Sunday, February 14, 2016

Fossil Fuels Are Now a Bad Bet, Investors Told

Owning fossil fuel deposits was once like having money in the bank – but not any longer, investors are being warned.

US coal for export: The market for fossil fuels is now struggling. (Image Credit: Peabody Energy, Inc., via Wikimedia Commons) Click to Enlarge.
Investors in fossil fuels are being warned that they may risk losing their money because the markets for coal and liquefied natural gas are disappearing.

In both cases it is competition from renewables, principally wind and solar power, that is being blamed for the threat. The cost of electricity from renewables continues to fall in Europe and Asia as the numbers of wind and solar installations grow in both continents, cutting demand for imported gas and coal.

Two separate reports on coal and gas were published at the same time as a round of annual financial reports from oil companies showed that this third fossil fuel could be in serious trouble too.

Despite massive cutbacks on exploration and development, companies like Shell and BP still need a price of US$60 a barrel by the end of this year if they are to break even on many of their current projects – almost double the current market price.

Long lead-time
Overproduction of coal, gas and oil spells trouble for investors in mines, pipelines, ports and the other infrastructure needed to transport fossil fuels round the globe.  The cost of development requires a long lifetime for the equipment and a high long-term guaranteed price for the fuels if investors are to get their money back.

The first report, Stranded Assets and Thermal Coal, found that Australian and US coal assets were the most vulnerable.  Australian mines were particularly at risk because of their heavy reliance on exporting coal to markets that were rapidly shrinking.

Read more at Fossil Fuels Are Now a Bad Bet, Investors Told

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