A widely cited 2015 study claims that around one-third of the world’s oil reserves, half of total gas reserves, and upwards of more than 80% of coal reserves will need to not be used – not brought up to the surface, and not burned into the atmosphere – to hit the 2-degree target, so that Mother Earth can still be breathing when our grandkids are adults. This is an extinction-level challenge for the likes of Exxon, BP, Chevron, Saudi Aramco, and every other oil, gas, and coal producer, as the Financial Times explained in February 2020... Vast swaths of oil, gas and coal reserves may never be extracted and burnt because doing so would intensify global warming, worsening freak weather events and threatening the loss of farmland and huge population displacement... In that context of the climate emergency, the cost of writing off stranded assets could be seen as a small price to pay. But the amounts involved would be breathtaking. According to [ Financial Times ] estimates, around $900bn – or one-third of the current value of big oil and gas companies – would evaporate if governments more aggressively attempted to restrict the rise in temperatures to 1.5C above pre-industrial levels... Oil and gas companies frequently write down, or decrease, the value of reserves to reflect a revised outlook on commodities prices. A big deep-water oil project that requires an oil price of $90 per barrel to deliver a 15% return – launched when it looked like oil prices would remain above $100 per barrel indefinitely – is a lot less compelling in a $60 per barrel oil environment.
In that case, a big oil company might suspend operations on the project and reduce the value of the project on its balance sheet (which is more of an accounting maneuver than anything else). It would still show the reserves as an asset, and it could resurrect the project if oil prices were to rise. FINDING THE NEXT THING But a Paris Agreement-inspired stranding of assets is a different matter. It’s permanent and irrespective of the price of oil or any other bottom-line-driven factor. And it’s not like oil and gas production is a side hustle for the likes of Chevron or ConocoPhillips... This is like telling McDonalds, “Sorry, you can’t sell fast food anymore – figure something else out.” A Paris Agreement- inspired stranding of assets is a different matter. It’s permanent and irrespective of the price of oil or any other bottom-line-driven factor. And it’s not like oil and gas production is a side hustle for the likes of Chevron or ConocoPhillips... U.K. energy major BP helped kick off the process of cutting off its own limbs in June, when it slashed $17.5 billion from the value of its oil and gas assets. The Financial Times opined that the write-down was “the biggest recognition yet among the largest oil and gas players that tens of billions of dollars worth of investment could be rendered uneconomic as the world pursues the Paris climate goals.”
American Co s quences
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