Half of the world’s fossil fuel assets may be worthless by 2036

According to research, about half the world’s fossil fuel assets would be worthless in 2036 under a net transition.

Countries that take too long to decarbonise their economies will be affected, but those that move quickly will benefit. The study shows that renewables and investment in the early stages of the transition will make up the difference.

It highlights the danger of producing too much oil and gas, which could leave $11tn to $14tn (£8.1tn – £10.3tn). These stranded assets are infrastructure, property, and investments whose value has plummeted so they need to be written off.

Jean-Francois Mercure, University of Exeter’s lead author, stated that the global shift to cleaner energy would be beneficial for the economy. However, it should be managed carefully to avoid regional misery and potential instability.

“In the worst-case scenario people will continue to invest in fossil fuels until suddenly they realize that what they have is worthless and not the demand they expect.” “Then we could see another financial crisis of the magnitude of 2008,” he warned, warning that oil capitals like Houston could face the same fate after the collapse of the US auto industry.

At the ongoing COP26 climate conference the challenge is clear. Some of the countries most at risk – such Russia and Brazil, which are oil and gas exporters – will try to slow down transition, as they did at previous climate meetings. However, those most likely gain, such as the EU, who imports fuel, are calling for quicker action.

The paper was published in Nature . It shows how a decline in oil and gas demand before 2036 will change the geopolitical landscape. Current investment flows and commitments by the government to net zero emissions by 2050, will make renewable energy more efficient and more stable. Meanwhile, fossil fuels will see more volatility. Many carbon assets such as coal and oil reserves will not be burned. Machinery will also remain stranded and cease to be of any value to its owners.

Remote areas and technically difficult environments are the most dangerous. The most vulnerable assets are the Canadian tar sands and US shale, followed by deep offshore wells in Brazil or elsewhere. North Sea oil can also be quite expensive to extract, and is likely to be used when there is less demand.

Current oil, gas, and coal importers like the EU, Japan and South Korea will benefit from the transition. They will be able use the money saved on fuel purchases overseas to invest in their countries. This includes money for renewables, which will modernise the infrastructure, create jobs, and increase energy independence.

The situation of the two largest emitters in the world, the US and China, is more complicated because they have more diverse economies that include both large fossil fuel reserves and strong renewable sectors. The UK is in a similar position, but the UK, as a net energy importer stands to gain overall.

Much depends on how quickly and widely decarbonisation is spread, as well as the strategies used by fossil fuel exporters for selling off their assets before they lose market value. The study examined several scenarios to assess the impact.


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