Trying to predict the future is a dangerous business — and that’s why I do my best to avoid it. But it’s equally perilous to ignore possible threats that are on the horizon. Especially when the size of those threats continues to grow… and grow.
Today I’ll go out on a limb and say that Big Oil’s demise will happen suddenly: one day the drills will be turning as usual, and the next day bankrupt wildcatters (and their auditors) will be discussing how to safely cap the wells off, with millions of barrels of oil to be left forever unpumped.
And investors who ignore this “stranded asset” risk are doing so at peril to their portfolios.
No, I don’t know exactly when this will happen. And I’ll be the first to say that there remain a lot of unknowns along the way about the role of oil’s importance in our future. But I would venture to say that these are KNOWN unknowns.
To paraphrase the now-infamous quote from former Secretary of Defense Donald Rumsfeld about the Iraq war, there remain “known unknowns” and “unknown unknowns.” (The first you can hedge some risk against, the second are completely unknowable.)
I’m saying today that the sudden demise of oil is in that first category. When it comes time to run for the exits on Big Oil, I’m saying that the stairwell is going to be crowded. And that’s also why I’ve planned my own oil escape around a ground-floor window. It would be foolish to say that the alarm on oil's value is ringing just yet (which is why I haven’t already left the building) but my plan is to be the first outside the moment it does.
According to last year’s report from the Intergovernmental Panel on Climate Change (IPCC), changing economics will erase $4 trillion from the books of energy companies by 2050. These aren’t political statements — and it won’t ultimately matter who’s in office or what new legislation is being put forward. Even if future climate policies stall, the economic weight thrown behind them has already loaded the roll of the dice. To put it in technical terms, the “stranded asset” risk of oil has gone up.
I’ll climb down from my prediction tree now (before I get too far up and fall!). But I hope you’ll consider the threats I’ve seen on the horizon — and how suddenly they might arrive once they do.