The prescient non-profit consulting group that foresaw the downfall of King Coal years before that industry imploded is now sounding the same alarm for Black Gold’s liquid form, FastCo.Exist reports.
Five years ago, coal industry profits and optimism were robust. Nonetheless, in a 2011 report, Oakland-based As You Sow catalogued the coal sector’s looming and widely-overlooked financial risks.
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Now, the same researchers are issuing a similar warning over publically-owned oil companies.
“Indicators are now flashing yellow for the oil industry,” they say in a new report, as it faces “higher extraction costs. International supply competition. Falling profit margins. Mounting debt. Shrinking cash. Competing technologies. Rising regulatory risk. [And] social pressure due to climate change.”
“Since the turn of the century, the major oil companies in the U.S. have taken on record levels of debt to fund more expensive projects, like ultra-deepwater drilling,” FastCo.Exist observes. “Incomes have dropped; between 2010 and 2014, oil companies spent more than they were making, while they continued to hand out dividends to investors.”
This year, writes correspondent Adele Peters, credit rating agency Standard & Poor’s “started to downgrade oil companies’ credit ratings—first Chevron, then Shell, then Exxon (for the first time in 86 years).” In February, auditing and consulting firm Deloitte predicted that as many as one in three publicly-traded oil producers may not survive 2016.
Meanwhile, several nations—and the Canadian provinces of Ontario and Quebec—have set the complete elimination of one of the industry’s key market segments, gasoline-driven automobiles, as policy goals.
As You Sow President Danielle Fugere shrugs off assertions that the economy’s reliance on oil will ensure that demand for the product remains strong for decades to come. She compares that objection to those raised to the non-profit’s risk assessment for coal at a time when that industry’s shipments had never been higher.
“There was absolutely denial about the growing risk,” says Fugere. “I think that was both from the coal companies and also, for the most part, the market didn’t see any risk. It’s kind of like there’s a blindness that goes on.”
Now, she said, “we see structural changes, and we believe this market will look different in five years. We want people to recognize those changes. In the end, we all want to avoid a large crash that nobody expected.”
Shareholders, Fugere said, “should be demanding that companies show them that they will be one of the companies that remains standing.”
