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Monday, 14 March 2016

Low oil prices are fighting climate change

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 Its use which dates back over 150 years shows the first 50 years, production was minimal for light and heating, from the 20th century the scale of production has been on the increase. In Uganda the oil has been discovered in the Albertine Graben covering about 500 kilometres by 45 kilometres next to DRC, in the south lies Lake Edward and South Sudan in the north.  The area is estimated to have around 2.5 billion barrels of oil, which will produce 1,200,000 million kgs of Carbon dioxide, with the recent fall in prices Uganda has to back track production.

Easy to drill deposits have been exhausted leaving high risk and high cost like artic drilling, Brazil deep water reservoirs, tar sands in Alberta. With the oil prices dropping from $100 to about $40 per barrel does not make it profitable. Shell’s halt in Alberta (418 million barrels), means that the world would be saved from 200,640 million kgs of Carbon dioxide, its future tar sand projects of about 3 billion barrels will be put on hold freeing the atmosphere from about 1,440,000 million kgs of Carbon dioxide.

In 2008 the US Geological Survey estimated the fields beyond the Arctic Circle to be containing about 240 billion barrels oil (115,200,000 million kgs of Carbon dioxide). The undiscovered resources in the Arctic Circle is estimated to contain about 90 billion barrels of oil, 44 billion barrels of natural gas and 17 trillion cubic feet of gas. Most of this undiscovered resources about 84% is expected to be found offshore, with the fall in oil prices it is definitely not economically viable to extract.  The Brazil deep water reservoirs are in an area that was a geological formation of continental shelves off Brazil and Africa coasts. The reservoirs are estimated to contain about 80 billion barrels of oil which is 38,400,000 million kgs of Carbon dioxide.

Abyd Karmali, Managing Director, Climate Finance, Bank of America Merrill Lynch
“Low oil prices create broader macro-economic uncertainty that may distract some oil-revenue reliant governments from the commitments they have made in their INDCs [intended nationally determined contributions to the Paris climate deal]. In general, however, low oil prices provides governments that are heavy subsidisers of fossil fuels an excellent opportunity to rein in those subsidies and this should accelerate the transition to a low-carbon economy.
“One key negative impact might be a slowing in the penetration of electric and hybrid vehicles. For example, in the US, there is already a slowdown but this has not been seen in other automobile markets where fuel taxation is more material. As the price and range of new electric vehicles continues to become more favourable relative to petrol-based cars, the adoption of electric vehicles will continue to dampen demand for oil despite low oil prices.
“In terms of other market impacts, continued oil price volatility could remain a factor influencing solar stock valuations. There is, however, no fundamental connection between the price of oil and solar market fundamentals in most regions and so savvy investors may also look at this as an opportunity to enter the market for stocks that are weighted towards climate solutions.”

As one of the general rule of Economics is that when a price of something (Oil) goes down its consumption will increase, so will its supply to meet the demand, until when the demand exceeds the supply to increase the price.  Consumers will tend to look elsewhere for substitutes (Renewables) to fill that void. 

By Kateregga Dennis, BA(ECON), Dip. IEL 


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