas and coal to convert it into the greatest cause of the climate threat under which we are living.

Moreover, the report notes that the greatest responsibility does not fall with private enterprise, as one tends to suppose, but rather with State enterprises and public investors. And particularly the public State enterprises of developing countries, since they are the owners of the largest reserves and have a greater participation in the market.

The largest 100 companies are responsible for 635 GtCO2 emitted from 1988 to date; 59% of these are State enterprises, 32 % are the property of public investors and only 9% of private companies. Among the first 10, six represent over one fourth of the global emissions and are State enterprises of developing countries: China, Iran, Saudi Arabia, India and Mexico. In addition, Pemex appears in seventh place, PDVSA and Petrobras occupy the 13th and 22nd places.

In consequence, the States have the decision on climatic change in their hands. Not only due to their capacity or legitimacy to develop and implement public policies that change the modes of production or consumption. But also by simply desisting from contributing with their resources – their societies’ resources what’s more – to the investment and leveraging of investments in hydrocarbons.

The year 1988 – that divides in equal halves the emissions accumulated in the atmosphere – is not a minor detail in this story. That was the year of the instauration of the Intergovernmental Panel on Climate Change, created to alert member States of the United Nations on future risks of continuing to invest in fossil fuels. The future has already arrived, but governments continue to act as if it had never existed.

(Translated for ALAI by Jordan Bishop)

- Gerardo Honty is an analyst in Energy and Climate Change of CLAES (Centro Latino Americano de Ecología Social)




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