The idea of coal, oil, and natural gas reserves becoming “stranded assets” from unanticipated or premature write-downs is bogus. The reality is that demand is so ever growing that the balance sheets of our fossil fuel companies get consumed in about 10 years. The International Energy Agency, adviser to the most advanced economies in the world (the 34 OECD nations), has been clear: energy demand grows with population and GDP, especially in the fossil fuel-era that started in the mid-1800s. Therefore with fossil fuels supplying over 80% of all U.S. and global energy, the future is obvious: more coal, more oil, and more gas.
Looking forward, as both the U.S. and the world will continue to grow, adding 2,400 million people by 2050, it’s true that all economically viable energy sources will be required to meet rising human needs, including renewable energy systems. Yet, the reality is just like what the Red Queen told Alice, renewables will have to run faster just to stay in place :
- Most new population and economic growth will be where most people are both poor and energy short, making the most affordable and reliable energy sources like coal, oil, and gas even more enticing. Beyond higher costs, scalability, geographic dispersion, and intermittency are other practical limitations that confront renewables: “10 ‘Reality Check’ Problems That Must Be Addressed By Opponents Of Coal, Oil And Natural Gas.”
- And as the U.S. shale oil and gas revolution continues to show, never underestimate how non-stop technological evolution will continue to allow coal, oil, and gas to play a huge role even under strict carbon management policies. Greater efficiency and carbon capture and storage are just two examples that will help ensure fossil fuel sustainability. Potential energy investors know this: renewables won’t be competing against fossil fuels as they are now but as they will become. Coal, oil, and gas are so utilized that IEA expects that carbon capture technologies will do far more to combat climate change than renewables.
In IEA’s recent World Energy Outlook 2017 “Sustainable Development” scenario, which assumes Herculean gains for renewables, wind and solar supply just 14% of the world’s energy in 2040, compared to over 60% for coal, oil, and gas. In fact, IEA’s World Energy Model has consistently concluded that natural gas actually GAINS market share under the most stringent scenarios to cut emissions, given its low-carbon attributes. “Fracking And Natural Gas Have Cut Pennsylvania’s CO2 Emissions 30%.”
Even in the more saturated demand markets, the balance sheets are very safe. Each year, the U.S. is consuming 725 million tons of coal, 7.3 billion barrels of oil, and 28 trillion cubic feet of natural gas. For oil? Per BP, our on-the-books assets get consumed in just 7 years. For gas? Our on-the-books assets get consumed in just 11 years. No wonder IEA advises our nation that we need $120 billion in new oil and gas investments PER YEAR . Hardly stranded, new investment in energy exploration and development is mandatory.
And the future is bright for U.S. oil and gas assets in particular. In the recently released Annual Energy Outlook 2018, the U.S. Energy Information Administration’s National Energy Modeling System concludes that our oil consumption will remain buoyantly very high at 19-21 million b/d until 2050 – an astounding ~235 billion barrels of incremental oil needed in the next 32 years in the U.S alone. Natural gas assets might be the safest of all investments: U.S. gas demand is expected to rise 1% per year through 2050. Wind and solar plants need gas plants to back up their natural intermittency. Ask California.
Not to mention that our somewhat newfound ability to export rising amounts of coal, oil, and gas will make our assets even more valuable.
Globally, where incremental demand is obviously even larger than here in the U.S, remember that COP21 signed in December 2015 is non-binding: i.e., it has no legal standing. Thus, IEA’s projection for a 5% rise in coal demand, a 10% rise in oil demand, and a 42% rise in gas demand should be considered low.
Just look at the Kyoto Protocol signed in 1997 that was supposed to drastically curtail fossil fuel use among many of the developed nations, with Europe as the mainstay. Even though Kyoto had legally binding commitments, and was for rich nations with tiny incremental energy needs, it was quickly deemed a failure and “sputtered to a sorry end” in 2012 – proving a dangerous European idealism that has has only served to benefit Russia.
Hardly a shocker then: “The countries that signed the 2015 Paris climate deal have failed to live up to their national goals to reduce global warming, a new UN report has revealed.”
The punchline for potential investors is that fossil fuel companies make long-term, multi-billion dollar investment decisions based on a very detailed, comprehensive monthly analysis of future energy needs. This centers on the realization that more coal, oil, and gas has not only been constant but looking forward it has also proven remarkably consistent with forecasts from IEA, EIA, and other bodies that deploy the world’s best computer models to predict future energy consumption patterns, even those factoring the most sustainable development paths.
Energy assets don’t get stranded, they get used . In fact, utilizing these assets is not only essential to meet rising demand but to also ensure higher living standards and greater economic opportunity. Increasingly so, the world’s real “stranded assets” are people: the 50 million Americans that live in poverty and the 6 in every 7 humans that live in undeveloped nations, deprived of the coal, oil, and gas assets that built the world’s richest economies.
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