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Cyril Widdershoven

Cyril Widdershoven

Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently he works as a Senior Researcher at Hill Tower Resource Advisors. Next…

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Financial Uncertainty Surrounds Oil And Gas Funding

  • Norway's sovereign wealth fund, Norges Bank, has taken a bold stance about oil and gas financing.
  • Norges Bank: companies are not transitioning rapidly enough to achieve the net-zero emissions target by 2050.
  • Even the European Union has recently acknowledged that global and EU economies will rely on hydrocarbons for energy and products for decades to come.
Norges Bank

The world of hydrocarbon project financing remains a contentious topic for many investors, with conflicting reports challenging their commitments to energy transition and climate change goals. Even as recent reports suggest a continued influx of capital into the global oil and gas sector, backed by prominent financial institutions, Norway's sovereign wealth fund, Norges Bank, has taken a bold stance. In a statement by Carine Smith Ihenacho, a senior executive at Norges Bank Investment Management, the largest global stock shareholder, criticism was leveled at Big Oil's transition efforts, which appear insufficient as carbon emissions continue to rise. The Norges Bank statement has come at a time when most oil and gas companies are reaping profits from surging oil and gas prices, while simultaneously resisting calls for more ambitious ESG (Environmental, Social, and Governance) targets and investments in energy transition. Some major oil companies, like Shell, have even openly questioned their commitment to the energy transition, focusing once again on large-scale oil and gas projects. This statement from Norges Bank also reflects the broader sentiment among international oil companies (IOCs) and national oil companies (NOCs), including Aramco, who have pushed back against the International Energy Agency's (IEA) recommendation to halt new oil field developments. It appears that the current discourse on climate change and emissions has become highly politicized.

Smith Ihenacho emphasized the need for a comprehensive overhaul of the entire energy system, urging companies to make more substantial strides in reducing their reliance on fossil fuels in favor of renewable energy sources. She pointed out that companies are not transitioning rapidly enough to achieve the net-zero emissions target by 2050. Norges Bank's position aligns with its long-standing commitment to addressing climate change and fulfilling the goals of the Paris Agreement. However, critics argue that Norges Bank, which has made billions off Norway's oil and gas sector, has not entirely divested from hydrocarbons, maintaining investments in hydrocarbon-related ventures, shares, and bonds.

Related: Oil Moves Higher On EIA Inventory Draw

While Smith Ihenacho did not directly address these investments, she called upon the world's largest investors to exert pressure on companies to develop robust transition plans. She extended her criticism not only to hydrocarbon producers but also to industries dependent on hydrocarbons, such as steel, chemicals, and transportation. Smith Ihenacho acknowledged that Norges Bank faces an uphill battle even within its own investment portfolio, with only 23% of the companies in which the $1.4 trillion wealth fund invests having credible net-zero targets. Additionally, Norges Bank holds significant stakes in major U.S. oil companies Exxon Mobil and Chevron Corp (1% each) and 3% stakes in Shell and BP. Smith Ihenacho admitted that divestment from these stakes is not an option and that she intends to apply pressure from within.

The intricate position of Norges Bank, along with fellow institutions like the Dutch pension fund ABP, is more complex than expected. According to a report by The Guardian in collaboration with Dutch investigative platforms Follow the Money and Investico, international banks, including European ones, continue to engage in hydrocarbon financing. The report reveals that global bond markets have facilitated approximately €1 trillion (£869 billion) in funding for fossil fuel companies since the Paris Climate Agreement, even as pressure mounts on European banks. Mainstream European banks, such as Deutsche Bank, HSBC, Barclays, as well as Dutch banks like ING, have supported bond issues for hydrocarbon projects worldwide. Notable beneficiaries have included Brazil's Petrobras and Russia's Rosneft since 2016. These staggering figures often go unreported in ESG-related disclosures, as bond sales are typically excluded from bank climate change performance reporting. Critics warn that hydrocarbon companies are increasingly turning to bonds as a means of raising capital, with banks making it an attractive avenue. Research reveals that Deutsche Bank, a German financial giant, has been the primary underwriter or bookrunner for fossil fuel bonds, raising a total of €432 billion since the Paris climate agreement. In the same period, HSBC raised approximately €423 billion for fossil fuel companies through bond sales. French banks Crédit Agricole and BNP Paribas assisted in raising €351 billion and €295 billion, respectively. Dutch banks ING and ABN Amro were involved on a smaller scale, contributing to around €100 billion.

To achieve climate change and emission targets outlined in the Paris Agreement, there is still a considerable journey ahead. The situation highlighted above is noteworthy but not surprising in financial or legal contexts. Even the European Union has recently acknowledged that global and EU economies will rely on hydrocarbons for energy and products for decades to come. Given the scale of the challenge, it's essential to recognize that many national oil companies are not even required to disclose their investment portfolios. The €1 trillion figure mentioned in The Guardian's report is likely just the tip of the iceberg, with no sign of it melting away. In the coming years, based on international reports such as those from OPEC and the EIA, demand for oil and gas is expected to continue growing until it possibly peaks after 2040. This means that financing, whether through bonds or project finance, will remain an attractive option, as long as significant players like Norges Bank refrain from taking more drastic measures and divesting from all hydrocarbon-related equity stakes. Real change may remain elusive, with media attention often driving the conversation more than concrete actions.

By Cyril Widdershoven for Oilprice.com

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  • Mamdouh Salameh on September 27 2023 said:
    The world doesn’t use oil and gas out of love but out of a quint essential necessity. Without oil and gas the global economy will face collapse. Those who are calling for withholding approval for major oil and gas projects after 2023 like the IEA and environmentalist who are calling for keeping oil and gas reserves underground are pushing the world towards the unknown.

    They should stop and consider seriously the realities in the marketplace and these realities which are staring them in the face are:

    1- Oil and natural gas will continue to drive the global economy throughout the 21st century and probably far beyond. The reason is that there are no alternatives as viable and versatile as oil and gas now nor probably in the next hundred years.

    2- Coal is the cheapest generator of electricity. Moreover, it is an extremely important energy source. Countries with large reserves of coal are disinclined to leave it underground. A case in point is China which is the world’s largest investor in renewables but it is still building new coal-powered electricity-generating plants.

    3- Renewables on their own are neither capable of satisfying global electricity needs nor are they able to even run a small economy because of their intermittent nature. Technology is yet to allow us to store solar power in summer for use in winter. Renewables can’t succeed without huge contributions of natural gas, coal and nuclear energy.

    4- This means that the notions of global energy transition and net-zero emissions are myths. They are both unachievable by 2050 or 2100 or ever.

    5- The notion of peak oil demand being reached by 2030 as the IEA is projecting or 2050 or even 2075 is an illusion. Global oil demand will continue to grow well into the future albeit at a decelerating rate because of mandatory governmental legislations and to some extent the impact of EVs. How else then will a rising world population and a growing global economy be fed and supported respectively? The Gulf region, Venezuela and Russia’s Arctic have enough energy reserves to supply the globe with its energy needs for more than 100 years.

    6- EVs will never prevail over internal combustion engines (ICEs). They will certainly get a share of the global transport market but technologically-advanced and environmentally-friendly ICEs will continue to reign supreme. Where would the electricity needed to charge the supposedly millions of EVs be sourced from: hydrocarbons, renewables or nuclear or a combination of all?

    7-The raison de’tre of global oil companies is to produce oil and gas as long as there is a need for them. Therefore, they need financing to continue supplying the world with energy. Banks and financial institutions have an economic and human obligation to provide the finance. On the other hand, the oil industry has a moral obligation to cut emissions using the latest carbon-catching technologies.

    Rather than depriving the global oil industry of access to finance and investment and exerting unnecessary and vicious pressure on them, a more pragmatic approach could produce more results and help the fight against climate change. This approach is to continue investing heavily in renewables and also continue to invest in oil and gas as long as there is demand for them while doing our utmost to cut emissions. The bigger the renewables&#039; share in electricity generation, the less fossil fuels the world will use.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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