“The most intriguing finding was that, on the whole, the risk is less than we expected,” added Ms Bowe, Director, Upstream Consulting, Wood Mackenzie.
When assessing regulatory risk, Wood Mackenzie found that the majority of upstream emissions – 64% - are dispersed between countries with a medium-to-low risk of sector-specific carbon regulations.
“As a result, under a $40 per tonne carbon dioxide cost – which we believe represents a realistic average – the value of companies’ upstream assets could be reduced by up to 7%, depending on the regulatory regime,” Ms Bowe said.
“However, we expect this will actually be closer to 2% under the most likely fiscal and regulatory scenario. In this scenario, liquid asset costs would increase by about $0.80 per barrel on average, although the impact could be more than twice that for high-intensity operations.
She added: “Under this most likely scenario, total value at risk would be an estimated $45 billion. This is far less than many expect in terms of the direct impact of carbon costs on company portfolios.”
Another key finding of the study is that gross emissions from the assets examined are growing slightly faster than production, at about 17% to 2025 versus 15% for production.
Ms Bowe said: “This is being driven largely by the higher intensity of primary growth themes - heavy oil, oil sands and liquefied natural gas (LNG). Conventional onshore assets are still the largest single source of emissions and production to 2025, but they represent a declining share in each case.
“In contrast, LNG emissions are forecast to realise the largest – and fastest – absolute increase, with liquefaction emissions also growing at the fastest rate of all the sources, about 43% versus 22% production growth.”
The study also found that asset mix influences a company’s emissions intensity. Portfolio emissions intensities range from 1.8 to 8.0 grams of carbon dioxide per megajoule of production, with the majors having the highest emissions intensity on average, but the least variation as a group, while the large caps are most diverse.