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Ceres official says some oil, gas companies will need to mull exit strategy

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Ceres official says some oil, gas companies will need to mull exit strategy

Some oil and gas companies will not survive the deep decarbonization transition needed to combat global warming and will need to consider an exit strategy, a staffer with environmental shareholder advocacy group Ceres suggested Oct. 8.

Speaking at an event in Washington, D.C., hosted by the Center for Strategic and International Studies, Ceres Senior Manager on Corporate Climate Engagement Tracey Cameron noted that if the world acts to curb emissions in line with the recommendations of scientists, the "energy future is going to be very different than it is today."

Some of the larger fossil fuel companies may have the resources and technical expertise to aid in the transition to a low-carbon economy, Cameron said. "They have the financial, the technical, the managerial resources to do big things," she said. For example, when it comes to offshore drilling, "there's a translation for offshore wind. There's some technical expertise that you can transfer."

But "for some companies, they may not have a future and I don't think there's any historical model for that but companies should be thinking about managed decline," Cameron said. They should be "thinking about 'what metrics can I focus on,' perhaps return of cash to shareholders, but ... not investing in new production, and see how to gracefully exit. ... That's really what some of these companies will need to do."

Ceres is one of the primary organizers behind the Climate Action 100+ initiative of major investors pressing companies to assess and disclose their longer-term risks and opportunities related to climate change as well as their strategy for adapting to those changes. The group has largely advocated for engagement with companies over divestment, Cameron noted.

Scientists have warned that to limit global warming to 1.5 degrees C relative to preindustrial levels, the world will need to make significant strides in curbing emissions by 2030 and achieve net-zero emissions around 2050.

Ethan Zindler, head of Americas at Bloomberg New Energy Finance, said he generally agrees with Cameron that many of the smaller oil and gas producers "are in a tough spot. They are not in positions to make big pivots and to reconsider new things and I think it's going to be challenging for them."

But Zindler argued that the current political environment does not support the idea that "there's an inevitability that the days are numbered for the oil and gas industry." However, if the U.S. government does adopt aggressive climate policies, he said it "could make life much more challenging" for oil and gas companies.

David Victor, professor of international relations at the University of California San Diego agreed with Zindler. "Unless we're going rapidly to a world with very deep cuts in emissions, oil continues" to be in demand, he said.

Victor believes the real question about fossil fuel companies and climate change is what happens to natural gas. He suggested that natural gas companies have a role to play with regard to hydrogen production combined with carbon capture and sequestration. A number of companies and countries have in recent years renewed their interest in developing carbon capture and storage projects primarily to encourage the decarbonization of hydrogen.