Investors Fear Oil, Big Fossil Nearing the End

June 22, 2018

offshoreoil

Bill McKibben in the Guardian:

And from Wall Street came welcome word that market perceptions haven’t really changed: even in the age of Trump, the fossil fuel industry has gone from the world’s surest bet to an increasingly challenged enterprise. Researchers at the Institute for Energy Economics and Financial Analysis minced no words: “In the past several years, oil industry financial statements have revealed significant signs of strain: Profits have dropped, cash flow is down, balance sheets are deteriorating and capital spending is falling. The stock market has recognized the sector’s overall weakness, punishing oil and gas shares over the past five years even as the market as a whole has soared.”

The IEEFA report labeled the industry “weaker than it has been in decades” and laid out its basic frailties, the first of which is paradoxical. Fracking has produced a sudden surge of gas and oil into the market, lowering prices – which means many older investments (Canada’s tar sands, for instance) no longer make economic sense. Fossil fuel has been transformed into a pure commodity business, and since the margins on fracking are narrow at best, its financial performance has been woeful. The IEEFA describes investors as “shell-shocked” by poor returns.

And from Wall Street came welcome word that market perceptions haven’t really changed: even in the age of Trump, the fossil fuel industry has gone from the world’s surest bet to an increasingly challenged enterprise. Researchers at the Institute for Energy Economics and Financial Analysis minced no words: “In the past several years, oil industry financial statements have revealed significant signs of strain: Profits have dropped, cash flow is down, balance sheets are deteriorating and capital spending is falling. The stock market has recognized the sector’s overall weakness, punishing oil and gas shares over the past five years even as the market as a whole has soared.”

The IEEFA report labeled the industry “weaker than it has been in decades” and laid out its basic frailties, the first of which is paradoxical. Fracking has produced a sudden surge of gas and oil into the market, lowering prices – which means many older investments (Canada’s tar sands, for instance) no longer make economic sense. Fossil fuel has been transformed into a pure commodity business, and since the margins on fracking are narrow at best, its financial performance has been woeful. The IEEFA describes investors as “shell-shocked” by poor returns.

Hey, the movement against Kinder Morgan’s pipeline got so big, the Canadian government had to literally buy the thing in order to try and ram it through. Protesters will die, a former Bank of Canada governor predicted this week – though he added the country will have to muster the “fortitude” to kill them and get the pipeline built.

For activists, the best part of the IEEFA report is a series of recommendations for precisely how to hurt the industry the most, from creating delays that “turn a marginal project into a cancelled one” to “strategic litigation” to “changing the narrative”.

The report’s authors write: “The financial world is just beginning to understand the fundamental weakness of the fossil fuel sector, and barely acknowledges the global climate movement’s growing power and reach. This has created a powerful opportunity to develop and foster a new storyline on Wall Street: that the oil and gas industry is an unstable financial partner just as it faces its greatest test.”

Financial Times:

Asked last month by a frustrated investor if, “hand on heart”, Royal Dutch Shell was more concerned about “the sustainability of the company or with the sustainability of the planet”, chief executive Ben van Beurden acknowledged that climate change will be “the defining challenge” facing the oil industry for years to come.

Investors are driving this shift. Mainstream asset managers and pension funds are increasingly concerned about the potential financial impact of global warming and of policies to limit it.  Legal & General Investment Management, one of the biggest owners of BP and Shell shares through the UK pension funds it manages, has led the way in telling them to focus less on the risks of short-term price moves, and prepare instead to manage an industry in decline. Nick Stansbury, who heads L&G’s strategy in energy and commodity markets, says their argument is that while it is impossible to predict exactly when oil demand will peak, they are now convinced the moment is coming. Electric vehicles, a backlash against plastics and the rise of alternative fuels all threaten to cap oil demand, L&G argues.

 

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10 Responses to “Investors Fear Oil, Big Fossil Nearing the End”

  1. Keith McClary Says:

    Duplicated paragraphs under Bill McKibben.

  2. Sir Charles Says:

    Financial institutions say they could double their planned investments in the U.S. renewable energy sector, with the potential to mobilize $1 trillion by 2030, but growth will depend on policies and market signals. A survey of financial firms shows 58 percent say the lack of a federal policy driver after key renewable energy tax credits sunset is an obstacle.

    => What Financiers Need to Unlock $1 Trillion in Renewable Energy Investment

  3. Abel Adamski Says:

    A very pertinent article especially in the context of the excellent articles Sir Chartles has linked to .
    Context
    Context
    https://www.vox.com/energy-and-environment/2018/6/22/17487488/carbon-tax-dividend-trent-lott-john-breaux

    Overall, it makes for an extremely volatile and unpredictable policy environment — or rather, dozens of disparate policy environments. And oil and gas companies know that Trump won’t be in power forever. Democrats will return to federal power eventually, and when they do, they will have an appetite for bold climate policy.

    Basically, oil and gas sees a big wave of climate policies building. That is what Lott meant when he told the Wall Street Journal that “the tide is turning on the realization that something needs to be done in this area.” He didn’t mean “we’ve been doing some reading and realized we were terribly wrong.” He meant “the jig is up.”

    Thus the inclusion of two key provisions in the AFCD proposal.

    First, EPA regulations meant to reduce greenhouse gas emissions, like the Clean Power Plan, would be revoked, allegedly rendered unnecessary. (It’s unclear exactly which regulations are included.) And second, energy companies would be given immunity to climate-based lawsuits like several currently underway, a provision climate activists are certain to oppose.

    • J4Zonian Says:

      David Roberts is one of, if not the best writer on climate and energy policy–in English, at least. It’s nice to read someone saying better what I’ve been shouting into the wind since CCL formed. Everyone on the left (including Roberts, at one point) turned on those on the left who were against cap and trade, a carbon tax, fee–whatever it’s being called this week. That makes it yet another issue the lunatic–but diabolically clever–right wing is using to split the left. Those naive enough to believe that there are any helpful “market responses” to the climate crisis are fooling themselves, trying to reach yet again for comforting middle-of-the-road non-solutions.

      The only solution is an immediate, massive climate mobilization. We need to use it to build efficiency and clean safe renewable energy, coordinating it with the controlled implosion of the fossil fuel industry–more controlled than its current collapse, to reforest the planet, transform chemical industrial agriculture to small-scale, low-meat organic permaculture, and transform industry to benign, closed-loop biomimicing forms. A national grid connected to others; a national rail system including high speed rail, connected to others. Ten percent of the country moved for war work during WWII; we need a universal basic income and universal health care as war measures now–moves toward economic and political equality, which is also a necessary war measure. And of course, just like the New Deal and WWII mobilization had many parts, there are lots of other parts in this mobilization. One of them might be a carbon price, but alone, it’s as useful as a pile of nuts and bolts with nothing to bolt them to.

      The corporate duopoly will pass a carbon price or some such useless measure, with provisions to destroy all the other parts of the mobilization, if we leave it in power. We have to remove not just Republicans but corporate conservative Democrats–at least half the party–from power if we want civilization to survive.

      • dumboldguy Says:

        Jeffy’s list of solutions brings to mind an exchange between Alice and the Red Queen:

        “Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.”

        “I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”

        In order to accept that we will save ourselves in this way, we must “believe six impossible things before breakfast”. It ain’t gonna happen Jeffy! We will muddle along believing in capitalism until the SHTF, and THEN we may try some of these things—-far too late. Get ready for geoengineering on a massive scale—frantic ill-thought-out last-minute efforts, many of which will backfire. Sorry to stick pins in your balloon, but rational fatalism offers no alternative.

        Perhaps whatever “civilization” survives will do better next time—-if any humans survive, they will likely be set back into the late hunter-gatherer/early agricultural stage. Let’s hope they learn from our mistakes as they “redo” it all.

  4. J4Zonian Says:

    Some people manage to be asses even when they’re partly right. When they’re wrong, (very common for this type of person) they’re stupid asses. When they’re stupid asses who are spreading despair they’re just about the most useless, destructive kind of person there is–besides denying delayalists, fascists and market religion fanatics. (and of course most of each are all 3.)

    I make no judgement about how likely it is humanity will do something. I only say what we need to do for civilization and most life on Earth to survive. Those who say ahead of time that we won’t do what we need to to survive, would do us all a favor by either killing themselves now, or just s’ing tfu. If they decide they want to live, they should also definitely get into psychotherapy to find out why they’re so determined to recruit people to their personal feelings of depression and despair.

    Now I’ll go back to ignoring them.

    • dumboldguy Says:

      Ah, yes—-Jeffy earns another squirt of self-delusion scent for his perfumed sleeve hanky. He is getting to be quite “stinky”.

      He struts around with his nose in the air “ignoring people” and spouting all those “impossible” things that might save us but that anyone with an ounce of rational thinking ability KNOWS are not going to be implemented in time, if ever. Does Jeffy understand that he is also ignoring Hansen and all those other scientists who KNOW what deep trouble we’re in but are reluctant to say it?—-you know, those guys that Peter keeps interviewing for posts on Crock?

      “Those who say ahead of time that we won’t do what we need to to survive, would do us all a favor by either killing themselves now, or just s’ing tfu”

      JFC and GFYS, Jeffy! When Nietzsche said God was dead, I don’t recall anyone nominating you to take his place. When it does reach SHTF time, your type will be among those responsible—since you have done little but sit on the beach outside your yurt playing the bongos and pontificating (i.e., blathering into the wind by posting crap here). YOU are the delayalist and market religion fanatic, since all your solutions require market solutions and waiting for the market to adopt them.

      Spreading despair, you call it? I’m tired of your OPINIONS, Jeffy—how about explaining how you think we can implement your “vision”? Short of armed insurrection, that is? Do you have any clear ideas of HOW? WAKE TFU, YOU FLAMING A-HOLE!!!


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