Oil And Gas Industry Facing $3.3 Trillion Stranded Asset Nightmare
The largest international oil and gas firms wrote down assets worth $150 billion last year when prices crashed with the demand slump in the pandemic. Despite the fact that this year’s oil prices are now nearly double compared to the 2020 average, the energy industry faces additional impairments in the coming years and decades, this time due to the investor pressure to slash emissions and start accounting for changes to energy demand in the transition to low-carbon sources.
All industries are under pressure to realign their accounting and financing practices to climate change-related risks, but none more so than the large companies in the energy sector whose core business continues to be oil, gas, and coal. The increased scrutiny and pressure on companies from investors and society, as well as uncertainties over long-term demand for fossil fuels, could leave assets, currently estimated to be worth trillions of U.S. dollars, stranded in the future.
Recent studies have suggested that more than half of oil and gas reserves should remain in the ground if the world is to limit global warming to 1.5 degrees Celsius above pre-industrial levels by 2050. Carbon prices and additional regulations to limit carbon emissions could make a greater number of fossil fuel assets—especially coal—unprofitable as governments, especially in developed nations, press for net-zero emission economies by 2050. Businesses are waiting for details on carbon markets and carbon emission rules and, potentially, carbon taxes, before re-evaluating their assets, analysts tell The Wall Street Journal.
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