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When Royal Dutch Shell warned it will write down up to $22 billion in assets in the second quarter on Tuesday, it became the largest of an expanding group of companies to face a reckoning over the brutal economics of oil and gas as the coronavirus pandemic has warped global demand.

The record write-down for the company also provided an initial signal of what’s to come, as the world’s largest non-state owned oil and gas company faces an even larger challenge: its own transition away from fossil fuels, in a bid to dramatically reduce its emissions.

In April, the Anglo-Dutch giant announced it would target net zero emissions by 2050, in order to align with the Paris Agreement. Its write down announcement on Monday comes just two weeks after British energy giant BP, the world’s second largest non-state owned energy company, said it expected to write down roughly $17.5 billion worth of assets. BP made the same commitment to cut emissions in February, then the first major oil company in the world to do so.

“The impairment Shell has announced is about more than an accounting technicality, or an adjustment to near-term price assumptions. It’s about fundamental change hitting the entire oil and gas sector,” Luke Parker, vice president, corporate analysis at consultancy Wood Mackenzie, said in a note on Tuesday.

“Within this write-down, Shell is giving us a message about stranded assets, just like BP did a few weeks ago.”

The two threads behind the massive write-downs—shorter term price assessments, and longer term climate strategy—are difficult to separate.

In the nearer term, the decline in global energy demand due to worldwide lockdowns and economic crises has rocked oil and gas prices, and forced companies to reassess their price forecasts—and therefore, which of their projects will still be profitable.

That reassessment has accelerated a spate of write-downs that had in fact begun months before the pandemic arrived. U.S. shale sector in particular went into the crises struggling under the weight of sky-high debt levels and a glut of gas that had sent global prices spiraling downwards.

In the first quarter, as the crisis was only beginning to take hold, shale companies alone wrote off $38 billion in assets, according to Rystad Energy, an Oslo-based consultancy. Analysts estimate those write-downs have only picked up steam, with Deloitte predicting in a report earlier this month that write-downs could hit at least $300 billion beginning in the second quarter.

Those same dynamics have also spurred outright bankruptcies. Earlier this week, the declining demand—which the International Energy Agency estimates will the largest drop on record this year—claimed another victim, as shale pioneer Chesapeake Energy declared bankruptcy.

But Shell and BP’s hefty write-downs have more significance than economic hardship. Both companies have so far given little concrete detail about how they will transition rapidly to becoming low emission companies within the next two decades, but such transitions are clearly dependent on a simple fact: many of the industry’s unexploited fossil fuel resources will have to be left in the ground, eliminating their value.

Those so-called “stranded assets” will, as a result, have to be written off, transforming the value of oil and gas companies—a sector that dominates the top of the Fortune Global 500—and energy-dependent economies as a whole. Estimates of the scale of those write-downs vary, but they tend to be in the billions or trillions.

An analysis by the Financial Times estimated that enforcing a temperature rise below 1.5 degrees Celsius this century would wipe $900 billion in collective value off the largest oil and gas companies, or about one-third of their value as of February. Last September, the Carbon Tracker Initiative estimated oil and gas companies risked wasting a collective $2.2 trillion by 2030 on assets that would have to be abandoned under Paris Agreement-level targets.

The write-downs may also send a signal about a fundamental shift across the wider sector, notes Parker.

“Demand might still grow from here, and many companies are still chasing a share of that growth,” he said. “But make no mistake, the corporate landscape is changing, and the majors are changing with it.”

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— kdunn6 to fortune.com