Warning to Fossil Fuel Investors: Coal and LNG Markets Shrinking Due to Competition From Renewables
In both cases it is competition from renewables, principally wind and solar power, that is being blamed for the threat. The cost of electricity from renewables continues to fall in Europe and Asia as the numbers of wind and solar installations grow in both continents, cutting demand for imported gas and coal.
Two separate reports on coal and gas were published at the same time as a round of annual financial reports from oil companies showed that this third fossil fuel could be in serious trouble too.
Despite massive cutbacks on exploration and development, companies like Shell and BP still need a price of US$60 a barrel by the end of this year if they are to break even on many of their current projects—almost double the current market price.
Overproduction of coal, gas and oil spells trouble for investors in mines, pipelines, ports and the other infrastructure needed to transport fossil fuels round the globe. The cost of development requires a long lifetime for the equipment and a high long-term guaranteed price for the fuels if investors are to get their money back.
The first report, Stranded Assets and Thermal Coal, found that Australian and U.S. coal assets were the most vulnerable. Australian mines were particularly at risk because of their heavy reliance on exporting coal to markets that were rapidly shrinking.
Australia exports three times as much coal as it consumes locally, but two of the world’s largest markets for coal, India and China, are cutting imports. India’s imports fell by 34 percent last year and China’s by 31 percent. Australia’s mines were also seen as high-risk because of environmental regulations and the widespread opposition to their development.
U.S. coal assets were risky because of competition from cheap gas for the same markets. This meant exporting coal and competing in a world market where there is already a significant surplus.
In the Dark
The report said company statements made it clear that investors were not being given the full picture of the risks from environmental regulation and policy.
Many countries pledged in the Paris agreement reached last December to cut their coal use. If these pledges were kept, the report said, then much of the coal currently shown as an asset would have to be left in the ground.
A separate report, on liquefied petroleum gas (LPG), also raises the possibility that investors may lose their money. The trade is based on the fact that gas is cheap in the U.S. and expensive in Europe, so the expense of liquefying it and transporting it to Europe is offset. Large investments are being made in the pipelines, ships and ports required to transport it.
There are two problems outlined in the report, LNG and Renewable Power. The first is that the price of gas, which is tied to that of oil, has dropped in Europe, squeezing the margins of the companies that are spending large sums setting up the supply line.
The second is that the market for gas is itself shrinking as the output of the solar panels and wind farms increases. Unless gas investors can see a long-term return from a stable market they will not make a profit and LPG becomes high-risk.
Predictions on the future of fossil fuel investments all hinge on the price of oil. With big oil companies—and many countries—needing the current price to double to more than $60 a barrel to break even on their current investments. Everybody in the business believes it is only a matter of time before prices double again.
Paul Spedding, former global co-head of oil and gas research at HSBC, an adviser to Carbon Tracker, said he believes the price of oil may never recover. Structural changes in the energy markets, more efficient electric cars, batteries and hybrid solutions no longer favor oil. The European Union for example is already reducing its demand by 1.5 percent a year.
Similar drops can be expected elsewhere as governments strive to meet their targets under the Paris agreement. If that happens, an oil surplus will become the new normal and investors in major oil companies will face a difficult future.
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One of nature's epic events is underway: Monarch butterflies' fall migration. Departing from all across the United States and Canada, the butterflies travel up to 2,500 miles to cluster at the same locations in Mexico or along the Pacific Coast where their great-grandparents spent the previous winter.
Millions of People Care About Monarchs<p>I will never forget the sights and sounds the first time I visited monarchs' overwintering sites in Mexico. Our guide pointed in the distance to what looked like hanging branches covered with dead leaves. But then I saw the leaves flash orange every so often, revealing what were actually thousands of tightly packed butterflies. The monarchs made their most striking sounds in the Sun, when they burst from the trees in massive fluttering plumes or landed on the ground in the tussle of mating.</p><p>Decades of educational outreach by teachers, researchers and hobbyists has cultivated a generation of monarch admirers who want to help preserve this phenomenon. This global network has helped restore not only monarchs' summer breeding habitat by planting milkweed, but also general pollinator habitat by planting nectaring flowers across North America.</p><p>Scientists have calculated that restoring the monarch population to a stable level of about 120 million butterflies will require <a href="https://doi.org/10.1111/icad.12198" target="_blank">planting 1.6 billion new milkweed stems</a>. And they need them fast. This is too large a target to achieve through grassroots efforts alone. A <a href="https://www.fws.gov/savethemonarch/CCAA.html" target="_blank" rel="noopener noreferrer">new plan</a>, announced in the spring of 2020, is designed to help fill the gap.</p>
Pros and Cons of Regulation<p>The top-down strategy for saving monarchs gained energy in 2014, when the U.S. Fish and Wildlife Service <a href="https://www.fws.gov/southeast/pdf/petition/monarch.pdf" target="_blank">proposed</a> listing them as threatened under the Endangered Species Act. A decision is expected in December 2020.</p><p>Listing a species as endangered or threatened <a href="https://www.fws.gov/endangered/esa-library/pdf/listing.pdf" target="_blank">triggers restrictions</a> on "taking" (hunting, collecting or killing), transporting or selling it, and on activities that negatively affect its habitat. Listing monarchs would impose restrictions on landowners in areas where monarchs are found, over vast swaths of land in the U.S.</p><p>In my opinion, this is not a reason to avoid a listing. However, a "threatened" listing might inadvertently threaten one of the best conservation tools that we have: public education.</p><p>It would severely restrict common practices, such as rearing monarchs in classrooms and back yards, as well as scientific research. Anyone who wants to take monarchs and milkweed for these purposes would have to apply for special permits. But these efforts have had a multigenerational educational impact, and they should be protected. Few public campaigns have been more successful at raising awareness of conservation issues.</p>
<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="91165203d4ec0efc30e4632a00fdf57d"><iframe lazy-loadable="true" src="https://www.youtube.com/embed/KilPRvjbMrA?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span>
The Rescue Attempt<p>To preempt the need for this kind of regulation, the U.S. Fish and Wildlife Service approved a <a href="https://www.fws.gov/savethemonarch/pdfs/Monarch%20CCAA-CCA%20Public%20Comment%20Documents/Monarch-Nationwide_CCAA-CCA_Draft.pdf" target="_blank">Nationwide Candidate Conservation Agreement for Monarch Butterflies</a>. Under this plan, "rights-of-way" landowners – energy and transportation companies and private owners – commit to restoring and creating millions of acres of pollinator habitat that have been decimated by land development and herbicide use in the past half-century.</p><p>The agreement was spearheaded by the <a href="http://rightofway.erc.uic.edu/" target="_blank">Rights-of-Way Habitat Working Group</a>, a collaboration between the University of Illinois Chicago's <a href="https://erc.uic.edu/" target="_blank" rel="noopener noreferrer">Energy Resources Center</a>, the Fish and Wildlife Service and over 40 organizations from the energy and transportation sectors. These sectors control "rights-of-way" corridors such as lands near power lines, oil pipelines, railroad tracks and interstates, all valuable to monarch habitat restoration.</p><p>Under the plan, partners voluntarily agree to commit a percentage of their land to host protected monarch habitat. In exchange, general operations on their land that might directly harm monarchs or destroy milkweed will not be subject to the enhanced regulation of the Endangered Species Act – protection that would last for 25 years if monarchs are listed as threatened. The agreement is expected to create up to 2.3 million acres of new protected habitat, which ideally would avoid the need for a "threatened" listing.</p>
A Model for Collaboration<p>This agreement could be one of the few specific interventions that is big enough to allow researchers to quantify its impact on the size of the monarch population. Even if the agreement produces only 20% of its 2.3 million acre goal, this would still yield nearly half a million acres of new protected habitat. This would provide a powerful test of the role of declining breeding and nectaring habitat compared to other challenges to monarchs, such as climate change or pollution.</p><p>Scientists hope that data from this agreement will be made publicly available, like projects in the <a href="https://www.fws.gov/savethemonarch/MCD.html" target="_blank">Monarch Conservation Database</a>, which has tracked smaller on-the-ground conservation efforts since 2014. With this information we can continue to develop powerful new models with better accuracy for determining how different habitat factors, such as the number of milkweed stems or nectaring flowers on a landscape scale, affect the monarch population.</p><p>North America's monarch butterfly migration is one of the most awe-inspiring feats in the natural world. If this rescue plan succeeds, it could become a model for bridging different interests to achieve a common conservation goal.</p>
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