Second, most extractive companies are valued not on their current profits but on the reserves that they hold.
No, they’re not. Can’t recall which way around this works to be honest, did the checking of it a long time ago. But between BP and Shell one has more reserves than the other. And it ain’t the one worth more either.
And as my old friend and fellow Green New Dealer, Jeremey Leggett, has long suggested, most of their known reserves are going to have to stay in the ground if the world is not to fry.
So, third, we face both a massive energy crisis and a financial one too as the enormous valuation placed on those reserves in the world’s financial markets collapses, as surely it will.
It’s Ritchie who keeps insisting we mustn’t discount to net present value, isn’t it? Which is a pity, for that’s what the stock market does, discounts the future income from a stock at the market interest rate. Note, not the gilts rate, the one applied as the discount rate to future stock market incomes – 7% is a reasonable guess here. And the NPV of income 20 years out at 7% discount rate is, well, it’s spit, isn’t it?