When BHP Group, the second-largest mining company in the world, announced in late August that it was shedding its oil and gas assets, the news was trumpeted as a win for the divestment movement.
But some analysts say it isn’t much of a victory from a climate perspective.
In the transaction, BHP’s oil and gas assets will merge with Woodside Petroleum, an Australian gas producer, in exchange for shares, which will be distributed among BHP’s shareholders. So these oil and gas assets will still be in operation; they’ll just be owned by another company, and one that has only “an aspiration” of achieving a net-zero target by 2050.
“Woodside is far from being the poster child of the net-zero movement,” says Axel Dalman, an oil, gas and mining analyst at think tank Carbon Tracker. “I think the way that they phrase their net-zero target … is the weakest wording I’ve heard in this context. That really shows that it’s not really a fundamental part of their plan. Is it a climate win? I wouldn’t say so.”
Dalman says Woodside has committed to emitting less through their own processes – the extraction and production of the commodities that they sell – but not so much from the end-use emissions of their products. According to Carbon Tracker, 85% of the emissions from a barrel of oil occur when it’s burned to power transportation.
The structure of the merger also means that the transaction isn’t necessarily a clean break for BHP shareholders from these assets, as they will still own 48% of the new venture.
On the same day, BHP also announced plans to spend US$5.7 billion on building what is expected to be one of the world’s largest potash mines in Saskatchewan, betting on what the company hopes will be increased agricultural use of the fertilizer in years to come.
Of the big three ingredients in fertilizer, potash, or potassium (the others are nitrogen and phosphorus), is easily the least emissions-intensive. Jeff Schoenau, a soil scientist and professor at the University of Saskatchewan, says that potassium serves as an important plant nutrient that is a zero-emissions fertilizer, as it doesn’t volatilize. “Potassium actually could be considered to have a positive impact on the greenhouse gas balance by helping to increase photosynthesis in plants and also to increase carbon stores in the soil,” he says.
When it comes to the production of potash, the mining process does emit greenhouse gases. Nonetheless, nitrogen is a much less sustainable fertilizer, as it emits nitrous oxide – a greenhouse gas with 300 times the warming effect of carbon dioxide. Synthetic nitrogen fertilizers are also produced from natural gas. In 2017, agricultural soil management accounted for 74% of total nitrous oxide emissions in the United States, according to the U.S. Environmental Protection Agency.
Globally, potash mines have stoked opposition from Indigenous and environmental groups with concerns about deforestation, disruptions to local communities, and potential impacts on waterways. But little public opposition has materialized against BHP’s massive Saskatchewan project.
BHP’s moves to shed its oil and gas assets and its turn towards potash could put the company in a good position to benefit from the energy transition. But Dalman is less confident in Woodside’s position, as decarbonization will require a winding down of both oil and gas. Woodside may be willing to take on the risks of BHP’s oil assets, but Dalman believes the optimism around gas that likely fuelled this deal will evaporate in the next few years.
“People are getting around to the fact that oil is probably losing its shine, but they’re still saying gas is a transition fuel,” he says. “I think that will start to break over the next few years as the economics get worse and as the reality of the pathway we need to take becomes clearer.”