Last time this came up, top mucky-mucks at FWF management apparently decreed it "not finance/economics/investing" or "don't startle the horses" or some such. And it was quietly split-off and relegated off to its own specially-created "Around the Water Cooler - Oil" ghetto... helping ensure that the very serious people would not have to entertain such silly ideas when thinking about oil and investing, presumably.
But now - who'd a thunk? - here is the Globe & Mail rudely and incompetently thrusting it onto its investing pages, via Report on Business magazine. How dare they!:
What happens to Big Oil if we’re forced to cut back on consumption?
Please, make them stop trying to incorrectly insinuate that this has anything at all to do with finance, economics or investing.Investors adore an oil or coal company that finds as much—or more—oil or coal than it produces. If the company depletes its reserves year after year, they assume it has opted for slow-motion suicide.
Here’s another scenario: Suppose those reserves, or a big chunk thereof, are never burnt because of global warming?
How much oil, gas and coal would have to be left in the ground to prevent runaway CO2 buildup? It’s a question that is gripping more than the usual greenies and hapless United Nations climate change officials. The International Energy Agency (IEA), universities and enlightened analysts are sending out dire warnings as the 400 ppm milestone is breached.
The concept of leaving reserves untouched for the sake of the planet became a talking point in capital markets this spring, when a non-profit research group called Carbon Tracker and the Grantham Research Institute on Climate Change, part of the London School of Economics, issued a paper called “Unburnable Carbon 2013: Wasted Capital and Stranded Assets.” The report concluded that if we want to contain the rise in global temperatures to two degrees C or less, the maximum amount of CO2 we can spew into the atmosphere between now and 2050 is 1,075 gigatons of CO2—and even that limit would only give us a 50 per cent chance of success. It would also mean that about two-thirds of the Earth’s estimated oil, gas and coal reserves would have to stay underground. The IEA agrees.
In the foreword to the Carbon Tracker report, Sir Nicholas Stern, the former World Bank chief economist who produced the seminal “Stern Review on the Economics of Climate Change” for the British government in 2006, said: “This report shows very clearly the gross inconsistency between current valuations of fossil fuel assets and the path governments have committed to take in order to manage the huge risks of climate change.…Smart investors can already see that most fossil fuel reserves are essentially unburnable.”
But the risk profile may be changing already. In May, China proposed banning imports of low-quality coal with a high sulphur and ash content and relatively low caloric value. If that happens, the 55 million tonnes the country imported last year would have to find a new market. If there are no new buyers, the coal could become stranded and therefore unburnable. Could oil that takes an enormous amount of energy to produce, like the goop in Canada’s oil sands, be next?