Concerns about the climate change impact of burning the world’s remaining oil resources mean the reserves will never be fully exploited, BP chief economist Spencer Dale has said.
That assumption means the relative price of oil will not necessarily increase over time, Dale said at an economists’ conference in London on Tuesday.
Burning existing reserves of oil, gas and coal would emit more than 2.8trillion tonnes of climate-harming carbon emissions, much more than the 1 trillion threshold scientists have set to limit global warming to 2 degrees.
“Concerns about carbon emissions and climate change mean that it is increasingly unlikely that the world’s reserves of oil will ever be exhausted,” Dale said.
BP’s group chief economist Spencer Dale explained how the ‘shale revolution’ and concerns over climate change have changed the economics of the oil industry for good at the Society of Business Economists annual conference in London.
In his speech, New Economics of Oil, he said that shale has changed the principles needed to understand the market because of factors such as shorter lead times, greater exposure to financial markets and its use of manufacturing-like processes.
Dale argued that the pace at which oil reserves are increasing, coupled with concerns over climate change, mean that the world’s reserves of oil are likely to never be exhausted, challenging the conventional view that its price would rise with increasing scarcity.
He said: “The emergence of shale oil, together with growing concerns about climate change and the environment, means that the beliefs that many of us have used in the past to analyse the oil market are out of date.”
“We need a new toolkit, a new set of principles, to guide our analysis of the oil market.”
BP is among the world’s top oil producing companies but it is also part of a group of energy firms that has called for the creation of a global carbon pricing mechanism that would limit investments in climate-harming forms of energy.
Technological advances will also reduce the cost to extract harder-to-reach resources, Dale said.