10 November 2020
With major investment decisions on new gas projects expected in the next two years, shareholders attending Central’s annual general meeting today wanted to know if the company is manging the risk that its gas projects will be left stranded by the transition to a low-carbon economy.
Leading Australian scientists have confirmed that meeting the Paris climate goals means “the time has passed for any new fossil fuel infrastructure, including the proposed expansion of the gas industry in Australia”.
Yet Central Petroleum plans to triple its gas reserves and continues focus on new exploration and development projects.
Despite claiming in its annual report to “ensure our gas portfolio is robust is robust in a potentially carbon constrained market”, Central today failed to confirm that the company stress tests its capital expenditure and production plans against a scenario in which global warming is limited to 1.5°C.
When this question was put to the company, CEO Leon Devaney said it was “very difficult to evaluate an expected future scenario” before going on to speak about the company’s operational emissions, which pale in comparison to those generated when its gas is burned by customers. These downstream emissions represent by far Central’s greatest exposure to climate change transition risk. By failing to stress test investment decisions against a 1.5°C scenario, Central is failing to appropriately manage that risk.
Central’s annual report also states that Central uses assumptions regarding future commodity prices and also the possible impact of climate risks when determining expected future cash flows.
When pressed on this statement though, company CFO Damian Galvin stated the company doesn’t have “any specific climate impact that we take into account”.
Perhaps the best indication of Central’s climate expectations can be drawn from Mr Galvin’s revelation that the company uses a long term oil price assumption of US$62 per barrel when assessing the value of its assets. This price is well above what can be expected under a scenario in which global warming is limited to 1.5°C.
Even the International Energy Agency’s Sustainable Development Scenario, which gives just a 50% chance of limiting warming to 1.65°C, sees oil prices falling from $57/barrel in 2025 to US$53/barrel in 2040.
By comparison to Central’s bullish fossil fuel projections, BP uses a long term oil price assumption of US$55/barrel and has committed to cut oil and gas production by 40% by 2030.