Wednesday, March 30, 2016

Market Forces are Killing the Fossil Fuel Industry

A confluence of factors are providing some significant headwinds for the fossil fuel industry. Declining clean energy costs and low oil prices are driving investors away from fossil fuels and towards renewables.

Private sector investments in clean energy are rapidly increasing as investors come to terms with the risks and opportunities associated with climate change. The smart money knows that fossil fuel are the leading cause of global warming and they have no future if we are to stave off the worst impacts of climate change. Post COP21 there has been unprecedented international momentum demanding that we wean ourselves off of fossil fuels. There has also been unprecedented growth in renewable energy. These factors have not gone unnoticed by the investor community. As they read the writing on the wall, investors are abandoning hydrocarbons in droves.

Investors are coming to the realization that age of oil is coming to an end. Rather than being the bluest of blue chips, oil in now a high risk investment. It is getting harder to refute the fact that oil is a bad investment. Financial losses and diminished profits are transforming global energy and leading the move away from dirty energy.

Low prices have already taken a toll on the oil industry and on investors. In 2015 oil stocks tanked and low oil prices have closed drilling operations and stymied new exploration and development. As reported by GreenBiz, "the stock prices of large conventional energy companies listed in the Standard & Poor’s 500 Index by 13 percent and have cost investors more than $703 billion since the record-high oil prices of June 2014."

In a World Watch post Philip Killeen, a Research Assistant for the Climate and Energy team at the Institute reports on the impacts of low oil prices. He points to a massive scaling back of oil industry operations. He states that oil companies have decommissioning two-thirds of their rigs and significantly reduced investment in oil field exploration and development. 

According to a Wood Mackenzie report, since 2014, 68 major oil and natural gas projects worth $380 billion and representing 2.9 million barrels of oil equivalent per day have been put on hold. In addition an estimated 250,000 oil workers have lost their jobs.

Fossil fuels are being replaced by renewables and market forces can be expected to continue to put downward pressure on dirty energy in 2016.

An Upside to Low Oil Prices

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