Tag: Commodities

The proposal neither defined precise timelines nor imposed methods for doing so. Chevron already has in place Scope 1 and 2 reduction targets for 2028. Scope 3 emissions present a different challenge, however, given their relative amount and the fact they occur during use or combustion of oil and natural gas that takes place outside the company’s control. In 2019, Chevon’s Scope 3 emissions composed 91% of its emissions from total products sold.

Our research suggests the only currently feasible, scalable method to reduce Scope 3 emissions is through reduction in production through decline or divestment. Otherwise most any use of oil and natural gas, except as chemical feedstock, will produce Scope 3 emissions. Carbon capture could potentially do so for natural gas when used for power generation but currently lacks the scale and economic viability. Otherwise, new and emerging technologies would need to be developed.

Given the proposal calls for a reduction in Scope 3 emissions, not a reduction in Chevron’s emissions intensity, investment in renewable power would not suffice, either. Divestment, however, only reduces the company’s emissions and does nothing to address global net emissions.

A proposal for Chevron to produce a report on whether and how a significant reduction in fossil fuel demand, envisioned in the IEA Net Zero 2050 scenario, would affect its financial position and underlying assumptions just failed to pass, garnering 48% of votes cast.

Profile

Chevron is an integrated energy company with exploration, production, and refining operations worldwide. Chevron is the second-largest oil company in the United States with production of 3.1 million of barrels of oil equivalent a day, including 7.3 million cubic feet a day of natural gas and 1.9 million of barrels of liquids a day. Production activities take place in North America, South America, Europe, Africa, Asia, and Australia. Its refineries are in the U.S. and Asia for total refining capacity of 1.8 million barrels of oil a day. Proven reserves at year-end 2020 stood at 11.1 billion barrels of oil equivalent, including 6.1 billion barrels of liquids and 29.9 trillion cubic feet of natural gas.

Source:Morningstar

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General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

To drive earnings growth, Origin developed the Australia Pacific liquefied natural gas, or APLNG, project, which started exporting LNG from Queensland in 2016. But the project saddled the firm with too much debt and earnings have disappointed because of the low oil price. We forecast a sharp deterioration in earnings and credit metrics in fiscal 2021 on lower oil prices and headwinds in the utility business.

Key Considerations

• Profits are supported by the relatively defensive utility business, while the oil price is a swing factor.

• The massive Australia Pacific LNG project should generate strong cash flows in fiscal 2020 but recent falls in oil and spot LNG prices suggest major downside in 2021.

• Origin’s credit metrics are forecast to deteriorate significantly in 2021 and could require remedial action.

• Origin’s energy markets division is one of Australia’s largest energy utilities. It has some competitive advantages from being a major player in the concentrated national electricity market, or NEM, and vertical integration. But its generation fleet lacks cost advantages to major peers, and it’s difficult to build a moat in the competitive retail market.
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  Origin is one of the largest energy retailers in Australia, with more than one third of the market. Energy retailing is not a moat business, as the product is commodity-like, while barriers to entry and customer switching costs are low.

• The Australia Pacific LNG project is the largest coal seam gas to LNG project in Australia and could significantly increase earnings if oil prices strengthen.

• Origin’s energy retail business is the market leader and should benefit from cost-saving initiatives. OOrigin’s cash flow base is diversified, and the company is less susceptible to the vagaries of the market than a nonintegrated energy provider.

• The value of APLNG is highly uncertain, given volatility in the oil price and the relatively high operating and financial leverage.

• Falling wholesale electricity, gas and carbon credit prices have created a headwind for earnings. Retail price caps and competition should force Origin to pass lower wholesale prices through to customers.

• The oil price slump should hurt earnings and credit metrics in 2021.

 (Source: Morningstar)

Disclaimer

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.