ConocoPhillips earned itself a unique distinction last week when it released a new report on climate risk management. It is the first such report for the company. More importantly, the new report sets ConocoPhillips apart from other major U.S. players in the fossil oil and natural gas industry, for its specificity and high level of detail.
The new report marks a significant step forward in terms of corporate transparency about the specific, physical risks of extreme weather and other climate-related impacts. In that regard, it is a significant document that provides a clear, unambiguous counterbalance to lobbying organizations that continue to muddy the waters on climate science.
However, taken as a whole the new report does not suggest a significant behavior change on the part of ConocoPhllips. If anything, it appears that the company is digging in its heels.
The new report is titled, “Managing Climate-Related Risks: Building a resilient strategy for the energy transition.”
That sounds like a bold endorsement of renewable energy, but that depends on what ConocoPhillips means by “energy transition.” The phrase as commonly understood means the transition out of fossil fuels and into renewable resources. A quick read between the lines, though, suggests that the plan is to focus on cutting costs and innovating in the natural gas area while letting others manage the transition to renewables.
The focus on natural gas comes through at the beginning of the report, where ConocoPhillips explains that the International Energy Agency has developed several scenarios outlining mixed results for oil. Depending on which scenario you pick, oil demand could grow relative to 2016, or it could shrink.
Natural gas is a different story. ConocoPhillips draws a contrast with the EIA oil scenarios, stating that “natural gas demand increases by year 2040 across all the IEA scenarios.”
That natural gas growth opportunity doesn’t leave much wiggle room for diversifying into renewable energy.
The company’s website reinforces its singular focus on fossil oil and natural gas resources. The “About Us” page, for example, leads off with this definitive summary:
“ConocoPhillips is committed to the efficient and effective exploration and production of oil and natural gas.”
The company’s recent acquisitions also indicate a focus on managing natural gas assets to force costs down.
Last April, for example, ConocoPhillips touched off some head-scratching when it sold some of its natural gas and oil assets in the legendary Permian Basin in Texas.
However, Forbes was among those recognizing the method behind the madness:
"Far from leaving the Permian, the company is actually high-grading its asset base there, and using the proceeds from the sales to acquire acreage in other producing areas.”
Specifically, according to Forbes the new acquisitions included a “liquids-rich natural gas play in Alberta and British Columbia called the Montney Field,” adding a significant new area of 35,000 acres to its existing leasehold of 105,000 acres.
ConocoPhillips also gobbled up 245,000 new acres at bargain-basement prices in another liquids-rich formation, the Austin Chalk formation in Louisiana.
The limits of climate risk reporting
Virtually no oil and natural gas companies have announced specific greenhouse gas targets, so it’s no surprise that the new ConocoPhillis report leaves that part out in the new risk report.
That’s consistent with the company’s annual Financial Report, released on February 19 under along with its annual 10-K report submitted to the U.S. Securities and Exchange Commission.
The Union of Concerned Scientists picked apart the 10-K and gave credit to Conoco Phillips for acknowledging the “growing number of climate damages lawsuits” filed over the past two years. However, UCS also noted that the report mentions “climate” almost 30 times without describing how the company plans to reduce its climate-changing emissions.
The company’s new Managing Climate Risks report received similar treatment from UCS. In an email statement last week, the organization provided this mixed review:
“…it described specific climate-related risks to its business and outlined short-, medium- and long-term tactics to address those risks. However, like other major fossil fuel companies, ConocoPhillips has not demonstrated a level of ambition sufficient to prevent the worst effects of climate change.”
Shareholder pressure is gradually forcing oil and natural gas stakeholders like ConocoPhillips to acknowledge the science behind climate change and modify their behavior according to facts.
In that light, it may seem counterproductive for ConocoPhillips to stick so closely to its fossil fuel guns while other oil and natural gas producers stake their claims on a low carbon future that includes wind energy, solar energy, and related technology including electric vehicles and distributed energy.
Even ExxonMobil — a company notorious for its central role in sowing doubt about climate science — is dabbling in renewable energy.
Another interesting example is BP, the company behind the 2010 Deepwater Horizon offshore oil disaster. The company launched its ambitious “Beyond Petroleum” energy transition initiative in 2000, only to see it wither away in a few years. Last year the company dived back into the renewable energy market with a $200 million acquisition of solar leader LightSource.
Another factor working against ConocoPhillips is the falling cost of renewables. Here in the U.S., wind and solar are beginning to compete for power generation with natural gas. In addition, the building electrification trend is picking up steam and cutting into the market for natural gas used in heating, cooling and other building-related applications.
A global movement to reduce dependency on plastic could also eat into the natural gas market.
On the other hand, if the ConocoPhillips can deliver on its low-cost strategy, it has little incentive to diversify.
In fact, that strategy puts the company in a good position to grab a larger share of a shrinking natural gas market. Add a dose of carbon capture to the mix, and ConocoPhillips could ride its natural gas business for many years to come.
Unless, of course, shareholder pressure begins to account for risk factors other than climate change, including natural gas pipeline risks, local opposition to new pipelines, and the growing body of evidence demonstrating that natural gas operations pose significant risks to public health.
Image credit: Jerry Huddleston/Flickr
Tina writes frequently for TriplePundit and other websites, with a focus on military, government and corporate sustainability, clean tech research and emerging energy technologies. She is a former Deputy Director of Public Affairs of the New York City Department of Environmental Protection, and author of books and articles on recycling and other conservation themes. She is currently Deputy Director of Public Information for the County of Union, New Jersey. Views expressed here are her own and do not necessarily reflect agency policy.