GLOBAL – Global oil giants have started shying way from conducting explorations for oil in new frontiers as the shift towards renewable forms of energy accelerates making investment in oil both unattractive and expensive.
A report by Mining Weekly indicated that with a global shift to cleaner energy happening in earnest, fossil fuels will likely be cheaper than expected in the coming decades, while emitting the carbon they contain will get more expensive.
These two simple assumptions mean that tapping some fields no longer makes economic sense and oil majors, particularly those based in Europe have developed cold feet when it comes to investing in new frontiers explorations.
The little oil activity in the Falkland Islands serves as a perfect example of the current shift from oil to renewable energy.
A decade after the discovery of as much as 1.7-billion barrels of crude in surrounding waters of the Falkland Island, the British overseas territory known for sheep rearing and tension with Argentina looks as remote as ever.
Rather than the next frontier, the project to extract energy risks being added to a list of what companies call “stranded assets” that could cost them huge sums to mothball.
Oil majors seem to have come to a realization that oil and gas worth billions of dollars might never be pumped out of the ground.
BP Plc in cognizant of Oil’s bleak future announced in August this year that it would no longer do any exploration in new countries.
The pressure to curb emissions may also prompt companies to leave the most carbon-intensive reserves in the ground, as France’s Total SE acknowledged last month when it took an $8 billion writedown on carbon-heavy assets.
The oil industry was already grappling with the energy transition, copious supply and signs of peak demand as Covid-19 began to spread.
The pandemic will likely bring forward that peak and discourage exploration, according to Rystad Energy.
The consultant firm expects about 10% of the world’s recoverable oil resources—some 125-billion barrels—to become obsolete.
The list of projects most at risk includes deepwater discoveries off Brazil, Angola and in the Gulf of Mexico, said Parul Chopra, vice president for upstream research at Rystad.
“There will be stranded assets,” said Muqsit Ashraf, senior managing director responsible for the global energy industry at Accenture. “Companies are going to have to accept the fact.”
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