Stricter competition from clean energy and more stringent climate policies are expected to drive down fossil fuel profits by $25 trillion, according to a study by an independent financial think-tank Carbon Tracker. This calculation is based on the assumption that demand for oil, gas, and coal falls by 2% annually in line with the Paris Agreement and prices tumble further due to rising investment risk.
This means that future profits will plummet to just $14 trillion from $39 trillion in 2018. The value of global fossil fuel companies worldwide totals $129 trillion. However, the report said that the industry is highly vulnerable to disruptions. Demand for fossil fuels grew by under 1% rate a year before the coronavirus pandemic. The health crisis is accelerating the decline, with the IEA expecting global oil demand to fall by 9% in 2020.
According to the study, many fossil fuel companies, including LNG developers, pipeline operators, and producers of internal combustion engines, will likely be forced to cancel investments, write off assets, and even go under, while the surviving companies will generate fewer earnings. The decline can also threaten the stability in oil-dependent economies such as Saudi Arabia, Russia, Iraq, Iran, Venezuela, Ecuador, Libya, Algeria, Nigeria, and Angola.
On the other hand, renewable energy is expected to get cheaper and contribute to a larger share of the world’s energy generation. Power companies are shifting toward wind and solar, while carmakers advance development of electric vehicles. At the same time, governments are increasing measures to reach climate targets.
