Hostname: page-component-78c5997874-94fs2 Total loading time: 0 Render date: 2024-11-12T06:19:28.121Z Has data issue: false hasContentIssue false
  • English
  • Français

STRANDED ASSETS AND SOVEREIGN STATES

Published online by Cambridge University Press:  05 February 2020

Amy Myers Jaffe
Amy Myers Jaffe*
Affiliation:
Council on Foreign Relations, New York. E-mail: ajaffe@cfr.org
Get access Rights & Permissions [Opens in a new window]

Abstract

There is evidence that the risk of stranded assets in the oil and gas sector is underpriced in financial markets. Publicly traded Western oil and gas companies are starting to write down assets, opening up the possibility that more rationalisation of value is likely to come. To the extent that large oil companies diversify portfolios to include cleaner energy and carbon sequestration technologies, it could reduce the risk of a sudden cascading change in the stock valuation of these firms and related bond and credit markets. Instead, the vast majority of oil and gas assets that will be stranded are in the control of sovereign states whose national budgets are highly dependent on oil and gas revenues. Thus, the problem of stranded asset risk for the oil and gas sector may be most relevant in markets for sovereign credit as well as risks that go beyond financial losses.

Keywords

oilclimatestranded assetstransitioninnovationstrategy.Q35Q55L1.
Type
Research Article
Information
National Institute Economic Review , Volume 251 , February 2020 , pp. R25 - R36
Copyright
© National Institute of Economic and Social Research, 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES:

Bebbington, J., Schneider, T., Stevenson, L. and Fox, A. (2019), ‘Fossil fuel reserves and resources reporting and unburnable carbon: investigating conflicting accounts’, Critical Perspectives on Accounting (forthcoming).Google Scholar
Brandt, A.R., Millard-Ball, A., Ganser, M. and Gorelick, S.M. (2013), ‘Peak oil demand: the role of fuel efficiency and alternative fuels in a global oil production decline’, Environmental Science and Technology, 47(14), pp. 8031–41: DOI:101021/es401419t.CrossRefGoogle Scholar
Dempsey, H. (2019), ‘Why U.S. energy investors are experiencing a crisis of faith’, Financial Times: https://www.ft.com/content/71655bca-c8c2-11e9-a1f4-3669401ba76f.Google Scholar
Elliott, R. (2019), ‘Are oil-and-gas companies a good investment?’, Wall Street Journal: https://www.wsj.com/articles/are-oil-and-gas-companies-a-good-investment-11574208302.Google Scholar
Energy Intelligence Group (2018), Energy Intelligence Top 50: How the Firms Stack Up.Google Scholar
Equinor Energy Perspectives 2019 (2019): https://www.equinor.com/en/how-and-why/energy-perspectives.html.Google Scholar
Fagnant, D. and Kockelman, K. (2014), ‘The travel and environmental implications of shared autonomous vehicles, using agent-based model scenarios’, Transportation Research Part C: Emerging Technologies, 40, 1–13: https://doi.org/10.1016/j.trc2013.12.001.CrossRefGoogle Scholar
Fulton, L.et al. (2019), ‘Internal combustion engine bans and global oil use’, Institute of Transportation Studies, working paper series: https://escholarship.org/uc/item/52j400b1.Google Scholar
Garfield, L. (2018), ‘13 cities that are starting to ban cars’, Business Insider: http://www.businessinsider.com/cities-going-car-free-ban-2017-8.Google Scholar
Gause, F.G. III (2015), ‘Sultans of swing? The geopolitics of falling oil prices’, Policy Brief, Brookings: https://www.brookings.edu/wp-content/uploads/2016/06/Falling-Oil-Prices-English.pdf.Google Scholar
Gehrke, S.R., Felix, A. and Reardon, T. (2018), Fare Choices: A survey of ride-hailing Passengers in Metro Boston, Metropolitan Area Planning Council, Report 1: https://www.mapc.org/farechoices/.Google Scholar
Gore, A. and Blood, D. (2013), ‘The coming carbon asset bubble’, Wall Street Journal: https://www.wsj.com/articles/the-coming-carbon-asset-bubblethe-coming-carbon-asset-bubble-1383076555.Google Scholar
Greenblatt, J.B. and Saxena, S. (2015), ‘Autonomous taxis could greatly reduce greenhouse-gas emissions of U.S. light-duty vehicles’, Nature Climate Change, 5, pp. 860–3: DOI:10.1038/nclimate2685.CrossRefGoogle Scholar
Griffin, P.A., Jaffe, A.M., Lont, D.H. and Dominguez-Faus, R. (2015), ‘Science and the stock market: investors’ recognition of unburnable carbon’, Energy Economics, 52, pp. 1–12.CrossRefGoogle Scholar
IEA (2018), World Energy Outlook 2019, Paris, France: International Energy Agency: https://www.iea.org/weo2018/fuels/.Google Scholar
Innovation Center for Energy and Technology (iCET) (2019), A Study On China’s Timetable For Phasing-Out Traditional Ice-Vehicles: http://nrdc.cn/Public/uploads/2019-05-24/5ce7931eb51b3.pdf.Google Scholar
International Monetary Fund (2019), Lower for Longer, Global Financial Stability Report, October, International Monetary Fund, https://www.elibrary.imf.org/view/IMF082/26206-9781498324021/26206-9781498324021/26206-9781498324021.xml?redirect=true.Google Scholar
Jaffe, A.M. (2019a), The Tech Enabled Future, Council on Foreign Relations: https://www.cfr.org/report/tech-enabled-energy-future.Google Scholar
Jaffe, A.M. (2019b), ‘Amid political uncertainties, Venezuela’s oil industry situation worsens’, Energy Realpolitik, Council on Foreign Relations: https://www.cfr.org/blog/amid-political-uncertainties-venezuelas-oil-industry-situation-worsens.Google Scholar
Kim, D.et al. (2018), Energy and Air Quality Impacts of Truck-Only Lanes: A Case Study of Interstate 75 Between Macon and McDonough, Georgia, National Center for Sustainable Transportation and Georgia Institute of Technology: https://escholarship.org/content/qt56m5b78f/qt56m5b78f.pdf.Google Scholar
Lee, J. (2019), ‘Why Vladimir Putin suddenly believes in global warming’, Bloomberg Opinion: https://www.bloomberg.com/opinion/articles/2019-09-29/climate-change-russia-s-oil-and-gas-heartlands-are-under-threat.Google Scholar
Lenferna, G.A. (2017), ‘Can we equitably manage the end of the fossil fuel era?’, Energy Research and Social Science, 35, pp. 217–23: https://doi.org/10.1016/j.erss.2017.11.007.CrossRefGoogle Scholar
Masnadi, M.S.et al. (2018), ‘Global carbon intensity of crude oil production’, Science, 361, 6405, pp. 851–3.CrossRefGoogle ScholarPubMed
Mathers, J. (2013), ‘Is online shopping better for the environment?’, Environmental Defense Fund: http://business.edf.org/blog/2013/12/21/is-online-shopping-better-for-the-environment.Google Scholar
McGlade, C. and Ekins, P. (2015), ‘The geographical distribution of fossil fuels unused when limiting global warming to 2 degrees C’, Nature, 517, (7533), pp. 187–90: doi: 10.1038/nature14016.CrossRefGoogle ScholarPubMed
Meinshausen, M., Meinshausen, N., Hare, W., Raper, S.C.B., Frieler, K., Knutti, R., Frame, D.J. and Allen, M.R. (2009), ‘Greenhouse-gas emission targets for limiting global warming to 2 degrees C’, Nature, 458 (7242), pp. 1158–63: doi: 10.1038/nature08017.CrossRefGoogle ScholarPubMed
Meyer, N., Brinker, L.et al. (2015), Deflating the ‘Carbon Bubble’, IHS Markit: https://ihsmarkit.com/research-analysis/q22-deflating-the-carbon-bubble.html.Google Scholar
Milne, R. (2019), ‘Norway resists growing environmental pressure over oil’, Financial Times: https://www.ft.com/content/0666ec58-218c-11ea-b8a1-584213ee7b2b.Google Scholar
Nelson, R. (1993), National Innovation Systems, Oxford University Press.Google Scholar
Ogden, J. (2019), ‘Climate change impacts on critical U.S. energy infrastructure’, Climate Risk to the Energy System, Council on Foreign Relations (September), pp. 32–43.Google Scholar
OPEC, (2018), Annual Statistical Bulletin: https://www.opec.org/opec_web/en/data_graphs/330.htm.Google Scholar
Osmundsen, P.et al. (2006), ‘Valuation of international oil companies’, The Energy Journal, 27 (3), pp. 49–64.CrossRefGoogle Scholar
Paun, A.et al. (2015), ‘Stranded assets: what next?’, London, UK: HSBC Bank Global Research, https://www.research.hsbc.com/midas/Res/RDV?p=pdf%26key=myvAGZ6YRG%26n=456399.PDF.Google Scholar
Parkinson, G. (2015), ‘Citigroup predicts $100 trillion in standard assets if Paris summit succeeds’, CleanTechnica: https://cleantechnica.com/2015/08/26/citigroup-predicts-100-trillion-in-stranded-assets-if-paris-summit-succeeds/.Google Scholar
Plotz, P., Axsen, J., Funke, S.A. and Gnann, T. (2019), ‘Designing car bans for sustainable transportation’, Nature Sustainability, 2, pp. 534–6: doi:10.1038/s41893-019-0328-9https://www.nature.com/articles/s41893-019-0328-9.CrossRefGoogle Scholar
Rainforth, L.et al., (2019), Rewarding Low Carbon, Barclays Equity Research.Google Scholar
Shaheen, S. (2018), Shared Mobility: The Potential of Ride Hailing and Pooling, Berkeley, CA: University of California, Transportation Sustainability Research Center: https://escholarship.org/uc/item/46p6n2sk.Google Scholar
Shojaeddini, E., Naimoli, S., Ladislaw, S. and Bazilian, M. (2019), ‘Oil and gas company strategies regarding the energy transition’, Progress in Energy, 1 012001.CrossRefGoogle Scholar
Silver, N. (2016), ‘Blindness to risk: why institutional investors ignore the risk of stranded assets’, Journal of Sustainable Finance and Investment, 7, 1, pp. 1–13: doi: 10.1080/20430795.2016.1207996.Google Scholar
Star-Advertiser (2019), ‘Kauai electricity customers face rolling blackouts; utility urges energy conservation’, Star Advertiser: https://www.staradvertiser.com/2019/07/21/hawaii-news/fault-at-kauai-power-station-causes-island-wide-blackout/.Google Scholar
Stevens, P. (2016), The International Oil Companies: The Death of the Old Business Model, Chatham House: https://www.chathamhouse.org/sites/default/files/publications/research/2016-05-05-international-oil-companies-stevens.pdf.Google Scholar
The Economist (2016), ‘How to deal with worries about stranded assets’, The Economist: https://www.economist.com/special-report/2016/11/24/how-to-deal-with-worries-about-stranded-assets.Google Scholar
Tooze, A. (2019), ‘Why central banks need to step up on global warming’, Foreign Policy: https://foreignpolicy.com/2019/07/20/why-central-banks-need-to-step-up-on-global-warming/.Google Scholar
Van De Graaf, T. and Bradshaw, M. (2018), ‘Stranded wealth: rethinking the politics of oil in an age of abundance’, International Affairs, 94, 6, pp.1309–28: doi: 10.1093/ia/iiy197.CrossRefGoogle Scholar
Verhoef, L.A.et al. (2018), ‘The effect of additive manufacturing on global energy demand: an assessment using a bottom-up approach’, Energy Policy, 112, pp. 349–60: doi: 10.1016/j. enpol.2017.10.034.CrossRefGoogle Scholar
Wadud, Z.et al. (2016), ‘Help or hindrance? The travel energy and carbon impacts of highly automated vehicles’, Transport Research Part A: Policy and Practice, 86, pp. 1–18: https://doi.org/10.1016/j.tra.2015.12.001.Google Scholar
World Bank (2011), The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium.Google Scholar