According to a new study, oil and gas investors’ rational expectations for future cash flows are based on all possible scenarios, not just particular negative ones that crop up in the media.
The study, Science and the Stock Market: Investors’ Recognition of Unburnable Carbon, offers evidence refuting the prediction that there is a carbon bubble about to burst.
Researchers from the University of California Davis Graduate School of Management, analysed how US oil and gas company stock prices reacted to media coverage about the potential consequences of unburnable carbon for fossil fuel companies.
The stocks of the 63 largest US oil and gas companies that trade on the major exchanges were examined and 88 stories from 59 media outlets were used. Each study was treated as a separate event that could potentially affect stock prices.
Results indicated that there was a limited negative impact on stock prices of fossil fuel companies in response to original science disclosures.
These disclosures found that only a fraction of the world’s oil, gas, and coal reserves could be emitted if global warming by 2050 is not to exceed 2 °C above pre-industrial levels.
Subsequent media stories have suggested that the value of burnable carbon reserves held by big oil and gas companies could diminish rapidly as alternative energy resources replace fossil fuels.
US oil and gas stock prices dropped approximately 2% following the original story in 2009, equivalent to approximately US$ 27 billion. However, ensuing widespread coverage had little impact on the US oil and gas companies’ stock prices, which dropped 0.5% collectively.
‘It’s essential that the media interpret accurately the meaning of results from science, but that does not seem to have happened with media reports about burnable carbon’, commented Paul Griffin, an international authority in accounting and corporate disclosure.
‘Our study tries to set the record straight’, he added.
Adapted from a press release by Emma McAleavey.
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/23012014/us_oil_gas_companies_have_not_ignored_science95/