It was February 2019, and Exxon Mobil Corp. was ready to make one of the largest-ever investments in a U.S. hub for overseas shipments of liquefied natural gas. The $10 billion project was going to be built on the Texas coast under an auspicious name: Golden Pass.
The federal government sent its highest-ranking energy official, then-Secretary Rick Perry, to celebrate the new terminal as a gift of “clean energy” to “our friends around the world.” Exxon Chief Executive Officer Darren Woods promised to showcase the “environmental benefits of natural gas.” There was no mention of the planet-warming emissions that would be released once Golden Pass starts operating, nor had forecasts of climate pollution been shared with Exxon’s investors.
But the emissions forecast is something Exxon knows.
Internal planning documents reviewed by Bloomberg Green dating from before the pandemic show forecasts for direct emissions at Golden Pass that would equal 3.1 million metric tons of carbon dioxide in 2025. That means the crown jewel of Exxon’s U.S. LNG export business would have about the same climate impact as a coal power plant, just based on the sheer amount of energy it takes to compress natural gas into a liquid for shipment. Transporting and burning the exported fuel would emit even more.
Casey Norton, a spokesman for Exxon, said in a statement that “projections prior to our 2021 business plans are no longer accurate,” including those for Golden Pass. Exxon’s statement also confirms the company maintains greenhouse-gas forecasts related to its business plans. Exxon and its peers in the industry say this data is shared publicly with regulators when required.
“Emissions estimates and actuals are updated regularly and can fluctuate based on a number of factors,” Norton said. “We evaluate emissions projections as we develop business plans that seek to improve efficiency and reduce environmental impacts.”
Major shareholders are starting to notice the huge gap between the oil industry’s internal data and the level of its disclosures.
“Whether it’s emissions or financial information, forward-looking data is critical,” said Michelle Dunstan, global head of responsible investing at AllianceBernstein, an Exxon shareholder with $668 billion under management. “We tell our analysts to follow the carbon, trace it into the future. For a company like Exxon, its carbon is not taxed today but could become taxed at some point.”
Almost all of the industry’s public climate accounting is retrospective and seldom breaks out details on specific projects. What’s more, Exxon’s planning documents reference previously undisclosed forecasts related to at least 10 major oil and gas companies who are its partners in dozens of projects—a clear indication that tracking future emissions is standard practice across the industry, even if these numbers aren’t always made public.
Wellington Management, another Exxon shareholder with more than $1 trillion under management and with investments across the energy sector, framed the additional disclosures it wants to see in stark terms: “In short, we believe energy companies’ emission profile is becoming key to investability,” said Carolina San Martin, director of ESG research at Wellington.
Exxon said it provides regulators with some emissions estimates. In the U.S., for example, companies are sometimes required to publish a project’s “potential to emit” as part of regulatory approvals. But these numbers often differ significantly from actual emissions forecasts, and in many other countries where Exxon operates—and where several of its partners are based—there are no disclosure requirements at all.
Investor frustration with Exxon is mounting. Activist shareholders from hedge fund D.E. Shaw and San Francisco-based firm Engine No. 1 are pushing for Exxon to set even more ambitious climate goals in support of a long-term strategy for a transition away from fossil fuels. The Church of England Pensions Board said in October it had divested over Exxon’s limited approach to climate disclosure.
“A carbon-constrained world is going to have direct financial impacts. We need to understand those as clearly and as soon as we can,” said Kirsty Jenkinson, director for sustainable investment at California State Teachers’ Retirement System, which is now backing Engine No. 1.
News reports on the oil giant’s internal planning data, published exclusively by Bloomberg Green in October and drawing on separate documents, revealed Exxon’s overall forecast for rising emissions through 2025. These earlier documents showed that Exxon had previously projected to increase annual emissions by as much as 17%.
Against this backdrop, Exxon moved in December to establish new targets that would reduce the emissions per barrel of oil it produces. Exxon also agreed to disclose, for the first time ever, its internal data on pollution related to customers’ use of its fuels. It’s not clear if this will be enough to assuage critics.
CalSTRS, the second-largest U.S. public pension fund, is making its view clear: Exxon and its peers need to disclose the climate impact of upcoming projects, not just past performance and broad, forward-looking goals. “Future emissions are core to that,” Jenkinson said.
Emissions for projects with shared ownership refer to Exxon’s equity stake only. Figures are preliminary and may not reflect future mitigation measures.
The newly revealed planning documents from within Exxon contain direct emissions forecasts for dozens of projects in the company’s vast pipeline. Many of these oil, gas, and chemical projects are financed in joint ventures with other top producers, meaning these documents reveal previously undisclosed projected emissions for a host of state-backed and international oil companies.
The estimates in the planning documents are preliminary and were produced before the pandemic. While the figures reference the same slate of projects that made up the company’s 2018 growth plan, it wasn’t possible to verify the exact date of the documents. Exxon would not confirm the data, and its spokesman stressed that any projections “are based from one moment in time” and “may not reflect advancements in technology or the implementation of mitigation measures.” None of the other companies involved in the projects along with Exxon confirmed emissions figures.
“We are working toward being an industry leader in greenhouse-gas performance,” Exxon’s Norton said, “and we support society’s ambition to achieve net-zero emissions by 2050.”
One of Exxon’s peers said it has carbon forecasts for its own projects. Royal Dutch Shell Plc said in a statement that “emissions produced by individual assets and potential new projects are an important part of our assessment of their financial resilience.” The European oil major, which unlike Exxon has a goal to become carbon neutral by 2050, said that revealing “emissions data on an asset-by-asset basis would be commercially sensitive in the same way as providing production volumes would be.” Like all major oil companies, however, Shell does reveal data on overall production forecasts.
In the case of Golden Pass, located in Sabine Pass, Texas, Exxon is a 30% stakeholder alongside Qatar Petroleum, which owns 70% of the export hub. Each company’s share of the emissions created is proportional to its stake. Qatar Petroleum did not respond to a request for comment.
In another example, Exxon is a junior partner in the expansion of a Kazakhstan facility called Tengiz, which is 50% owned and operated by Chevron Corp. That project aims to exploit an enormous column of oil buried deep near the Caspian Sea. Once the project is complete, the expanded operations will add 260,000 barrels of daily output.
The planning documents show Exxon’s 25% share of the expansion at Tengiz would produce 1.47 million metric tons of CO2 in 2025. That means Chevron’s 50% share of the project would be 2.9 million metric tons, according to the documents. If the project is built, its total emissions would be about the same as two coal power plants.
Chevron said it doesn’t report expected emissions on specific projects except when required by regulators—a policy matching that of its fellow U.S. oil giant. “Emissions projections are required by many jurisdictions for permitting and those projections are part of the public record,” said Exxon’s Norton.
Both Golden Pass and Tengiz remain under construction, although many projects identified in Exxon’s planning documents have been delayed due to fallout from Covid-19. Exxon and its peers have moved to cut capital expenditures this year as the demand for oil and the share prices of oil producers crashed. As a result, the forecasts for emissions reflected in Exxon’s planning documents will have likewise changed.
What’s now become clear from the Exxon documents, however, is that forecasting for climate impact is part of the decision-making process for oil and gas companies. Before setting out to build a major project, energy companies take what’s called a final investment decision to formalize an agreement among partners, financial backers and regulators. Reaching that milestone often requires years of work.
It’s at that point when companies will announce to investors a project’s production target, total cost, construction schedule and even the number of people to be employed. Emissions projections are developed in the decision process, but these figures aren’t typically included in the information given to investors.
Take Exxon’s sprawling oil and gas development in Guyana, which is set to produce more than 750,000 barrels a day by 2026. The final investment decision for the third phase of the project came in September and will cost $9 billion. Exxon released no data directly to investors reflecting the climate impact.
But internal documents show Exxon’s 45% share of three approved projects in the country would emit the equivalent of 1.1 million metric tons of CO2 in 2025. China National Offshore Oil Corp. is a junior partner, with a 25% share, meaning its estimated portion of the total emissions would be about 600,000 metric tons. When fully built, the direct emissions from operations in Guyana would be about the same as the planet-warming pollution emitted by the entire country in 2017. (CNOOC did not respond to questions about emissions estimates.)
Decision makers need this crucial information to understand the full impact of high-polluting facilities. For investors in particular, being left blind to climate risk is becoming untenable. Without the ability to gauge future emissions from a specific facility before a company commits billions of dollars over decades of operations, it’s difficult to anticipate the earnings consequences from potential policy shifts.
“Oil and gas companies are beginning to understand that decarbonizing their business is part of their value proposition to investors, and if they fail to address projected emissions, it could impact their cost of capital,” said Wellington’s San Martin.
Eight of the 10 biggest economies in the world have already committed to reaching net-zero greenhouse gas emissions within decades, and the U.S. is expected to join this group under President Joe Biden. What if a wave of carbon taxes or tariffs sweep these markets in the years ahead? Perhaps new government policies will push drivers away from internal combustion engines or limit the use of natural gas to heat homes. In these scenarios, costly oil and gas projects may not prove profitable.
“Ultimately the worry among investors is assets will become stranded because companies haven’t thought through the impact of climate regulation,” said Andrew Logan of Ceres, a climate-focused coalition of institutional investors managing $29 trillion. This process is already playing out. “Disclosing emissions at the outset would help investors understand the economics of [the projects] and reassure them that companies are taking these factors into account,” Logan said.
Dunstan of AllianceBernstein agrees: “We would strongly encourage companies to talk about future emissions from new projects.”
Not all disclosures are equally useful for investors cautious about the climate future. Exxon published new targets earlier this month that will require the company to reduce the pollution caused by each barrel it extracts. But that approach, known in the industry as emissions intensity, leaves room for an oil company to increase its total CO2 output just by increasing total fossil fuel production on a more efficient basis.
Before the pandemic, in fact, Exxon had been in the middle of a seven-year growth strategy to do just that: increase both production and emissions. The $210 billion plan was put in place soon after Woods became chief executive in 2017, with new projects around the world that would have triggered a sharp rise in Exxon’s emissions, according to company documents previously revealed by Bloomberg Green. Exxon has said those preliminary emissions estimates are from before the pandemic and did not include additional measures to cut emissions.
In the wake of Covid-19, which sent oil demand and prices to historic lows, Exxon and its peers have slashed capital expenditures. But Exxon retains a long-term commitment to oil and gas. “We need to know not only where a company sits today, but where it will sit tomorrow,” said Adam Matthews, co-chair of the Transition Pathway Initiative, which is backed by investors with $23 trillion of assets under management. Lack of disclosure is “a signal that company management does not recognize or understand the risks that it is taking on.”
Matthews is also a director at the Church of England Pensions Board (CEPB), which in October divested from Exxon because the company doesn’t set indirect emissions targets covering pollution from customers burning its fuels, called Scope 3. Earlier this month Exxon bowed to pressure and announced it will begin releasing Scope 3 data for the first time, but it didn’t set targets for reducing end-user emissions sought by CEPB and other critics. For large oil companies that disclose customer-generated pollution, including European oil majors BP Plc and Shell, this activity typically accounts for more than 80% of their total contribution to global warming.
Even though most oil companies don’t yet share forecasts for the emissions from their projects, estimates created by third parties are already playing a role in multi-billion-dollar decisions over energy contracts. In October, Engie SA delayed a $7 billion LNG contract with NextDecade Corp. after France’s government raised concerns about emissions from U.S. fracking.
This is a sign of what’s likely to become far more common in the near term, as investors and trade partners alike are increasingly asking hard questions about emissions. The main source of NextDecade’s natural gas is from shale fields, just like the LNG exports that will move through Exxon’s Golden Pass terminal.
Questions about climate impact are likely to spread across Exxon’s entire portfolio, even to those assets such as gas and petrochemicals that had been thought more immune to possible declines in oil demand. Among the world’s international oil giants, Exxon has the biggest chemical division and sees demand for plastics as a major driver of growth. The company is currently building a large chemical plant called Gulf Coast Growth Ventures along the Texas coast. Another chemical complex, solely funded by Exxon, has been under construction since April in southern China, according to a report in China’s state media.
The Texas project is being built in partnership with Saudi Basic Industries Corp., which is controlled by Saudi Arabian Oil Co. Emissions from Exxon’s 50% equity share in the project is about 1.64 million metric tons in 2025, according to the planning documents. The documents estimate the Chinese complex to pump out 3.7 million metric tons in 2025. Aramco and SABIC both declined to comment.
Taken together, these two sprawling chemical facilities could potentially create more direct emissions for Exxon than the oil and gas moving through Golden Pass, Tengiz or Guyana.
This has been a year of stress and strain for Exxon and the global oil sector as whole. Exxon started 2020 without any stated target to curb its total contribution to climate change. Under pressure from the pandemic, the company put on indefinite hold a project in Wyoming that would have become one of the world’s largest facilities to capture and bury carbon dioxide. Now Exxon will end this tumultuous year by introducing a new climate-related target to lower an emissions metric.
“Our business plans through 2025 include real, actionable solutions to reduce upstream emissions intensity by 15 to 20 percent compared to 2016 levels,” Exxon’s Norton said.
The U.S. oil giant will move into 2021 disclosing more carbon data and operating under stronger climate goals than before. But it’s taking an approach that stops short of trying to reach net-zero emissions. The past year saw its peers such as BP, Shell, and Occidental Petroleum Corp. join an emerging group of energy companies committed to that goal themselves.
In fact, Exxon’s new climate ambitions focus entirely on reducing so-called upstream emissions from its production of fossil fuels. Chemical plants and refining are considered downstream activities, and Exxon has set no new goals on those vast sources of emissions.
The planning documents reveal that, among the dozens of projects in Exxon’s pipeline, new downstream facilities could be responsible for nearly half of the total projected increase in its impact on global warming. Exxon’s new climate goal is “an intensity target on a portion of a portion of the company’s emissions,” Ceres’s Logan said. “They really seem to think this is a big deal. This tells you how removed Exxon is from the broader conversation around climate change.”