In the shifting economics of the energy sector, not all assets die quietly. Some linger, generating little to no return, draining cashflows, and masking deeper losses. These are the “zombie projects” and “ghost assets” of the energy world. For dealmakers, financiers, and operators in the midstream, upstream, and power sectors, recognizing the signs and executing a disciplined exit strategy is now an urgent imperative.
The term stranded asset describes infrastructure whose value falls prematurely due to changing regulation, declining demand, technological disruption, or cost pressures. In oil and gas, “zombie assets” are projects that continue to operate, or remain financed, but fail to deliver returns, effectively consuming capital rather than creating it.
The data below illustrate the scale of the problem and why addressing it could unlock significant value:
A recent study by the MIT Joint Program on the Science and Policy of Global Change estimated that globally, the net present value of stranded coal-power assets through 2050 lies between US $1.3 trillion and US $2.3 trillion.
In the U.S., a report by Global Energy Monitor flagged about US $85 billion of new gas-plant investment at risk of becoming stranded as data-center demand assumptions evaporate.
A wide-ranging analysis placed asset-retirement and decommissioning liabilities across energy fossil and renewables at up to US $8 trillion globally, with major exposure in North America.
Empirical work by Dr. Angelika von Dulong (née Vogt) found that listed power-asset owners could face share-price declines of up to 78 percent or more in extreme cases tied to stranded-asset risk.
In short: the problem is real, and it is creeping into valuations across the energy complex. What’s scarier is that billions in new projects may be heading down the same path in the coming decade.
What Gives Rise to Zombie Projects?
From a balance-sheet perspective, these are assets that may:
No longer satisfy the internal rate of return (IRR) assumed at final investment decision (FID);
Continue to incur fixed costs, maintenance, regulatory, or decommissioning obligations despite low or no utilization;
Remain on the books due to “sunk cost” bias or political inertia rather than commercial logic.
Key triggers include:
Demand destruction or substitution e.g., gas-fired plants facing competition from renewables, storage, and demand-response systems. Regulatory and policy shifts tighter emissions rules, methane-leak liability, or carbon pricing. Technological obsolescence outdated LNG trains or large distillation units with high operating costs. Feedstock or resource risk stranded projects caused by supply disruptions, cost inflation, or poor ore quality. M&A integration failures acquired assets never properly integrated, misestimated synergies, or non-performing pipelines.
In Nigeria, one widely cited case is Ajaokuta Steel Company Limited: conceived in 1979, built over decades, yet still “moribund for over two decades” and described by a major industrialist as a project that “will never work.” Similarly, Nigeria’s state-owned refineries under NNPC have consumed billions in rehabilitation funds but remain underutilized, representing a national-scale ghost-asset burden.
In the U.S., the gas-power overbuild flagged by Global Energy Monitor is emblematic: new plants envisioned for high growth, now facing demand uncertainty, sit ready to become cash-consuming liabilities.
How to Spot the Undead on Your Balance Sheet
In M&A integration, hidden liabilities, mismatched synergies, or technology gaps can manifest as ghost assets. For investors and corporate strategists, detecting them early is crucial. A practical checklist includes:
Utilization lag: Is the plant operating well below design capacity for an extended period?
Deferred maintenance and cost creep: Are projects repeatedly delayed or facing chronic cost overruns?
Feedstock or supply mismatch: Was infrastructure built for feed volumes that never materialized?
Regulatory or carbon-risk exposure: Have policy shifts materially altered the project economics?
Technology mismatch: Does the asset rely on outdated or incompatible technology within its portfolio?
Balance-sheet drag: Does it remain on the books, draining capital, carrying goodwill, or hiding decommissioning liabilities?
Lack of credible plan: Has management articulated a realistic path to recovery, repurposing, or shutdown?
Strategic Options: Divestment, Repurpose, or Retire
Once identified, the key question becomes what to do. The choices broadly are: sell, donate, repurpose, or retire. Each carries distinct implications for IRR, tax, risk, and stakeholder perception.
Sale
If a secondary market exists, selling the asset (or its components) can recover some value—often to opportunistic funds or specialist operators who can run it at a lower cost base.
Advantage: immediate cash recovery, removal of balance-sheet drag.
Risk: pricing will be heavily discounted for perceived zombie risk.
Key action: value conservatively, include decommissioning and regulatory costs.
Donation or Carve-Out
Companies may transfer an unviable asset—at nominal or negative value—to a joint-venture partner, public entity, or SPV to offload liabilities.
Advantage: removes liability, potential tax relief.
Risk: may still require standby capital; potential loss of control.
Key action: ensure legal transfer of liability; evaluate tax-loss benefits and regulatory requirements.
Repurpose / Conversion
Many firms now repurpose legacy assets—converting pipelines to hydrogen, refineries to renewable-feed hubs, or old gas plants to peaker units.
Advantage: leverages existing infrastructure, aligns with energy transition trends.
Risk: retrofit costs and uncertain market adoption.
Key action: model new cash flows as a fresh investment, not salvage.
Retirement / Write-Down
When recovery prospects are minimal, recognizing the loss may be the most disciplined decision.
Advantage: cleans up the balance sheet and signals transparency.
Risk: immediate hit to earnings and credit metrics.
Key action: account for asset-retirement obligations (AROs) and potential tax-loss offsets.
A Framework for Energy Dealmakers
1. Screening & Flagging
Develop a “zombie-asset indicator” scorecard (utilization vs design, margins vs cost of capital, regulatory risk, plug cost).
Run base, stressed, and downside cash-flow scenarios.
Identify assets with persistent negative NPV.
2. Valuation & Exit Planning
Compare five exit paths, sell, JV, repurpose, retire, or hold.
Incorporate tax factors (loss carry-forward, depreciation, salvage).
Map stakeholder sensitivities (regulators, lenders, communities).
3. Execution & Integration Strategy
Treat ghost assets as part of integration risk in acquisitions.
Establish decision gates: e.g., utilization < X% for Y years triggers exit.
Build “zombie drag” scenarios into financial models to test resilience.
The Bottom Line
Zombie projects and ghost assets are not anomalies, they are recurring risks in modern energy investing. Identifying them early, modeling their drag, and acting decisively separates disciplined capital allocators from those merely preserving appearances.
In an era where stranded value increasingly haunts balance sheets, the most successful energy investors may not be those who build the most but those who know when to let go.
1 The views expressed in this article are solely those of the author and do not represent the opinions of any affiliated organizations or entities.