Does the Plummeting Oil Prices Signal the End of the Fossil Fuel Era?

The Economist reports that oil giants are trying to sell their billion-dollar assets and cut investments amid plummeting global oil prices.

For example, BP has sold its stake in Prudhoe Bay and other Alaskan oilfields to a smaller firm, Hilcorp, and even extended a loan to them to close the deal.

Companies like Royal Dutch Shell are willing to take write-downs of up to billions of dollars of their assets. Still, ExxonMobil, the giant oil company, declined to take a write-down on its shale assets, even though forecast oil prices will decrease significantly through 2050.

Why are these companies divesting and eliminating some of their assets while fossil fuel reserves remain plentiful?

The article explains that even before the COVID-19 pandemic, investors were becoming wary of big projects. Global projections for oil prices are bleak, with Brent crude—the international benchmark—now at $40 per barrel, down from $100. They would like to make oil production profitable.

The article says investment prospects that looked promising in the past few years, such as the extraction in the Whale oilfield in the Gulf of Mexico and even the American shale, are now looking riskier.

Another Economist article mentions that the Arab world’s oil age is ending. The oil prices have decreased, and the world’s economies are shifting away from fossil fuels. The article says this combination of events will be a painful blow to the Middle East and North Africa.

But Arab leaders have anticipated this day and have plans for an economic future weaned from oil. Unfortunately, the day that oil prices dipped came sooner than expected. Overspending has led the Arab countries to cut spending, raise taxes, and borrow money, the article explains.

The collapse in oil prices will ripple across the Middle East

If oil prices continue to dip, this will also have a ripple effect on neighbouring countries that depend on oil-rich countries for remittances. Remittances from jobs in the oil sector account for over 10 per cent of GDP in some of these countries. The article says that the reduction in payments will impact trade and tourism and give rise to unsavoury regimes and unwelcome foreign interference in the region.

Good news for climate change mitigation

Lower oil prices and diminishing fossil fuel reserves could push oil companies to invest in cleaner, renewable energy sources, a result that environmental advocates and the younger generation have been calling for amid the climate crisis.

Though the pandemic influenced the decline in oil prices, before it happened, the global community had been calling for emissions reductions and the end of fossil fuel use and extraction.