The figure that flashed up on a screen behind him was extraordinary. For the first time in Australian history a shareholder resolution demanding that a fossil fuel company offset the greenhouse gases emitted by its customers’ use of its products – gas and oil burnt in power plants – had won majority support from investors, with 50.1 per cent of the vote.
The resolution called not only for these so-called “scope 3” emissions to be accounted for (scope 1 emissions are those that are released in an organisation’s own production processes; scope 2 those associated with an organisation’s own use of energy) but for the company to set and report on meaningful targets to reduce these emissions in line with the goals of the Paris climate agreement to limit global warming well below two degrees.
It called for details of how the company’s remuneration policy would encourage its executives to pursue those goals and for details on how Woodside’s massive expansion in gas output could be aligned with them.
As significant as the result was, it will not immediately cause Woodside to change its practices as an associated resolution to force a change to the company’s constitution did not meet the necessary 75 per cent threshold. But the signs for Woodside and its peers are ominous.
A month ago a similar vote came close at the AGM of another Australian giant, Santos.
The shareholder resolutions were supported by prominent proxy advisers – firms that advise institutional investors on how to vote at companies’ annual meetings.
“We believe the requested targets would provide an opportunity for the company to add additional rigour to its target-setting process to further assure investors that the company is prepared to meet the challenges of a decarbonising economy,” proxy adviser CGI Glass Lewis said in a report on the Santos resolution.
The motions won the support of large institutional shareholders, notably in the superannuation sector.
“This is a breakthrough moment for investor action on climate change in Australia,” said Dan Gocher, climate and environment director at the Australasian Centre for Corporate Responsibility, which organised the resolutions.
The company, he said, would remain in “open conflict” with the majority of its shareholders until it moved to set meaningful targets.
This might be true, but the votes highlight more than that.
They are more evidence that climate scientists and activists and the investors who align with them now view gas in the same light as they view coal: as a dangerous greenhouse emitter that has no place in the economy of a world determined to avoid the worst impacts of climate change.
As that message is being heeded in other parts of the world, Australian institutions are once again fighting a rearguard action in defence of fossil fuels.
Diversify or die
Over recent months European oil and gas majors have made a series of startling announcements. On April 16 the chief executive of Royal Dutch Shell, Ben van Beurden, announced plans to eliminate net emissions from its own operations and the bulk of greenhouse gases from fuel it sells to customers – scope three emissions – by 2050.
“Society’s expectations have shifted quickly in the debate around climate change. Shell now needs to go further with our own ambitions,” he said in a statement.
Shell plans to have net zero emissions in the scope one and two categories and reduce its scope three emissions by around 30 per cent by 2035 and 65 per cent by 2050 by increasing the amount of green energy it sells.
Its announcement follows similar declarations by Repsol, Total and BP, whose new boss Bernard Looney made climate change the single focus of his first public address in February.
“We have got to change and change profoundly because the world is changing fast and so are society’s expectations of us,” he said, announcing the largest shake-up of the company in its 111-year history.
Many observers are naturally sceptical about declarations from an industry with a history of greenwashing, but investment patterns suggest a revolution is underway.
A recent analysis by business research outfit BloombergNEF found that of 480 green energy deals it tracked since 2010, seven oil and gas companies were behind 75 per cent of the deals closed, with 15 of them finalised over the past three years. Those seven firms were Shell, Total and BP, along with Chevron, Repsol, Equinor and Saudi Aramco.
These companies are transforming themselves from petrochemical companies into diversified energy companies via investments in solar, wind, biofuels, and hydrogen, as well as in related digital smart-energy technologies and energy storage, the analysis said.
The contrast with the big Australians is stark.
At one point on Thursday, Woodside’s Goyder was asked if there were any plans to follow the diversification lead of the Europeans in order to “reduce climate risk and provide long-term value for investors”.
“One of the things we are pretty clear on as a board is that Woodside is a very good LNG company, a gas company, with some assets in oil,” he began.
“We have got a strong balance sheet and we have got a capacity to look for new opportunities, but I wouldn’t overestimate that in terms of changing what we do.”
However as Zoe Whitton, the head of environmental, social and governance research at Citi, explains, investors are increasingly considering the fact that there “actually isn’t a future for an energy industry with the same type of profile it had in the past”.
“Yes, the Europeans are transferring into industries with lower returns, but they are actually moving into industries where they are going to be able to make money, because the one that they’re in now just won’t exist,” she says.
“When you say, ‘Why can’t we stay here?’ … ‘Here’ is a burning platform.”
Investors’ views on gas are “moving very quickly”, says Whitton, as the argument for gas displacing coal in Asian nations is losing ground to the question “why not switch to renewables?”.
It’s a gas gas gas (war)
This year Australia overtook Qatar for the first time as the world’s biggest exporter of Liquefied Natural Gas (LNG), shipping 77.5 million tonnes in 2019 with an export value of $49 billion. Between 2009 and 2015, the oil and gas industry spent $273 billion on development projects in Australia, mostly in LNG.
Woodside is planning to dramatically increase gas production in the years to come, as it edges closer to reaching a final decision on its $20.5 billion Browse project and $11 billion Scarborough project off the coast of WA.
This staggering expansion is enthusiastically backed by the federal government, which hopes it will play a central role in driving our recovery from the COVID-19 crisis.
Asked by the Sydney Morning Herald and The Age last month if the economic rebuilding necessitated by the crisis presented Australia with a chance to set even more ambitious emissions targets, Angus Taylor, who serves as both energy and emissions reductions minister, responded: “I think the opening is that we’re seeing low gas prices. I think that’s the thing that has really changed.
“Countries that have access to low gas prices are able to reduce their emissions faster. That is clear. That’s been true in the UK. It’s been true in the US energy system. The low gas prices provide an extraordinary opportunity to reduce emissions. And that’s a good thing. And, you know, we need to make most of it.”
It was a response that infuriated climate activists on both economic and scientific grounds.
Traditionally oil and gas prices were linked, in part because gas was once seen by the industry as an almost valueless byproduct of oil extraction. Today the price of both is at historic lows, in part due to a demand collapse linked to COVID-19 and in part due to a price war precipitated by oil giants Russia and Saudi Arabia, who flooded the pre-pandemic market in the hopes of driving down prices and crippling the American fracking industry, a move that some believe has worked.
According to Bruce Robertson, a gas and LNG analyst with the climate advisory body Institute for Energy Economics and Financial Analysis, the low prices – or at least associated instability – might linger long after the crisis due to the huge glut of product and the rapid electrification of the transport system. Even if Australians aren’t buying electric cars in large numbers yet, he notes, Chinese and Europeans are.
In his view it makes no sense to tie Australia’s economic future to gas.
But the investments by companies like Woodside and Santos suggest they see a long-term future in gas. As one gas industry figure who asked not to be named told the Herald and Age this week: “Any project you are committing to now is a long-term investment, it won’t pay back in a year or two. If you are investing now, you’re locking into gas for several decades. So the question is: does it make sense that we are committing to new fossil fuel projects today?”
Gas was adopted as a “transition” fuel to a low-carbon economy because it was understood to release between 15 and 50 per cent less greenhouse gases compared to coal, depending on how the two were captured and burnt.
But there is a growing – and increasingly overwhelming – body of evidence showing that during the production of oil and gas, small “fugitive emissions” of methane escape into the atmosphere. Because methane is about 30 times more potent in warming the planet than gases produced by coal, if more than around 3 per cent of the methane escapes, the product becomes more destructive than coal.
Fugitive emissions have been known about for some time, but it has been hard to pin down how much methane was escaping. But new satellite technology recently allowed Harvard University scientists to undertake a comprehensive study. They showed that in one of the world’s largest productive fields, America’s Permian Basin, fugitive methane emissions were 3.7 per cent, about 60 per cent more than first estimated, and enough to render the fuel the basin produces worse for the atmosphere than coal.
Robertson calls this the industry’s “Volkswagen moment”, referring to the scandal in which the world’s largest car manufacturer was revealed to have falsified emissions from its diesel engines. He insists the industry has known for years how destructive LNG is to the climate but has been able to sidestep the growing concerns of scientists.
The publication of the Harvard study in the journal Science last month changes the debate, says Robertson.
“It is lamentable that in Australia we have an emissions reduction minister who is out there advocating for emissions increases,” he says of Taylor’s support for gas expansion.
Emma Herd, the chief executive of the Investor Group on Climate Change, which represents institutional investors with over $2 trillion under management, says the focus of the Australian companies on gas is not lost on international investors.
She says the investors’ concerns are not necessarily ideological, but about the financial risk they in backing companies that are wedded to fossil fuels. They are concerned, she says, that such companies leave themselves open to sudden regulatory changes and the quickening pace of technological change: “Companies will need global capital if they are to survive and thrive.”
So why are Australian companies falling behind so many of their international competitors?
“That’s what investors are asking,” Herd says. “I suppose it is not controversial to observe that there is less climate policy in this country.”
Business reporter for The Age and Sydney Morning Herald.