The world's oil, natural gas and coal producers are risking $US2.2 trillion ($3 trillion) by investing in projects for which there will be no demand if the world meets a United Nations target of limiting the rise in temperature to less than 2 degrees celsius, a non-profit think tank said. In Australia alone, there are $US103 billion worth of fossil-fuel projects at risk.

No new coal mines are needed, oil demand will peak around 2020 and growth in gas will disappoint industry expectations, Carbon Tracker Initiative said Wednesday in a report. The US has the greatest exposure with $US412 billion of projects at risk up to 2025, followed by Canada with $US220 billion, China with $US179 billion, Russia with $US147 billion and then Australia, according to the think tank.

"Too few energy companies recognise that they will need to reduce supply of their carbon-intensive products to avoid pushing us beyond the internationally recognised carbon budget," James Leaton, head of research and co-author of the report, said in a statement. "Clean technology and climate policy are already reducing fossil fuel demand. Misreading these trends will destroy shareholder value."

Policy makers, including about 140 heads of state, are scheduled to meet in Paris from Monday as they work toward an international agreement to reduce greenhouse gas emissions and limit global warming to 2 degrees celsius. Europe's biggest oil companies, including Royal Dutch Shell and Total, have come together to promote natural gas as a cleaner fuel to meet growing energy demand.

Map of unneeded capex to 2025 and related avoided CO² to 2035 . Illustration: Carbon Tracker and ETA analysis of Rystad UCube and Wood Mackenzie Ltd GEM

Oil risk

The biggest risk is to the oil industry, with $US1.3 trillion of spending on new projects and $US124 billion on existing ones unlikely to be needed over the next decade because there won't be any growth in demand, Carbon Tracker Initiative said. About $US532 billion of natural gas projects and $US219 billion of coal will also be left "stranded," it said.

In oil, 43 per cent of investments in new projects and a third of new supply should be shelved to align with a 2 degree scenario, according to the report. This will help avert 28 billion tons of carbon dioxide emissions. Overall, energy companies need to avoid generating 156 billion tons of CO2 to work toward achieving climate change goals.

Central role

Energy companies will have to be at the centre of efforts to cut emissions. Scientists warn that burning fossil fuels has put the planet on track to warm by more than the globally-agreed goal of 2 degrees, melting glaciers and ice caps, raising sea levels and prolonging droughts.

The UN in June urged the heads of six European oil majors to plan for phasing out fossil-fuel emissions by 2100. The companies had the previous month come together to discuss ways they can better engage in the climate debate. In that debate, they estimate energy demand will continue to expand, driven by developing nations such as India and China and a growing middle class with more disposable income.

The world still needs a lot of coal, gas and oil and carbon-based fuels will meet three-quarters of energy needs over next 30 years, Exxon Mobil Chief Executive Officer Rex Tillerson said October 7 in London. Rio Tinto's head of copper and coal Jean-Sebastian Jacques claimed this week that "there is no shadow of a doubt" that there will be a bright long-term future for copper and coal. While the coal industry was facing a "PR challenge," it will be "part of the global energy solution for years to come".

Bloomberg with BusinessDay