Quantcast

Big Oil Forecast: Entering the Age of Stranded Assets

Climate

By Andy Rowell

For years, environmentalists have warned that due to climate change, there will be billions of barrels of oil that we will never be able to burn. These reserves will become what has increasingly been called "stranded assets."

To give you one example: In a new report, Friends of the Earth argued that "The coal, oil and gas in reserves already in production and development globally is more than we can afford to burn. There is no room for any new coal, oil or gas exploration and production.


"Fossil fuel corporations continue to focus on new fossil fuel exploration and development," Friends of the Earth added. "This is increasing the amount of "assets" the world economy cannot afford to use—assets which will become 'stranded.'"

To make matters worse for the industry, it has become increasingly clear over the last few months that the coming electric vehicle revolution will also have a huge impact on oil demand. As Reuters pointed out last week, "Investors may be entering the age of 'stranded assets,' and it very likely could be driven as much by technological change as by climate change."

The writing has been on the wall for oil investors for a while as they bet on an industry beset by low prices, increasing competition from renewables and the threat of global action on climate change.

But still belligerently people invest in fossil fuels, with devastating results.

The Wall Street Journal on Sunday ran the headline, "From $2 Billion to Zero: A Private-Equity Fund Goes Bust in the Oil Patch." The Journal reported how "A $2 billion private-equity fund that borrowed heavily to buy oil and gas wells before energy prices plunged is now worth essentially nothing, an unusual debacle that is wiping out investments by major pensions, endowments and charitable foundations."

The Houston-based private equity fund, EnerVest, posted this massive loss in one of its energy funds, meaning that the fund has essentially "gone bust" and is worth "essentially nothing." John Walker, EnerVest's co-founder and chief executive, said in a statement to the Journal, "We are not proud of the result."

That surely is an understatement.

Pavel Molchanov, an energy analyst at Raymond James in Houston, argued that the "lesson for everyone is that excessive leverage in a commodity downcycle can be lethal."

And so what happens when more oil companies go bust as the whole fossil fuel industry goes from a downcycle into a potential "death spiral," as some have warned it will do?

The whole industry—from producers to power stations—could be in trouble. Again, to give you one example: Early Tuesday, Mark Campanale from Carbon Tracker tweeted: "Up to 240 gas and 150 coal fired power stations in Europe could be 'stranded assets' says European Env Agency by 2030."

Amid the inevitable bankruptcies, who will pay for the clean up of the oil patch, from the tar sands of Canada to the vast fracking fields of North Dakota to the offshore wells in the Gulf, let alone the vast industry infrastructure outside of North America?

There is already a need to clean up old oil and gas areas, before we even consider the new shale gas and tar sands areas. For example, the InsideEnergy website reported Monday on the "Toxic Legacy" in North Dakota "which looks to clean up old oilfield waste." The website noted that clean up of these old brine pits "could cost hundreds of millions of dollars, with the bulk of that bill potentially falling to the state."

The same theme was touched upon by Tim Gray, executive director of Environmental Defence in Canada in a recent article, "Who cleans up the mess when oil and mining companies go bankrupt?"

Gray's article noted how the Alberta Energy Regulator was appealing a judge's ruling that had given creditors priority access to a bankrupt oil company's assets over its financial obligations to clean up abandoned wells.

There is no doubt Canada has a huge problem: in Alberta, toxic tailing ponds now cover an area larger than the cities of Toronto and Vancouver combined. It is estimated that it will cost a whopping $44.5-billion to clean up existing ponds, with more waste being added every day.

Who will pay for this toxic legacy if companies suddenly leave or go bankrupt, especially as many predict Alberta will be one of the first oil and gas regions to become stranded? It is likely that it will be Canadian taxpayers.

Gray argued that "clearly change is needed" and that Canada's bankruptcy laws could be amended "so that the cleanup of environmental damage takes priority over creditors."

Otherwise, as he pointed out, we all pay to clean up the mess.

EcoWatch Daily Newsletter


georgeclerk / E+ / Getty Images

By Jennifer Molidor

One million species are at risk of extinction from human activity, warns a recent study by scientists with the United Nations. We need to cut greenhouse gas pollution across all sectors to avoid catastrophic climate change — and we need to do it fast, said the Intergovernmental Panel on Climate Change.

This research should serve as a rallying cry for polluting industries to make major changes now. Yet the agriculture industry continues to lag behind.

Read More Show Less
Edwin Remsburg / VW Pics / Getty Images

Botswana, home to one third of Africa's elephants, announced Wednesday that it was lifting its ban on the hunting of the large mammals.

"The Ministry of Environment, Natural Resources Conservation and Tourism wishes to inform the public that following extensive consultations with all stakeholders, the Government of Botswana has taken a decision to lift the hunting suspension," the government announced in a press release shared on social media.

Read More Show Less
Sponsored
Pxhere

By Richard Denison

Readers of this blog know how concerned EDF is over the Trump EPA's approval of many dozens of new chemicals based on its mere "expectation" that workers across supply chains will always employ personal protective equipment (PPE) just because it is recommended in the manufacturer's non-binding safety data sheet (SDS).

Read More Show Less
De Molen windmill and nuclear power plant cooling tower in Doel, Belgium. Trougnouf / CC BY-SA 4.0

By Grant Smith

From 2009 to 2012, Gregory Jaczko was chairman of the Nuclear Regulatory Commission, which approves nuclear power plant designs and sets safety standards for plants. But he now says that nuclear power is too dangerous and expensive — and not part of the answer to the climate crisis.

Read More Show Less
A lake in Rocky Mountain National Park. Brett Walton / Circle of Blue

By Brett Walton

When Greg Wetherbee sat in front of the microscope recently, he was looking for fragments of metals or coal, particles that might indicate the source of airborne nitrogen pollution in Rocky Mountain National Park. What caught his eye, though, were the plastics.

Read More Show Less
Sponsored
Gabriele Holtermann Gorden / Pacific Press / LightRocket / Getty Images

In a big victory for animals, Prada has announced that it's ending its use of fur! It joins Coach, Jean Paul Gaultier, Giorgio Armani, Versace, Ralph Lauren, Vivienne Westwood, Michael Kors, Donna Karan and many others PETA has pushed toward a ban.

This is a victory more than a decade in the making. PETA and our international affiliates have crashed Prada's catwalks with anti-fur signs, held eye-catching demonstrations all around the world, and sent the company loads of information about the fur industry. In 2018, actor and animal rights advocate Pamela Anderson sent a letter on PETA's behalf urging Miuccia Prada to commit to leaving fur out of all future collections, and the iconic designer has finally listened.

Read More Show Less
Amer Ghazzal / Barcroft Media / Getty Images

If people in three European countries want to fight the climate crisis, they need to chill out more.

That's the conclusion of a new study from think tank Autonomy, which found that Germany, the UK and Sweden all needed to drastically reduce their workweeks to fight climate change.

"The rapid pace of labour-saving technology brings into focus the possibility of a shorter working week for all, if deployed properly," Autonomy Director Will Stronge said, The Guardian reported. "However, while automation shows that less work is technically possible, the urgent pressures on the environment and on our available carbon budget show that reducing the working week is in fact necessary."

The report found that if the economies of Germany, Sweden and the UK maintain their current levels of carbon intensity and productivity, they would need to switch to a six, 12 and nine hour work week respectively if they wanted keep the rise in global temperatures to the below two degrees Celsius promised by the Paris agreement, The Independent reported.

The study based its conclusions on data from the UN and the OECD (Organisation for Economic Co-operation and Development) on greenhouse gas emissions per industry in all three countries.

The report comes as the group Momentum called on the UK's Labour Party to endorse a four-day work week.

"We welcome this attempt by Autonomy to grapple with the very real changes society will need to make in order to live within the limits of the planet," Emma Williams of the Four Day Week campaign said in a statement reported by The Independent. "In addition to improved well-being, enhanced gender equality and increased productivity, addressing climate change is another compelling reason we should all be working less."

Supporters of the idea linked it to calls in the U.S. and Europe for a Green New Deal that would decarbonize the economy while promoting equality and well-being.

"This new paper from Autonomy is a thought experiment that should give policymakers, activists and campaigners more ballast to make the case that a Green New Deal is absolutely necessary," Common Wealth think tank Director Mat Lawrence told The Independent. "The link between working time and GHG (greenhouse gas) emissions has been proved by a number of studies. Using OECD data and relating it to our carbon budget, Autonomy have taken the step to show what that link means in terms of our working weeks."

Stronge also linked his report to calls for a Green New Deal.

"Becoming a green, sustainable society will require a number of strategies – a shorter working week being just one of them," he said, according to The Guardian. "This paper and the other nascent research in the field should give us plenty of food for thought when we consider how urgent a Green New Deal is and what it should look like."

Amazon Employees for Climate Justice held a press conference after the annual shareholder meeting on May 22. Amazon Employees for Climate Justice

Amazon shareholders voted down an employee-backed resolution calling for more aggressive action on climate change at their annual meeting Wednesday, The Los Angeles Times reported.

Read More Show Less