The basic direction of the world away from coal, oil, and natural gas is at last undeniable. On Wall Street, regardless of dominant political trends, the fossil fuel industry has morphed from the investor’s surest bet into an increasingly challenged enterprise. According to the Institute for Energy Economics and Financial Analysis, “Over the past several years, oil industry financial statements have revealed significant signs of strain: profits have dropped, cash flow is down, balance sheets are deteriorating, and capital spending is falling. The stock market has recognized the sector’s overall weakness, punishing oil and gas shares over the past five years even as the market as a whole has soared.”
An IEEFA report labels the industry “weaker than it has been in decades” and lays out its basic frailties. Fracking has produced a sudden surge of gas and oil into the market, lowering prices, causing many older investments (e.g., in Canadian tar sands) to no longer make economic sense. Fossil fuels have been reduced to commodities and, since the margins on fracking are small, “investors are shell-shocked by poor returns.”
Another weakness is that fast-rising competitors are able to deliver the same product – energy — with cheaper, cleaner, and better technologies. Tesla motors and batteries come to mind, and also Volkswagen, which, having come clean about dirty diesels, is now planning to spend $84 billion on electric drive trains. China is converting its entire bus fleet to electric power. Every week brings a new record-low price for clean energy. A new Nevada solar plant generates power for 2.3 cents per kilowatt hour, despite the Trump tariffs on Chinese solar panels.
New York’s Cayuga Operating Co. is repowering a 155-megawatt coal-fired burner with natural gas, and plans to construct an 18-megawatt, 75-acre solar farm in Lansing — one of the largest solar farms in upstate New York. Meanwhile, New York’s governor has unveiled plans to deploy 1,500 megawatts of energy storage by 2025.
Worldwide, India’s NTPC power company recently canceled plans for a massive new coal plant in Andhra Pradesh, one of four megaprojects originally touted as a major investment in using domestic coal. Australian regulators are set to require more climate risk disclosure from coal firms and companies with high carbon exposures.
Germany’s Daimler, through its subsidiary Mercedes-Benz Energy, is repurposing an old coal power plant in Elverlingen into a nine-megawatt energy storage facility using 1,920 modules of its electric car batteries. The large storage plant will be used to balance power on the German grid, which has added a significant amount of renewable energy in recent years. Last year, Daimler completed a similar 17.4-megawatt-hour facility in Herrenhausen.
The IEEFA’s report also warns that “if PGE — Poland’s biggest utility — continues on its present coal-dependent path, the net cost of that strategy, on a present-value basis, could be billions of euros higher than if it accelerated the deployment of renewables.”
Still another problem for fossil fuels is the climate movement. In addition to traditional lobbying and direct-action campaigns, climate activists have increasingly diverse allies, like the indigenous-rights movement. Divestment campaigns, corporate accountability efforts, and targeting of banks and financial institutions put financial pressure on oil and gas companies, threatening to undercut project financing and raising financing costs across the board.
The IEEFA observes that activists create delays that “turn a marginal project into a cancelled one,” conduct “strategic litigation” and “change the industry’s narrative.” The financial world is “just beginning to understand the fundamental weakness of the fossil fuel sector, and barely acknowledges the global climate movement’s growing power and reach. This is a golden opportunity to develop and foster a new storyline on Wall Street — that the oil and gas industry is becoming an unstable financial partner.”
This is work to which all conscientious citizens can contribute. Strategic advocacy might even persuade key investors that there’s more money to be made elsewhere. Of course, speed is of the essence: massive losses of fossil money may indeed loom over Wall Street, but massive losses of polar ice loom over us all.
(Paul Kando is a co-founder of the Midcoast Green Collaborative, which works to promote environmental protection and economic development via energy conservation. For more information, go to midcoastgreencollaborative.org.)