Capital Lending to Gas Industry Imperilled by Energy Transition
November 7, 2019 - The financial services sector is increasingly concerned about investing in gas sector projects given the growing pressure against fossil fuel developments, delegates heard at a major European gas conference in Paris Thursday.
The gas industry has traditionally been a popular target for investment and funding given the relatively high returns from upstream projects, but the ongoing energy transition toward a lower-carbon energy sector is seeing a rapid shift in mood.
"There is a growing presumption against giving any of our clients' money to you," Nick Stansbury from Legal and General Investment Management (LGIM) said Thursday at the European Annual Gas Conference, which was hit by climate change protests on Wednesday that forced the suspension of the event.
The stark warning to the gas industry came despite much of the conference discussion being on how to decarbonize the gas sector and the energy transition, or revolution, as Stansbury put it.
"The flow of capital is imperilled by this revolution," Stansbury said.
Financiers are now heavily focused on energy transition "risk" and how investments into gas projects would be perceived, saying there was a "rising" concern around environmental, social and corporate governance (ESG).
ESG is increasingly used to measure the sustainability and ethical impact of investing in a company or business.
Cristian Carraretto from the European Bank for Reconstruction and Development (EBRD) said the bank's policy on fossil fuel investment was changing quickly.
The EBRD has already made it policy not to invest in any coal projects "under any conditions" while it has now moved not to support upstream oil projects except under particular conditions related to the country in question's energy status.
On gas, Carraretto said the bank still sees the fuel having a role to play in the energy transition, but that the trend was still a move away from fossil fuel investments.
"Things are getting more and more difficult," he said.
Future gas project investment would have to be viewed through the lens of the goals of the Paris agreement to limit global warming.
"We support gas, but we are being questioned to push the industry further," he said.
"The credibility of the industry needs to be stepped up, and time is running out, the window of opportunity is small." The EBRD -- which traditionally has loaned money for many fossil fuel-based projects -- has seen 70% of its investments to date in 2019 in "green" projects.
Stansbury said the gas industry has a "clear and unambiguous" role to play in moving toward a decarbonized energy future, urging it -- for example -- to take ownership of, and responsibility for, its own methane emissions.
These, he said, should be reduced to zero.
"Industry should demonstrate plausible targets and pathways to get to zero methane emissions," he said.
Shell's Wouter Koopman told the conference that reducing methane emissions was a "must issue to be solved very soon." Stansbury added that many of the benefits of the use of gas over coal could be "very quickly unwound" when taking methane leakage into account.
He also called on industry to reconsider investments in countries with questionable green credentials and to demonstrate that industry spending was "consistent" with the goals of the Paris agreement.
The gas industry in general, Stansbury said, was showing a "great deal of complacency" when it comes to climate change.
Asked whether any company in the sector was a good example of doing the right thing on climate, he said: "No." Gregor Pett, a senior official at German utility Uniper, said Thursday the industry recognized the need to act.
"The whole industry feels the pressure to do something," Pett said, adding that more should be done in the areas of research and development.
"We have to find ways to make [decarbonization] happen," he said.
Stansbury also said that oil majors "throwing money" at green energy projects was not the answer while investments in gas projects still outweighed zero-carbon spending.
"That is not how this works," he said, referring to how financing entities are increasingly thinking about where they spend their money.
"Evidence also tells us that returns for Big Oil in renewables haven't been particularly great," he said.
Instead, he called on industry to work within its core competences to develop more hydrogen, biofuels and electric transportation solutions.
He also dismissed the idea of the emergence of a "clean energy supermajor" -- a green equivalent of Europe's oil and gas majors.