Investors may be entering the age of "stranded assets," and it very likely could be driven as much by technological change as by climate change.
The concept that energy firms and their investors will take big hits as carbon-generating forms of energy face regulation to cap climate change has had much attention, notably via warnings to long-term investors and others by Bank of England Governor Mark Carney.
The idea is that energy reserves, be it coal, oil or gas, now valued by energy companies as exploitable will in the end be made uneconomic by regulation, or allied technological change. These so-called stranded assets would then be a loss to investors, who’ve previously assigned a large value to them.
That, obviously, is an analysis which depends in substantial part on the doubtful prospect of successful coordinated official intervention to assist in a move away from fossil fuels.
A May report from think tank RethinkX, founded by Stanford economist Tony Seba, lays out a more radical case, in which the convergence of the use of autonomous and electric vehicles absolutely eviscerates huge swaths of the sunk costs of industries from energy to automobiles.
“By 2030, within 10 years of regulatory approval of fully autonomous vehicles, 95 percent of all U.S. passenger miles will be served by transport-as-a-service (TaaS) providers who will own and operate fleets of autonomous electric vehicles providing passengers with higher levels of service, faster rides and vastly increased safety at a cost up to 10 times cheaper than today’s individually owned (IO) vehicles,” according to the report.
If true, and it’s a big if, this implies U.S. oil demand will peak at 100 million barrels a day in 2020, but drop by 30 percent over the next decade, taking the per barrel cost down to $25.
Because those cars in use will be used ten times more, rather than sitting idly in garages, demand for vehicles will tumble even as miles traveled rises. Car manufacturing revenue will fall to less than 20 percent of 2015 levels by 2030. The value of oil burned by cars will fall to about 7.0 percent of today’s levels, according to the study.
To be sure, the RethinkX report reaches optimistic conclusions about the rate of adaptation, though it says its base case is derived solely from existing technology.
Not A Low Volatility Scenario