Big Oil fends off shareholder climate votes amid energy crunch

Two things to start:

• US oil producers are seeing a “tsunami of cash” come in on high crude prices, reversing years of losses.

• Europe is trying to rewire its gas supply system around LNG imports from places like the US as it tries to shift off Russian gas.

Crude prices jumped again yesterday, with both Brent and US oil topping $114 a barrel. Yet fears of a looming economic contraction are also sharpening.

Lloyd Blankfein, former head of Goldman Sachs, said over the weekend there was a “very, very high risk” that the US was headed into a recession. In China, president Xi Jinping’s zero-Covid policy, which has put hundreds of millions of people under full or partial lockdown, is posing “the most significant challenge to its growth prospects” in years, my colleagues in Hong Kong report. Europe’s growth is also in doubt as soaring energy prices fuel inflation.

Betting on higher oil prices has rarely been a winner as economies slow. But the potential for steeper losses of Russian crude supply, and extremely tight fuel markets, are keeping prices high for now. The big question for oil markets now is if that will last in the face of a growing recession threat.

On to today’s newsletter — Big Oil is prevailing in the highest-profile shareholder climate votes, in a big turnround from last year. BP is joining the rush in Texas to develop new projects that would stuff carbon back into the ground. And in Data Drill, Amanda focuses on another sort of pollution affecting oil communities — benzene, which is wreaking havoc on the health of people living near refineries, especially here in Texas.

Thanks as always for reading!

Justin

PS join the FT on May 18-19 at Moral Money Summit Europe 2022 where investors, corporates and policymakers will come together to take the pulse of ESG and unlock its potential. Register here. Energy Source subscribers are eligible for a free digital pass using the code PREMIUM2022.

Big Oil prevails in shareholder climate votes

Environmental campaigners are running up against the limits of Wall Street’s appetite to green oil companies amid a global energy crisis and high fossil fuel profits.

Several activist shareholder campaigns aimed at forcing Big Oil to decarbonise more quickly have fallen short during this year’s shareholder voting season.

Nearly 90 per cent of BP’s shareholders last week backed the company’s current climate strategy, rejecting a proposal from Dutch activist investor group Follow This to accelerate the company’s shift to lower-carbon fuels. At ConocoPhillips last week, another Follow This proposal that would have required the company to set so-called scope 3 emissions targets, which include the carbon pollution from the products it sells, was shot down as well. Shareholders at Texas-based Occidental Petroleum also voted against a similar proposal last week by an overwhelming margin.

It’s a sharp reversal from the bruising Big Oil suffered during last year’s shareholder meetings, highlighted by activist hedge fund Engine No 1’s long-shot victory that landed it three seats on ExxonMobil’s board of directors.

Mark van Baal, founder of Follow This, said the fact that the organisation’s climate proposals at BP and other firms had garnered less support this year than last year indicated some big investors had switched their voting from 2021 amid the energy crisis.

“Investors’ short-termism, fuelled by the current windfall profits of BP, might have prevailed over the medium-term risk of value destruction caused by the climate crisis,” he said.

That criticism came as BlackRock, a key backer of a number of climate initiatives at oil firms in the past, said it would support fewer of the proposals this year. Inadequate investment in energy and efforts to shift off Russian oil and gas were buoying profitability for fossil fuel firms, it said.

“This set of dynamics will — at least in the short and medium term — drive a need for companies that invest in both traditional and renewable sources of energy, and we believe the companies that do that effectively will produce attractive returns for our clients,” BlackRock said.

It said it would cast a sceptical eye on shareholder proposals imposing hard scope 3 emissions targets, cutting off financing to “traditional energy companies” or forcing oil and gas companies to decommission assets.

Exxon, Chevron and Shell will face shareholder votes over the coming week and a half calling on the oil majors to accelerate their climate ambitions. The track record so far indicates the votes are likely to go Big Oil’s way this year. (Justin Jacobs)

BP brings new green tech to the heart of oil country

BP today said it was planning a carbon capture and storage and hydrogen production project in Houston, Texas, joining a slew of proposed projects in the heart of America’s oil country to stuff carbon pollution back into the ground.

BP says it is working with Germany-based Linde, an industrial and chemicals firm, to capture the carbon from one of its hydrogen production facilities in Houston.

BP says it will try to bring other nearby industrial facilities into the project to create a CCS hub with the aim of ultimately storing up to 15mn metric tons of CO₂ a year from the region — the equivalent, it says, of taking 3mn cars off the road. BP says the project could start up by 2026.

BP’s US boss David Lawler said the project was a bet on Texas, the beating heart of America’s oil and gas industry, playing a key role in the shift to cleaner fuels.

“The energy expertise in Texas and strong supply chains have been generations in the making. This new low carbon energy project will help us leverage those strengths for the next chapter of the energy transition,” Lawler said.

The US Gulf Coast is emerging as a key test bed for major new CCS projects, a technology seen by the International Energy Agency and others as critical to meeting international climate targets but which has struggled to take off.

US oil supermajor ExxonMobil has laid out early plans for a $100bn project to capture and store CO₂ pollution from refiners and other industrial facilities along the massive Houston Ship Channel.

In March, it said it was moving ahead with a small part of that project with plans to capture emissions from its hydrogen production plant at its Baytown refinery in the area. The company said it hoped it would help “activate new markets for hydrogen and carbon capture”.

Earlier this month, Chevron joined the Bayou Bend CCS project, which had been led by Talos Energy, a Gulf of Mexico oil producer, and Carbonvert, a CCS-focused start-up. That project aims to capture emissions from plants in the refining hub around Port Arthur and Beaumont, near the Louisiana border, and inject them back into reservoirs for storage just off the coast.

The oil majors have put CCS and hydrogen at the heart of their low-carbon strategies, making the Texas projects a high-stakes bet on their vision for the energy transition.

They will hope the new crop of large-scale hubs will prove more successful than previous high-profile CCS test projects in Texas. In 2020, the high-profile Petra Nova CCS project, which sought to capture and store CO₂ from a coal-fired power plant outside of Houston, failed after $1bn of investment, including nearly $200mn of public funds.

Critics, including many climate campaigners, argue CCS is an expensive oil and gas industry pipe dream that will suck resources away from more proven technologies like wind, solar and batteries.

Despite the setbacks and criticism, CCS is getting a fresh look from policymakers. The US currently offers tax incentives, known as 45Q, of around $50 a tonne of carbon captured and permanently stored, and there are efforts in Washington to funnel more cash towards the projects.

CCS backers say more government support will be critical to push the new projects forward. Exxon’s chief executive Darren Woods has said a carbon price of around $100 a tonne would be needed for the big Houston Ship Channel CCS project to make financial sense. (Justin Jacobs)

Data Drill

Fifty-six US oil refineries are emitting unsafe levels of benzene, says a new study by the Environmental Integrity Project. Five of the 10 highest-emitting refineries are located in Texas. 

Benzene is a gaseous carcinogen released in the refining process. Long-term exposure to benzene can lead to a higher risk for leukaemia, anaemia and a weakened immune system, according to the Environmental Protection Agency.

“No amount of benzene is safe to breathe. Still, Texans are needlessly exposed to it — on top of dozens of other harmful pollutants and toxics,” Elena Craft, senior director of climate and health at the Environmental Defense Fund, said in a press release. 

Over 6mn people in the US live within three miles of a refinery. The EPA estimates that the share of people of colour and low-income individuals living near refineries is twice the general population.

Marathon’s Galveston Bay Refinery in Texas City emitted the most benzene in 2021, according to the EIP report. Sixty-two per cent of nearby residents are people of colour, and nearly half are low-income. 

Marathon said the Galveston Bay Refinery continues to take “aggressive steps” to reduce benzene emissions and cited atypical spikes for high annual averages. The company said that fence line monitors do not provide a proper measure of benzene levels in the community. 

Additionally, CountryMark implemented a corrective action plan of repairs and upgrades to reduce benzene levels below the EPA’s threshold of 9 micrograms per cubic metre. Shell said it was working with the EPA and the Louisiana Department of Environmental Quality and adding new technology and infrastructure upgrades.

“The company expects to be fully compliant again soon,” said a CountryMark spokesperson. 

Power Points