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

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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 assets worth billions of dollars and cutting investments amid the plummeting oil prices globally.

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

Companies like Royal Dutch Shell are willing to take write-downs of their assets of up to billions of dollars. Still, for Exxon Mobil, the giant oil company declined a write-down on its shale assets even if the forecasted price of oil will reduce significantly up to 2050.

Why are these companies divesting and get rid of some of their assets while fossil fuel reserve remains plentiful?

The article explains that even before the Covid-19 pandemic investors are becoming wary of big projects.  Projections of oil prices globally are bleak, with the Brent crude – the global benchmark for oil prices now at $40 per barrel and not the $100 per barrel, they would like to make oil production profitable.

Investments 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 is looking riskier the article says.

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

But Arab leaders have anticipated this day will come, 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 for cuts, tax more, and borrow money, the article further explains.

The crumbling of oil prices will have a ripple effect throughout the middle east region.

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

Good news for climate change mitigation.

The decreasing oil prices, as well as 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 had influenced the falling prices of oil, before it happened, the global community has been calling for emissions reductions, end fossil fuels use and extraction.

With cheap oil prices, this could be the beginning of the end of the fossil fuel era, which can mitigate the climate crisis that is worsening.

To read The Economist article, click the links below:

Source citations:

Oil giants want to own only the cheapest, cleanest hydrocarbons. (18 July 2020). The Economist. Retrieved from https://www.economist.com/business/2020/07/18/oil-giants-want-to-own-only-the-cheapest-cleanest-hydrocarbons

The end of the Arab word’s oil age is nigh. (18 July 2020). The Economist. Retrieved from https://www.economist.com/middle-east-and-africa/2020/07/18/the-end-of-the-arab-worlds-oil-age-is-nigh

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