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* Bank sees 4% growth in oil demand by 2040
* Forecasts sharp rise in sector returns
By Ron Bousso
LONDON, Sept 17 (Reuters) - JPMorgan has upgraded its
outlook for Europe's top oil and gas companies, forecasting
sharp growth in shareholder returns while striking a downbeat
note on the pace of a transition to low-carbon energy.
The note, titled "Reality check needed on 'Black Gold'", was
published on Monday, when crude prices surged nearly 20%
following weekend attacks on Saudi Arabian oil facilities.
Crude's gains pulled up the share prices of oil firms.
JPMorgan's bullish tone comes amid calls from some investors
and activists for reduced investment in oil and gas companies
due to a gradual shift towards cleaner, renewable energy.
The brokerage Redburn downgraded the sector earlier this
month, citing increased risks from a global transition to
renewables.
JPMorgan said firms including Royal Dutch Shell, BP
and Total had in recent years started adapting
to lower oil demand by cutting costs and reducing greenhouse gas
emissions from their operations.
"While some progress is being made on (European majors')
carbon intensity ... there is further work to do," Christyan
Malek, JPMorgan's top European oil and gas analyst, said in the
note.
"We believe decarbonizing will be far harder than current
consensus assumes, especially in the industrial and transport
sectors."
The European oil majors have lagged major stock indices
including London's FTSE so far this year and
underperformed relative to Brent crude futures.
JP Morgan, in upgrading Europe's top energy companies, cited
a stronger oil price outlook, a relatively weak share
performance and a lower carbon intensity from the firms'
operations.
It also pointed to forecasts that shareholder returns would
rise to 28% of the companies' market capitalisation by 2022.
The top U.S. investment bank forecast oil demand by 2040
would grow by 4% from current levels, peaking between 2035 and
2040, similar to projections by a number of oil companies.
The projection nevertheless falls short of targets set out
in the 2015 U.N.-backed Paris Climate Agreement to lower carbon
emissions to "net zero" by the end of the century, a move aimed
at limiting global warming to "well below" 2 degrees Celsius.
European oil producers have faced investor pressure in
recent years to hit the Paris goals, setting targets to cut
emissions and increasing spending on renewable energy.
The bank maintained its "overweight" recommendation on Shell
and BP while upgrading Total from "neutral" to "overweight".
The three firms, it said, were best positioned among their
peer group to reduce carbon emissions and adapt to the energy
transition while offering strong cash returns.
JPMorgan upgraded Norway's Equinor to "neutral"
while downgrading Italy's Eni to an "underweight"
recommendation and initiating coverage of Austria's OMV
with an "overweight" rating.
The rating changes mean the outlook for the group of
companies has shifted to bullish, Malek said.
(Reporting by Ron Bousso; Editing by Dale Hudson)
