Finance

Oil and gas fortunes are in danger of going up in smoke – Finance

Assets in hydrocarbons equivalent to fortunes today risk rapidly losing all value due to the fight against global warming, according to specialists who are calling on companies and producing countries to accelerate their energy transition.

“Limiting warming to 2°C or 1.5°C will strand fossil fuel assets, including infrastructure and unused fossil resources,” warn UN climate experts ( Giec) in their latest report published on Monday. The economic impact could amount to “trillions of dollars”, they point out. This notion of “stranded” or “stranded” assets dates back to the early 2010s, put forward by the organization Carbon Tracker. These are assets that end up being worth less than expected. “It denotes a project that does not produce the expected financial returns over its lifetime due to changes in long-term demand and pricing fundamentals, primarily due to the need for climate action and the energy transition”, explains Mike Coffin, expert at Carbon Tracker. Governments could thus change the rules of the game, by increasing the price of carbon or even banning certain energies in the future. Consumers can also turn to other products (electric vehicles, for example).

In concrete terms, these are hydrocarbon reserves which may never be used, because demand must fall in the near future to limit greenhouse gas emissions. Some reserves will also become too expensive to exploit in the face of falling prices. It can also concern infrastructures such as pipelines or drilling platforms, which have become useless sooner than expected. For the IPCC, it is first the coal-related assets that are the most vulnerable before 2030, then those related to oil and gas in a second phase.

Risky bets

The notion, taken up by both environmentalists and investors, has gained popularity to the point of being invited in recent years to the general meetings of shareholders of groups such as ExxonMobil or TotalEnergies. The climate issue has in fact ended up becoming central in the life of certain companies, even if it was necessary to wait three decades after the creation of the IPCC in 1988. there was this spark, which took a long time to come,” said Hugues Chenet, associate researcher at Polytechnique and University College London (UCL). This “convinced financial players that there was a problem”. The notion of stranded assets – which he prefers to call “obsolete” – has made it possible to pinpoint a “contradiction”, “with a path that says that we must do without fossil fuels and opposite an economy rather in gearing up to do the opposite,” says the researcher.

The contradiction is also noted by Lucie Pinson, of the NGO Reclaim Finance, who does not consider the climate commitments of majors like TotalEnergies to be credible. “We can see that she herself does not believe in her own (climatic) rhetoric, because if she believed in it, she would not develop projects that have no future”, she believes. The time to make choices has also arrived for countries that derive their income from fossil resources. From Azerbaijan to Angola, from Saudi Arabia to Nigeria, producer states risk losing a lot of their income over the next twenty years, warns Carbon Tracker.

“If these countries continue to invest (in fossil fuels), they are betting on the failure of political action on the climate, but also on that of renewables and other low-carbon technologies”, indicates Mike Coffin, who engages them to diversify.

Another risky bet would be to let the climate continue to deregulate hoping to make profits on oil and gas. But “you would lose much more on all your other assets when you are confronted with forest fires, the displacement of populations in the world and famines”, warns Mike Coffin.

“Limiting warming to 2°C or 1.5°C will strand fossil fuel assets, including infrastructure and unused fossil resources,” warn UN climate experts ( Giec) in their latest report published on Monday. The economic impact could amount to “trillions of dollars”, they point out. This notion of “stranded” or “stranded” assets dates back to the early 2010s, put forward by the organization Carbon Tracker. These are assets that end up being worth less than expected. “It denotes a project that does not produce the expected financial returns over its lifetime due to changes in long-term demand and pricing fundamentals, primarily due to the need for climate action and the energy transition”, explains Mike Coffin, expert at Carbon Tracker. Governments could thus change the rules of the game, by increasing the price of carbon or even banning certain energies in the future. Consumers can also turn to other products (electric vehicles, for example). In concrete terms, these are hydrocarbon reserves which may never be used, because demand must fall in the near future to limit greenhouse gas emissions. Some reserves will also become too expensive to exploit in the face of falling prices. It can also concern infrastructures such as pipelines or drilling platforms, which have become useless sooner than expected. For the IPCC, it is first of all the assets linked to coal that are the most vulnerable before 2030, then those linked to oil and gas in a second phase. only by investors, has gained in popularity to the point of inviting itself in recent years to the general meetings of shareholders of groups such as ExxonMobil or TotalEnergies. The climate issue has in fact ended up becoming central in the life of certain companies, even if it was necessary to wait three decades after the creation of the IPCC in 1988. there was this spark, which took a long time to come,” said Hugues Chenet, associate researcher at Polytechnique and University College London (UCL). This “convinced financial players that there was a problem”. The notion of stranded assets – which he prefers to call “obsolete” – has made it possible to pinpoint a “contradiction”, “with a path that says that we must do without fossil fuels and opposite an economy rather in gearing up to do the opposite,” says the researcher. The contradiction is also noted by Lucie Pinson, of the NGO Reclaim Finance, who does not consider the climate commitments of majors like TotalEnergies to be credible. “We can see that she herself does not believe in her own (climatic) rhetoric, because if she believed in it, she would not develop projects that have no future”, she believes. The time to make choices has also arrived for countries that derive their income from fossil resources. From Azerbaijan to Angola, from Saudi Arabia to Nigeria, the producing states risk losing enormous amounts of their income over the next twenty years, warns Carbon Tracker. “If these countries continue to invest (in fossil fuels), they are betting on the failure of political action on the climate, but also on that of renewables and other low carbon technologies”, indicates Mike Coffin, who urges them to diversify. Another risky bet would be to let the climate continue to go out of order hoping to make profits on oil and gas. But “you would lose much more on all your other assets when you are confronted with forest fires, the displacement of populations in the world and famines”, warns Mike Coffin.

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