Oil and gas firms’ assets at risk from massive growth in wind and solar, says Carbon Tracker

This article is more than 2 years old

This article is more than 2 years old

Global demand for fossil fuels will peak in 2023, an influential thinktank has predicted, posing a significant risk to financial markets because trillions of dollars’ worth of oil, coal and gas assets could be left worthless.

Explosive growth in wind and solar will combine with action on climate change and slowing growth in energy needs to ensure that fossil fuel demand peaks in the 2020s, Carbon Tracker predicted.

The projection is much more bullish than estimates by the global energy watchdog and oil and gas companies, which mostly expect demand to peak in the mid-2030s. Coal reached its peak in 2014.

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Kingsmill Bond, new energy strategist at Carbon Tracker, said: “Fossil fuel demand has been growing for 200 years, but is about to enter structural decline. Entire sectors will struggle to make this transition.”

The group, which popularised the notion of a carbon bubble – where fossil fuel assets lose their value in the switch to a low-carbon economy – said the findings spelled disruption for energy firms.

The Bank of England governor, Mark Carney, has already warned that markets face a “huge hit” from the transition.

Carbon Tracker said financial markets faced a “systemic risk” from a reduction in value to the fossil fuel industry’s $25tn (£19tn) worth of assets, due to demand peaking.

Countries such as Venezuela and Saudi Arabia, which are overwhelmingly reliant on oil revenues, are also at risk from a fall in their tax take, the thinktank added.

Oil and gas firms have rejected the idea that their assets are at risk, because their reserves do not remain underground for very long. BP said earlier this year that it pumps its entire hydrocarbon reserves about every 13 years. Others simply dismiss the idea that a peak is coming any time soon, with ExxonMobil, the world’s biggest international oil company, projecting growth to 2040 as the world continues to rely on oil for heavy vehicles, shipping and aviation.

The Carbon Tracker report warned incumbency and size would be no protection, and compared the fate of fossil fuel firms to the horse and cart at the start of the 20th century.

“Demand for incumbents peaks early, and investors in incumbents lose money early,” it said.

The first two decades of this century were the innovation period for renewables, the authors said, while the “endgame” for fossil fuels – when renewables overtake them – would come from 2050 onwards.

The group’s early peak in 2023 is due partly to bullish estimates of levels of electrification, such as transport switching from oil to batteries and electricity.

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Falling wind and solar costs would lead to some emerging countries “leapfrogging” fossil fuels and opting for renewables to meet most of their growing energy needs, the thinktank said.

The group did not look at the likelihood or impact of the Paris climate agreement being weakened by other countries following the US and quitting, as one Brazilian presidential candidate has threatened.

However, Sebastian Ljungwaldh, an energy analyst at Carbon Tracker, said: “If more and more countries start to take Paris less seriously, that will have some effect on how quickly the energy transition happens.”