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BIG BLOW TO OIL, COAL SECTOR

Green steps to cost fossil fuels sector $28 trillion

London, April 28, 2014

The global fossil fuel industry faces a loss of $28 trillion in revenues over the next two decades, if the world takes action to address climate change, cleans up pollution and moves to decarbonise the global energy system, said a report.

Once the new climate change rules come into force, the oil industry will be the biggest casualty, with a potential loss of $19.3 trillion in revenues from 2015 to 2035, reported RenewEconomy, an Australia-based clean energy news portal, citing industry data.

The coal industry stands to lose $4.9 trillion, while the gas industry $4 trillion, said the report citing assessment made by leading European broking house Kepler Chevreux.

The report underlines what’s at stake for the fossil fuel industry from a push to cleaner fuels and concerted efforts to reduce emissions, and helps explain the enormous push back from the oil and coal industries in particular against such policies.

The most at risk projects are the high cost, high carbon sources – particularly deepwater drilling, oil-sands and shale-oil plays –which rely on high prices for oil, stated the Kepler Chevreux report.

The top brokerage said that its predictions do not rely on there being a global climate agreement struck in Paris at the end of 2015. It says trillions of dollars are still at risk from unilateral and regional action, pollution controls such as those being implemented by China, and the falling of cost of renewables, which will likely displace more coal, gas and oil production, the report added.

“The oil industry’s increasingly unsustainable dynamics … mean that stranded-asset risk exists even under business-as-usual conditions,” Kepler Chevreux writes. “High oil prices will encourage the shift away from oil towards renewables (whose costs are falling) while also incentivising greater energy efficiency.

The global fossil fuel industry has been clinging grimly to the IEA’s New Policies scenario, seeking to justify – to both shareholders and bankers – the huge investment it is making in exploration and ever-more capital-intensive projects.

Kepler Chevreux is particularly critical of ExxonMobil’s recent carbon risk report, saying it had focused almost exclusively on business-as-usual scenarios, and “did not advance the debate at all.”

The report says that most existing production – be it in oil, gas or coal – are not at risk. The production at risk are the proven reserves that yet to be developed. As Citigroup and others, including HSBC and Deutsche Bank have previously noted, these proven but as yet undeveloped assets form a significant part of some company’s market and asset valuations, it added.

On the subject of renewables, Kepler Chevreux says tremendous cost reductions have been achieved in recent years, and this is likely to continue over the next two decades – just as the upward trajectory for oil costs becomes steeper.

“This suggests, perhaps paradoxically, that there could be a real risk to the oil industry from rising oil prices under a BAU scenario, as combined with continuing reductions in the costs of renewable technologies this could drive the accelerated substitution of oil in the global energy mix over the next two decades,” the top brokerage said.

"In turn, this would risk creating stranded assets over the medium to longer term both for the oil industry itself and – owing to the central role of oil in energy pricing more generally – for the global fossil-fuel industry as a whole," it added.-TradeArabia News Service




Tags: climate change | fossil fuel |

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