Asset Valuation in a Low Carbon World - Value implications of oil price scenarios for US oil and gas assets

Sammanfattning: Scientists estimate that in order to contain global warming below 2°C, only around 900 GtCO2, can be emitted between 2013 and 2050. Recent research shows that in order to meet this target, global demand for fossil fuels has to decline. In their 2014 report, The Carbon Tracker Initiative calculated that a global emission restriction in accordance with the 2-degree target would require a market price for oil that equals $75/bbl by 2050. This essay will examine the relationship between carbon emission restrictions, oil prices and asset values within the US oil and gas industry. By the means of a regression model, the impact of changes in oil prices on the S&P Oil and Gas Exploration and Production Price Index will be determined. These results will then be used in a scenario analysis, in order to investigate potential asset values under three different carbon emission scenarios.