The financial picture for investment in the oil industry may be showing declining strength due to threats from non carbon electricity generation and transportation.
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| New SWOT for investors |
Some countries are facing higher debt costs due to climate change. The need for tighter regulation to address risk on production platforms has been advocated. Analysis for “professional investors” produced by BNP Paribas, the world’s eighth largest bank by total assets thinks the writing is on the wall for the oil industry.
But the bank’s analysis, “Wells, Wires and Wheels,” is devastating for Big Oil. It concludes that “the oil industry has never before in its history faced the kind of threat that renewable electricity in tandem with EVs poses to its business model.”
Right now, oil is benefiting from the fact that its entire production and delivery system was built over decades and that investment gives oil a big short-term advantage over EVs, which have yet to build-out their fueling infrastructure globally.
“The clear conclusion of our analysis is that if we were building out the global energy system from scratch today,” Lewis explains, “economics alone would dictate that at a minimum the road-transportation infrastructure would be built up around EVs powered by wind- and solar-generated electricity.”
But oil has a big head start. And, of course, Big Oil uses its vast current income to buy political power so that it can slow down investment and government policies aimed at advancing electric cars.1
The economics of renewables are impossible for oil to compete with. Plunging prices for batteries and renewables are driving an electric vehicle (EV) revolution so rapidly that the economics of oil “are now in relentless and irreversible decline.”
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| Carbon Generation investment |
The Economist reports about tens of vulnerable countries, mostly poor and together accounting for less than 5% of global gdp,
The research focuses on the v20, a group founded by 20 vulnerable countries whose membership has since grown to 48. The members are mostly poor, together accounting for less than 5% of global gdp. They include low-lying atolls, such as the Marshall Islands, and economies dominated by agriculture, such as Kenya. The researchers, led by Ulrich Volz of soas University of London and Bob Buhr of Imperial College Business School, examined sovereign-bond yields between 1996 and 2016 for 46 countries, 25 of them in the v20. After controlling for non-climate factors, such as income per person and levels of public debt, they estimate that v20 countries must pay interest rates 1.2 percentage points higher than comparable countries. That raises the v20’s borrowing costs by about 10%, equivalent to an extra $4bn each year in interest payments.2
who face increasing costs of borrowing due to climate change.
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| Financing Planet A |
An editorial in the Telegram entitled “Crying over spilled oil” considers what trade-offs Newfoundland and Labrador are willing to make as a province to continue to reap financial benefits from the oil industry.
Perhaps there’s a need for independent observers and something more proactive than self-reporting of spills by oil companies. Maybe there even has to be an independent environmental regulator. (Perhaps, at the same time, another issue related to the CNLOPB could be dealt with: the creation of a separate, stand-alone offshore safety agency. It’s something that was recommended after the Cougar helicopter crash, but was not acted upon.)
There are too many eggs in a single offshore basket. The provincial government wants the revenues from oil production, oil companies want their revenues, and the CNLOPB not only regulates, but promotes the sale of new offshore oilfield leases.3
The decision on energy investment may require new “SWOT” analysis.
References
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