According to a recently released report by the Carbon Tracking Initiative (CTI), $1.1 trillion of oil and gas capital projects may be economically unviable.
With the price of developing unconventional hydrocarbons at more than $100 per barrel in many cases, up to one quarter of the planned capex on the drawing board of the international supermajors alone requires an oil price in the region of $95 to remain profitable.
Companies tied into ventures in the Arctic, deep water plays and shale oil projects will be the most exposed by a sudden dip in oil price. And according to the CTI, private companies are set to pump $21 trillion into these theoretically uneconomic projects by 2050.
The CTI also estimates that keeping to a limit of 2°C or less in global temperature increase in the fight against global warming, will mean that as much as 70 per cent of reserves will have to remain unexploited. And that equates to writing off as much as 60 per cent of the market capitalisation of energy companies.
Juxtapose these facts with the assertion by the Energy Information Agency (EIA) that global oil consumption will rise by 32 per cent and hit 115 million bpd by 2040. That, by the same year, the projected 2.97 billion citizens of China and India are expected to account for nearly half of that surge. That fossil fuels are still on course to make up 80 per cent of the global energy mix, and we have an existential, not economic problem on our hands.
Rates of profitability might have to take a backseat with a world population headed to 9 billion by 2040…
Tim Haðdar is the Editor In Chief at Oil & Gas IQ. Reach Him At Twitter Or OGIQ
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