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Oil Companies Gambling Billions of Dollars Ignoring Realities of a Carbon Constrained World

Kevin Grandia's picture
Spake Media House Inc.

Kevin is the President of Spake Media House Inc. a consulting firm that brings online power to non-profits, campaigners and advocacy groups.

  • Member since 2018
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  • Jul 14, 2014
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Carbon Constraint and Oil Business

Companies like Shell Oil really need to give their eyes a rub and see that a world with serious constraints on greenhouse gas emissions is not a possible future, but an eventual reality.

Right now, oil companies are investing billions in long term plays in very carbon intensive fuels, like Canada’s oil sands, while at the same time there are more and more signs that strict regulations on such operations are on the horizon in the near-term.

You don’t need to look much further than the years of delays on the Keystone XL pipeline to see that governments are starting to second guess these big cash layouts on climate risky projects.

Or take for instance, the federal court ruling last week that halted a proposed coal mining operation in Colorado stating that the “social costs” of contributions the mine would make to worsening impacts of climate change in the future were not taken into consideration.

This ruling on the grounds of future social costs, should be, if you will, a canary in the coal mine for companies looking to invest big dollars in long-term carbon intensive projects.

When you consider the scale of something like Shell’s planned $5.4 billion investment in the expansion of their Jackpine oil sands operations, you start to see just how much money is being laid out on these risky plays.

An ongoing effort to chronicle this idea of companies risking billions on assets that may be rendered worthless in a carbon-constrained world, is being run by a UK group called the Climate Tracker Initiative (CTI).

In my humble opinion the work being done by CTI should be on the desk of every financial analyst and on the tip of the tongue of every financial journalist in the world.

New CTI research out this week shows that Shell Oil is putting at risk upwards of $77 billion [PDF]by not taking the risk to their carbon-intensive investments in to proper account and claiming that the oil giant:

Dismisses the likelihood of political action on climate change, ignoring the growing list of national and regional emissions measures being legislated and the growing calls and potential for greater energy efficiency worldwide.

According to CTI, Shell’s response to their work apparently didn’t even get the science right:

Shell’s response also misrepresents the IPCC by stating on the first page of its public response that ‘there is a high degree of confidence that global warming will exceed 2 degrees Celsius by the end of the 21st century’. In fact, this is only one stated outcome if there is no action to reduce global emissions.

For a company whose future prosperity is so tied to climate regulations, one would think they would have the science down pat.

In the very near future (if not already) I am guessing shareholders in these oil companies are going to start asking pretty tough questions and companies like Shell better have solid answers.

Photo Credit: Oil Companies and Carbon Constraint/shutterstock

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J Elliott's picture
J Elliott on Jul 14, 2014

 

About 90% of total world energy required to support the world’s 7 trillion populous is supplied by fossil fuels today.  Oil currently makes up about one third of total world energy supply.  Most experts’ projections indicate that about 80% of total world energy will continue to be supplied by fossil fuels mid-century; to support a growing population up to about 9 trillion by 2050.  Since oil is projected to continue to supply about one third of total world fossil fuels in 2050, the risk of such an investment does not appear to be very significant.  If one assumes that most fossil fuels or oil will be eliminated by mid-century, what do you believe would be the impact on trillions of the total world population?  And, what are the odds of developing countries such as China and India of reducing, let alone substantially eliminating, the consumption of fossil fuels in the foreseeable future?

Investing against oil may have considerably greater risk.

 

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