https://www.vice.com/en_us/article/m7qa9n/the-hidden-signs-that-the-oil-industry-is-heading-for-a-reckoning
[links in online article]
The Hidden Signs That the Oil Industry Is Heading for a Reckoning
Despite the millions Big Oil is spending to slow and delay action on
climate change, the world is shifting decisively away from fossil fuels.
by Geoff Dembicki
Jan 3 2020
A major U.S. oil and gas producer whose business model is premised on
denying the urgency of global temperature rise was forced last month to
acknowledge reality. In a move that reverberated across the financial
world, Chevron, a funder of campaigns disputing the need for aggressive
climate change policies, announced that up to $11 billion worth of its
fossil fuel projects are effectively worthless.
"We have to make the tough choices," the company's CEO Mark Wirth told
the Wall Street Journal. He blamed the company's massive write-down on a
global oversupply of oil and gas that made drilling in places like
Appalachia and the Gulf of Mexico unprofitable.
But there's more to the story than that. Despite the millions of dollars
oil and gas companies are spending to slow and delay action on climate
change, the world is shifting decisively away from fossil fuels, and the
painful financial impacts are impossible for the planet's worst
polluters to deny. In other words, Big Oil could be in much more trouble
than it wants to admit.
In early October, BP wrote down up to $3 billion of its fossil fuel
assets. That was followed a week later by a gigantic $12.4 billion
write-down linked to shale oil drilling from the oil field services
giant Schlumberger. And in December, the Spanish oil and gas giant
Repsol cut $5 billion worth of climate-damaging projects. Though each of
these was due to unique company circumstances, observers also see the
write-downs as previews of a much larger financial reckoning.
"It's a sign," said Danielle Fugere, president of the shareholder
advocacy group As You Sow. "There will certainly be much larger
write-downs in the future if companies aren't preparing for the
low-carbon [transition]."
That might be an understatement, however. We are potentially only years
away from the oil and gas industry entering a punishing financial spiral
that wreaks hundreds of billions of dollars in damages. That was the
warning of a recent report from the United Nations-backed group
Principles for Responsible Investment (PRI), which predicted by the year
2025 that 10 of the world's largest oil and gas companies could
collectively lose a third of their value.
"When oil demand goes down in our scenario, oil prices will fall with
it," said Thomas Kansy, principal of the group Vivid Economics, which
did the modeling for the PRI report. "The market for their product is
disappearing."
The conventional wisdom from companies such as Chevron is that the
global shift away from atmosphere-trashing energy sources will be slow
and gradual with massive amounts of oil and gas still consumed by the
world decades from now. And the spectacular failure of the recent
international climate talks in Madrid, where countries couldn’t reach
consensus on a plan for preventing doomsday levels of warming, certainly
falls in line with that narrative.
But forces threatening the oil and gas business model are undeniable.
Renewables have become "amazingly affordable," according to Bloomberg
columnist Peter Orszag. The president of GM, Mark Reuss, argued on
CNN.com that "electric and self-driving vehicles will alter the
automotive landscape forever—it's only a question of how soon."
September's climate strikes were likely the largest mass protests for
action on global warming in history. Goldman Sachs will no longer
finance Arctic oil development, a decision it made out of concern for
climate change and also the fact that drilling and exploring in the far
north is risky and expensive.
When you add these factors to the carbon prices, vehicle bans, clean
energy mandates, coal phase-outs, efficiency regulations and other
climate policies already being implemented by governments around the
world, and then make the not unreasonable assumption that these policies
will become more stringent in the next five years, Kansy said, it's
obvious companies such as Chevron face severe and mounting financial
risks. The prediction that oil and gas companies could lose $500 billion
by 2025 is "based on the current momentum that we see in countries," he
explained. "It's a realistic scenario."
And it's not out of step with what outlets like the Wall Street Journal
have already reported: "Oil companies have struggled to reap the profits
of old and are falling out of favor with investors amid fears that
electric vehicles and renewable energy, along with government
regulations to address a warming planet, will constrain their futures."
Oil and gas companies a decade ago made up 10 percent of the stock
market's value, they are now down to 4 percent. And even the best
misinformation that fossil fuel money can buy isn't enough to change it.
"The amount that's been invested in oil and gas companies has been
declining," Fugere explained. "These companies are starting to
understand the need to change but some of them not quickly enough."
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