According to a report, global oil prices have climbed to $90 a barrel, which could tempt investors into long-term fossil fuel projects, dashing the world's hopes to limit carbon emissions in line with climate targets and wasting billions in investment.
More potential projects may appear to be lucrative investments in the short-term because of recent price rises, according to a report from the financial thinktank Carbon Tracker. The analysis suggests demand for fossil fuels could start to dwindle by the time these projects begin, creating a nightmare scenario for investors and climate campaigners.
Demand for oil and gas has rebounded strongly as the global economy bounces back from the economic slowdown triggered by the Covid 19 pandemic in 2020, leading to a global gas supply crunch and rocket energy market prices.
In April 2020, the international oil price went from lows of $20 a barrel to seven-year highs of $90 a barrel on Wednesday and could reach $100 by the end of the year. The cost of living crisis has been caused by the fact that gas prices have reached all-time highs in markets across Europe and Asia.
Carbon Tracker said that the increase was unlikely to last through the lifetime of a long-term fossil fuel investment because government commitments to electric vehicles and renewable energy would drive down demand for oil sharply from the late 2020s to 2040.
Mike Coffin, head of oil and gas at Carbon Tracker and co-author of the report, said the same over-investment story is for gas. He advised oil and gas companies to resist the temptation to invest in new fossil fuel projects based on current market prices.
Axel Dalman, a Carbon Tracker analyst and lead author of the report, said: Companies may see high prices as a sign of investment in more supply. This could become a nightmare scenario if they go ahead with projects that deliver oil around the time demand stars decline. A failure to acknowledge the sea change risks facing fossil fuel developers from the global transition to low-carbon energy risked locking in carbon emissions, which would hurt the Paris climate goals as well as investor returns, Coffin said.
The Executive Director of the International Energy Agency Fatih Birol called for governments to triple their investment in low-carbon energy sources over the next decade to reduce their reliance on gas as a safeguard against a future energy market crisis.
The world has not invested enough to meet its future energy needs, and that remains the case today. He said that clean energy investment is picking up but is not quite what is needed to meet rising demand for energy services in a sustainable way.