Energy transition, barrel at $100 risks stranded assets boom

500 billion stranded assets can strand the energy transition

(Sustainabilityenvironment.com) – Oil prices have returned to 90 dollars a barrel, a temptation for investors. But also a threat to the trajectory of global climate action set by the Glasgow Pact. The risk is to slow down the energy transaction and waste 500 billion dollars in stranded assets. That is, in projects that become inconvenient when they start to produce, even if at this moment they may seem lucrative. The alarm launches the Carbon Tracker in the report published “Managing Peak Oil”.

The rebound in oil and gas prices that we are witnessing in recent months is only illusory, warns the think tank. Basing investments on prices around $100/barrel, which we could reach at the end of 2022, will soon prove to be a miscalculation.

The solution would be to include in the equation the peak of oil, which will arrive by 2040 anyway given the policies of conversion to electric mobility and those of reduction of emissions globally.

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If you ignore this key point, you will invest large sums of money that could support the energy transition in projects that, when they start to produce, They may already have lost all convenience due to the decline in global demand for oil. For Carbon Tracker, these are the premises of a “nightmare scenario”.

Companies may see high prices as a huge neon sign pointing towards investment in more supply,” said Axel Dalman, who helped write the report. “However, this could become a nightmare scenario if they go ahead with projects that start producing oil as demand begins to decline. Shareholders could face catastrophic levels of value loss when prices drop”.

The investments more at risk

For the relationship, the investments considered more at risk are the plans with a breakeven price advanced to the 50 dollars to the barrel. And intended to start production, not before the end of this decade.

“We know that demand will weaken as the political response to the climate crisis and the spread of new technologies accelerate,” said Mike Coffin, co-author of the report. “To effectively manage this transition, companies must resist the temptation to invest heavily on short-term price signals”.

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