If you were running a successful, multi-billion company and someone asked what your plans were to wind it down, what would you say?
This isn't a rhetorical question.
In fact, it is the gist of the demand Market Forces, an environmental activist investor group, is making to some of Australia's biggest energy shares.
As the Australian Financial Review (AFR) reports, Market Forces is asking "ASX-listed fossil fuel companies to plan for their own demise in order to align with Paris climate goals".
Their first target is the $14 billion ASX oil and gas giant, Santos Ltd (ASX: STO), part of the S&P/ASX 200 Index (ASX: XJO).
Santos' management, as you might expect, indicated they had no plans to shutter operations, replying:
Santos does not intend to close down its oil and gas operations, as doing so would be against the interests of shareholders and would not be consistent with global climate and human development goals, particularly reducing air pollution and poverty.
According to Santos, 80% of the world's primary energy needs are still derived from oil and gas. A figure that's unchanged since 1975. Rather than eliminating its fossil fuel production, the company is working on reducing emissions via novel technologies in carbon capture and storage. Santos is also involved in developing hydrogen energy sources with no carbon footprint.
Other ASX energy shares in Market Forces' crosshairs this year are Woodside Petroleum Limited (ASX: WPL) with a market cap of $24 billion; Oil Search Ltd (ASX: OSH) with a market cap of $8.5 billion; Whitehaven Coal Ltd (ASX: WHC) with a market cap of $1.6 billion; and New Hope Corporation Limited (ASX: NHC) with a market cap of just over $1 billion.
Market Forces is working under the assumption that Australia, and the rest of the world, can quickly transition away from fossil fuels, replacing the energy sources with renewables.
But how close is Australia really to switching off all the gas in favour of solar and wind?
Has the demise of gas been greatly exaggerated?
Consultancy firm Wood Mackenzie estimates that Australia will require 10 times more gas to generate power than what the Australian Energy Market Operator (AEMO) has forecast.
According to the AFR, WoodMac forecasts that gas will still provide some 10% of Australia's power in 2030, as opposed to AEMO's 1% estimate.
WoodMac senior analyst Rishab Shrestha said:
You need a balanced portfolio to avoid extreme price spikes. We need to manage the speed of this transition, and perhaps the transition blueprint that has been laid out does not necessarily capture all the risks that are associated with that.
The ongoing debates could offer headwinds or tailwinds to the share prices of the biggest ASX energy companies, depending on the outcome.
