Cheap crude could put pressure on renewable sector but clean energy fundamentals remain strong, say analysts
By Megan Darby
Oil prices fell to an 11-year low on Monday on the prospect of increased supply from Iran, as western sanctions lift.
An agreement for Tehran to curtail its nuclear programme struck in July officially took effect on Sunday, allowing the country to start reopening trade links.
Coupled with weak global demand growth and a refusal of major oil-producing countries to rein in production, that pushed Brent crude down to US$36 a barrel. Last week, ratings agency Moody’s cut its 2016 oil price forecast from $53 to $43/bbl.
The record low follows 195 countries agreeing in Paris to hold global warming “well below 2C”, which implies a rapid phase-out of fossil fuels.
Cheap crude could make it harder for clean energy sources to compete in some circumstances, analysts said, such as power generation in Middle Eastern countries or small island developing states.
In January, for example, top oil exporter Saudi Arabia deferred by eight years a target to get a third of its power from solar panels.
“The lower the oil price goes, the more areas it comes into direct contact with renewables,” said Angus McCrone, editor at Bloomberg New Energy Finance.
All the same, he added: “We think the drivers for renewable energy are pretty powerful worldwide. One of the lessons that has emerged is oil is very volatile – it can play havoc with a country’s balance of payments.”
Even electric vehicles, which are fighting for a foothold in the transport sector against petrol-fuelled cars, exceeded BNEF expectations this year. Global sales rose from 290,000 in 2014 to 425,000 in 2015.
Meanwhile, oil majors have been cutting back investment in high cost fields like the Arctic and tar sands, which the Carbon Tracker Initiative warns cannot be burned in a 2C world.
In October, the think tank accused ExxonMobil, Statoil, Shell and BP of deceiving their shareholders with bullish demand forecasts that might not materialise.
The Financial Stability Board has launched a task force, headed by Michael Bloomberg, to get companies to reveal their carbon footprints.
Investors are also ramping up pressure on energy companies to demonstrate they will not lose value in the low carbon transition.