Shell’s quest for unburnable carbon

Royal Dutch Shell presented its 2014 earnings report today and commented on what is ahead for it in 2015. With results that were lower than expected and “disappointing” according to analysts, Shell was quick to point out the measures taken to cut costs and its serious commitment to ‘efficient use of capital’. It didn’t take long though for Shell to also confirm its intention to continue its high cost (at least $1 bn this year) exploration in the U.S. Arctic Ocean.

Big oil has always faced this challenge, making sure that they are always finding enough new oil to replace what they are selling, or better yet grow their reserves. It has always been part of the game – the company’s value depends in part on how many new reserves they are finding.

But the game is changing. We are in an era of unburnable carbon. We know we have enough fossil fuel reserves already on the books to send us rocketing past safe climate limits, so what is the value for looking for more?

They do it because they either deny climate change, or they simply do not believe that anything will be done to stop it.

But policy is shifting – too slowly for now – but it is picking up pace. China is starting to tackle its emissions, the U.S. is moving on coal and Obama looks poised to send the clearest signal yet that he is serious about climate change and reject the Keystone XL pipeline. Renewable energy is surging, and growth in demand for fossil fuels is waning.

While the rest of us start to come to terms with the coming end of the fossil fuel era, oil companies are digging in their heels and insisting that growth is still good business. It is like the aging slugger on the ball team who was reliable and even great for a good part of his career, but he is fading and everyone acknowledges it but him.

A recent paper in the journal Nature confirmed that as the world moves towards implementing meaningful climate policies there is zero economic opportunity for offshore Arctic Oil. Not a single barrel will be profitable in a world that simply fulfills existing government’s climate commitments.

Every dollar that Big Oil spends looking for reserves that only add to existing unburnable carbon is an investment in ultimately stranded assets. We have enough fossil fuels on the books to get us to where we need to go and then some. The money to be made now is on the new guys – the energy sources that don’t come with baggage that is destroying our climate and environment.

Exploration for fossil fuels is a hunt for fool’s gold and the sooner investors come to terms with this and pull out, the sooner companies will stop wasting their money on meaningless exploration and figure out how they are going to adapt to a new energy market.

Tell the President here to put the entire U.S. Arctic Ocean off limits to drilling.