Why oil firms should worry more about climate change


THE oil industry has much to fear from the Paris climate deal of 2015, which aims to limit temperature rises to less than 2°C above the pre-industrial era. To curb carbon emissions, demand for fossil fuels will have to drop in coming decades. That is likely to push down oil prices and the value of investments that firms have made based upon them.

A report published on August 6th by Sarasin & Partners, an asset manager in London, suggests that oil firms are assuming that decarbonisation will be limited and are thus overstating their assets. Sarasin notes that eight European oil giants all used long-term oil price assumptions of $70-80 a barrel, rising by 2% a year with inflation to $127-145 by 2050, to price their assets. But that does not appear to assume any drop in demand. The International Energy Agency predicts a price of just $60 by 2060; Oil Change International, an activist think-tank, estimates one as low as $35 (see chart). Oil firms could face a sticky mess of forced…

Link to article: www.economist.com/news/business/21747700-many-are-using-overly-high-oil-price-and-possibly-overvaluing-assets?fsrc=rss%7Cbus

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