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Alex Kimani

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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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British Banks Have Abandoned North Sea Oil

  • Last year, Lloyds denounced fossil fuel financing, joining a growing list of financial institutions in Europe to do so.
  • Neptune Energy: Virtually all British banks have stopped financing smaller independent oil and gas producers
  • The situation could not be more different in the U.S. where smaller regional banks have significantly boosted their lending to oil and gas.
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Virtually all British banks have stopped financing smaller independent oil and gas producers, responsible for the bulk of output and investment in the North Sea, Neptune Energy has revealed. Changes in the UK tax regime, in particular a windfall levy on oil and gas that was recently extended up to March 2029, has negatively impacted the ability of the country’s independent oil and gas producers to raise money. Bank financing for the sector is typically based on the value of reserves, which drops when there’s an increase in the tax rate. 

The future of the North Sea is now dependent upon the US banks or Norwegian banks and not on the UK banks. If you aren’t able to generate cash from your existing business, you aren’t able to recycle that capital and make investments in the energy transition,” Julian Regan-Mears, vice president of strategy, integration and corporate affairs at Neptune Energy, said at an event hosted by Offshore Energies UK in London. Neptune Energy operates the UK’s largest single producing gas field supplying around 6% of UK gas. These smaller producers are now turning to U.S. and Norwegian banks for financing.

Last year, Lloyds denounced fossil fuel financing, joining a growing list of financial institutions in Europe to do so. Lloyds–Britain’s biggest bank--announced that it has updated its climate policy and will no longer support direct financing to develop new oil and gas fields. The banks said its new policy bars project financing or reserve-based lending to greenfield oil and gas projects, although the policy does not rule out providing general lending to companies in the sector. Not surprisingly, climate groups hailed Lloyds move and called on other British banks to follow suit.

"Lloyds' new policy marks an important turning point in the dangerous relationship that exists between leading UK banks and fossil fuel companies."By becoming the first of the five largest UK high street banks to stop the direct financing of new gas, oil, and coal projects, Lloyds is making a clear statement on the future of financing for fossil fuel expansion," Tony Burdon, chief executive of pressure group Make My Money Matter, told Reuters.

Lloyds is not alone. Large European banks have cut financing to fossil fuel companies by nearly 30% amid mounting shareholder pressure.

Small U.S. Banks Boost Oil & Gas Financing

The situation could not be more different in the U.S. where smaller regional banks have significantly boosted their lending to oil and gas firms over the past two years. To wit, Bloomberg has reported that regional banks BOK Financial, Truist Securities, Fifth Third Securities, Citizens Financial and US Bancorp have seen their combined loans to oil and gas companies jump over 70% since the beginning of 2022, compared to the previous six years. The five banks now rank among the world’s top 35 banks in terms of the number of deals they have signed with oil and gas companies.

On a global scale, fossil fuel financing remains dominated by four U.S. banks--JPMorgan Chase, Citi, Wells Fargo, and Bank of America--who together account for one quarter of all fossil fuel financing over the last six years. Indeed,  Rainforest Action Network has lambasted JPM as “the world's worst banker of climate chaos by far.” But these Wall Street banks are hardly alone. According to a recent analysis from the Private Equity Stakeholder Project and Americans for Financial Reform Education Fund (AFREF), the eight largest buyout firms have put nearly as much money into coal, oil and gas as the big banks. Last year, PE firms including Apollo Global ManagementCarlyle GroupBlackstone GroupBrookfield Asset ManagementKKR and Warbug Pincus, collectively oversaw $216 billion worth of fossil-fuel assets--on par with the amount of money that big banks put into fossil fuels. Indeed the 10 largest private equity funds have  80% of their energy investments in fossil fuels.

"The billions of dollars private equity firms have deployed to drill, frack, transport, store, refine fossil fuels and generate energy, stand in stark contrast to what climate scientists and international policymakers have called upon to align our trajectory to the 1.5 degrees Celsius warming scenario," states a report cosigned by major climate groups including Greenpeace, Natural Resources Defense Project, Sierra Club and the Sunrise Project. 

"These polluting assets are shifting from the public markets, where there is greater amount of regulatory and public scrutiny, into the shadows of our financial industry, where private equity usually operates," Riddhi Mehta-Neugebauer, research director at the Private Equity Stakeholder Project, has told CBS News.

By Alex Kimani for Oilprice.com


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Leave a comment
  • Mamdouh Salameh on June 24 2024 said:
    At least British banks' decision has nothing to do with climate change and everything to do with less return on their investments or loans because of a windfall levy on oil and gas that was recently extended up to March 2029. Bank financing for the sector is typically based on the value of reserves, which drops when there’s an increase in the tax rate.

    Still the British government should support the independent oil and gas producers in the North Sea by guaranteeing bank loans to them or extending government loans at a time when the British economy is hardly growing. North Sea oil and reserves are still relatively big enough to provide employment and also support to the economy.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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