Stranded assets have always been a ticking time bomb for the fossil fuel industry. Now, due to the coronavirus pandemic, the huge bill to abandon oilfields is coming decades early.
A June report from Carbon Tracker finds the costs of plugging a typical abandoned shale well is $300,000, at least seven times higher than than assumed by many industry and regulatory sources. Driven by the coronavirus pandemic and the energy transition, shut-ins of producing oil and gas wells are occurring decades ahead of schedule and exceeding industry expectations.
There are about 3.3 to 4 million abandoned but unplugged wells in the United States, and oil and gas companies are passing the astronomical costs of plugging them to taxpayers, and in some cases, investors. This is because of a decades-old problem of states not requiring companies to set aside money to pay these costs. At this time of massive vulnerability for the oil and gas sector, many companies are not able to pay, creating long-term problems for state governments.
Carbon Tracker is an independent financial think tank that carries out in-depth analysis on the impact of the energy transition on capital markets and the potential investment in high-cost, carbon-intensive fossil fuels. Carbon Tracker is funded by many philanthropies, a list of which can be found here.