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1、J卜 HSBCGlobal Research21 May 2020Big Oils & ClimateActions will speak louder than wordsEquitiesOil & GasGlobal We look at Big OilsJ revised climate ambitions; six EU majors now aiming for long-term decarbonisation and/ or net zero5In our view the next 5 years of action could be a crucial litmus test
2、 for credibility and feasibility of strategies We discuss what net zero, looks like for an oil company in practice, and the challenges with Paris aligned5 aspirationsRecent wave of climate strategy revisions means ambitions are raised across the board in Europe, with the US now further behind. Weve
3、seen all six European lOCs in our coverage ramp up climate ambitions in recent months, with US companies sticking to existing (shorter-term) plans. The Europeans are now aiming for operational (scope 1- 2) *net zero* emissions by 2050 at the latest and have company scope 1 -3 ambitions entailing typ
4、ically 50% reductions, with some up to 100%.With the Europeans now more aligned, could actions rather than words be the differentiator? With European oils now not only all more ambitious, but also more aligned than ever, there are fewer (if no) obvious outliers. With less to differ between strategie
5、s, actions could speak louder than words in the next few years in our view.In the coming 5 years some lOCs could appear to be moving in contrast to long-term goals, potentially risking credibility of strategies. Upstream oil & gas volume growth or cuts to new energies spending could seem inconsisten
6、t with longer-term aspirations; making 2020-25 a litmus test for plans and highlighting the importance of short-term milestones (e.g. Repsol and Shell have 2022 targets).Big Oils not yet a play on the energy transition. We think it is too early to consider IOC stocks as a play on the energy transiti
7、on, but we believe their revised climate ambitions allow them to remain Investible1 and offer them the opportunity to demonstrate they can be seen as facilitators of change in the energy transition.We dissect the many shades of net zero, and Paris aligned9 pledges. We look at two increasingly used t
8、erms in shareholder resolutions and corporate strategies and weigh up the merits of each, including how definitional subtleties can change what we might interpret as meaning net zero5 or aligned with Paris goals.Gordon Gray*Global Head of Oil and Gas Equity ResearchHSBC Bank plcgordon.grayhsbcib +44
9、 20 7991 6787Tarek Soliman*, CFAAnalystHSBC Bank plctarek.solimanhsbc +44 20 3268 5528* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulationsCompanyRatingCurrSharePriceTarget PriceUpside/Dside2020e DY2021e valuationsP/EEV/CFFC Yld
10、BP (BP/ LN)BuyGBp320.840024.7%10.7%9.84.512.2%Chevron (CVX US)HoldUSD92.691.0-1.7%5.6%29.58.66.1%ExxonMobil (XOM US)HoldUSD45.348.05.9%7.7%28.78.23.2%Shell A (RDSA LN)HoldGBp1,3301,50012.8%3.9%10.05.010.1%Shell B (RDSB LN)HoldGBp1,2721,46014.8%3.9%10.04.610.1%Total (FP FP)BuyEUR33.139.2518.4%8.2%9.9
11、4.012.4%ENI (ENI IM)HoldEUR8.669.004.0%10.3%16.64.013.4%Repsol (REP SQ)BuyEUR8.6410.0015.7%11.2%7.84.114.2%Equinor(EQNRNO)HoldNOK144.7140.0-3.2%2.5%16.86.29.3%Integrated oils: HSBC ratings and valuation snapshotSource: Refinitiv Datastream, HSBC estimates; priced as at close 18 May 2020Disclosures &
12、 DisclaimerThis report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.Issuer of report: HSBC Bank plcView HSBC Global Research at: s :/ research, hsbc. comComparing BP and Total illustrates how net zero, ha
13、ve different meanings Two examples of net zero* IOC strategies that go beyond operational boundaries illustrate the differences in approaches:canTotal is looking to become net zero on a scope 1-2 basis globally, as well as net zero on a scope 1-3 basis for all of its production and energy products u
14、sed by its customers in Europe by 2050 (including products sold by Total but not produced by the company). BP on the other hand, is looking to become net zero vis-a-vis the full lifecycle (scope 1 -3) emissions of all its own operations and the emissions associated with the use of its own hydrocarbo
15、n production (the first two columns in the below chart).Both companies, strategies entail going net zero* on different measures and boundaries that each go beyond its own direct corporate activities - for Total this concerns all of the energy it produces and supplies in Europe (including others prod
16、ucts), and for BP it relates to the carbon emissions associated with all of its own (significant) oil & gas production. However, both strategies in their current form also mean the two wider businesses will still involve generating downstream carbon emissions that are not offset in 2050. For BP it w
17、ill be the handling, refining and distributing of energy sources from other producers that result in downstream carbon emissions. For Total it is some of its own scope 3 emissions footprint (as well as third party products) that is produces or sells outside Europe.Reaching a point where all emission
18、s from all company activities - i.e. operational emissions, end-use emissions from own production, as well as CO2 from sold but not produced energy (represented by the third column for BP in the chart below) are offset - is not currently part of any Oil Major strategy. CO2 emissions pa (m tonnes)Sou
19、rce: Company data, HSBC estimatesWhat will it take for Big Oils to reach to a measure of net zero beyond scope 1+2?Owing to the sheer size of the industrys total carbon footprint and the current limitations of the methods to reduce the carbon emissions in the end-use of hydrocarbons (where scope 3 e
20、missions occur), it will be a challenge for an oil company to aim to become net zero1 on a lifecycle basis, even on 30-year timeframe.Using BPs ambition as an example, this w川 imply reducing the lifecycle emissions from its own oil & gas production that throughout its value chain generates over 400m
21、 tonnes of CO2e annually (columns 1 and 2 above) to a point where remaining emissions can be offset.In practical terms, the journey to net zero, will require a number of actions that go beyond current industry efforts, such as:Net zero scope 3 ambitions imply materially lower absolute upstream volum
22、esCapturing oroffsetting CO? have capacity limitationsCCS and low-carbon fluids may only reduce scope 3 emissions by 25%Lower upstream hydrocarbon volumes produced- for example, we estimate that a 250kbd reduction in oil production could lead to a total scope 1 -3 reduction of 40-50m tonnes pa CO2e.
23、Development of lower-carbon liquid and gas products such as biomethane, hydrogen and biofuels which the IEA estimates could supply around 7mbpd worldwide by 2040 in a Paris- compliant scenario.Significant deployment of carbon capture and sequestration, itself more suited to use with natural gas rath
24、er than oil. For context, total current global CCS capacity is in the order of 50m tonnes COze pa.Removing or offsetting carbon elsewhere in the world to counterbalance own gross (and hard to abate) CO2 emissions - ENTs reforestation and CCS plans are the most ambitious by an oil company so far at o
25、ver 40m tonnes CChe pa by 2050 .Reduction of operational emissions (such as flaring / methane emissions, heat / power use) and greater deployment of zero-carbon electricity at its assets and facilities.The IEA estimates that a 25% reduction in scope 3 emissions intensity from oil & gas can come from
26、 greater use of low-carbon liquids / gases and CCS by 2040 (the second and third bullet points above) - highlighting limitations to some of the current levers.Another illustration of the magnitude of the task, if a company with scope 3 footprint of 350m tonnes of CO2e (broadly the scale of BP) did t
27、he following: i) reduced its upstream oil production by 500kbpd, ii) utilised the entire current global CCS capacity, and iii) embarked on the industrys currently most ambitious reforestations campaign; it would reduce its absolute net scope 3 footprint by around 50% (for context BP and Repsol are a
28、iming for a 100% reduction and Eni 80%).Source: Company data, HSBC estimates. NB: Exxon scope 3 emissions are an estimate based on peers emissionsIn our view, reductions of absolute scope 3 footprints towards net zero, or large reductions in scope 1-3 intensity, will explicitly entail a material red
29、uction in upstream volumes. We explore the magnitude of potential change required to meet assumed climate aims on pages 15-16.Measuring company alignment with the Paris goals remains trickyAn end goal of net zero by 2050 is the destination, but the journey to get there matters as wellAn end goal of
30、net zero by 2050 is the destination, but the journey to get there matters as wellThe request for companies to set long-term targets that are aligned to the goals of the 2015 Paris Agreement has featured in shareholder resolutions and investor engagement at recent AGMs - highlighting its importance t
31、o an increasing proportion of stakeholders.We recently discussed the challenges with reaching a firm conclusion on whether a long-term company strategy or ambition is or isnt fully aligned with the goals of the Paris Agreement (see page 33 of Big Oils and climate - Warming to the challenge (13 Janua
32、ry 2020). In this report we do not fundamentally change this view, but in light of more lOCs stating alignment with the goals of the Paris Agreement we explore some of the factors that we think investors may want to scrutinise given such assertions often involve subjective judgements and assumptions
33、.A reminder of the Paris Agreement objectiveThe Paris Agreement aims to keep the rise in global average temperatures to well-below 2 above pre-industrial levels and preferably to 1.5 in order to significantly reduce the risks and impacts of climate change. Although there is no top-down notion of wha
34、t countries and companies should do, the UNs climate science body, the IPCC, indicates the scale of reductions required. For 2, annual emissions in 2050 should be 40-70% lower than 2010 levels; for 1.5, emissions should decline by 45% by 2030 and reach net zero by 2050.Intensity metrics can be easie
35、r to interpret and compare, but cumulative absolute emissions budgets underpin Paris climate goalsWhile some companies (BP, Eni and Repsol) include absolute scope 3 reduction ambitions within their respective climate strategies, the majority of company long-term goals are measured on scope 1-3 inten
36、sity of energy supply in gCCh/MJ. This approach of measurement has several merits, but crucially, the overarching aim of the Agreement - to the limit average temperature rises - is underpinned by a finite cumulative absolute carbons emissions budget.While it is technically feasible that long-term co
37、mpany intensity reduction targets could be met with flat or increasing hydrocarbon output, global absolute emissions limits will require lower future oil & gas industry production. We therefore believe that an intensity goal should ideally either be paired with an absolute reduction ambition, or its
38、 trajectory and magnitude of reductions be derived from a sufficient limited absolute emissions footprint over time.Global cumulative emissions and remaining space in the 2 (carbon budget Estimated cumulative emissionsRemaining carbon budget Estimated cumulative emissionsRemaining carbon budgetEstim
39、ated cumulative Remaining 2 carbon emissionsbudgetParis alignment ideally starts with a carbon budget and work back to a company level implied level of actionSource: IPPC AR5, HSBC estimatesSource: IPPC AR5, HSBC estimatesSource: IPPC AR5, HSBC estimatesEmissions pathways that are compliant with Par
40、is goals are numerous and variable by their nature (see chart on next page) and global abatement of greenhouse gas emissions can evolve in a number of ways over time, even if they share a common goal of ultimately adhering to a given carbon budget. As such, Paris compliant carbon emissions trajector
41、ies are crucially not: i) binary, nor ii) static, and this introduces uncertainty and interpretation to deducing compatibility of company plans with long-term global climate aspirations.We highlight some key factors where assumptions can vary, potentially producing different conclusions or the outlo
42、ok for oil & gas in a Paris-compliant world:Pace of change. For example, emissions (from a company or country) could peak quickly and decline in a relatively controlled way, or, continue to rise for some time but then fall more sharply in future time periods to reach a defined absolute carbon budget
43、. Assuming the cumulative emissions from both trajectories are within a specified limit then both can be considered as Paris compliant. However we would note that expected pathways where action is more heavily weighted to the back-end of a given timeframe can be seen as potentially more risky as the
44、y imply a sharper acceleration in the pace of future action.An example of the many ways to reach a climate end goal40 Gt40 Gt-101.5 low overshoot19001950200020502100Source: Centre for International Climate ResearchParis aligned today, but not necessarily tomorrow. The evolution of the energy system
45、and the rate of carbon emissions over the coming years will determine whether levels of ambition or action set today (for 2050) will be sufficient to reach end goals at a point in the future - e.g. in another 10 years. That is to say, if the rate of industry or global carbon emissions accelerates th
46、is decade, or does not peak sufficiently quickly, then for an entity to be aligned with Paris may entail even more ambitious action than currently estimated (or vice versa).The IEA estimates that if coal use does not fall then oil volumes would need to fall to 30mbpd for a 2 outcomeEnergy and emissi
47、ons systems are interdependent. Oil & gas is not viewed in isolation, but part of a global energy system that decarbonises over time, and world emissions reductions can come from a range of levers. For instance the abatement of coal use is the single most impactful way to cutting energy system CO2 l
48、evels; and this makes how coal use evolves, or is assumed to act, important for the oil & gas outlook. For example, the EAs SDS (Paris compliant) scenario assumes a reduction in global coal use out to 2040 that results in CO2 saving of 11 gigatonnes - almost double that from oil & gas (6GT). This assumed trajectory of global coal consumption (among other fa