ExxonMobil and its peers risk blowing $2.3 trillion on oil projects that will not be needed if the world hits peak demand in the next decade.
A new report from The Carbon Tracker Initiative analyzed what would happen if the oil market saw demand peak by 2025, a scenario that would be compatible with limiting global warming to just 2 degrees Celsius. The headline conclusion is that about one-third of the global oil industry’s potential spending – or about $2.3 trillion – would not be needed. In other words, the oil industry is on track to waste a massive pile of money if demand peaks in less than ten years.
Of course, the vulnerability to peak demand varies by company. Carbon Tracker surveyed 69 global oil and gas companies, and their exposures range from 10 to 60 percent of their potential spending. That is, 10 to 60 percent of their spending could be unnecessary or wasteful if demand peaks by the middle of the next decade. The latest report adds more detail to the “stranded assets” theory – the notion that large volumes of oil will be left in the ground because demand peaks, whether because of alternatives or climate regulation, or both.
Some medium-sized companies like Southwestern Energy and Apache Corp. topped the list with 60 to 70 percent of their potential upstream capex vulnerable in a peak demand scenario. As for the oil majors, ExxonMobil would be the most vulnerable to peak demand, with about half of its potential spending through 2025 unneeded. Other oil majors fare a bit better, although not by much. Chevron, Eni and Shell could see 30 to 40 percent of their capex spent on wasted projects.
Which projects are subject to redundancy largely comes down to economics. U.S. shale drilling has seen dramatic costs declines, pushing some higher-cost projects out of the range of viability in this scenario.
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