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Big Banks could lose billions in the global energy transition

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Roughnecks wrestle pipe on a True Company oil drilling rig outside Watford, North Dakota
Many lost US oil jobs may never return

“A billion people lack access to electricity around the world. Energy demand will rise 25 percent by 2040. That means scale and infrastructure matter,” PESA’s Leslie Beyer told “We need the technological expertise of the men and women of the oil and gas industry, who have delivered power to the world through the years, to help provide solutions we need for the future. Excluding us would be short-sighted and unwise.”

To be fair, banks are not turning their backs on oil and gas all on their own. They are being guided in that direction by rising ESG investing appetite and investor pressure for lower-emission lending, as well as by new regulations aimed at advancing the Paris Agreement agenda. It bears noting, however, that even the International Energy Agency, a vocal proponent of the green energy transition, expects oil and gas to be around for a long while and supply energy to the growing number of people who need it as the global population continues to rise.

Yet in the unlikely event that banks completely cut off oil and gas companies from their list of clients, the industry will still have alternatives. Commodity traders are one such alternative, according to Oliver Abel Smith, banking partner at Fieldfisher. Another is private debt funds and yet another is sustainability-linked loans. These are not yet something that is available on the market of debt instruments but would be a natural development of current trends.

Over the past year, five of the largest US banks pledged to stop financing Arctic oil and gas drilling. The news was certainly not welcome by the industry but it bears noting that the pledge was specific, focusing on an area of drilling that is not exactly a priority for drillers. Arctic drilling is expensive, the outcome is, as always, uncertain, and a pandemic is definitely not the best time for it.

It may well be that banks are being more talk than action when it comes to oil and gas. Banks, after all, are, or at least should be, pragmatic institutions rather than ones guided by ideological concerns. As such, they are unlikely to completely turn their backs on oil and gas. Some may well minimize their exposure to the industry, however, in search of greener financial pastures.

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