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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...

  • Member since 2021
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  • Sep 30, 2022
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Environmental groups such as the Sierra Club argue that there is an irreconcilable contradiction between banks’ claims to support the goals of the Paris climate agreement, and their continued lending for new oil and gas development

KEY TALKE AWAYS

  1. Banks can, in fact, still finance new oil and gas production while meeting their goals for emissions reductions. But the new frameworks of commitments and pressure from policymakers and regulators are creating tensions that still need to be worked through.
  2. Environmental campaigners have argued that that commitment means the banks should immediately stop all financing for new fossil fuel production. This has created lots of friction?
  3. At a time when the world is crying out for increased supplies of energy, and particularly natural gas to replace flows from Russia, that argument has raised alarms about whether the industry is being starved of the financing it needs to meet future demand.

BANKS CONCERNS

  • The banks’ concerns were heightened by an update in June to the UN’s Race to Zero campaign, which prescribes mandatory climate criteria for the Net-Zero Banking Alliance.
  • The new guidance for Race to Zero for members to “phase down and out all unabated fossil fuels”, and a requirement for members to “restrict the development, financing and facilitation of new fossil fuel assets”.
  • It also explicitly referred to the International Energy Agency’s 2021 Net Zero scenario, which envisions no new oil and gas fields being needed. 

WHY LACK OF FUNDING FOR OIL & GAS?

  1. The reduction in investment in upstream in recent years is not because of a lack of finance. It’s because of a chronic lack of stable returns, which has finally led to improved corporate capital discipline
  2. Curbing the finance has limited impact, in recent years most reductions in investmnets come from volatility in the commodity process

BOTTOMLINE

The new guidance from the UN should allow enough leeway for banks to support badly-needed investment in new oil and gas supply, while they work to curb emissions. But it will take time to see how the new framework shakes down.

 

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