FROM THE MANHATTAN CONTRARIAN
For many years there has been a persistent cry: fossil fuels are obsolete and the plants that produce them, and any other plants that could be built for that purpose, will soon be worthless. These facilities are “stranded assets”. And any energy company foolish enough to make further investments in fossil fuel extraction or use will inevitably suffer a total loss.
Do you believe this prediction? Those who make it are among the aggressive proponents of an energy transition towards supposedly superior energy sources such as wind and sun. The prediction has often been used to force energy companies to scale back or halt their coal, oil and gas investments. But if fossil fuels were indeed obsolete and renewables were superior and cheaper, why would such a fight be necessary? Wouldn’t the investments flow into the wind and solar systems all by themselves?
For starters, here is a sampling of some of those who take the position that fossil fuel assets will soon become “stranded”:
- Senator Sheldon Whitehouse (D-RI), Chair of the Senate Budget Committee, at a hearing on March 29, 2023: “[T]The world is moving away from oil and gas, but recalcitrant and politically-aligned market participants remain invested in fossil fuels, whose values plummet as their unsustainable economics overwhelm the artificial policies that supported them. The key term of today’s hearing: stranded assets.”
- From an article by Semieniuk et al. in Nature Climate Change, May 2022: “The distribution of ownership of the transition risk associated with stranded fossil fuel assets remains poorly understood. We expect the present value of future lost earnings in the upstream oil and gas sector to exceed $1 trillion in globally stranded assets if expectations of climate policy impacts plausibly change.”
- From MIT News, August 19, 2022: “As the world moves away from greenhouse gas-emitting activities to keep global warming well below 2°C (and ideally 1.5°C), in line with the Paris Climate Agreement, fossil fuel companies are turning to Fuels and their investors face growing financial risks (known as transition risks), including the prospect of ending up facing massive asset losses.”
- From The New York Times, March 21, 2022, citing a speech by UN Secretary-General Antonio Guterres: “In his speech, Mr. Guterres said that wealthy nations should dismantle their coal infrastructure to fully build it by 2030, while other nations should do so.” by 2040. . . . “Your support for coal might not just cost the world its climate targets,” he said. “It’s a foolish investment – leading to billions in lost assets.”
Meanwhile, out here in the real world, fossil fuel investments are looking the opposite of stranded. Here’s a quick recap from AP May 2 on some big oil companies’ earnings for the first quarter of 2023:
Exxon earned a record $11.4 billion in the first quarter, Chevron raked in $6.6 billion. Saudi Aramco announced in March that it had earned $161 billion in 2022, the highest annual profit ever by a publicly traded company.
And for full-year 2022, here are Exxon and Chevron’s earnings, as reported by NPR:
ExxonMobil posted nearly $56 billion in earnings in 2022, setting an annual record not just for itself but for any US or European oil giant. Competitor Chevron, buoyed by high oil prices, also posted annual profits of $35 billion despite a disappointing fourth quarter.
NPR cites Exxon CEO Darren Woods as the reason for Exxon’s recent success: “We gave in when others gave in.”
Woods referred to Exxon’s decision to continue investing in oil and gas production while several other oil companies cut back and made ridiculous commitments to reduce their “emissions” as if they’d forgotten what business they were in . The frontrunners in the In Search of Climate Virtue category were two European giants, BP and Shell. How did that work? Britain’s Daily Telegraph (behind the paywall) June 15 reports the latest from these two:
First BP, now Shell. One by one, the oil giants are returning to what they do best – doubling fossil fuel use and prioritizing returns for shareholders – in a turnaround that must inevitably come at the expense of climate promises.
It appears that BP and Shell have lagged their peers in oil and gas profits while investing in various politically advocated green energy projects. No longer. Here’s the Daily Telegraph describing Shell after its recent move:
Shell privately acknowledges that biofuels, hydrogen, electric vehicle charging and carbon capture storage — the four investment areas the company has envisaged — are at the more speculative and unproven end of the renewable energy spectrum. The lack of any plans to invest in other, more mainstream clean energy sources such as wind and solar – which are attracting record investment around the world – is glaring.
And for the latest on coal, check out Robert Bryce’s June 17 Substack column. Here are some stats from Bryce in Vietnam and China:
Vietnam now gets about 60% of its juice from coal-fired power plants. Since 2009, Vietnam’s coal-fired power production has increased tenfold, and further growth is on the way. According to Global Energy Monitor, Vietnam commissioned around 1,900 megawatts of new coal-fired power plant capacity last year.
Much . . . Coal growth is happening in China, which produces more than half of the world’s coal consumption and just over half (52%) of all coal-generated electricity. Yesterday, June 16, Reuters reported that coal production in China rose 6.6% in the first five months of this year. And this trend will continue. In February, Global Energy Monitor reported that China approved about two new coal-fired power plants per day in 2022.
And here’s a chart from Bryce showing the overall trend in power generation from coal:
In terms of oil, gas, and coal assets on the one hand, and wind, solar, and battery assets on the other, I think it’s a very easy decision as to which assets will end up “stranding.” The first day a government withdraws its subsidies for wind, solar, or battery installations, that installation is “stranded.”