A report has been released, which suggests that the largest oil and gas companies in the world may lose around £1.5tn ($2.2tn) because they have overestimated the future level of demand for the resources that they produce.
Carbon tracker has said that many of these companies have not prepared themselves for the amount of legislation that may be introduced to tackle high carbon forms of fuel. The move towards cleaner energy, that is now being supported by the vast majority of world governments, may result in these companies investing in commodities that could end up useless.
The companies that are facing the highest risk are Shell, Exxon Mobil and BP, according to Carbon Tracker.
The new report has been released in the build up to the Paris climate change summit.
The green think tank has said:
“If the industry misreads future demand by underestimating technology and policy advances, this can lead to an excess of supply and create stranded assets.”
“This is where shareholders should be concerned – if companies are committing to future production which may never generate the returns expected.”
Many of the policies that are expected to be introduced as a result of the climate talks will be aimed at preventing the global temperature rising to more than 2 degrees above pre-industrial levels; it is internationally agreed that a rise of more than 2 degrees could have serious repercussions for the planet’s future.
The report states that if this is indeed the policy outcome of the conference, a lot of the world’s biggest energy companies could find themselves losing serious amounts of money due to unnecessary spending.
It is reported that Pemex, the Mexican oil company, is facing the biggest losses; the report estimates that they could take a hit worth around $77bn in the next decade. The rest of the companies in the top five for predicted losses are: Shell ($76.9bn), Exxon Mobil ($72.9), Rosneft ($53.3bn) and BP ($45.5bn).
The countries most at risk, in ascending order, are: Australia ($103bn), Russia ($147bn), China ($179bn) and Canada ($220bn).
It is believed that the US energy companies are the most at risk out of any collective nation. It is estimated that they could lose around $412bn in assets in total by 2025.
There already several countries that have introduced plans to cut carbon emissions, meaning that they will be less reliant of fossil fuels. It is widely hoped that an international agreement can be made in Paris to tackle global warming.
Advances in technology have also reduced the costs associated with renewable energy production, causing the market to grow more rapidly than expected.
Many of the energy companies in question have responded to these claims by saying that the increasing demand for power will require a large increase in supply.
A Shell spokesperson said:
“The natural decline in the production rate of traditional energy sources is faster than increases we can likely achieve with alternative energy sources.”
“Therefore, continued substantial investment is required to meet this depletion, as well as to meet demand to fuel economic growth, especially in the developing world, while at the same time supporting the energy transitions that are underway.”
“Achieving a low carbon economy will only be possible with a combination of renewables, cleaner and accessible hydrocarbons and carbon capture and storage to provide a full suite of energy products for the growing global population, but with much less CO2 emitted.”