Invest more in oil? "A big, big bet": interview in Norway's financial paper.

DN.no:  Translation of original article in Norwegian: “The so-called carbon bubble concerns companies which have their value placed in unused reserves of oil and gas which will not be extracted before a long period of time in the future. By then, there will be little interest in this kind of fuels, the solar entrepreneur Leggett said.”“There will be other forms of energy in place, and battery capacity and new technologies will have solved the problem derived by the fact that the sun only shines during the daytime, and that wind generates electricity only when the wind blows.
Those investments in oil reserves which won’t be extracted before ten or more years, are a very big bet, says Leggett.
Text under the main picture: Jeremy Leggett means that the value of oil stocks will fall like a stone when the carbon bubble will burst. He is one of Britain’s best-known social entrepreneurs and environmentalists. He is a geologist and began his career as a consultant for BP and Shell [JL: should say “whose research was funded by ….among others], before becoming an activist in Greenpeace and successively founding Solarcentury, SolarAid and the world’s first venture fund for renewable energy [should say private equity]. The financial bubble in the oil and gas sector is going to burst, and the value of the companies is going to fall. This is what Jeremy Leggett means, and he claims that more and more people follow this thinking.
30 per cent of Norway’s total investment portfolio – including State’s holdings on the continental shelf (SDØE), shares in Statoil and ownership in other companies – is furthermore located in fossil fuels such as oil, gas and coal. On Monday, the former Ministry of Health Jonas Gahr Støre publicly proposed that the Norwegian Government Pension Fund (GPFG), so called oil fund and world’s largest sovereign wealth fund, withdraws from all investments in coal companies.
Coal is so dangerous for the climate, a particularly big problem. We believe that coal is the big topic, says Jonas Gahr Støre to DN.no. He doesn’t want to go further in the debate on the oil fund’s investment in fossil fuels. But he opened the discussion on the oil fund’s investment profile, and this got the approval of Leggett and those who support the same view.
If Norway will go first, then many will follow, they believe.
Estimate the failure of companies – Will energy companies go bankrupt?
I think yes, says Jeremy Leggett.
He is the founder of several companies and organizations, former Greenpeace activist, but educated geologist and started with an early career in the oil industry.
He states that only 20 per cent of the fossil fuels reserves discovered so far can be used, if we are to avoid a dangerous warming of the planet, which is an increase of no more than two degrees Celsius above 1990 levels. In this case, much of what today is listed as reserves in oil companies’ balance sheets will not be extracted. Thereby this value should not be regarded as a safe asset, according to Leggett’s organization “Carbon Tracker”.
There is disagreement about how much oil and gas can be consumed in an ideal climate scenario.
– You do not need to believe in this. But if you recognize that it exists a small risk that the reserves in the balance sheet of the companies will not be extracted, so this should be signalled as a risk factor for a company. This does not happen, and it is not even mentioned, says Leggett.
The consequence is that companies have an overrated value.
This also concerns the oil fund. In recent months, the debate on the carbon bubble has become very topical all around the world. Activists are naming oil stocks as rotten carbon assets, which recall directly on the overrated bonds which caused the last financial crisis.
First of all, Leggett points out an exceptional growth in renewable energy and an increasing level of awareness among politicians who in turn create the framework for the industry, and thereby the risk of being “stuck with your beard in the mailbox” (this is the translation of a Norwegian saying). A recent report by McKinsey concludes that, by 2020, two-thirds of the solar industry is going to survive on the market without the help of subsidies.
– Sun becomes a first choice. But it cannot be used alone, so I don’t think we will be able to cover more than 40 per cent of global energy demand, but if you match this with the technological development in batteries and electric cars, solar will be large.
– Then you can imagine, oil fields which are difficult to access will stay in the ground. Especially because you know that it takes about ten years to develop them, and you need revenues for 20 years to justify the investment, he says.
A big, big bet
Leggett thinks that we are going to observe many bankruptcies in energy companies that failed to adapt to this new reality.
– What about consultants and analysts of the oil industry who say that we are going to extract the most from our known fossil fuels reserves, because the energy demand is so strong?

– Yes, this is what they believe in. If you worked with derivatives before the financial crisis, then you would have heard similar things from analysts about the assets that then created the crisis, says Leggett.
– Would you have not invested in oil?
– Well, that’s a big bet. A big, big bet.”