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Cybersecurity: the knock-on cost of digital efficiency

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Cybersecurity: the knock-on cost of digital efficiency

by Gaurav Sharma, July 26, 2019

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picture: Bloomberg

The oil and gas market slump of 2015 brought extra pressure to bear on majors to reduce their breakeven barrel price. The quest for deeper efficiencies included a tidal shift toward digitalisation. According to Gaurav Sharma, vulnerable systems are in urgent need of upgrading and require constant protection at an estimated cost of $40 billion plus per annum. With existential external factors already putting the squeeze on investment, the growing prospect of cyberwars between rival companies is an unwelcome consequence of what was supposed to be a cost saving exercise. Meanwhile, tech giants and consultancies hear the tills ring out…

When it comes to the adoption of advanced digitisation that spreads well beyond back office corridors, the oil and gas sector in many ways lagged behind the other sectors of the economy such as retail, logistics and banking.

However, all of that changed in the summer of 2014 when the oil price decline subsequently morphed into a full-blown market slump in 2015. It triggered a drive, especially by European and US oil majors and selected national oil companies to up their efficiencies and lower their breakeven price said to be lurking around $60 per barrel industry averages at the time.

In came data premised machine learning, artificial intelligence, rig automation and all sorts of gadgetry such as sending drones in place of human beings to inspect refinery masts and pipelines. However, for an industry with a lot of legacy infrastructure, ownership of new digital assets is amplifying its cybersecurity headache, which has always been a pretty significant one to begin with, if you believe industry insiders.

Forget the new digital wave, older deployments – in some cases pretty unsecure – continue to be a source of anxiety. In 2018, investigations suggested key US refineries were still running plant control systems on Microsoft WindowsXP; an operating software the company no longer updates or provides patches for.

Hackers are rubbing their hands with glee

What’s more, Windows 7, which is also in use in many midstream and downstream control systems that haven’t been upgraded, is slated to be junked by Microsoft in January 2020. Hackers cognisant of this are rubbing their hands with glee, according to several on and off record conversation held by Energy Post at Ignite 2019, a recent annual conference in Oslo, Norway organised by oil and gas data and software firm Cognite.

The company’s co-founder and Chief Executive Officer John Markus Lervik noted: “It is not just the Americans. You will find plenty of plant control systems at European hubs still using legacy systems. Most cyber breaches never reach public domain given the critical nature of oil and gas infrastructure.”

However, that does not imply that awareness is lacking or efforts are not being made. Lervik recounted a CEO of a “major oil company” expressing concern and initiating mitigation measures to tackle the issue of legacy, secure data storage and security of assets as early as 2009.

“Every company has its own operational considerations, and as such its own approach and level of comfort when it comes to a wide range of issues ranging from system upgrades to cloud computing and storage.”

No going back

Since digital techniques are improving throughput at plants and production upstream, there is no going back, said Torbjørn F. Folgerø, SVP and Chief digital officer of Equinor.

“The oil and gas industry has to recognise the fact that there are actors out there wanting, ready and willing to cause harm. We need to be on top of our game as a global industry. By the argument, the default operating psyche should be that there is always room for improvement and we have to be a bit paranoid.

“Equinor deploys industry best practices for detection and protection against cyber attacks, but most important are our awareness campaigns for personnel and partners. Don’t forget that many breaches are a result of human errors, from something as simple as the inserting an infected USB stick to usage of unsecured equipment.”

Folgerø said resource maximisation is the industry’s primary objective, and with big data, AI and automation being key enablers in an optimisation drive that was inconceivable as recently as 10 years ago, the cybersecurity challenge is one the industry “has to live with.”

Opportunity for solutions providers

Given that hardware vendors like ABB, Schneider Electric, Emerson and Honeywell, promote that lifestyle peppered with advanced analytics, digital plant control systems and automation, it is manifestly apparent they are the ones leading the cybersecurity charge, eyeing billions in revenue.

In October 2018, Honeywell launched its dedicated cybersecurity consulting outfit. ABB offers its own customer solutions, Schneider and Emerson have dedicated “industry consultants” too. They are not alone; the global consultancies are at it as well. For instance, EY has a dedicated unit to help oil and gas clients “develop an effective cyber breach response plan that encompasses every point of interface, internally and externally.”

A spokesperson said EY’s idea is to ensure “customers’ digitalisation strategy is simultaneously implemented with a robust cybersecurity framework.” The consultancy’s recent global information security survey of 40 oil and gas industry heads found 60% have had a “recent significant cybersecurity incident”.

Six key issues have come to the fore, according to EY. They include the importance of employee awareness; need for board-level attention to threats; reputational risk; need for a skilled cyber workforce to keep pace with evolving threats; rising challenges as a result of Industrial Internet of Things (IIoT); and of course, the financial impact of breaches.

Where vendors and consultants can venture, data custodians and cloud computing enthusiasts can hardly be left behind. Enter the biggest of them all – Google. Darryl Willis, Vice President, Oil, Gas & Energy at Google Cloud, believes third party cloud services providers simply have to be trusted in the age of evolving cyber threats.

Reassuring industry participants at Ignite 2019, Willis said: “For us at Google your keeping data safe is our licence to operate. We obsess about security because our corporate customers are counting on us to do that very, very well.”

As the industry goes for fast, agile and yet secure solutions to optimise efficiencies, cross spectrum partners would be crucial, he added. Add it all together, and you have a mushrooming multibillion oil and gas cybersecurity dollar industry.

Who’s paying the bill?

Big question is what’s the petrodollar spending on it likely to be? Aggregation of figures cited by industry respondents at Ignite put 2018 spending in the region of $40 billion “designated for cybersecurity”.

Most in Oslo opined that the figure would rise by over 10% on annualised basis in 2019 to around $45 billion in 2019; given geopolitical tensions in the Middle East have raised the prospect of an escalation of cyber wars in the MENA region with many economies reliant on the oil and gas revenue.

However, the actual figure could well be higher as a number of oil and gas companies include spending on cybersecurity in their overall IT infrastructure costs. Some even include it in a rather archaic fashion in their administrative costs.

Most industry sources, including global industry consultancies, project cyber protection costs to rise exponentially to 2025, something the oil majors have been bracing for a while. It is worth remembering, the figure of $40-45 billion per year may appear high but the energy industry’s exposure is still small in relative terms to sums currently (and historically) spent globally by sectors such as banking and retail.

The differentiator is that both those sectors can, and do, pass costs indirectly on to consumers in the guise of differentiated products and services. For the energy industry it is all about selling precisely that, whether via pump or plugs, and passing cyber costs on is not so simple. So costs are inevitably coming out of headline profits, and marked against return on investment from digital techniques improving throughput resulting in higher upstream and downstream revenue and lower breakevens.

And during the financial year, cybersecurity spending – where differentiated for accounting purposes – is being included in operating expenditure. What’s unmistakable is that spending is clearly visible on most industry balance sheets, and is only going to get higher.

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OPEC is driving itself to irrelevance with farcical aplomb

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OPEC is driving itself to irrelevance with farcical aplomb

by Gaurav Sharma, July 2, 2019

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It took months of delays but even before the cartel’s latest ministers meeting began in Vienna, the Saudis and Russians rendered it meaningless by largely deciding an outcome that failed to surprise the market…

Not that long ago, a meeting of the Organization of Petroleum Exporting Countries (OPEC) carried great weight in the global energy market and was accompanied by intense anticipation. The powerful oil producer’s cartel at one point held over a third of the international crude market share and its decisions, often resulting in a cut or uptick in members’ production, dictated the direction of oil futures.

But these days it is a changed world, and the latest farce at its Secretariat in Vienna, Austria offers ample proof of that. Buffeted by rising oil production in the United States, once one of its key customers for over 50 years and now the world’s leading producer, the cartel’s demeanour appears to resemble that of a rabbit caught in the headlights.

As incremental American barrels drove the price of oil down, triggering the market slump of 2015-16, OPEC shook hands with Russia, and nine other OPEC producers, back in 2016 to – in its own words – “rebalance the market.”

Fast forward three years, and let alone rebalancing the market, even putting together a ministers’ meeting has become arduous given it has multiple stakeholders to please in the backdrop of Saudi-Iranian tensions and consideration for its new ally Russia.

The latest meeting – its 176th – was due to take place in April but was postponed to June, with Iranian, Russian and Saudi wrangling pushing it forward to finally take place on July 1-2. Then even before the ministers met, Saudi Crown Prince Mohammed Bin Salman and Russian President Vladimir Putin declared at the G20 Summit in Osaka, Japan that they were willing to rollover the OPEC and non-OPEC cuts of 1.2 million bpd by at least another six months, and “preferably” for nine months.

No surprises

In the end, when the commotion subsided in Vienna at the conclusion of proceedings on July 2, that is exactly what happened. The production cuts were rolled over to March 2020. As far as the market goes, it did not matter anyway with most analysts pricing in precisely such an outcome and not anticipating any significant upside for the front-month oil futures contract.

That is because the strategy largely put in place by Riyadh and Moscow has no viable exit clause. The official reason given for the cuts in 2016 was that the move was all about balancing global oil inventories, and not about supporting the oil price.

Back then OECD’s inventories averaged 3.051 billion barrels in 2016, fell to 2.991 billion and 2.839 billion barrels in 2017 and 2018 respectively, but are projected by the EIA to rise to 2.936 billion barrels in 2019 predicated on a rise in US production.

However, by OPEC’s own admission the cartel is still shy of meeting that objective by 22-25 million barrels. With OPEC members Libya, Iran and Venezuela exempt from the cuts, the remaining 11 members’ cuts have brought headline production down to 30.17 million bpd, going by S&P Global Platt’s latest survey.

Given total global oil demand is just south of 100 million bpd, that gives OPEC a share of less than 30% for the first time in nearly three decades, when the British and Norwegian sectors of the North Sea were pumping crude at a canter. While OPEC continues to lose market share and pump less, US crude is gleefully replacing it.

According to data published by US Energy Information Administration (EIA), the country produced 12.4 million bpd in May and is well on track to touch or even cap a level of 13 million bpd. Unrestrained by the shackles of production fixes and cartels, more and more US cargoes are heading to Asia not only replacing declining light crude production in Malaysia and Indonesia, but compelling major Asian importers to alter their refining complex from heavier OPEC crudes to lighter US crudes.

Faced with this dynamic, and a challenging global economy beholden to US President Donald Trump’s Twitter account and his penchant for trade wars, OPEC’s response was pretty lacklustre.

Saudi Oil Minister likened US shale production to the rise and peak of the North Sea; quipping that the shale revolution will “fade.” Be that as it may, few expect the decline rates to kick in before five to seven years, and even the International Energy Agency (IEA) disputes that.

In any case, the North Sea analogy was a pretty strange one, given it took the region four decades to peak by 1996-97, and is still going over 20 years later. It is doubtful OPEC can hold its nerve for an extended period of five years, let alone 40.

As for using global inventories levels as a gauge, well that seems to be on its way out too with ministers saying perhaps backdated 2010-2014 averages might be better. No clues were offered about the exit strategy either.

Non-binding charter

Instead, a “charter” affirming OPEC and non-OPEC relationship was published, only to be immediately derided by the Iranian delegation as “non-binding.” Buttressed by Trump’s sanctions, Iranian Oil Minister Bijan Zanganeh also uttered what is on every analysts’ mind – that “bilateralism and unilateralism” by some risked undermining and imploding OPEC, an apparent dig at Riyadh and Moscow.

Given that OPEC has not published individual members’ quotas for over a decade, apart from the dispatches of data aggregators such as Argus and S&P Global Platt’s, and surveys by newswires such as Reuters, there is little way of “officially” ascertaining who is cutting what.

As usual, the Saudis have and would continue to bear the bulk of the burden, and canny Russia has OPEC right where it wants it. From the market’s standpoint, 10 Russian-led non-OPEC members are already now included in the weighing-up of OPEC’s impact for which no charter was needed.

The Kremlin can single-handedly unravel the agreement to leave OPEC facing severe headwinds, albeit at a cost to itself too but nothing of the magnitude of what the cartel’s members would face. In any case, Russia’s cuts – quite like many OPEC members – are not all that in sync with its pledges, with likes of Iraq, the United Arab Emirates and others doing the same at various points since 2016 to date.

On the face of it, since OPEC does not appear to have any alternative plans, sooner rather than later, the cartel will have to acknowledge the fact that it is stuck in a production cycle that it cannot extricate itself from. While the realisation of that has probably sunk in – the dilemma of either protecting its market share or supporting the oil price has yet to be confronted amid rising anxieties about its own relevance and no visible upside for the $60-70 per barrel Brent oil price range on the near horizon.

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Russian – EU – Ukrainian gas talks: don’t believe the hype, it’s (almost) business as usual

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Russian – EU – Ukrainian gas talks

Don’t believe the hype, it’s (almost) business as usual

by Zuzanna Nowak, May 3, 2019

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Russian Energy Minister Alexander Novak (L) and European Commission Vice President Maroš Šefčovič in Berlin, Germany 2018

The bilateral Russia Ukraine gas transit contract expires at the end of this year bringing the potentially conflicting interests of both parties and the EU into focus. The EU will be acting in the interest of those member states directly affected as well as having a role in avoiding tensions affecting its neighbour Ukraine. Cue much speculation from interested and neutral observers alike. Zuzanna Nowak, independent researcher and commentator, sums up the state of play for Energy Post.

The IFRI’s recent “Edito Energie” on Russia-Ukraine gas relations depicts a dramatic scenario for the coming months. Their premise is that with little more than half a year to go until the end of the Gazprom – Naftogaz gas transit contract, there are still far too many big outstanding uncertainties regarding the future of Russian gas supplies to Europe and their impact on gas markets. It describes a plot full of pitfalls creating tensions with the climax of the conflict set for “one second to midnight”, just as the bilateral gas transit contract expires, on the 31 December 2019.

All very exciting! But in the sober light of day, whilst the situation is certainly multi-faceted, I don’t see it as perilously poised as the IFRI makes out. To begin with, the possibility of emotions running high, as in the 2006, 2009 and 2014 Ukraine-Russia gas crises, is relatively low for the following reasons:

  • The timing of the termination of the Russia-Ukraine gas contract – during the winter of 2019, the heating season – comes as no surprise to any of the parties
  • Its proximity to the aftermath of 2019’s Ukrainian and European elections likewise and
  • The controversies and impediments which have dogged the Nord Stream 2 project (Russia’s de facto backstop) have become part and parcel of the gas debate for years already

In short, it has been known for months, or even years, that just such an uncertain political setting would provide the backdrop to the new trilateral Russian-Ukrainian-European talks.

The fact that each of the participants has had plenty of time to prepare its negotiating position and implement supportive measures is clear from the footing of the respective players:

The EU: maintaining stability in gas supply, and in politics

It seems that the European Union has learnt the lessons from the previous Ukrainian-Russian gas crises. Not only in theory – through improvements to legal (e.g. Security of Gas Supplies Directive), ideological (e.g. Energy Union) and financial (e.g. Connecting Europe Facility funding) instruments, but also in practice. Construction of new LNG terminals and gas interconnectors between the EU member states have to a large extent responded to the gas market security gaps identified during the 2014 stress tests.

Europe is less and less vulnerable to gas supply disruptions and would probably be able to cope with a potential “no transit” scenario next winter. However, due to geopolitical issues and the importance of Russia’s share in the European gas portfolio, its member states remain divided over the question of the need for diversification from Russian gas supplies. These issues can be critical because natural gas has such an important role to play in the European energy transition.

The EU is involved in the Russian-Ukrainian negotiations for two principal reasons. First, it has a fundamental need to protect security of supply since numerous member states, mainly in Central and Southeast Europe are beneficiaries of the Russian gas transited through Ukraine. Second, in the spirit of neighbourly solidarity, it supports gas market reforms in Ukraine that are in line with its own regulations. In addition to this, the EU sees itself as having a peacekeeping role on the International stage (sealed with a Noble Peace Prize) and will wish to maintain its credibility as a mediator. These are broad lines and whoever takes the role of the European negotiator after Maroš Šefčovič will have to follow them. The devil is in the detail: it will take an experienced European mediator to influence the process and terms (duration, volumes, tariffs, etc.) of any new agreement. Otherwise, European involvement will have a purely political dimension.

Russia: in no great hurry

Russia produces enormous volumes of gas which, due to their location, are intended for sale in the EU via pipelines (at least as long as LNG infrastructure is under development). And Europe needs that gas. Hence, Russia participates in trilateral talks with the EU and Ukraine for two main reasons. First, it wants to export its gas to the EU and even increase its market share (as a source of federal budget revenues and a means to keep its sphere of influence), while maintaining a reputation as a reliable and trustworthy partner. Second, Russia wants to avoid further reliance on Ukrainian gas transit but is not yet sure of the outcomes of the European and US proceedings against Nord Stream 2. Trilateral talks on the Ukrainian route constitute Russia’s “Plan B” for any further Nord Stream 2 setbacks.

Russia’s stance on the trilateral talks is the most predictable, as internally there are no political, gas market, nor export policy changes expected any time soon. It is clear that Russia could use the Ukrainian route only under very strict conditions, most probably related to short term contracts, flexible volumes, low prices and international guarantees for transit. But the Russians are not in a hurry. Not only will they hold back from reaching agreements before the end of the year but could even opt to frustrate negotiations until either Nord Stream 2 becomes operational, or Europe (in need for gas) and Ukraine (in need for pressure in its pipelines) ask for Russian help. That is to say – Russian gas.

Ukraine: lots to gain, lots to lose

Ukraine arguably sits at the negotiation table with the weakest position, troubled by war, with a fragile economy, and in the midst of electoral games. Unfortunate for Ukraine since they have the most to gain.

Ukraine is out to secure a significant share of its own energy demand. Furthermore, it also needs Russian transit gas as a source of revenue, as a physical link with the European Union, and, as it claims, as a protection from further Russian aggression. However, motivation and experience from previous gas disputes were not enough for the reform of the Ukrainian gas market to succeed (e.g. unbundling, creation of a TSO, etc.) and protect the country from a new gas crisis. There is no great chance that Ukraine will manage to go smoothly through the next winter unless trilateral negotiations bring an agreement in early January at the latest and/or the Nord Stream 2 operation is postponed.

Therefore, Ukraine works actively on both fronts, fighting fiercely against Nord Stream 2 construction and looking for European support in the gas talks.

Ukraine has begun negotiations with a very clear message, that any new agreement with Russia will have to comply with European legislation, Gazprom will have to obey arbitrage rulings, pay the compensation claims (with the possibility of reduction if the terms of the agreement are satisfactory) and accept Naftogaz’s high transport tariff. The truth is that Ukraine will most likely have to revise its expectations (in the name of European values).

Is a Ukraine-Russia gas crisis on the horizon? The IFRI publication rightly points out that the end of the year will be fraught thanks to numerous uncertainties. But, stemming from an analysis of the three parties’ attitudes and positions, even worst-case scenario(s) should not lead to high drama. Since all three parties have learnt lessons from the past, the end of the year will most likely be a common headache than a crisis.

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Green Oil: second wave of investment in low-carbon assets is substantial but hardly tidal

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Green Oil: second wave of investment in low-carbon assets is substantial but hardly tidal

by Mike Scott, March 8, 2019

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Equinor's Hywind floating wind installation, Scotland

Oil majors are under significant pressure from investors to develop climate-friendly business areas but less than 1.5% of their combined investment budgets is expected to go into low-carbon assets globally this year. However, 70% of that is set to come from European oil companies who are reacting positively to market signals by participating in coordinated industry schemes designed to help meet Paris targets. Here is an overview of some of the more significant investments which, according to Mike Scott, are indicators of a permanent, growing green shift in the portfolios of these household-name giants.

The oil and gas sector has embarked on a second wave of green investment, a decade or so after abandoning a push into renewables that was spearheaded by BP’s Beyond Petroleum campaign, as the financial crisis hit and the oil price plunged.

There is so much happening, it is difficult to keep up. Here is a snapshot of recent activity:

  • Shell recently announced it wanted to double its investment in renewable energy to up to $4bn annually, having recently invested in solar power, wind farms, electric car infrastructure and even a utility, the UK’s First Utility. In the first two months of 2019, it has invested in Autogrid, which uses artificial intelligence to make energy systems more flexible; US electric vehicle charging group Greenlots; Nordsol, a producer of bioLNG; autonomous driving company Aurora; Makani, a company aiming to generate wind power using kites; a demonstration project for a floating wind turbine; and sonnen, an energy storage company. And most recently, it bought UK-based Limejump, a virtual power plant company that will boost its position in demand response.
  • BP’s joint venture with DuPont, Butamax, has developed technology that converts sugars from corn into an energy rich biofuel known as bio-isobutanol. It has more than 1GW of wind power capacity in the US, and in 2018, it bought solar power developer Lightsource, and UK EV charging company Chargemaster. (image: BP’s Butamax biofuel investment)
  • Total has been involved in solar power since 1972. It bought SunPower in 2011 and covers the entire solar value chain, from manufacturing solar cells to installation. In 2016, it bought Saft, a leading provider of energy storage solutions. It has also been involved in biofuels since the 1990s and has opened France’s first biorefinery at La Mède.
  • Italy’s Eni is investing €1.2bn to install 1GW of renewable capacity by 2021, and it aims to have installed capacity of 5GW by 2025, mainly in PV and wind, but also in concentrated solar power, biofuels and green chemistry.
  • Equinor plans to devote 25% of its R&D budget to renewables by 2020 and to invest $1bn a year in renewables to 2030. It is one of the biggest players in offshore wind and is developing the world’s first floating offshore wind turbine project, Hywind. It has been storing CO2 in its Sleipner gas fieldsince the 1990s and it is one of the world leaders in CCS research. In solar, it has invested in Oxford PV, a leader in perovskite technology, which could lead to greater efficiencies, and Convergent Energy + Power, which develops solar and storage projects.
  • Exxon has a $500m joint venture with Synthetic Genomics to genetically engineer photosynthetic algae to produce renewable crude from sunlight and carbon dioxide, but even though it has been investing in this area for decades, there have so far been few results.It is part of a $1bn a year programme of basic research in low-carbon technologies. Last year, it signed the biggest renewable energy power purchase   agreement of any oil and gas company, to buy 500MW of wind and solar in Texas, which it will use to produce oil.

  • Chevron has invested in solar, wind and geothermal, as well as renewable diesel but only at a small scale to evaluate the technologies.

The summary League Table above presents headline company findings. It is based on detailed analysis across a range of carbon and transitional indicators which could have a significant impact on company performance. The League Table is designed to serve as a proxy for business readiness in an industry which will undergo significant change as governments increase efforts to implement the Paris Agreement. Companies placed towards the bottom are deemed less prepared for a low-carbon transition

 

A number of firms, including Total and Equinor, have their own venture investment units. In addition, the Oil and Gas Climate Initiative (OGCI), an industry scheme that includes most of the oil majors, has a $1bn investment fund that is investing in areas such as reducing methane leakage, cutting CO2 emissions and recycling CO2.

The fund has made a number of investments in start-up companies working in areas ranging from low-emissions cement and catalyst technology that enables CO2 to be used as a raw material, to data-providers monitoring methane leakage and CO2 emissions using satellites and aerial surveys, as well as more fuel-efficient and less polluting petrol engines.

***

So, is this different from the last time Oil majors dipped their toe in the water of renewables investing, and if so, why?

There are a number of reasons to believe that what is going on now is a more lasting change. Firstly, cost and technology developments such as the growth of the energy storage sector have made renewables much more viable for power generation and transport than they were a decade ago.

Second, the science is much firmer than it was in the early 2000s, when the last wave of investment kicked off, buoyed by the birth of the European Emissions Trading Scheme and Al Gore’s Oscar-winning turn in the film An Inconvenient Truth.

Subsequent reports from the Intergovernmental Panel on Climate Change (IPCC), backed up by a growing body of anecdotal evidence, have shown with much greater certainty that climate change is happening and it is man-made. At the same time, advances in analysis and research have made it much clearer who is responsible for greenhouse gas emissions. The US Environmental Protection Agency reported that in 2016, more than three quarters of US emissions came from burning fossil fuels for the transportation (28%), industry (22%) and electricity (28%) sectors.

The Science Based Targets Initiative has worked out the contribution of individual companies to emissions, creating a baseline of what is acceptable if companies are to do their bit in limiting the effects of climate change. A growing number of companies have signed up to the initiative and through their own efforts to cut their impact, they are putting pressure on their energy providers to be more sustainable.

The Carbon Tracker Initiative has set out the risks of the transition to a low-carbon economy to the oil and gas sector in reports with titles such as 2020 Vision: why you should see the fossil fuel peak coming; Mind The Gap: the $1.6 trillion energy transition risk; and Expect the Unexpected: The Disruptive Power of Low-carbon Technology. And the Taskforce for Climate-related Financial Disclosures (TCFD) is gaining increasing traction with investors, who are demanding answers from companies on how they are dealing with climate risks.

As a result, and most importantly, investors are firmly on board this time. The clearest illustration of this has come outside the oil and gas sector in recent days, with the announcement from Glencore, the world’s biggest exporter of thermal coal and one of the companies most bullish on the case for coal, that it will cap production at current levels, align its business with the goals of the Paris Agreement and prioritise investment in commodities that support low-emissions technology.

It is testament to the success of shareholder pressure in changing behaviour, especially the impact of the relatively new group ClimateAction 100+, which also recently persuaded Shell to halve its net carbon footprint by 2050, with a 20% cut by 2035, and to link executive remuneration to these targets. The group, which is targeting the biggest emitters, is also asking BP to align its business strategy with the Paris Agreement in a shareholder resolution, and, significantly, BP is recommending that investors approve the move.

The group is planning to target other large polluters and is likely to have significant success, given its recent achievements and the fact that it represents more than 300 investors and over $33 trillion in assets under management.

Another key driver is a wave of climate lawsuits targeting oil and gas companies, filed by cities such as New York and San Francisco, along with a group of 21 young people, with ExxonMobil a particular target. It’s unclear how successful these suits will be, but even if they ultimately fail, they cost time and money to defend and if oil companies are found liable, the costs would likely run into billions of dollars.

And if oil executives want to see which way the wind is blowing, they need only watch thousands of schoolchildren skipping school to protest against climate change every week or hear the latest developments in the Green New Deal.

All of these developments suggest that the sector is moving towards an acceptance that they need to change. The moves they have made so far are significant, but it’s important to remember that the $3.38bn the world’s largest oil firms spent on climate change reduction initiatives in 2018 was just 1.3% of their combined budgets, according to climate researchers CDP. And most of that spending, some 70%, is by European oil groups, suggesting that companies in other regions, including many national oil companies, may struggle to cope with a changing market.

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