For oil companies, a write-down is generally triggered by lower oil prices and a belief that demand will not be as high as the company had previously assumed. The write-downs-also called impairments-announced by Shell and BP are accounting measures that indicate a particular asset or investment is not worth as much as executives had once thought. The firm said the pandemic would “expedite peak oil demand,” and that some stores of oil in North American shale, Canadian tar sands and Russian and Norwegian Arctic fields are now likely to go undeveloped, given how expensive they are to extract. The volume of recoverable oil depends not only on what is in the ground but also on the economics of extracting it. Just days after BP’s announcement, Rystad Energy, an industry research and consulting firm, said it was reducing its assessment of the world’s recoverable oil resources in light of the pandemic. Those assets are now worth up to $9 billion less than Shell had hoped, the company said.īoth companies announced this year they would aim to eliminate or cancel out their direct greenhouse gas emissions by mid-century. The company also said the cuts to its refining asset values would “support the decarbonization of its energy product mix.” The biggest hit to Shell’s books came in its investments in liquefied natural gas, which the company hopes can still play a growing role in global energy needs. This week, it released a more pessimistic projection for oil demand over the next few years too. Shell had already lowered its long-term outlook at the end of last year. As a result, BP said, it would need to cut the value of its assets by between $13 billion and $17.5 billion, and that it may never develop some of its prospective projects. ExxonMobil, for example, maintains that its oil and gas reserves face little risk of being stranded.īP said in mid-June that it expects governments will accelerate a transition to low-carbon energy in the aftermath of the coronavirus pandemic, and that the two forces together had compelled the company to revise its long-term outlook for oil and gas demand. That acknowledgment, that the risk is real and it’s here in the present, is a really big deal.”Ī growing list of major investors and advocacy groups have been pressing oil companies to better disclose and confront the risk that some of their fossil fuel investments may never be developed or may lose substantial value as the world pivots towards a cleaner energy system in order to reduce greenhouse gas emissions. “This is a huge turnaround from the industry’s previous stance, which had been that no existing assets were likely to be stranded, that there may be risks in the future, but not in the here and now. “I think we may look back on this as the turning point, the moment the industry finally started to say that real assets with real dollar figures associated with them are likely to be ‘stranded’”-or left undeveloped-“in a decarbonizing world,” said Andrew Logan, senior director of oil and gas at Ceres, a sustainable business advocacy group that has represented major investors in their engagement with oil companies. Some analysts say the global oil and gas industry is undergoing a fundamental transformation and is finally being forced to reckon with a future of dwindling demand for its products. Both companies said the accounting moves were a response not only to the coronavirus-driven recession, but also to global efforts to tackle climate change. The announcement came two weeks after a similar declaration by BP, saying it would reduce the value of its assets by up to $17.5 billion. This week, Royal Dutch Shell said it would slash the value of its oil and gas assets by up to $22 billion amid a crash in oil prices. Two of the world’s largest energy companies have sent their strongest signals yet that the coronavirus pandemic may accelerate a global transition away from oil, and that billions of dollars invested in fossil fuel assets could go to waste.
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