Stranded Oil and Gas Assets Could Reach $2.3 Trillion by 2040

The decarbonization push could result in $2.3 trillion worth of stranded oil and gas assets by 2040, a sustainable finance outlet from the UK has warned in a report.

According to the UK Sustainable Investment and Finance Association, the UK has a disproportionately large exposure to this risk, with a potential $141 billion in losses on the line, should the net-zero transition succeed.

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“Based on current green transition policies, mid-term action plans to cut emissions, and long-term net zero targets, the report finds that global economic exposure to fossil fuel asset stranding risk amounts to $2.28 trillion by 2040,” the UKSIF wrote, adding that “In comparison to the cost of climate inaction, this is still a much smaller loss to bear. In a warming scenario between 2.5°C and 2.9°C, climate-intensified natural disasters may lead to $12.5 trillion in economic losses by 2050.”

Such projections of the effects of climate change on natural disasters are normally the product of computer modelling, using inputs from researchers based on data that is also not infrequently derived from computer models along with observed temperature records.

The threat of stranded assets has been a popular one in the transition space for years. With governments in the West throwing their full weight behind the transition, the idea that much of the oil, gas, and coal reserves being developed today could end up unwanted and loss-making due to lack of demand seemed quite plausible.

Actual energy consumption data, however, has dispelled that idea, with coal consumption, no less, running at a record despite those governments’ efforts to transition away from hydrocarbons in favor of alternative sources of energy. Oil and natural gas consumption are also on the rise, especially natural gas. The clearest evidence of the not so gloomy outlook for hydrocarbons is Big Oil’s recent pivot back to its core business of producing those very same hydrocarbons and ditching transition goals.

By Irina Slav for Oilprice.com

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