Oil companies could get caught in a stranded asset trap worth $500 billion, environmental think tank Carbon Tracker said in a new report this week.
According to the report, “Surging oil prices may tempt oil and gas companies to make long-term investment decisions that cost shareholders dearly, but a cautious “managed” approach to the energy transition would do most to preserve shareholder value and help society achieve climate goals.”
The authors noted the recent surge in oil prices but cautioned Big Oil about letting it go to their heads because climate commitments made by governments and the assumed wider adoption of EVs will soon reverse the oil demand growth trend.
At the same time, however, the mining and commodities industries are warning of rising prices for metals and minerals, both essential for solar, wind, and electric cars. At the recent Future Minerals Forum in Saudi Arabia, for instance, Barrick’s CEO Mark Bristow projected that the copper market could swing into a shortage, while Christopher Ecclestone, strategist and principal at Hallgarten & Company, said metals and minerals prices are on a stable upward trajectory and they are not coming back.
The rising costs of raw materials have already begun to affect the renewable energy and EV industry, making their products costlier and reducing the number of people willing to switch to a lower-carbon alternative to fossil fuels. It has also jeopardized the progress of the energy transition, according to analysts, raising the price tag substantially.
Even so, according to the lead author of the Carbon Tracker report, “Companies may see high prices as a huge neon sign pointing towards investment in more supply. However, this could become a nightmare scenario if they go ahead with projects which deliver oil around the time that demand starts to decline. Shareholders could face catastrophic levels of value destruction as prices fall.”
By Irina Slav for Oilprice.com
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