What does Russia’s exit from big oil mean for climate change?

Under political pressure to withdraw investments from Russia after its invasion of Ukraine, big oil and gas companies are announcing plans to sell assets and cut ties with the Kremlin, part of a broader effort to isolate the Russian economy.

It’s not clear what the terms of any disinvestment might be, and the final results are hard to predict. Here are five ways the rush to exit could affect oil companies’ climate plans and drive a wider push for clean energy.

funding the transition

Russia supplies about 27% of Europe’s oil and 41% of gas. By raising prices to new heights and prompting European leaders to seek energy independence from Moscow, the war in Ukraine could spark new momentum in efforts to transition to clean fuels.

Michael Grubb, professor of energy and climate change at University College London, said Shell plc and TotalEnergies SE are among European companies that may see the crisis as an opportunity to expand their low-carbon investments.

“I don’t see Shell going back – I expect the crisis to accelerate their investments in renewable energy and electricity, including electric-vehicle infrastructure,” he said. “The aggregate may react in a similar way.”

Shell declined to comment. TotalEnergies did not respond to a request for comment.

TotalEnergies, which is heavily exposed to Russian natural gas, has said it is looking at its future in Russia and will not invest further, but has not yet said whether it will divest. In 2020, Russia accounted for 24% of the company’s proven fossil-fuel reserves.

doubling

However, withdrawal from Russia does not necessarily lead to a strategic re-evaluation by the companies. For a start, a costly pullout could make companies less inclined to direct funding toward less-lucrative renewable or low-carbon projects—even at a time when they’re otherwise flush with cash. .

“Russian assets are “not as valuable as even two weeks ago,” said Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution, a research group.

Its decision to pull out of all joint ventures with Russia’s state-controlled Gazprom would cost Shell about $3 billion. The exit of a nearly 20% stake in state-controlled oil company Rosneft could potentially cost BP up to $25 billion.

Espen Erlingsson, head of upstream research at Rystad Energy, said energy companies won’t save money from a Russian exit, but they can free up resources that could go to other oil and gas projects. For BP, they may turn to projects in Africa and the Americas, while Exxon Mobil Corp, which is shutting down its oil-field operations on Russia’s Sakhalin island, plans to sell them further in the country. Can’t invest, can’t plow resources. Guyana and the US Permian Basin, he said. Exxon valued its Russian assets at about $4 billion at the end of last year.

Mr Grubb at UCL said, “If history is a judge, Exxon is most likely to react in the opposite direction: further increasing its investment in fossil-fuel reserves, perhaps moving forward.” [liquefied natural gas] Russian outside the classroom.”

BP and Exxon declined to comment.

leaking talent

The departure of Western oil companies from Russia will have non-financial implications. Andrew Logan, senior director for oil and gas at sustainable-finance nonprofit Ceres, said companies outside of Russia have helped develop some of the country’s most technically challenging oil and gas assets.

Withdrawing this information from the country could affect the progress of oil and gas projects in challenging environments such as the offshore Arctic, which are critical to the expansion of Russia’s energy industry, he said. In theory, the disruption could be a long-term headwind, he said.

“Without the technical expertise of Western majors, Russian supplies will be constrained, likely to keep oil and gas prices high and provide a strong economic incentive to switch to low-carbon alternatives,” Mr. Logan said.

new emissions risks

On the other hand, Mr Logan said the loss of expertise in Russia could undermine efforts to limit emissions of methane, a potent greenhouse gas that leaks from fossil-fuel infrastructure. According to the International Energy Agency, Russia is the world’s largest emitter of methane in oil and gas production.

“There is a real risk that the Russian oil industry could uncover a torrent of methane that threatens global progress in reducing greenhouse-gas emissions,” Mr. Logan said.

This reflects a wider risk – that the transfer of oil and gas assets to operators with less-ambitious climate plans, or those subject to less scrutiny, could increase emissions.

Ms Gross at Brookings said Exxon had some incentive to reduce emissions at the Sakhalin 1 oil and gas project in the Russian Far East. It was the operator of the assets as well as a minority owner, and the company’s pledge to reach net-zero emissions by 2050 covers the properties it operates. It is only a voluntary pledge, but the next owner may not be subject to that pressure, Ms Gross said.

“This is an example where the new [owners] There may be different emissions-reduction plans,” Ms Gross said.

Little impact on climate goals

In general, however, experts said the exit would not have much impact on the companies’ climate-change plans, as their Russian operations were not always fully involved in their carbon accounting and accounted for a large portion of their business. were not responsible. ,

The biggest sale will be BP’s roughly 20% stake in Kremlin-controlled Rosneft, which was valued at the end of last year for about $14 billion. But BP never reported emissions arising from its stake in Rosneft or included them in its emissions targets, a BP spokesman said. Shell, however, incorporated its Russian bet into its net-zero plan.

“The impact on sustainability strategies for these companies will be limited,” said Rystad Energy’s Mr. Erlingson. Still, he said BP’s gas production will no longer grow at the rate it had previously expected, changing the company’s sustainability profile.