Is what’s left of our oil and gas overvalued? This is what Nicolas Stern and others (even analysts from HSBC seem to agree) think. The theory goes that the world will act on climate change accept that it cannot burn all the remaining reserves and move away from gas and oil. This means what’s left is not worth nearly as much. Therefore there maybe another financial crash. The almighty big assumption is we act rationally (from the environmental view) and do this. At the moment despite a huge increase in renewables the world is not making a very good job of cutting emissions. The IEA have reported that energy carbon intensity has dropped only very slightly in 20 years.
So why is this? One suggestion made in a book by Mike Berners-Lee and Duncan Clark (link above to article by them) is that the countries cutting emissions at home are exporting coal, oil and gas elsewhere. This must be partly true, but even China is making strenuous efforts to switch to renewables. To me it doesn’t completely explain the dichotomy. I also don’t completely accept their dismissal of peak oil (although they actually don’t completely dismiss it).
There are three possible ways thing could go in my view.
1) Stern et al. are right in 2015 there is a legally binding climate agreement and oil and gas prices crash.
2) We go on burning all the unconventional stuff and fry ourselves. All the unconventional stuff has to work in this scenario. What I mean be that has to take less energy to extract than we think it will.
3) Somewhere in between 1) and 2). Conventional oil production has peaked (this is true of all three scenarios). The oil price continues ever upwards. Unconventional oil and gas depletes the remaining easily extracted oil and gas faster, unconventional oil and gas having a very low energy return (giving a price feedback loop). Whether this scenario heads off a 2 degree rise depends on how rising prices force lifestyle change. There is some modest evidence to back up lifestyle changes in 3) with driving and fuel sales having apparently peaked in the UK and US.