CVX Chevron Corporation

By Bradley Olson 

Chevron Corp. said in a new report that a global transition to lower-carbon energy sources poses a minimal risk to its operations, a response that follows growing shareholder demand for more disclosure on climate risks.

Dramatic global action to limit the effects of warming temperatures wouldn't harm Chevron's assets because the oil giant is investing in lower-cost opportunities, according to the report, which was quietly posted on the company's website Wednesday evening. Such a scenario could render costlier projects uncompetitive, the company said.

"We understand the concerns out there," Chevron Chief Executive John Watson said Wednesday in an interview, adding that the company felt a need to be responsive to shareholders.

Last year, a shareholder resolution pushing Chevron to examine what the specific impacts would be on its operations in the event of a major, concerted effort to curb global emissions garnered about 40% of votes cast. The ballot measure for a so-called "climate stress test" prompted Chevron, the second-largest U.S. oil company, to produce a report detailing its views on "climate risk."

Mr. Watson, a vocal proponent of free trade and free markets who opposes a carbon tax, said Wednesday that he was uncertain that some proposed interventions to respond to climate change will be effective. He questioned who will pay for some developing countries to reduce emissions as outlined in a global climate pact made in Paris in 2015.

"I'm interested in policies that are going to be effective," he said. "I just don't think some of the things we're doing are going to work."

The push for Chevron to make such a climate assessment, which the company resisted last year, comes as some global energy leaders have voiced skepticism this week about whether oil demand will soon peak and threaten the viability of future drilling prospects.

In a public appearance Wednesday at the annual CERAWeek conference in Houston, Mr. Watson said such forecasts represent "wishful thinking." Energy demand will remain robust because billions of people around the world will in time enter the middle class, he said.

Concerns that demand will peak are misguided, Khalid al-Falih, Saudi Arabia's energy minister, said Tuesday. Such a discussion could discourage "trillions of dollars of investment" that will be needed to meet supply needs in the coming decades. Other chief executives such as Hess Corp.'s John Hess made similar comments.

Such views, however, weren't universal at the gathering. Ashok Belani, the executive vice president for technology at oil-services giant Schlumberger Ltd., said Monday that the rate of adoption of electric car use could "surprise to the upside."

"It is definitely going to affect our lives," he said. "It's obviously a phenomenon worth watching."

Some large oil and gas companies are taking a more progressive approach to the potential impact of climate change on their business.

In a report published Thursday, Norway's Statoil set a target for carbon dioxide emissions reductions of 3 million tons a year by 2030. The company has already announced plans to shift around 15%-20% of its capital spending to renewables and other low carbon alternatives to fossil fuels over the next decade.

Royal Dutch Shell PLC also announced plans on Thursday to bake greenhouse gas management in its operations into its executive remuneration policy.

In October, Shell's Finance Chief Simon Henry said the company sees oil demand peaking in five to 15 years. The question is hotly debated among energy producers, since many point to outside forecasts such as that by the International Energy Agency that see oil demand rising through 2040.

Chevron's conclusions that its assets aren't vulnerable to climate reform efforts resemble the views of many industry players, including Exxon Mobil Corp. In 2014, Exxon found that none of its reserves "are now or will become stranded," or left untapped due to new regulation or falling demand.

Even under an International Energy Agency scenario that imagines energy use as it would unfold under tighter emissions constraints, oil and natural gas will still meet 44% of global demand by 2040, according to the report. Chevron noted that the Paris-based agency also estimates that about 60% of the $44 trillion that will be invested in energy supply through 2040 will go toward fossil fuels.

Those analyses point to plentiful demand, the company said. If global enforcement measures stemming from the Paris climate agreement take hold, Chevron's internal process for evaluating assets will allow them to avoid choosing any high-cost investments that new regulations or changes in energy use would make unprofitable.

Some companies that have produced reports on such risks have acknowledged that drastic climate action would reduce profits. Australian mining conglomerate BHP Billiton Ltd., which operates extraction businesses in oil, gas and coal, in addition to other commodities, said in 2015 that a "shock event" leading to rapid emission reductions could bring about a modest reduction in potential earnings by 2030.

On Wednesday, Mr. Watson expressed frustration that energy companies and investors or activists that are concerned about climate impacts "are talking past each other," saying he doesn't believe the different sides have begun a true dialogue about the potential solutions to climate change and their likely costs and trade-offs.

Write to Bradley Olson at Bradley.Olson@wsj.com

(END) Dow Jones Newswires

March 09, 2017 10:29 ET (15:29 GMT)

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