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Tariq Siddiqui's picture
COO Upstream EP Advisors LLC

Oil & Energy | Business Development | Capital Projects | Offshore Wind - Proven leader in offshore development and operations, with 25+ years’ expertise in managing business through cycles of...

  • Member since 2021
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  • Aug 3, 2021 9:16 pm GMT
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Simply divesting a toxic, high emission asset and getting it off the balance sheet is not an environmentally acceptable option. The idea of fossil fuel “bad banks” is gaining traction globally amid an increased focus on environmental sustainability. The concept refers to special companies specifically dedicated to acquiring and winding down fossil fuel assets. As renewable energy becomes cheaper, more investors around the world are turning their backs on fossil fuels, and coal in particular, which is increasingly seen as high-risk relative to other energy projects.

WHAT IS PROPOSED

Climate bad bank would hive off the fossil fuel-related aspects of a given company’s portfolio, freeing it to concentrate on other, cleaner lines of business, while at the same time being assured that the asset would be dismantled responsibly. Currently this is tried on coal-fired assets only, the initiative is called , "Coal-To Zero." But if successful, it could equally apply on oil & gas assets as well!

KEYINSIGHTS /TRENDS

  1. Global energy sector is rapidly decarbonizing coal, companies are primarily seeking to offload their coal projects. 
  2. If these observed trends continue and we see the cost of capital for oil and gas go the way of coal, this could have very significant implications for the economics of oil and gas projects around the world.
  3. Such assets must be handled appropriately, and not simply moved off the balance sheet, as it happened post financial crisis (when companies created entities to move their toxic assets off their balance sheets).
  4. According to environmental watch dogs, the big oil companies (Example XOM & Total Energies) are allegedly, "greenwashing," by selling their toxic assets to private parties.

  5. The unloading may improve companies green credentials & help meet their climate target but there is no guarantee that buyer will manage it any better?

 

BOTTOMLINE

There are widely held concerns that purchasing entities aim to extract as much value as possible from the assets, with little concern for environmental consequences, and face much less scrutiny than prominent multinationals.

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