Shell ‘rattled’ as it labels carbon bubble concept flawed

carbon bubble

Shell has dismissed the carbon bubble concept but analysts say the company is rattled by the potential of stranded assets. Creative Commons: 2008

Shell has shown signs of being “rattled” by the carbon bubble concept this week, as it branded the argument that fossil fuels assets could become stranded with strong climate action as “alarmist” in a letter to its shareholders.

Ahead of the company’s AGM, Shell Executive Vice President JJ Traynor dismissed the idea of the carbon bubble, which warns that fossil fuel companies risk wasting billions of investor’s money by searching for fuels that will ultimately become unburnable if the world is to stay below the 2°C danger threshold of warming.

He wrote:

It has some fundamental flaws and there is a danger that some interest groups use it to trivialise the important societal issue of raising levels of carbon dioxide in the atmosphere. We do not believe that at a minimum any of our potential reserves are at risk from any potential change in regulation from climate change or the carbon bubble/stranded assets concept.

The letter comes just week’s after new research from the Carbon Tracker Initiative warned that as much as $1 trillion of oil investments could be at risk from the carbon bubble; singling out risky, high-cost projects including Arctic drilling, shale oil and tar sands are highly under threat.

The group have previously warned that firms were investing as much as $674 billion every year in finding and developing fossil fuel projects which will be left unburnable.

While Shell tries to downplay the warnings, however, analysts say that the letter shows that fossil fuels companies have been “rattled” by the research.

Torbjørn Kjus, an Oil Analyst at DNB Markets told RTCC:

They are taking this seriously, and if you talk with big companies in Germany, and ask them 6-7 years ago did they have any anticipation what was going to happen six years ago, they did not. Now some of them have lost 90% in value.

Traynor told investors that fossil fuel use will likely grow 40-60% by 2050, and argued that the best way to avoid dangerous climate change is to invest in carbon capture and storage, rather than cutting oil and gas production.

He said the company did not see government taking carbon-cutting action consistent with avoiding warming above 2°C.

Carbon Tracker and the International Energy Agency have both said that limiting dangerous warming will involve leaving two-thirds of known fossil fuels in the ground.

Responding to Shell’s comments, Carbon Tracker has said the assumption that demand will continue to rise is flawed.

In a statement it said:

Shell does not explain how it is solving the contradiction between the predictions of high oil demand and its acceptance of the need to address climate change. Carbon Tracker argues that high-cost production and growing oil demand assumptions are inconsistent with a more resilient global economy and stable global climate.

The latest intervention follows a year of unprecedented shifts away from fossil fuels, with major banks and funds moving their money away from the dirtiest form of energy.

It also coincides with intense scrutiny of fossil fuel investments as the divestment movement shifts into new territory, targeting leading academic institutions, faith organisations, banks and cities to ditch their oil, gas and coal holdings.

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