What The Oil And Gas Industry Is Not Telling Investors
Oil prices crashed because of too much supply, but will rebound as production shrinks and demand rises. But what if long-term demand for oil ends up being sharply lower than what the oil industry believes?
That is the subject of a new report from The Carbon Tracker Initiative, which looks at a range of scenarios that could blow up oil industry projections for long-term oil demand.
Historically, Carbon Tracker says, energy demand has been driven by population, economic growth, and the efficiency (or inefficiency) of energy-using technologies. Carbon Tracker looks at a couple possible future scenarios in which those parameters are altered, resulting in dramatically lower rates of oil consumption.
Related: Iran May Not Be That Attractive To Oil Industry After All
Carbon Tracker has been a pioneer in the concept of “stranded assets,” the notion that fossil fuel assets will lose their value as the world moves to restrict carbon emissions. If an oil field cannot be produced profitably in a carbon-constrained world – or cannot legally be produced because of certain regulations – then it ceases to have value. That puts investors’ dollars at risk, a risk that financial markets have not fully grappled with.
However, in a new report, Carbon Tracker expands upon the possible scenarios in which oil demand may not live up to industry predictions.
For example, if the world population hits only 8.3 billion by 2050 instead of the 9.7 billion figure typically cited by the UN, fossil fuel consumption could end up being 17 percent lower in 2050 than the oil industry thinks. Coal would be affected the most, with 25 percent reduction in demand compared to the business-as-usual case.
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