$1.6 Trillion in Global Fossil Fuel Investments at Risk

The fossil fuel industry is putting $1.6 trillion of investment at risk if the world gets its act together and tries to adhere to the climate change targets as part of the Paris Climate Agreement.

A new study from the Carbon Tracker Initiative predicts that the world will need $4.8 trillion in investment in oil, gas and thermal coal between 2018 and 2025 under a business-as-usual scenario, but considerably less if governments step up policy initiatives to combat greenhouse gas emissions, Oil Price reported. If the world sticks to its 2-degree-Celsius target, there would only be a need for $4 trillion in investment through 2025. Moreover, in a more aggressive scenario in which the world keeps warming at a 1.75 degrees C, fossil fuel investment would fall to just $3.3 trillion. All that extra spending by the energy industry would be put at risk.

The upshot is that current levels of fossil fuel investment are completely at odds with what the world needs to stick to its climate targets. The scientific evidence suggests a need to scale back on production and consumption in a big way. But the oil industry sees a steady increase in demand, justifying new investments. In fact, some in the oil industry see the opposite problem: inadequate investment in oil and gas. The IEA and others have warned that there is insufficient upstream crude oil investment to meet future demand.

Royal Dutch Shell predicted that there is also too little spending on new liquefied natural gas export capacity, which could leave the market with a supply crunch in the 2020s.

The concern over low spending was a common theme throughout the CERAWeek Conference in Houston this past week. OPEC Secretary-General Mohammed Barkindo said that the steep decline in spending between 2015 and 2016 has left the oil market with a $1 trillion shortfall.

“If trend of past few years continues ... God forbid, we would be sowing seeds for a future global energy crisis nobody wants to see," Barkindo said.

The IEA has repeatedly echoed this position.

But the Carbon Tracker Initiative warns that the oil and gas industry is putting a lot of capital at risk, pouring money into fossil fuel projects that could become “stranded assets” if governments redouble their efforts to limit carbon pollution.

If governments put in place carbon taxes, other policy incentives to promote renewable energy and electric vehicles, with an eye on limiting emissions, some oil and gas projects might never move forward. Or, put another way, if policy cuts into oil demand, prices could fall much further than expected, pushing high cost projects into unprofitable territory.