Salient to Investors:
Bloomberg New Energy Finance says peak fossil fuels demand could happen in 2030 – the point when humans stop increasing their annual burn, either because the environmental danger makes it too costly or because buildings and cars run more efficiently.
Oil and coal companies worth more than $7 trillion may be sinking billions of dollars today into projects that will never make sense to finish.
Nick Robins at HSBC said carbon-asset risk in 2013 went from a conceptual possibility to a sort of near-and-present reality, and the undertow of demand destruction through technological improvement is not currently fully priced in – Teslas and solar panels are eroding the future value of black gold, and investors are ignoring the risk. Robins said that oil investments could turn risky quickly because cars have room for rapid improvement in fuel efficiency and with continued fuel-efficiency standards, demand for oil could get sucker punched. Robins said companies with reserves that are more expensive to extract are at the greatest risk.
Citigroup declared in March the end is nigh for global oil-demand growth.
S&P said policies that cut demand for fuels could lead to outlook revisions and downgrades in smaller oil-and-gas companies as early as 2014, with a similar shock to the majors in 2016.
Goldman Sachs advises oil companies invest only in medium to high-return projects and in buybacks and focus on per share growth.
Coal was the dominant US energy source through WWII and responsible for more than 40 percent of the CO2 emissions that are heating the planet.
US coal demand has fallen near a 20-year low, squeezed by clean-air regulations and displaced by cheaper, less carbon-heavy natural gas. Coal prices have fallen by more than half since a peak in mid-2008, and the Stowe Global Coal Index is trading at a third of its 2008 high.
Michael Parker and Purdy Ho at Bernstein Research said in June in “The Beginning of the End of Coal” that demand for coal will fall beginning in 2016, Chinese auto fuel-efficiency standards are already tougher than the US, and a newly vocal middle class is pushing back against suffocating smog. Parker and Ho said all industrialized societies eventually decide that environmental damage caused by uncontrolled industry is no longer tolerable, and predicted coal demand in China is about to fall, and the global thermal coal market will never recover – China’s services sector is one-sixth as energy intensive as the industrial sector and accounted for 45 percent of the economy in 2012, versus 39 percent in 2011.
Climate scientists say that global temperatures cannot rise more than 2 degrees without causing irreparable damage – the IEA said two-thirds of proven fossil-fuel resources must remain buried to meet that goal. Carbon Tracker said the top 100 coal and top 100 oil-and-gas companies had a combined value in 2011 of $7.42 trillion, much of which ws based on reserves that can never be used.
Hal Quinn at the National Mining Assn said that even in the US, coal use will continue unabated through 2020 as larger, more efficient plants supplant older ones.
Global population will rise 30 percent by 2050. The US Energy Information Administration’s low oil price analysis sees crude oil around $75 a barrel for the foreseeable future.
Craig Mackenzie at Scottish Widows said investors have grown numb with the idea that energy demand will continue to grow for the next 4 decades, but some are beginning to call the consensus view for future demand into doubt – things have changed a lot in the last year. Mackenzie said the biggest uncertainty in projections is how soon China’s economy will shift to a service economy, and most investors mistakenly think this is still decades off. Scottish Widows sold its stocks and bonds in coal on purely financial reasons.
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