The big stranded assets con

Financial market players are making a big mistake that could end up costing them. This was the gist of a warning issued earlier this month by a hedge fund manager.

According to that manager, by the name of Ian Simm, investors are “struggling” to measure the risk of oil and gas assets they have invested in becoming stranded in a successful energy transition scenario.

That scenario appears to be the only one Simm considers possible but then his fund, Impax Asset Management, is “a sustainable investment manager”, per Bloomberg, which interviewed the concerned gentleman.

Investors in the fossil fuel industry are already “facing a significant risk” of waking up one day to find themselves the part owners of stranded assets, Simm told Blomberg, no doubt in appropriately grim tones.

What’s making the risk even greater is Biden’s IRA, which, apparently, will accelerate the strandisation of oil and gas assets — a word that I just made up because everyone’s doing it these days.

Stranded assets are no joke. If we are to believe the reports sounding the alarm about them, they are the stuff of investor nightmare: $1.4 trillion worth, according to one study, cited by Bloomberg in that same report. The same study was cited by an LSE research institute, which estimated the assets at risk of getting stranded at $1 trillion as a minimum.

A trillion dollars in unusable assets is a serious sum. Incidentally, it happens to be around the same amount that was invested in renewables last year — a record high that was appropriately celebrated by energy transition fans around the world, so they took a break from gluing themselves to roads and throwing soup on paintings.

Oddly enough, the year that saw that record investment in wind, solar, EVs, and everything else that has “green” in it, did not also mark a decline in oil, gas, and coal demand.

In fact, demand for all three fossil fuels surged and no, it wasn’t just market jitters because of the war in the Ukraine. It was actual demand increase. So, how big’s that stranded asset risk really, then?