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My latest @climate column explores how this oil price crash might play out in a way that's good for the climate - which is pretty complicated. https://www.bloomberg.com/news/articles/2020-04-20/american-oil-is-cheap-enough-for-climate-activists-to-buy-it?srnd=green&sref=63ZrW3mM
We are seeing a very rough demonstration of the demand crash that might occur in a clean energy transition. It's only rough because this is faster & has very different causes to a classic climate 'stranded assets' scenario.
The price plunge means certain oil or o&g assets (hello US shale) are cashflow negative, *and* their operators are leveraged to the hilt. All this debt means they can't sit it out for long, and creditors start claiming what's owed to them.
The creditors might be banks, or bondholders. Private equity funds, who have been big in shale, are also under pressure. Again, it looks like a stranded assets scenario: fossil fuel assets rapidly become worthless, losses to be taken etc.
However...
However...
No-one, creditors/owners/operators, wants to realise those losses! So they play for time. This means navigating through 2 conflicting narratives:
1) some demand will come back, but
2) some of these assets were looking unappealing even in a non-COVID scenario
1) some demand will come back, but
2) some of these assets were looking unappealing even in a non-COVID scenario
Now onto *climate*:
It makes no difference to the atmosphere who owns oil & gas assets, how much they are currently valued at, or who made or lost money. All that matters is how much CO2 and methane gets into the atmosphere.
It makes no difference to the atmosphere who owns oil & gas assets, how much they are currently valued at, or who made or lost money. All that matters is how much CO2 and methane gets into the atmosphere.
If they're cheap, however, they can be cheaply bought and shut down, right? In theory, yes - but who could or should buy it? Philanthropists in theory could buy some up. But unless they can negotiate big writedowns on the debt, it's just too expensive.
(I estimated the Bakken shale emissions per barrel using this terrific resource - http://oci.carnegieendowment.org/ - which the great @jgkoomey was involved in creating!)
Also, it's not implausible that philanthropists COULD negotiate some serious discounts on the assets. But banks plan to hold onto the collateral for a while & try to get a better price: https://www.reuters.com/article/us-usa-banks-energy-assets-exclusive/exclusive-u-s-banks-prepare-to-seize-energy-assets-as-shale-boom-goes-bust-idUSKCN21R3JI
This is where it starts to get into relationship between physical oil production & financial assets. Which is a massive topic in itself. I will have to return to this thread later...
