Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Locked
User avatar
Topic Author
LTCM
Posts: 412
Joined: Wed Sep 09, 2020 3:58 am

Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by LTCM »

https://www.theguardian.com/environment ... tudy-shows
Overall, the study calculated that individuals own 54% of the $1.4tn oil and gas assets at risk – $756bn. Three-quarters of these people are in the 38 developed countries in the Organisation for Economic Co-operation and Development (OECD) group. Governments and corporate creditors carry the balance.

But the proportion is much higher in the US and UK, where individuals own 86% and 75% of the potentially stranded assets respectively. In contrast, 80% of those assets in China are owned by the government.
Original source article: https://www.nature.com/articles/s41558-022-01356-y
55% VUG - 20% VEA - 20% EDV - 5% BNDX
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by nisiprius »

It sounds alarming to say that 86% of those potentially stranded assets are owned by individuals..

...but on the other hand, only 4.35% of the stock market is invested in the energy sector.

Source

Image

For any S&P 500 or total stock market indexer, or indeed any broadly diversified investor, the direct dollar impact would be a loss of less than 5%. It would only matter if the investor had placed a sector bet on energy, or an individual stock bet on a fossil-fuel company. Of course, the knock-on economic effects of banning fossil fuels would be profound.

XOM could go to zero tomorrow, and it would only ding my Total Stock holding by -0.86%. That's less than the normal day-to-day fluctuations in the market.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
jdamo
Posts: 209
Joined: Tue Apr 30, 2019 8:47 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by jdamo »

Fossil fuels are going to be a major part of energy for the world for another 100+ years.
Even if all the lithium mined every year is used to make EVs, they can only make 1M EVs per year.
There are 1.4 Billion cars in use now.
EV car battery life is shorter than that of a conventional internal combustion engine.
Where do you think all the energy comes from to charge a EV? Natural gas, oil, coal or nuclear.
Wind and solar only make up a small % even out to years from now and even with high %/yr growth.

These supposed "stranded" fossil-fuel assets are not stranded at all and are vital for our energy supply.
User avatar
Beensabu
Posts: 5657
Joined: Sun Aug 14, 2016 3:22 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by Beensabu »

Did you know that stranded energy in lithium batteries is a thing? I did not. But I do now.

It's going to be interesting to see how the energy vs. utilities composition shifts over the years in VGENX.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by gougou »

Oil and gas pipelines are trading like they are going to be stranded assets in 10 to 20 years. I think that’s just wrong, and these pipelines will even be useful in a green future where unlimited green hydrogen or ammonia will flow through them.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
User avatar
alpine_boglehead
Posts: 684
Joined: Fri Feb 17, 2017 8:51 am
Location: Austria

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by alpine_boglehead »

The actionable thing is - if you are an individual with disproportionate investment or job exposure to fossil fuels (which most bogleheads are not - see nisiprius's chart above), now wouldn't be the worst time to diversify a bit (high oil/gas prices, other sectors got a bit cheaper recently).

As for how much of these assets actually become worthless remains to be seen. For the sake of the climate, we should hope for as much as possible, but restructuring the world economy towards renewable energy will likely take decades, and oil production might finally hit supply limits, keeping prices high even in the face of falling demand.
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by Valuethinker »

jdamo wrote: Thu May 26, 2022 11:27 pm Fossil fuels are going to be a major part of energy for the world for another 100+ years.
Even if all the lithium mined every year is used to make EVs, they can only make 1M EVs per year.
There are 1.4 Billion cars in use now.
EV car battery life is shorter than that of a conventional internal combustion engine.
Where do you think all the energy comes from to charge a EV? Natural gas, oil, coal or nuclear.
Wind and solar only make up a small % even out to years from now and even with high %/yr growth.

These supposed "stranded" fossil-fuel assets are not stranded at all and are vital for our energy supply.
World production *now* of EVs is more than 1 million? Including PHEVs, over 20% of sales of new cars in Europe & China.

Lithium is one of the universe's most common elements. Look at your periodic table. Whilst it is true that there are the potentials for bottlenecks, that is partly simply the time lag to bring big new deposits into production: US, Australia, Bolivia etc. The metal exists.

Cobalt is more of a concern as it is also used in mobile devices. There is exploration of batteries that will use less or no cobalt. There are also other "rare earths" which, again, are not necessarily rare. However China completely dominates refining these and owns stakes in the producers. So again, bottleneck problems.

On wind and solar you need to check your figures. It's over 10% of US production. It's 25% of British production. Global renewable capacity is growing at a frantic rate.

An oil field lasts 60 years or more. So it's perfectly possible to talk about stranded assets, if you are taking a time horizon past 2050.

I agree fossil fuels will have a "long tail"-- aviation in particular is a conundrum, and uses like plastics will continue for a very long time. But the speed of the change of direction is absolutely breathtaking. That's what happens when you invent a new form of lowest cost energy. And where solar will get to... we haven't anything like bottomed the cost-performance gains on solar cells.

On fossil fuels, when we have to stop using them, we will. Not without screaming. Doubtless late or even too late. But we will.
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by Valuethinker »

LTCM wrote: Thu May 26, 2022 12:45 pm https://www.theguardian.com/environment ... tudy-shows
Overall, the study calculated that individuals own 54% of the $1.4tn oil and gas assets at risk – $756bn. Three-quarters of these people are in the 38 developed countries in the Organisation for Economic Co-operation and Development (OECD) group. Governments and corporate creditors carry the balance.

But the proportion is much higher in the US and UK, where individuals own 86% and 75% of the potentially stranded assets respectively. In contrast, 80% of those assets in China are owned by the government.
Original source article: https://www.nature.com/articles/s41558-022-01356-y
Odd calculations. I'd like to see their definitions.

Yes Canadian pension funds own lots of oil stocks. Canadians invest, as individuals, chiefly through their 401k equivalent (RRSPs). Into mutual funds and ETFs. Does that count as "individual ownership"?
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by Valuethinker »

LTCM wrote: Thu May 26, 2022 12:45 pm https://www.theguardian.com/environment ... tudy-shows
Overall, the study calculated that individuals own 54% of the $1.4tn oil and gas assets at risk – $756bn. Three-quarters of these people are in the 38 developed countries in the Organisation for Economic Co-operation and Development (OECD) group. Governments and corporate creditors carry the balance.

But the proportion is much higher in the US and UK, where individuals own 86% and 75% of the potentially stranded assets respectively. In contrast, 80% of those assets in China are owned by the government.
Original source article: https://www.nature.com/articles/s41558-022-01356-y
https://www.amazon.co.uk/Burn-Out-Endga ... 0300225628

Burn Out by Dieter Helm is the best general treatment of this that I have read. He is an energy economist at Oxford University and well respected (works with a consultancy called Aurora, I believe).

Basically fossil fuel companies that are attentive to shareholder value will reinvest their free cash flow into distributions to shareholders via buybacks and dividends. They will exert tight capital discipline - just like Warren Buffett's companies do. There are good analogies to the tobacco industry which has produced high shareholder returns in the last few decades by doing this.

Refining is another area where there are clear shortages of capacity, and a reluctance to invest. Probably driving up returns.

If say half the oil extractible in a major new development field is in the 1st 30 years*, then one can reasonably set that as time horizon for investment decisions. The outlook post 2050 for any fossil fuel producer is cloudy. Probably there will be demand for fossil fuels, but how much and at what price is not clear.

This does not translate well into an investible action. You have to trust that the stock market as a whole will get this right. Something analogous is going on in auto manufacturing - there will be winners & losers in the biggest shift in automotive technology since the 1910s. I don't think that, in the case of oil & gas, or auto OEMs, that it's easy to pick out the winners in 10 or 20 years time. I don't believe I can pick winners of those contests.

Note that the vast majority of fossil fuel reserves in the world are state owned. This is far more of a risk (in terms of $ value) for Russian Federation and Saudi Arabia, than it is for Exxon Mobil or Shell. That has geopolitical implications. By selling off a piece of Saudi Aramco to foreign investors, and trying to diversify their economy in various ways, the leadership of Saudi Arabia is implicitly acknowledging this (if you think your oil is going to be more valuable in the future, why sell off a stake in it now?).

* there's never any actual final moment. California is still a big oil producer. Fields last 100 years+. However there is gradual decline. Occasionally a new technology comes along, like fracking, which extends the productive life of a field by another few decades.
User avatar
packer16
Posts: 1488
Joined: Sat Jan 04, 2014 1:28 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by packer16 »

What about the 50%+ of oil and gas that is not used for combusion? Maybe the appropriate issue is the delay of when the oil & gas will be used for non-combusion purposes so the value may go down but will not be destroyed. The value decline is offset by the reduced O&G E&P expenditure thus a lower level of O&G will be produced which will be when combusion demand will be declining. The slope of the combusion decline may be offset by the use of NG to replace coal. To show how this can reduce GG gasses, the US has had the same decline in GG as Europe (despite spending much less money) is primarily due to replacing coal with NG electricity production.

Packer
Buy cheap and something good might happen
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by JoMoney »

The headline says "People in US and UK face huge financial hit if fossil fuels lose value, study shows"
The operative word, is " if " and there isn't really much more to the story. It's a tautology to say it's a "financial hit" if it "loses value".
But I suppose stories like this give cover to the state pension funds ESG narrative, that they are looking out for financial interests of the investor while chasing other agendas... but that only makes sense if they also avoid every other investment that could potentially lose value IF it takes a financial hit :? :annoyed

Somewhat ironic timing, given the relatively good results of that sector compared to other investment sectors in recent times.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by Valuethinker »

packer16 wrote: Fri May 27, 2022 7:39 am What about the 50%+ of oil and gas that is not used for combusion? Maybe the appropriate issue is the delay of when the oil & gas will be used for non-combusion purposes so the value may go down but will not be destroyed. The value decline is offset by the reduced O&G E&P expenditure thus a lower level of O&G will be produced which will be when combusion demand will be declining. The slope of the combusion decline may be offset by the use of NG to replace coal. To show how this can reduce GG gasses, the US has had the same decline in GG as Europe (despite spending much less money) is primarily due to replacing coal with NG electricity production.

Packer
I think the number is more like 30% non-transportation uses? (power production is a very small number globally, for oil).

Lots of European countries have gone down the fuel replacement curve. UK and Italy in particular-- UK went from over 50% coal to c 1-2% in the space of about 20 years. Also Spain. Germany is the outlier - big early expenditures on renewables which haven't moved the needle. In part because of declines in nuclear.

The prognosis for Oil & Gas, as it has been since the beginnings of the industry is one of periods of low prices & underinvestment => periods of high prices and overinvestment. No reason to think this cyclicality has ended.

Geopolitics says, right now, high oil and gas prices. Natural gas prices because Europe is dependent on Russian gas, and needs to get off of it very quickly - that means expensive LNG imports. Also China is fighting urban air pollution via a long term switch from coal to gas heating. So structural change.

High oil prices because there is a concerted effort to reduce Russia's access to world oil markets. At a time when other producers are themselves still locked out in part (Venezuela, Iran) or are struggling to raise output (US fracking) or just don't want to (Saudi Arabia?). And the world economy was doing well. Closest thing to the 1970s that I remember although if you remember the oil price rise in the early 2000s, there was a war by a superpower (the USA) against a smaller state (Iraq) and that had cascading effects on oil supply and price.
User avatar
packer16
Posts: 1488
Joined: Sat Jan 04, 2014 1:28 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by packer16 »

You are correct on transportations overall usage. Road transportation is closer to 50%. The other forms of transport IMO are further off in the transtion (like plane).

I think the investment cycle has been altered to date by ESG & Russian war & that is what is causing the current shortage. The large projects required to balance out supply/demand are not being funded as in the past due to the fact these sources of capital are more easily influenced by ESG activists than in the past. The other source of capital, oil rich governments, may not be as influenced by ESG but have other issues like sanctions, corruption & poor use of resources. So while I think the value of oil resources has gone down (& is reflected in current prices), I am skeptical that it will go to zero at the stranded thesis implies.

Packer
Buy cheap and something good might happen
Valuethinker
Posts: 49017
Joined: Fri May 11, 2007 11:07 am

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by Valuethinker »

packer16 wrote: Fri May 27, 2022 9:35 am You are correct on transportations overall usage. Road transportation is closer to 50%. The other forms of transport IMO are further off in the transtion (like plane).

I think the investment cycle has been altered to date by ESG & Russian war & that is what is causing the current shortage. The large projects required to balance out supply/demand are not being funded as in the past due to the fact these sources of capital are more easily influenced by ESG activists than in the past. The other source of capital, oil rich governments, may not be as influenced by ESG but have other issues like sanctions, corruption & poor use of resources. So while I think the value of oil resources has gone down (& is reflected in current prices), I am skeptical that it will go to zero at the stranded thesis implies.

Packer
I query that number on road transport because rail, aviation and shipping can't be 20% of world oil consumption?

I think the evidence is much stronger that what caused the current short supply situation is:

- rapid economic recovery (and especially in oil-intensive activities like travel) post Covid
- low oil prices since 2014
- in the specific case of US fracking, a greater focus on returns for investors. The number I saw was that the fracking boom had burned through $1 trillion of investor capital (debt or equity) without generating a reasonable return. After some very expensive acquisitions in the fracking sector, big oil cos "got religion" about this. At the same time debt investors took a pounding on direct lending to frackers & ditto equity investors

Most oil investment is just not sensitive to ESG -- if ESG even has an affect at all. Activists might have got Shell & BP to flinch on their capex (I don't think there's hard evidence of that) but they did not do so for Rosneft or Saudi Aramco (nor, noticeably, Exxon Mobil).
WestCoastPhan
Posts: 424
Joined: Sun Apr 24, 2022 10:30 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by WestCoastPhan »

https://www.eia.gov/outlooks/steo/report/us_oil.php

"U.S. crude oil production in the forecast averages 11.9 million b/d in 2022, up 0.7 million b/d from 2021. We forecast that production will increase to more than 12.8 million b/d in 2023, surpassing the previous annual average record of 12.3 million b/d set in 2019."

In the U.S., a lot of folks are making a lot of money in this sector.
User avatar
packer16
Posts: 1488
Joined: Sat Jan 04, 2014 1:28 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by packer16 »

Valuethinker wrote: Fri May 27, 2022 9:45 am
packer16 wrote: Fri May 27, 2022 9:35 am You are correct on transportations overall usage. Road transportation is closer to 50%. The other forms of transport IMO are further off in the transtion (like plane).

I think the investment cycle has been altered to date by ESG & Russian war & that is what is causing the current shortage. The large projects required to balance out supply/demand are not being funded as in the past due to the fact these sources of capital are more easily influenced by ESG activists than in the past. The other source of capital, oil rich governments, may not be as influenced by ESG but have other issues like sanctions, corruption & poor use of resources. So while I think the value of oil resources has gone down (& is reflected in current prices), I am skeptical that it will go to zero at the stranded thesis implies.

Packer
I query that number on road transport because rail, aviation and shipping can't be 20% of world oil consumption?

I think the evidence is much stronger that what caused the current short supply situation is:

- rapid economic recovery (and especially in oil-intensive activities like travel) post Covid
- low oil prices since 2014
- in the specific case of US fracking, a greater focus on returns for investors. The number I saw was that the fracking boom had burned through $1 trillion of investor capital (debt or equity) without generating a reasonable return. After some very expensive acquisitions in the fracking sector, big oil cos "got religion" about this. At the same time debt investors took a pounding on direct lending to frackers & ditto equity investors

Most oil investment is just not sensitive to ESG -- if ESG even has an affect at all. Activists might have got Shell & BP to flinch on their capex (I don't think there's hard evidence of that) but they did not do so for Rosneft or Saudi Aramco (nor, noticeably, Exxon Mobil).
What I note is there is alot less investment than in the past at these prices. I doubt the O&G speculative tendency has gone away (which is what is implied in oil cos "got religion") but instead IMO difference is the influence of ESG on both E&P and transportation spending via gov'ts they can lobby & boards they can influence. In either case, the lack of investment is bringing supply & future lower demand closer together which should lower the effects of any stranded assets if there turn-out to be any.

Packer
Buy cheap and something good might happen
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by gougou »

Valuethinker wrote: Fri May 27, 2022 4:32 am
jdamo wrote: Thu May 26, 2022 11:27 pm Fossil fuels are going to be a major part of energy for the world for another 100+ years.
Even if all the lithium mined every year is used to make EVs, they can only make 1M EVs per year.
There are 1.4 Billion cars in use now.
EV car battery life is shorter than that of a conventional internal combustion engine.
Where do you think all the energy comes from to charge a EV? Natural gas, oil, coal or nuclear.
Wind and solar only make up a small % even out to years from now and even with high %/yr growth.

These supposed "stranded" fossil-fuel assets are not stranded at all and are vital for our energy supply.
World production *now* of EVs is more than 1 million? Including PHEVs, over 20% of sales of new cars in Europe & China.

Lithium is one of the universe's most common elements. Look at your periodic table. Whilst it is true that there are the potentials for bottlenecks, that is partly simply the time lag to bring big new deposits into production: US, Australia, Bolivia etc. The metal exists.

Cobalt is more of a concern as it is also used in mobile devices. There is exploration of batteries that will use less or no cobalt. There are also other "rare earths" which, again, are not necessarily rare. However China completely dominates refining these and owns stakes in the producers. So again, bottleneck problems.

On wind and solar you need to check your figures. It's over 10% of US production. It's 25% of British production. Global renewable capacity is growing at a frantic rate.

An oil field lasts 60 years or more. So it's perfectly possible to talk about stranded assets, if you are taking a time horizon past 2050.

I agree fossil fuels will have a "long tail"-- aviation in particular is a conundrum, and uses like plastics will continue for a very long time. But the speed of the change of direction is absolutely breathtaking. That's what happens when you invent a new form of lowest cost energy. And where solar will get to... we haven't anything like bottomed the cost-performance gains on solar cells.

On fossil fuels, when we have to stop using them, we will. Not without screaming. Doubtless late or even too late. But we will.
It appears to me that renewables are anything but lowest cost. My power bills are still going up. If my power bill keeps going up like right now and gasoline gets back to 2020/2021 prices, my next car will definitely be a Corolla instead of a Tesla.

I believe most people, especially those in developing countries, are very cost conscious when buying a car. So there’s no way majority of people will buy a more expensive, less practical EV over a gasoline car if gasoline is cheap and abundant. EV will continue to be rich people’s toy/secondary/commuter car.

So if oil is cheap, most people will keep consuming oil. If oil gets expensive, oil assets generate huge profits so they are not stranded assets. It appears that the same supply/demand boom/bust cycles will continue to apply to the oil markets/assets for the foreseeable future.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
billaster
Posts: 2930
Joined: Wed Apr 27, 2022 2:21 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by billaster »

gougou wrote: Fri May 27, 2022 11:07 am If my power bill keeps going up like right now and gasoline gets back to 2020/2021 prices, my next car will definitely be a Corolla instead of a Tesla ...

EV will continue to be rich people’s toy/secondary/commuter car.
You don't have to buy an expensive EV like a Tesla. You can buy a Nissan Leaf, after tax rebate, for the same price as a Corolla, hardly a rich people's toy.

And if it is used only as "secondary/commuter" car, that's almost half of all cars on the road.
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by gougou »

billaster wrote: Fri May 27, 2022 12:47 pm
gougou wrote: Fri May 27, 2022 11:07 am If my power bill keeps going up like right now and gasoline gets back to 2020/2021 prices, my next car will definitely be a Corolla instead of a Tesla ...

EV will continue to be rich people’s toy/secondary/commuter car.
You don't have to buy an expensive EV like a Tesla. You can buy a Nissan Leaf, after tax rebate, for the same price as a Corolla, hardly a rich people's toy.

And if it is used only as "secondary/commuter" car, that's almost half of all cars on the road.
If battery EV can only replace half of light passenger vehicles, that’s just not enough to end oil since the total number of cars is also growing, and oil has so many other uses.

Electricity price basically puts a floor on gasoline prices. If gasoline gets cheaper than electricity then commuter EV are useless. I have not seen anywhere in the world where renewable energy has made electricity cheaper for consumers, so I don’t believe the current renewable push can make oil assets stranded.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
User avatar
MJS
Posts: 1312
Joined: Sat Aug 05, 2017 10:55 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by MJS »

Valuethinker wrote: Fri May 27, 2022 8:32 am
packer16 wrote: Fri May 27, 2022 7:39 am What about the 50%+ of oil and gas that is not used for combusion? ..
Packer
I think the number is more like 30% non-transportation uses? (power production is a very small number globally, for oil).
. .. .
50% seems reasonable to me :
Paraffin
Plastics
Polyesters ... Nylon and other fibers
Acrylics, alcohols, epoxies
Precursors for organic drugs ... aspirin to Zantac
Vinyls:
- vinyl acetate for paint, paper, and textile coatings;
- vinyl chloride for polyvinyl chloride (PVC);
- ethylene glycol for polyester textile fibers;
- styrene, for rubber and plastic manufacturing.

And many other organics used by modern societies.

Major source: https://www.sciencedirect.com/topics/ch ... rochemical
Ipsa scientia potestas est. Bacon F.
billaster
Posts: 2930
Joined: Wed Apr 27, 2022 2:21 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by billaster »

MJS wrote: Fri May 27, 2022 2:45 pm
Valuethinker wrote: Fri May 27, 2022 8:32 am
packer16 wrote: Fri May 27, 2022 7:39 am What about the 50%+ of oil and gas that is not used for combusion? ..
Packer
I think the number is more like 30% non-transportation uses? (power production is a very small number globally, for oil).
. .. .
50% seems reasonable to me :
Paraffin
Plastics
Polyesters ... Nylon and other fibers
Acrylics, alcohols, epoxies
Precursors for organic drugs ... aspirin to Zantac
Vinyls:
- vinyl acetate for paint, paper, and textile coatings;
- vinyl chloride for polyvinyl chloride (PVC);
- ethylene glycol for polyester textile fibers;
- styrene, for rubber and plastic manufacturing.

And many other organics used by modern societies.

Major source: https://www.sciencedirect.com/topics/ch ... rochemical
According to the Energy Information Administration, petrochemicals account for about 12% of oil demand and about 8% of natural gas.
talzara
Posts: 4745
Joined: Thu Feb 12, 2009 6:40 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by talzara »

Valuethinker wrote: Fri May 27, 2022 4:34 am Odd calculations. I'd like to see their definitions.
The paper defines assets as "expected discounted profit streams." That is the wrong definition to use for calculating investor losses. Stranded assets should be calculated based on market cap. It doesn't matter how much profit is lost if it's already priced in.

The paper only gives the value of stranded assets, not the value of total assets, so we can't compare it to total market cap. If the $1.4 trillion has already been priced in, then current investors will lose nothing. Past investors may have lost money, but that money has already been lost.
Valuethinker wrote: Fri May 27, 2022 5:28 am Basically fossil fuel companies that are attentive to shareholder value will reinvest their free cash flow into distributions to shareholders via buybacks and dividends. They will exert tight capital discipline - just like Warren Buffett's companies do. There are good analogies to the tobacco industry which has produced high shareholder returns in the last few decades by doing this.
The oil companies are already limiting capital expenditures due to shareholder pressure.
As to why they weren't drilling more, oil executives blamed Wall Street. Nearly 60% cited "investor pressure to maintain capital discipline" as the primary reason oil companies weren't drilling more despite skyrocketing prices, according to the Dallas Fed survey.

https://www.cbsnews.com/news/oil-produc ... ed-survey/
talzara
Posts: 4745
Joined: Thu Feb 12, 2009 6:40 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by talzara »

packer16 wrote: Fri May 27, 2022 7:39 am What about the 50%+ of oil and gas that is not used for combusion? ..
Valuethinker wrote: Fri May 27, 2022 8:32 am I think the number is more like 30% non-transportation uses? (power production is a very small number globally, for oil).
MJS wrote: Fri May 27, 2022 2:45 pm 50% seems reasonable to me :
billaster wrote: Fri May 27, 2022 3:16 pm According to the Energy Information Administration, petrochemicals account for about 12% of oil demand and about 8% of natural gas.
Here is the EIA data for oil refinery yields: https://www.eia.gov/dnav/pet/PET_PNP_PC ... _PCT_A.htm

The first 7 outputs are fuels, and the last output is refining losses. Non-fuel uses are only 15% of refinery output, 13% excluding asphalt.
Gaston
Posts: 1220
Joined: Wed Aug 21, 2013 7:12 pm

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by Gaston »

The headline says “ People in US and UK face huge financial hit if fossil fuels lose value, study shows”. The keyword here is “if”.

Where I live (Texas), I am constantly amazed at all the gas stations I see going up, and the new drilling projects starting up. The oil and gas industry clearly does not see itself going away, and seems to perceive no short-term threat from electric cars.

And as nisiprius says, the oil and gas sector is a tiny part of the S&P 500. So if you are a disciplined Boglehead with the bulk of your equity portfolio in a broad index fund, you might not even notice it.
“My opinions are just that - opinions.”
User avatar
LadyGeek
Site Admin
Posts: 95686
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Stranded fossil-fuel assets translate to major losses for investors in advanced economies

Post by LadyGeek »

I removed several off-topic posts regarding climate policy. This thread has run its course and is locked (not actionable). See: Non-actionable (Trolling) Topics
If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
  • US or world economic, political, tax, health care and climate policies
  • conspiracy theories of any type
  • discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Locked