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BP plc, Royal Dutch Shell and Others up in Arms against Coal

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By Micheal Kaufman on Dec 2, 2015

Environmentalists are winning the race against energy companies, as the world tries to adopt environmental-friendlier ways of energy generation. World leaders from over 19 countries and prominent personalities such as Bill Gates and Mark Zuckerberg are at the UN Climate Summit in Paris, which has been ongoing from November 30 and will continue until December 11.

Energy Companies Coming in Front

The growing concern over global warming and rising temperatures has lined up global energy companies such as Royal Dutch Shell, BP plc. (ADR) (NYSE:BP) and Total SA (ADR) (NYSE:TOT). These companies have recently teamed up to support climate change and asked authorities to consider a carbon tax.

Integrated oil and gas majors are now trying to focus more on natural gas compared to crude oil. For instance, Royal Dutch Shell plc. (ADR) (NYSE:RDS.A) has been producing more natural gas than crude oil since 2009. Furthermore, in April this year, the same company finalized its deal with the European gas major BG Group plc. (ADR) (OTCMKTS:BRGYY), through which Shell is expected to further increase its investment in natural gas by acquiring BG’s assets in Australia, Brazil, and East Africa. Additionally, the acquisition would make Shell the global leader in liquefied natural gas (LNG).

The rising popularity of natural gas in recent years can explain why Shell agreed to pay a premium for the $70 billion BG deal. Chevron Corporation (NYSE:CVX) is also investing heavily in LNG, with its Australian Wheatstone and Gorgon projects underway. Moreover, other oil giants such as BP and Exxon Mobil are expected to make natural gas a larger part of their portfolio.

Dilemma for Coal Companies

Coal has been the primary source of energy generation in the US for a long time. 44% of electricity produced in the US is generated through coal. However, according to the US Energy Information Administration (EIA), the amount of carbon dioxide emitted through coal combustion is the highest when compared to the amount of CO2 released through the combustion of any other fossil fuel.

Bidness Etc takes a look at the proportion of carbon dioxide (in pounds) emitted per British thermal units (Btu) of energy for various fuels.

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These figures speak for themselves about the detrimental impact of various types of fossil fuels on the environment, particularly coal’s. Not surprisingly, coal companies have suffered immensely. Peabody Energy Corporation, for instance, has fallen 92.48% since last year. Similarly, Arch Coal has seen an even bigger price decline and has fallen by 99.44% in the last one year. Patriot Coal and Walter Energy have also suffered immensely, with both going bankrupt in 2015.

Shell, BP, Total and Chevron were also amongst those companies that had some exposure in coal. But these companies eventually disengaged with the commodity, with Shell and BP among the first to exit the coal industry, followed by Chevron and Total, both of which exited in 2012 and 2014, respectively. While there was little distinction between coal and energy companies in the past, the current concerns have led these companies to unite and call upon authorities to switch from coal to natural gas.

Higher Dependence of World on Coal

Like the US, the world has a great degree of dependence on coal, and a transition to cleaner and safer forms of energy at a global level will be an even bigger challenge. Exxon Mobil Corporation (NYSE:XOM) CEO Rex Tillerson was initially skeptical about a transition to natural gas, suggesting that since the world heavily relied on coal, a rapid transition wouldn’t do well. But the company has now changed its stance and adopted a more neutral policy toward a change.

Exxon Mobil is also facing problems after Inside News revealed that the company had deliberately disregarded the results of a research on climate change in 1970 which revealed the detrimental effect of conventional fossil fuels on the environment.

However, it seems now the world is taking a rigid stance against global warming. The COP21 meeting is likely to last two weeks, and is expected to discuss carbon emissions and a carbon tax, along with other policies that will have a major impact.

According to the EIA, it is reckoned the next few years will see a decline in coal production. The US is likely to cut its coal generation by 13 gigawatts. Meanwhile, China has also increased its dependence on renewable forms of energy. Overall coal demand in China this year has fallen by 4.7%. Also the UK has plans to close all its coal plants by 2025.

Conclusion

The world is likely to minimize its dependence on coal, and moves toward natural gas, with the switch expected to significantly reduce carbon emissions. At the same time, renewable forms of energy such as Wind and Solar are expected to gain massive popularity in the next few years.

SOURCE

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