Fossil fuels pose risk of stranded assets

By: Reinhold Pape

“Natural gas is falling out of favour with emissions-wary investors and utilities at a quicker pace than coal did, catching some power generators unaware and potentially leaving them stuck with billions of dollars of assets they can’t sell. Citigroup Inc. and JPMorgan Chase & Co. are among the banks that strengthened their financing restrictions on thermal coal under pressure from shareholders wanting to avoid the fuel, and the expectation is that gas is next. Executives at some western European companies say they’re already struggling to sell gas-fired facilities,” says an analysis by Bloomberg News.

“Phasing out gas in power generation is just a first step. Cutting back use of the fuel in heating, transport and industry would wreak more potential damage. Europe wants to reach net-zero emissions by 2050, which is at odds with plans to build numerous infrastructure projects, like pipelines and terminals. If these are built but no longer needed, there’s a potential 87 billion euro ($104 billion) stranded-asset risk, according to calculations by Global Energy Monitor,” Bloomberg News writes.

“There is an increasing amount of funds that either don’t like it or can’t even invest in companies with coal,” Miguel Stilwell de Andrade, EDP’s chief executive officer, said in an interview.

“We’re not going to wait until people tell us that gas is no longer going to be used. We’re going to make sure that we’re going to get out of there before.”

“There’s no point building assets now that will be of no use in a few years,” said Frans Timmermans, the European Commission’s executive vice-president. Europe can skip the transition and go straight to clean assets by spending on the right projects now,” he said.

“We need to make the investments to create sustainable societies,” he added. “That capital, not spent well, will create stranded assets very soon, and we will put unbearable financial burden on the shoulders of our children.”

“Everyone is talking about it in terms of a transition, not a cliff,” said Ryan Wobbrock, a senior credit officer at Moody’s Investors Service. “At this point, it would be very difficult to completely disentangle that system.”

“But now there are indications that demand in the US is topping out decades ahead of schedule with cheaper renewables and net zero moving up the agenda for utilities. Renewables could become the leading power sources on US grids by 2028,” Morgan Stanley said  last year.

European gas demand is still expected to grow by 3 per cent this year, according to the International Energy Agency.

At least in the short term. The European Investment Bank, for one, will end all financing for fossil fuels in December.

“To put it mildly, gas is over,” EIB President Werner Hoyer said during a January press conference. “Without the end to the use of unabated fossil fuels, we will not be able to reach the climate targets.”


Compiled by Reinhold Pape

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