Investors warned of looming energy asset risk

The oil and gas industry faces a looming stranded asset crisis with a new report warning the value of the at risk pipeline projects alone is over $1 trillion.

The research by climate data organisation Global Energy Monitor (GEM), found that despite early moves by the Biden Administration to curtail oil and gas leases in the US and financing for oil and gas projects in other countries, over $1 trillion in pipeline expansion projects are in development globally.

Those projects threaten Paris Climate goals and undermine pledges by the world’s major economies to achieve carbon neutrality by mid-century.  The findings are based on the Global Fossil Infrastructure Tracker, a project-by-project survey of oil and gas pipelines and terminals.

“The policy landscape facing the new administration in 2021 is radically different from the one that Biden left in 2017,” said James Browning, lead author of the report. “Fossil gas is now recognised as a climate buster, not a climate solution. That means Biden faces the tough decision to rein in gas infrastructure, which is the most effective way to limit emissions.”

Report found a range of threats for the oil and gas sector and those companies that have invested in the new project.

The planned 212,000-km expansion in the global system of oil and gas transmission pipelines, amounting to $1 trillion in capital expenditures, is on “a collision course” with commitments by most large economies to transition to carbon neutrality by mid-century, setting the stage for large amounts of stranded assets.

Pipeline projects under construction and in pre-construction will support a lifetime increase in oil and gas CO2 emissions of 170 gigatonnes, only 15% less than the projected lifetime CO2 emissions of the currently operating global coal plant fleet.

Eighteen of the 20 longest pipelines in development and 82.7% of all pipelines in development will carry gas, reflecting the fossil fuel industry’s success in perpetuating the myth that gas can be a “bridge fuel” to a clean energy future.

The US is the leading developer of pipelines as measured by capacity, with 19.6 million barrels of oil equivalent per day in development. The report warned this expansion presents a major climate risk since U.S. exports of liquified natural gas have the highest greenhouse gas intensity of any major exporter, according to Boston Consulting Group.

China continues a massive 32,800-km expansion of the country’s oil and gas pipeline network. “That network is being consolidated under a new company, PipeChina, which will soon be the largest builder of gas pipelines in the world,” added the report.

The global pipeline expansion has slowed in the past decade and some projects were delayed in 2020 by the Covid-19 pandemic. Overall, however, the expansion curve has been bent rather than broken, with pipelines continuing to enjoy both policy support and financial support by governments and major financial institutions.

An analysis of the Permian Basin, which has surpassed Saudi Arabia’s Ghawar Field to become the biggest-producing oil field in the world, shows financial support by more than 100 institutions. While 50 major financial institutions have now implemented policies restricting support for tar sands or Arctic extraction, only four so far have restricted pipelines.

Intense opposition from landowners, indigenous groups, and climate activists is causing the cancellation or delay of high-profile pipelines and is changing perceptions of pipelines as a “safe” investment.

“Last month the head of the European Investment Bank, the world’s biggest publicly owned financial institution, remarked that ‘Gas is over’,” said Greig Aitken, GEM’s finance researcher. “It’s high time for other significant financial institutions, both public and private, to step up and follow the EIB’s lead in ending their support for oil and gas infrastructure projects and companies.”