Investors get lost in Big Oil’s carbon accounting maze
Wide variations in the way oil companies report their efforts to reduce carbon emissions make it difficult to assess the risk of holding their shares as the world shifts away from fossil fuels, senior fund managers say. Investors have poured money into so-called sustainable funds, which take into account companies’ environmental, social, legal and other standards, and funds are under pressure from their customers and authorities to make those standards robust. Fund managers are also applying environmental, social and governance (ESG) criteria more widely in traditional investments to help them judge how companies will fare over the long term. There is a growing realisation that some companies’ profits will shrink faster than others as governments prioritise low-carbon energy to meet the U.N.-backed Paris agreement’s goal of cutting emissions to “net zero” by the end of the century. But oil and gas companies are among the biggest dividend payers, and major funds are reluctant to divest from them, arguing that by staying in they are in a better position to pressure companies to improve. “Do investors have the data that we need? No, I don’t think we have the data that we need at all,” said Nick Stansbury, investment strategist at British insurer Legal & General’s investment management unit, Britain’s biggest asset manager with around $1.3 trillion under management. “Disclosure is not necessarily so we can seek to change the numbers, but so we can start understanding and pricing the risks,” Stansbury said. “A THOUSAND WAYS TO PARIS” There are many voluntary initiatives and frameworks to unify carbon accounting and target setting; some overlap but none have been universally adopted. Further projects exist for other greenhouse gases such as methane. The Greenhouse Gas Protocol is one such set of standards, established by non-governmental organisations and industrial groups in the 1990s. Companies can report their progress in line with these standards through non-profit CDP, formerly known as the Carbon Disclosure Project, which then ranks them. Norway’s Equinor comes first in its list of 24 oil major companies, but not all of them report in every year. There is also the Task Force on Climate related Financial Disclosures (TCFD), created by the G20’s Financial Stability Board, as well as industry bodies, in-house models at oil firms and banks and third-party verifiers and consultants. “There are a thousand ways to Paris,” London-based BP’s Chief Executive Bob Dudley said at a Chatham House event earlier this year referring to the 2015 accord aiming to keep global warming well below 2 degrees. BP Finance Chief Brian Gilvary told Reuters BP would welcome more consistency within the sector to show what oil companies are doing about emissions and that an industry body, the Oil and Gas Climate Initiative (OGCI), was discussing carbon accounting. A plethora of third party ESG verifier companies were emerging with varying ways of measuring ESG metrics, he said, adding that some such firms would say to an oil company, “We believe your score is this, and, by the way, if you spend $50,000 we’ll show you how you can improve that score.” UBS, with $831 billion of invested assets, has $2 billion in its Climate Aware passive equity strategy, which is in part based on a company’s emissions reporting. In that strategy “we tilt towards companies that are better performing on a range of climate metrics and away from companies that do not perform so well in this respect,” Francis Condon, executive director for sustainable investing, said. “We don’t want to be accused of greenwashing or falling for it,” he said, adding that UBS regularly encouraged companies to prepare for the climate transition. Using a broad measure, global sustainable investment reached $30.1 trillion across the world’s five major markets at the end of 2018, according to the Global Sustainable Investment Review. This equates to between a quarter and half of all assets under management, due to varying estimates of that figure. Condon said most investors were still more focused on returns than wider sustainability criteria but were becoming concerned that companies may expose them to possible future climate-related financial losses. “There is a very limited appetite for giving up performance for higher ESG. The question is more: is management taking on risks it can’t manage?” To try to answer that question, the world’s biggest financial service providers are investing in companies which provide ESG-related data. This year alone, Moody’s bought Vigeo Eiris and Four Twenty Seven, MSCI bought Carbon Delta and the London Stock Exchange bought Beyond Ratings. S&P acquired Trucost in 2016. Independent climate risk advisors Engaged Tracking say they attracted two-thirds of their clients in the past year. All six companies provide data, assessments and consulting on the climate exposure of companies or bonds. HOW TO COUNT A central issue, discussed at European oil majors’ shareholder meetings this year, is how they deal with the emissions caused by the products they sell, such as gasoline or kerosene, which are known as Scope 3 emissions. Such emissions are typically around six times larger than the combined emissions from oil companies’ direct operations and power supply, also known as Scope 1 and 2 emissions, according to Reuters calculations. Even if a company publishes Scope 3 data, there are 15 different categories based on the Greenhouse Gas Protocol. These include use of sold products such as fuel alongside secondary factors such as business travel or employee commuting. Constantine Pretenteris at Engaged Tracking said some companies achieved a high score for comprehensiveness by disclosing data for most of the Scope 3 categories, but left out the key ones, such as emissions from use of their fuel. “We would love to see a general standard which makes comparisons easy,” Sven Reinke of Moody’s said. “It doesn’t fully exist these days.” RELATIVE OR ABSOLUTE The majority of climate-related targets are based on intensity measures, which means absolute emissions can rise with growing production, even if the headline intensity metric falls. Total recorded Scope 3 emissions from the world’s top public oil companies are still rising, largely
BPCL privatisation: Past challenges push govt to get fresh legal opinion
It may still be a long road ahead for privatisation of public sector oil refiner Bharat Petroleum Corporation Ltd (BPCL). The possibility of legal challenge over any plan to sell the government stake in the oil PSU has pushed executives and government officials to seek fresh legal opinion on the proposed disinvestment move. “BPCL and HPCL were acquired through an Act of Parliament. In these two cases, the Supreme Court also gave an order restraining the government from selling its equity without Parliamentary approval. After this, several legislations were repealed by the government through the 2016 Repeal Act. We need to see what the Repeal Act says. As the narration becomes clear and legal people check whether Parliamentary approval is needed or not needed, the privatisation of BPCL can go through,” said a top executive of one of the state-owned OMCs. There is caution in going ahead with the privatisation of BPCL as in the past, especially in 2003, a similar proposal on disinvestment went through serious legal challenges that ultimately resulted in the Supreme Court axing the plan and asking the government to sell shares only after Parliament’s nod. “As of today, I don’t think the full details are available on the modalities and the methodologies which are going to be followed. Based on that only, something can be said otherwise it will be premature,” another senior executive of an OMC that faced similar issues in 2003. The Repealing and Amending Act, 2016 had quietly annulled 187 obsolete and redundant laws lying on the statute books. In the process, the laws, under which oil companies HPCL and BPCL were nationalised, were also repealed. These included the Esso (Acquisition of Undertakings in India) Act, 1974, The Burmah Shell (Acquisition of Undertakings in India) Act, 1976, and the Caltex (Acquisition of Shares of Caltex Oil Refining (India) Limited and of the Undertakings in India of Caltex (India) Limited) Act, 1977. Now the 2016 Repealing Act is being cited to conclude that BPCL privatisation may not require a fresh Parliamentary nod. The plan to sell majority stake in BPCL is first serious attempt towards privatisation of non-strategic PSUs after the exercise lost steam post 2004. Under the previous BJP-led NDA regime headed by Atal Bihari Vajpayee in the late 1990s, the government had sold its stake in companies such as Videsh Sanchar Nigam Ltd, Hindustan Zinc, Balco and IPCL to private entities. With regard to BPCL, the plan is to sell entire 53.3 per cent stake held by the Centre to a strategic partner. This could either be done at one go or in parts. The government may also decide to retain some portion of the equity but a call will be taken after getting sense of investor interest for the profit-making PSU. At last Monday’s (September 30) share price of Rs 490.45 on BSE, the government’s 53.29 per cent stake in the BPCL is worth Rs 56,000 crore or around $8 billion. This is more than half of the FY20 disinvestment target of Rs 1,05,000 crore. Keeping in mind the global economic environment, the government could reduce the share sale, to say 26 per cent, to get right investor interest. While no Indian company looks like mobilizing such huge funds for BPCL’s buy, industry experts hinted that companies from Russia and the Gulf region could be targeted to get the necessary investment. This, sources said, could be done through government to government talks as most oil companies in the region are state-controlled. The BPCL, in present times, will be an attractive buy for companies ranging from Saudi Aramco of Saudi Arabia to French energy giant Total SA which are vying to enter the world’s fastest-growing fuel retail market including entry in retail space where BPCL has significant presence. Alternatively, the government could also keep other oil PSUs such as Indian Oil Corporation (IOC), or OIL India on a standby to go in for share buybacks in the event strategic sale to a private partner met with little success. Both HPCL and BPCL’s disinvestment was blocked even in 2003 when Supreme Court had ruled that the two oil companies can be privatised only after Parliament amends a law it had previously passed to nationalise the two firms. The decision came after a high-profile case was fought in the court between F.S. Nariman and Shanti Bhushan representing the petitioners including oil sector officers association and Harish Salve representing the government. Only last year, state-owned upstream major ONGC bought the government’s entire 51.11 per cent stake in HPCL. BPCL was previously Burmah Shell, which in 1976 was nationalised by an Act of Parliament. Burmah Shell, set up in the 1920s, was an alliance between Royal Dutch Shell and Burmah Oil Co and Asiatic Petroleum (India). The Supreme Court had in September 2003 cited the ESSO (Acquisition of Undertaking in India) Act and the Burmah Shell (Acquisition of Undertaking in India) Act, 1976 and Caltex (Acquisition of Shares of Caltex Oil Refining India Ltd and all the Undertakings in India for Caltex India Ltd) Act, 1977 to rule that the government cannot privatise HPCL and BPCL without approaching Parliament for changing the nationalisation act. BPCL operates four refineries at Mumbai, Kochi in Kerala, Bina in Madhya Pradesh and Numaligarh in Assam with a combined capacity to convert 38.3 million tonnes of crude oil into fuel. It has 15,078 petrol pumps and 6,004 LPG distributors. The government proposes to raise Rs 1.05 lakh crore from disinvestment in the current financial year. It had exceeded asset-sale targets of Rs 1 lakh crore in FY18 and Rs 80,000 crore in FY19.
Aramco buys more Indian naphtha; IOC premiums at 6-year high
Saudi Aramco’s trading arm bought 70,000 tonnes of naphtha from Indian Oil Corp on Friday at premiums not seen since 2013 as it seeks to plug a supply gap following Sept. 14 attacks on its facilities, trade sources said. Aramco Trading Company (ATC) paid a premium to IOC price formula on a free-on-board basis in the mid-$40 per tonne range for a 35,000-tonne cargo scheduled for Oct. 18-20 loading from Chennai and for a 35,000-tonne cargo for Nov. 3-5 loading from the same port. These were the highest premiums IOC has fetched for naphtha sold out of Chennai since it sold a cargo to Unipec at a premium of about $55 a tonne in 2013, Reuters data showed. Since the attacks, ATC has bought more than 120,000 tonnes of naphtha from Europe and about 130,000 tonnes from India, including the latest purchase from IOC and a previous deal with Hindustan Petroleum Corp Ltd. It also has cargoes from Egypt but these were mostly locked in before the attacks.
Exxon to make $500 mln initial investment in Mozambique LNG project
Exxon Mobil will invest more than $500 million in the initial construction phase of its liquefied natural gas (LNG) project in Mozambique, the U.S. energy company said on Tuesday. Construction of onshore facilities has been awarded to a consortium led by Japan’s JGC, U.K firm TechnipFMC and U.S. company Fluor Corp, Exxon head of power and gas marketing Peter Clarke told a ceremony in the capital Maputo. The $30 billion Rovuma LNG project has a capacity of 15 million tonnes a year (mtpa) and is set pump much-needed cash into the southern African nation’s ailing economy.
Setback for oil ministry: SC declines request to stay sharing of documents on RIL penalty
In a setback to the Oil Ministry, the Supreme Court has dismissed its petition against an order seeking disclosure of documents that formed basis for levy of USD 3 billion penalty on Reliance Industries over KG-D6 natural gas output not matching targets. A three-member international arbitration panel, hearing Reliance and its partner’s challenge to the government levying penalty because of unutilised capacity due to production not matching targets, had asked the ministry to share an array of documents that formed basis for its actions. The Oil Ministry first challenged the disclosure before the Delhi High Court, which on December 18, 2018 dismissed the petition. It then challenged it in the Supreme Court, which on August 5, 2019 dismissed it saying it was “not inclined to interfere” with the earlier order. The government had between 2012 and 2016 disallowed Reliance and its partners from recovering the cost of USD 3.02 billion for KG-D6 output lagging targets. The penalty in form of disallowance of recovery of certain costs was levied because the Oil Ministry and its technical arm DGH felt that the output lagged targets because the company did not drill the committed number of wells on the fields and created excess capacity. Sources said a three-member arbitration panel, constituted in 2015 to hear Reliance and its partner BP’s challenge to disallowance of cost recovery, had asked the Oil Ministry to share a host of documents, including those “sent, received or created” that “set out the reasons” for the government decision. Reliance and BP believe that there is no provision under the Production Sharing Contract (PSC) signed for the KG-D6 block awarded to them under the first bid round of New Exploration Licensing Policy (NELP) of targets for oil and gas production and disallowing cost if they are not met. Under NELP, contractors are first allowed to recover all their sunk cost before sharing profits with the government. Disallowing a part of the cost would not just result in contractors having to absorb those expenses but also result in higher profit share from oil and gas produced to the government. The government claimed an additional USD 175 million as its profit share after the cost disallowance in 2016. The arbitration panel agreed to most of the 19 requests made by Reliance-BP for disclosure of documents by the government. These included one for “disclosure of earlier formal but unpublished guidelines in effect between 1997 to October 2007 concerning the classification and/or recovery of general and administrative costs incurred by contractors under NELP PSC”. The other requests of Reliance-BP granted by the arbitration panel included the ministry disclosing “July 2011 response to an enquiry from the government auditor (CAG)”, documents reasoning out decision not to approve revised field development plan that set out reasons for lower output in October 2013 and ones pertaining to the position the ministry took on drilling of development wells. Reliance-BP say the output in KG-D6 block plummeted because of unforseen reservoir characteristics, including sand and water ingress in wells. Sources said the arbitration panel also granted Reliance-BP request for disclosure of documents that led to the ministry’s representative of KG-D6 block oversight panel to deny approval of work programmes and budget for the block in 2011-12 and 2012-13. The Delhi High Court in its December 2018 order stated that the arbitration panel has “after examining the requests for discovery directed, wherever necessary, discovery of documents, both by the Union of India as well as the respondents/contractors (Reliance-BP)” following “the principles of natural justice”. The Oil Ministry opposed such disclosure over confidentiality and other secrecy clauses. The court said that the arbitration panel had “correctly kept in mind the provisions” of the arbitration law requiring it to “treat the parties equally and give each party a full opportunity to present its case”. “Therefore, in my view, if the argument advanced on behalf of the Union of India is accepted, it will stymie the arbitration proceedings; a situation which will enure to the benefit of a recalcitrant party which does not desire a quick resolution of the dispute,” Justice Rajiv Shakdher wrote in the December 18, 2018 order dismissing the Oil Ministry appeal. Gas production from Dhirubhai-1 and 3 gas field in the KG-D6 block in the Bay of Bengal was supposed to be 80 million standard cubic meters per day but actual production was only 35.33 mmscmd in 2011-12, 20.88 mmscmd in 2012-13 and 9.77 mmscmd in 2013-14 – the years for which the over USD 3 billion penalty was levied. The output has continued to drop in the subsequent years and is now below 2 mmscmd. Reliance holds 66.6 per cent interest in block KG-DWN-98/3 or KG-D6 in the Bay of Bengal. BP has the rest.
A first for NCR: Piped gas gensets for 5 city societies
In an effort to reduce pollution ahead of winter, some apartment buildings in Noida have started testing piped gas for power backup. This is the first time that a residential society in National Capital Region (NCR) will have gas-based generator sets. On Monday, the Environment Pollution Control Authority (EPCA) had said with effect from October 15, measures under Graded Response Action Plan (GRAP) would include a ban on diesel generator (DG) sets in Delhi and parts of NCR, including Ghaziabad, Noida, Greater Noida, Faridabad, Gurgaon, Sonipat, Panipat and Bahadurgarh. As part of a pilot project with IGL Limited, five societies in Noida — Stellar Kings Court, Antriksh Greens, Shubhkamna Apartments and Marvel Homes in Sector 50, and Mahagun Maple in Sector 61 — will install gas pipelines to run their power backup systems. The PNG generators will be retrofitted in the existing DG sets using Italian technology. Since most societies already have piped gas for kitchen use, no additional infrastructure for laying the pipelines will be required, said IGL officials. The officials added that a minimum generator size of 125 KV would be required to retrofit the gas generators. Approximately, Rs 4,000-5,000 would be spent per KV. “Natural gas generators will be less polluting, won’t need additional infrastructure and be approximately 33% cheaper than diesel generators. Since the entire system is online, there are no spillage concerns or maintenance issues,” said an IGL Limited spokesperson. IGL officials told TOI that a partial test was done a year ago wherein some percentage of a diesel generator set of a highrise society in Sector 135 had been converted for backup through piped gas. However, this is the first time that the DG sets will be fully converted to piped gas gensets. Welcoming the move, residents said that switching to gas generators will not only reduce carbon emissions and help control pollution, it will also reduce the overall cost of power backup by almost half. “All societies charge approximately Rs 15-25 per unit for power backup using diesel gensets. With piped gas, the backup would cost Rs 10-15 per unit. IGL has tied up with another agency that will install the system,” said Punit Sharma, a member of the Noida Federation of Apartment Owners’ Associations (NOFAA). A meeting of all stakeholders will be held on Saturday, NOFAA president Rajiva Singh told TOI.