Paris Agreement Creates More Issues For Oil Industry

This opinion piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.

A few weeks ago some 190 countries met in Paris to discuss ideas they believe will prevent global temperature from increasing no more than 2 degrees Celsius, or 3.6 degrees Fahrenheit. It is reminiscint of the age old story of man trying to manipulate weather.

At the conference, the countries agreed to prepare and maintain plans they supposedly will implement to reduce greenhouse gas emissions. Each country’s plan, called the Nationally Determined Contributions (NDCs), will be reviewed every five years starting in 2023.

The plans are not legally enforceable, and the report casts serious doubt that this plan is sufficient to prevent temperatures from rising more than 2 degrees C. Richer countries must provide at least $100 billion annually after 2020 to help developing countries reduce emissions.

Even though President Obama supports the agreement, the U.S. Senate must ratify and that probably is not going to happen for a variety of reasons. One such reason is the lack of binding commitments from countries like China and India previously in the Kyoto Protocol. The Senate overwhelmingly defeated ratification of Kyoto some 20 years ago.

The president cannot unilaterally commit the U.S. to binding emission-reducing targets. Any emission targets and timetables must be ratified by the Senate.

Obviously, this agreement is aimed at restricting the use of fossil fuels in the future. The plan suggests that oil and gas consumption should be limited. The International Energy Agency (IEA) projects worldwide oil demand will grow from 90.6 million barrels per day in 2014 to 95.9 million barrels per day in 2020 and then start to decline to 74.1 million barrels per day in 2040.

IEA estimates that natural gas demand will increase from 3.5 trillion cubic meter (tcm) in 2013 to 4.1 tcm per year after 2030.

Clearly, the plan places even more uncertainty on the oil and gas industry, which currently faces a collapse in crude oil and natural gas prices. Much will depend upon the seriousness of developed countries to finance not only restrictive policies in their own countries but also help finance programs in undeveloped countries. Most nations already have spending deficits. The resolve of politicians and the citizens of each developing country will be tested.

For oil and gas companies, a shadow has been cast over future, long-term projects. Major, integrated oil companies and large producing countries develop large projects with the assumption they will be profitable for decades to come. These projects – such as refineries, long-distance pipelines, and liquefied natural gas plants – have high up-front costs. They require substantial product and capital expenditures.

The reality is that the Paris agreement is not enforceable. Violations carry no consequences. Funding of programs in non-developed countries will not happen.

Alex Mills is President of the Texas Alliance of Energy Producers. 


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