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Fossil Fuel Financing Under Pressure As Wall Street Caves To ESG Demands
Access to expanding credit on reserve base loans was already flagged as one of the greatest headwinds to the industry—alongside restricted skilled labor supply.
WHAT ARE THE TRENDS?
- Most U.S. oil and gas firms expect to raise their capital expenditures next year, as analysts have largely forecast in recent months. Yet, capital available to the industry is constantly shrinking as banks continue to shun the sector due to ESG pressures
- Low capital availability and uncertainty in the U.S. Administration’s green policies poses to the future of America’s oil and gas production will ultimately lead to higher oil and gas prices,
- Oil & gas industry, especially shale producers are criticizing U.S. officials for begging OPEC+ for higher oil output instead of turning to their own domestic companies, which, given certainty over future policies, could have been more willing to invest in drilling additional wells and increasing production, helping to tame the oil price rally.
- The U.S. shale patch didn’t take that well and is now wary of committing more capital to production. The key factors behind the cautious approach are policy uncertainties, investor demands for higher returns, and banks’ reluctance to fund the industry due to ESG considerations and political and societal pressure on lenders to cut financing for fossil fuels.
- Despite us being one of the top-performing energy funds in America, investors are cutting funding in energy funds by 80 percent.
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The political pressure forcing available capital away from the energy industry is a problem; “Banks view lending to the energy industry as having a “political risk,”
BOTTOMLINE
ESG concerns, pressure from investors, and the Administration’s policies have been the three key factors why U.S. oil and gas production hasn’t ramped up quickly with the rise in commodity prices in 2021 according to the strategist in oil & gas. Constrained capital will lead to significantly higher commodity prices. And it isn’t the administration’s fault—this is a Wall Street and environmental, social and governance-led charge. Businesses must adapt their business models to new realities
Fossil Fuel Financing Under Pressure As Wall Street Caves To ESG Demands
A perfect storm of short-sighted policy and Wall Street’s new affinity towards ESG investments could lead to reduced funding for U.S. shale firms, an issue that could lead to even higher oil prices
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