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Royal Dutch Shell plc Message Board

  • buffett_munger buffett_munger Aug 21, 2013 6:03 PM Flag

    Fossil Fuels Contain Buried Risks

     

    HSBC estimates to uphold climate targets that the energy supply mix would also need to shift from an 81% reliance on fossil fuels today to just 43% by 2050 creating a 40-60% downside in the market capitalization of most oil and gas companies.

    How might government's enacting a carbon budget effect equity valuations of fossil fuel companies? By stranding assets leaving them worthless and creating massive declines in market cap.

    Currently oil companies' valuations are still dependent on the belief that governments will do little to stop climate change, and that renewables will only capture a small portion of the energy market. For example, Exxon believes only 15% of global energy in 2040 will be from renewable sources. However if this belief is wrong and renewables prove to be the disruptive technology that even the utilities think they could be, there is now an immense amount of risk in being invested in fossil fuel companies.

    HSBC estimates to uphold climate targets that the energy supply mix would also need to shift from an 81% reliance on fossil fuels today to just 43% by 2050 creating a 40-60% downside in the market capitalization of most oil and gas companies. Of course all this is dependent on governments sticking to their climate plans and not caving to the interests of fossil fuel companies which is yet to be determined and in the opinion of some unlikely. However Norwegian pension and insurance giant Storebrand has already started to divest from fossil fuels because of this risk. Investors should follow suit and divest some of their holdings in fossil fuels and reallocate to renewables that are poised to take a bigger share of the energy market.

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