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

The Economist magazine reports that oil giant companies are trying to sell their billion-dollar assets and cut investments amid plummeting oil prices globally.

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, Exxon Mobil, the giant oil company, declined a write-down on its shale assets even if the forecasted oil price will reduce significantly up to 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. Projections of oil prices globally are bleak, with Brent crude—the global benchmark for oil prices—now at $40 per barrel instead of $100 per barrel. 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 plans for an economic future weaned from oil. Unfortunately, the day that oil prices dipped came sooner than expected. Overspending has caused the Arab countries to cut, tax more, and borrow money, the article further explains.

The crumbling of oil prices will ripple throughout the Middle East region.

If oil prices continue to dip, this will also have a ripple effect on its neighbouring countries depending on their oil-rich neighbour 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.

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

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