Since 2008 one of the continuing themes of the Green New Deal Group has been that we have a fossil fuel crisis, one of the manifestations of which has been that far too much money has been going into the fossil fuel sector that should have been invested in clean energy.
What we have talked about are 'stranded assets' - which are the investments in fossil fuel extraction that can never pay a return because the fuels in question can never be burned if we are to survive here on earth.
This morning the FT has reported that:
BP [has] said it will write off up to $17.5bn from the value of its assets as the UK oil major revises long-term energy price assumptions.
BP said coronavirus will have a lasting impact on the global economy and energy demand and sees the pandemic only accelerating a global shift towards cleaner fuels.
In other words, it's recognising the scale of its stranded assets.
At last.
I won't resist the temptation to say 'told you so'.
And just remember, if you have a private pension fund that's invested in shares that is your pension that they wasted and are now writing off. You should feel this personally. Their waste matters, and there's a lot more of this to come as yet.
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I think the BP announcement is incredibly useful in that it helps politicians / government understand a little more clearly that despite their own viewpoints, this is the direction of travel.
Or is it me trying to find optimism in a sea of sewage?
One can hope so
It was 17% the net assets of the company….
That’s big
apologies for posting at the begining but Carbon Tracker have come out with a very useful analyst note on Impairment with respect to Oil & gas companies.
https://carbontracker.org/reports/the-impair-state
looks like a pretty good report which notes that the US majors are well behind the Euro oil & gas mob. Extract follows – covering BP:
“The finding of BP’s auditors highlighted a tension — while using price assumptions that are not
aligned with international climate commitments in its accounts, BP believed its own strategy to be
“consistent with the goals of the Paris Agreement”. As above, auditors are generally required to
ensure that financial statements are consistent with other reported information. In this case,
Deloitte is satisfied that “the information given in the strategic report and the directors’ report… is
consistent with the financial statements”. Nonetheless, BP adjusted its prices downwards a few
months later outside the annual reporting cycle.”
Funny that.
Enjoy the report – makes for sobering reading.
🙂
I have always understood that BP was (I do not know if it still is) probably the most important constituent of the Footsie for British dividends and pension funds. BP began life as the Anglo-Persian Oil Company, managed effectively by Burmah Oil, and equity funded by Burmah and the British Government. It is essentially state capitalism; its origins (1908) are in the Admirality and the desire to switch from coal. It never did fit neoliberal ideology – and there it was, at right at its heart – and in plain sight. The proof that Governments drive new technology, development, investment and markets.
What should BP be doing now; well, here is a suggestion – leading the investment in cutting edge ‘wildcat’ investment and technical development not in Persia in 1908, but in the North of Scotland (eg., Pentland Firth, Orkney, Shetland and North West coast) with tidal energy. Then we need a Charles Ritchie (the engineer who laid the first oil pipeline in the Middle East, 120 miles to Abadan 1909-11) to set up the energy transmission system.
8% of all divis
As to the rest, you’re right
I think I should have said “single constituent of the Footsie”; I think that was the case historically, but I am not sure if it still applies.
I think it still does
[…] OK, the assets owned by the company are now worth less than they were when the oil price was higher. Seems an entirely fair observation really. And now for one of the carbon freaks: […]
Will Royal Dutch Shell make the same analysis and write off too?
Wonder how its credit rating looks – which will define how easy or hard it will be to raise money to change direction. Shares have tanked to circa £3 – but the yield (for those that want to take a punt) is an impressive 9% – my guess is a dividend cut will follow real soon – which will be painful for the pension funds.
When you look at the UK there is little in the pipeline of UK companies that could replace the BP’s of this world. Sure there are plenty of non-UK companies, but little home-grown. In turn this will have a knock-on effect with respect to employment and high-paid jobs in the UK. Looks like the Tories have decided that moving to a low-wage/low-skill economy (& by extension a nation of serfs & peasants) is the way forward. it’s not carved in stone – but with the current death-clown gov this seems to be the trajectory.
You describe neo-feudalism, which has been on the cards since the mid/late ’70s.
Of course it has been well hidden in our over-propagandised and severely under-informed society, the reasons why people continue to tolerate the electoral system and the electoral offer that sustains and deepens it.
These are reasons that underpin the vital work of researchers, educators and commentators like Richard, to explain this madness, and show the road back to sanity and genuine social progress. In turn, this validates our concerns and support for their work.
BP could play a huge role in Green energy; particularly in Scotland, where the oil industry’s enormous technical, engineering and science resources are largely concentrated; to take once again their role of the Burmah Oil leadership that drove the real work in Persia, along with G&J Weir’s Charles Ritchie. Unlike Burmah (for many complex reasons, including losing a famous and definitive court case), Weir Group still exists.
BP may be the right solution for this task, at least while it has the resources, because it is the only public-private partnership in Britain that ever really worked; because however cynical Government was it was not foolish enough to pretend public participation didn’t matter, or somehow didn’t count; or that all that matters is ideology and ‘markets.
Of course it should be said that many of us have a vested interest in BP, even if only because any pension plan in which we are invested almost certainly has a BP holding; it is that big. It of course has its flaws; and some large failures. The point is, however, it is there, it has the resources, and it certainly has perhaps the most powerful business network where it matters in Britain; and it knows the territory inside out. It is also a British company, and is located here, not in some tax haven. It pays taxes.
Unfortunately, I am assured that so far its green policy is pure tokenism
I am sure it is; but the world is changing faster than tokenism can survive long. The Scottish Government currently has a ‘Just Transition Commission’ taking public soundings, presumably to aid setting policy (I may send them my basic thoughts, come to think of it). It is for Government to make BP do a great deal more than tokenism; and maybe BP will have to come to realise this is its way forward.
In Persia the British did not handle the Bakhtiari tribes on whose land the oil was found and the pipeline crossed very well in 1908-11 (old story, you can guess); but on the ground Charles Ritchie, and a very wise physician working for Burmah in the field, Dr MY Young whose work in the local community in providing public health services was perhaps a more astute exercise in ‘soft power’ for Britain’s reputation than anything the FO ever did in Iran, allowed the pipeline to be completed quickly and effectively.
I see no point in trying to move the lumbering British tanker round to green energy, or Scotland to produce the goods, without BP. If you were starting from scratch now, you would require to invent something quite like it in terms of networks, skill-set, resource, at least. But it is there. We need to use it. Government can fix this, because it is still, deep down, their business.
Or they could convert to a renewable energy company. They have plenty of money and a skilled workforce and could get into hydrogen, turbines, pv and so on and be negative carbon instead of net zero by offsetting.
Of course the assets will be written up when the demand for oil increases post Covid and when the oil price inevitably rises
BP is not expecting that
Nor is anyone else
You may have noticed there is a climate crisis
If not, google it
I’m not sure if this is related to ‘stranded assets’ but I’d like your opinion on this piece from the Canary. I’m not convinced they’ve got the economics correct, nor am I sure about the share issues they mentioned.
https://www.thecanary.co/opinion/2020/06/15/assange-and-varoufakis-warn-why-the-prevailing-economic-crisis-could-lead-to-fascism/
And thanks for all the information. This is a very interesting blog.
I find The Canary very hard to read
I find this one hard to follow
They’re saying that QE could result in an asset price crash
I agree
Will that end capitalism? No, nit it governments bail it out again
How a bail out happens (and it will – because otherwise economies will totally collapse) is the key issue