Friday, January 24, 2014

Worrisome Mutterings from Davos, the World Economic Forum

Stephen Harper will not be happy with the talk that's making the rounds at the World Economic Forum in Davos, Switzerland.  What he really won't like are the calls for fossil fuel companies to come clean on the true value of their assets and the chances of those assets becoming "stranded" in a world shifting to clean energy.

Stranded assets.  That's code for Athabasca bitumen.  It rings both bells, high cost and high carbon, the dirtiest petroleum on the planet especially when you factor in the petcoke that comes with it.

Alberta's bitumen reserves have been stranded before.   They were on the cusp of a major development initiative back in the late 50s/early 60s until the Americans discovered a huge reserve of conventional oil in Alaska's Prudhoe Bay.  When that happened, Athabasca deflated like a birthday party balloon. 

It's interesting to imagine how the bitumen producers would explain to their shareholders the risks of Athabasca bitumen - or any other unconventional oil - turning into a stranded asset.   And not just the energy producers either.  Investment analysts and hedge fund managers will come under similar pressure and potential liability. 

The consensus is firming up that 80% of known fossil fuel reserves will have to be left in the ground if we're to have any hope of avoiding catastrophic climate change.   That means there are trillions of dollars of assets on the energy producers' books that are essentially worthless.  That in turn means that the actual value of fossil fuel energy is grossly inflated which is even worse news for the unconventional stuff that's hard and expensive  to get out of the ground, high-carbon, hard and expensive  to process and hard and expensive  to transport. 

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