Stranded Assets in Oil and Gas a Reality
Just a few short years ago a friend called me to chat about the possibility of stranded assets in oil and gas due to climate change and the expected legislation and new regulations that would entail. This was an interesting idea coming out of the UK at the time. Since then, the idea has gained more and more traction. What is starting to emerge, however, is that stranded assets in oil and gas are not going to happen merely because of climate change. It is happening as we speak because a number of potentially disrupting events are all converging on one point: our use of hydrocarbons. Some of the challenges are due to climate and some are not. What is clear, however, is that they are multiplying. Though climate change will no doubt prove to be one aspect of stranded assets, others will include a simple but powerful realization that there are simply better places to put your investment dollars…or euros…or yuan.
So what are these potentially disrupting events? Let’s start with just one.
We’ve all heard of the compound effect and how it can beneficially impact our investments. What we don’t hear as much is what it can do detrimentally as well. Because the compound effect doesn’t just work on investments. It also works on every aspect of your life. If you choose to add desserts to a couple of meals a week when you never ate dessert before, chances are that you will gain weight. It won’t seem a big deal at first. You won’t even notice it but then one day you will wake up and “somehow” you’ve gained five pounds. Something similar is happening with the alternative energies of wind and solar. While most of us were not paying attention, they were quietly adding capacity to the grid. While we were incessantly fixated on the “shale revolution” they were streamlining manufacturing processes and the costs were plunging.
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