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Fossil Fuels Source: Fossil Free Indexes, Bloomberg Note: Rebased to 100 on 2 January 2004

Published on August 26th, 2014 | by Roy L Hales

8

Where Can The Fossil Fuel Investments Go?

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August 26th, 2014 by
 

Originally Published in the ECOreport

A Review of the BNEF White Paper, “Fossil Fuel divestment: a $5 Trillion Challenge

Source: Fossil Free Indexes, Bloomberg Note: Rebased to 100 on 2 January 2004

Source: Fossil Free Indexes, Bloomberg Note: Rebased to 100 on 2 January 2004

 

Fossil fuels have been a financial cornerstone for decades. More than $5 trillion is invested in 1,469 oil and gas companies and 275 coal companies. Dozens of public and private institutions are now divesting their money because of environmental concerns, strategic planning, or fear that their assets might become be stranded because of emission regulations. A Bloomberg New Energy Finance White paper asks where can the fossil fuel investments go?

The author, Nathaniel Bullard, provides valuable background material that is of interest regardless of personal opinions about fossil fuels.

“Fossil fuels are investor favorites for a reason. Very few other investments offer the scale, liquidity, growth and yield of these century-old businesses with economy-wide demand for their products,” he wrote.

His paper is not a prediction that the market will divest itself of fossil fuels, but rather an investigation of what such a scenario would look like.

One of the most vocal proponents of fossil fuel divestment is Bill McKibben, co-founder of 350.org. The movement gained momentum when Stanford University and the World Council of Churches jumped on board.

If divestment continues, financial institutions will need to find new investment vehicles for billions of dollars.

Bloomberg World Oil & Gas Index and Bloomberg World Coal Index, rebased to 100 on 1 July 2009 - Courtesy Bloomberg
Institutional investors require the liquidity that fossil fuel stocks provide, which equals more than a billion shares traded every day for the past five years. Though coal stocks have declined in value, oil and gas have outperformed every other sector.

Bloomberg concluded that the necessary attributes were found in seven different sectors, ranging from information technology to real estate. Only real estate has been more profitable. Information technology is larger, already worth $7.64 trillion, but pays low dividends.

Three of the world’s four largest companies are IT’s: Apple ($588 billion), Google ($400 billion) and Microsoft ($360 billion).

Other sectors to watch: Pharmaceuticals ($3.9 trn), Food & Beverages ($3.34 trn), Engineering ($1.66), REITs ($1.39), Automobiles ($1.23), and Industrials ($1.17 trn).

Source: Bloomberg New Energy Finance 2030 Market Outlook

Source: Bloomberg New Energy Finance 2030 Market Outlook

Every one of these sectors dwarfs clean energy. There are currently 106 clean energy companies, whose cumulative worth is $220 billion. Bloomberg predicts this sector will grow $2.8 trillion over the next decade, reaching more than half the size of the present fossil fuel market size.

The easiest of the fossil fuels to let go of is coal. There is no competitive alternate for oil yet. Bullard is among those who believe natural gas is a bridge technology, to the technology of the future.

Dr Allan Hoffman offers a more cynical perspective. There is too much money behind the fracking revolution, so it will be with us for decades to come. However, he believes the excesses can be greatly reduced through proper regulation and enforcement.

Bullard’s focus is financial.

The chart at the top of this page shows how a diversified portfolio, divested of fossil fuel stocks, performed on par with those that contained gas, oil, coal and high carbon reserves.

“Fossil fuel divestment is neither imminent nor inevitable,” he concluded, “but neither is it impossible for motivated investors.”

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About the Author

is the editor of the ECOreport (www.theecoreport.com), a website dedicated to exploring how our lifestyle choices and technologies affect the West Coast of North America and writes for both Clean Techncia and PlanetSave. He is a research junkie who has written hundreds of articles since he was first published in 1982. Roy lives on Cortes Island, BC, Canada.



  • dxing

    The wildcard is China! As China moves to commoditize EVs, you can expect panic to start setting in with investors, stock price will be the first hit ,and stampede will follow! Canadian Tar oil companies are already seeing the head end of this shift!

    China just announced Y100 billion to build new charger stations and Jump start China’s EV industry.
    Hon Hai Precision Industries AKA Foxconn just announced it will create an EV rental service with 10,000 fleet vehicles in Beijing and Hangzhou. Fisker owners can now buy spare parts as part of Wanxiang’s Karma reboot, and new Karma release in 2015
    ABB has now joined Diamler/BYD partnership to support the launch of their new Denza sedan with Home and street charging infrastructure. Not to be outdone FAW Corp-VW released their Besturn and Vita series EVs with an Aggressive plan to capture large market share. Dongfeng also released Venucia EV sedan.

    In 5 years China can upset the entire auto industry as they have the manufacturing scale to get this done, and this will be reflected in higher stock prices marking a complete turnaround where Capital flows from laggard fossils back to EV. Coal is dead, Oil is next

    As prices reduce dramatically, expect those returns to get even bigger and hence more investment shifts

  • Matt

    Coal and coal plants are a divest now. Fig 4 shows a lose of 50% in 3 years (July 2011 to 2014). Oil/NG is flat that time frame. Divestment from them today is a vote for your kids and grand kids; but they too will fall.

  • tibi stibi

    investements in renewable are going down and price per kWh is also going down :D

  • JamesWimberley

    Stanford have divested from coal, not oil and gas – but they are looking at it. Quitting coal would be a prudent decision on purely financial grounds, with Obama’s EPA regulations hitting US coal generation hard and Chinese coal consumption peaking. Tony Abbott’s bucking the trend in Australia is not encouraging for coal investors, as the man’s an idiot.

    • Bob_Wallace

      Abbott might be doing the world a favor. He’s likely to crash Australia’s coal industry very rapidly by investing more money in it, driving grid prices higher, and causing customers to flee the grid.

      Australia is actually a minor consumer of coal. 1.6% of the world total in 2012. With China (49.5%) and the US (11.1%) cutting back, the coal industry will start it’s death dive. And Tony will demonstrate to investors why they best cut their losses by bailing sooner rather than later.

      As money leaves failing industries it tends to flow to rising industries.

      • eveee

        I think what really hits home is when investors realize the long term prospects of an entire area are diminished. Investing is always about the look ahead. Betting on the future is a chicken game where shorters try to kill off the bulls. Up till now, investors went with shorts on solar and EVs. Thats not working out so well for Tesla shorts. In fact it propelled the stock upwards when the shorts could not cover. We will start seeing short momentum in coal stocks if not already. Coal stocks have lost value. When investors realize oil is no longer lucrative (already happened) there will be some real action. The oilcos are struggling desperately to hide their Achllles heel. Capex.
        James just referenced Kopits video. Its a great one.

  • Ross

    I wouldn’t bet on an investment soft landing for fossil fuels once people start heading for the exits on mass.

    • Will E

      true
      Billions of dollars are already invested in clean energy production.
      much bigger profits than fossil.
      when the fossil billions transfer to Solar and Wind power it will be a hard landing for fossil fuels investments. its time to get out in time.

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