Growing concerns about carbon emissions and their effect on climate change means that oil reserves will probably never be fully used.
Scientists have long advocated that existing reserves should not be fully exploited to avoid catastrophic consequences for the earth’s climate. This social implication has now been accepted by BP’s chief economist Spencer Dale. During a recent speech in London he stated, “Existing reserves of fossil fuels – i.e. oil, gas and coal – if used in their entirety would generate somewhere in excess of 2.8trn tonnes of CO2, well in excess of the 1trn tonnes or so the scientific community consider is consistent with limiting the rise in global mean temperatures to no more than 2C.” His words are the clearest statement by a major oil company so far that indeed some coal, oil and gas reserves will have to stay in the ground.
BP’s chief economists statement is based on current booked reserves and does not take in account the discoveries that are being made or fossil fuel reserves that have not been booked yet.
A new economics of oil is needed, according to Dale, who argues that the rise of shale oil in the US in combination with climate concerns, suggests there is no reason to expect oil prices to increase over time from this point. The low oil prices over the past year have already caused billions of dollars in projects to be cancelled. A trend that is expected to continue.
The concept of unburnable fuel is very much in line with the concept of stranded reserves. Based on analysis of the Carbon Tracker Initiative (CTI) in 2014, which warned that $1 trillion dollars was at risk in high-cost oil projects. Anthony Hobley of CTI says that BP’s statement acknowledges the huge systemic risk that peak oil demand has arrived.
According to Hubley, the energy industry has underestimated clean energy prices decreasing, energy efficiency increasing, rising fossil fuel costs and climate policy. All these factors work together in creating peak oil demand.
CTI is not the only institution that has warned about the potential losses associated with stranded fossil fuel reserves. The G20, World Bank, as well as industry analysts have issued warnings. Mark Carney, governor of the Bank of England, recently warned about huge potential losses too.