Former Vice President Al Gore. Photo credit:
Flickr user simone.brunozzi
Former Vice President Al Gore thinks energy investors stand to
lose $7 trillion when the carbon assets that are littering the
balance sheets of multinational energy companies become
worthless. He gets this number from a report by the Carbon
Tracker Initiative, which suggests that the balance sheets of
fossil fuel companies are littered with "unburnable" carbon.
This unburnable carbon is the oil, gas, and coal that is still
in the earth that, if extracted and burned, would push the globe
over the edge in terms of climate change. Because this is an edge
we can't cross, it would suggest that the companies owning the
assets are all but doomed.
This is why the former Vice President has continued to push
against fossil fuels, and recently launched a new climate change
awareness campaign as part of The Climate Reality Project. The
new campaign, which is called "Why? Why Not?" is targeting youth
and encouraging them to step forward as advocates for the climate
change movement. The goal is to let their voices be heard at the
U.N. Climate Summit later this year. It's all part of his
campaign to warn the world that we can't keep burning carbon.
Gore, however, isn't just warning the world of the dangers of
climate change. He's warning investors of the ominous future of
their energy holdings. In
an interview last year
he noted that the carbon assets sitting on the balance sheets of
multinational energy companies will one day go up in smoke,
The valuation of companies and their assets is now based on
the assumption that all of those carbon assets will be sold and
burned. They are not going to be burned. They cannot be burned
and will not be burned. No more than one-third can ever
possibly be burned without destroying the future.
In essence, the former Vice President is suggesting that as
much as two-thirds of the value of companies like
Royal Dutch Shell plc
pcl are based on these soon-to-be worthless carbon assets. The
suggestion implies that these companies and those investing in
them are in big trouble.
A look at Gore's biggest losers
The reason these companies in particular are doomed is because
all five have exposure to the Canadian oil sands as well as
deepwater oil projects. The oil sands is an area that the Carbon
Tracker Initiative has called special attention to. A recent
study it conducted
suggested that these investments are a big waste
of investors' capital
, as the study suggested that oil needed to be north of
$150 per barrel in order for the projects to be profitable.
That study specifically noted that ConocoPhillips in
particular was vulnerable because it's an investor in two of the
most expensive projects on the list. The
independent oil and gas
giant owns 50% of Foster Creek, which the Carbon Tracker study
suggests needs oil above $159 per barrel in order to make money.
Further, ConocoPhillips owns half of Surmont, with Total owning
the other half, which needs oil above $156 to make money. Not
only that, but ConocoPhillips also drills for oil in the
deepwater off the coast of Africa, which needs
north of $115 to make money according to the Carbon Tracker
Surmont. Source: ConocoPhillips.
Royal Dutch Shell is another company with a doomed oil sands
project, according to the Carbon Tracker Initiative. Its Carmon
Creek project needs oil prices to hit $157 per barrel in order to
be profitable. On top of that, Royal Dutch Shell is seeking to
drill for oil in the Arctic, which has already
wasted $5 billion of investors' capital
and would waste more money if drilling restarted.
Likewise, ExxonMobil has pricey oil sands projects that will
likely hurt the company according to the Carbon Tracker
Initiative. ExxonMobil has invested in the Aspen and Kearl
projects, which need oil prices of $147 and $134, respectively,
to make money. Meanwhile, it, along with BP, has loads of
deepwater projects in Africa and Brazil, which according to the
Carbon Tracker Initiative's study, needs oil prices over $127 to
Floating Production, Storage and Offloading vessel offshore
Angola. Source: BP
What's an investor to do?
The issue here is who to believe. Gore and the Carbon Tracker
Initiative have an agenda: They want to get the world off of
carbon. Among the tactics used are warnings to investors that
their investments could one day be worthless if the carbon assets
that form the basis of those investments stay in the earth.
However, each one of the five "doomed" companies would say
otherwise. ConocoPhillips, for example, expects to pull a billion
dollars in cash flow per year out of its oil sands assets
starting in 2017 when the second phase of Surmont is complete.
That cash flow is expected to continue at that level for the next
two decades. Likewise, each of the other supposedly doomed
companies is solidly profitable today and expects to continue to
be profitable in the future thanks to these investments. So,
unless an investor really thinks that the carbon assets backing
their investments won't be burned, then it's safe to say these
companies might not be in as much trouble as Al Gore would
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5 Companies Al Gore Thinks Are Doomed
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