Watch KopyKat Jason Kenney try to copy this.
U.S. Watchdog: Large U.S. Banks Can No Longer Deny Funding To Oil & Gas by Charles Kennedy, Jan 14, 2021, Oil Price
Days before the end of the current Administration, a U.S. banking industry regulator finalized a rule under which large American banks cannot deny lending money to oil and gas companies.
The Office of the Comptroller of the Currency (OCC) released on Thursday its finalized rule to ensure the so-called fair access to banking services, under which “banks should conduct risk assessment of individual customers, rather than make broad-based decisions affecting whole categories or classes of customers, when provisioning access to services, capital, and credit.”
2020 01 31: Ovintiv/Encana, Chevron, Exxon et al deeply deserve this! CNBC’s Jim Cramer: “I’m done with fossil fuels … they’re just done. We’re starting to see divestment all over the world. … It’s going to be a parade that says, ‘Look, these are tobacco and we’re not going to own them.’ … Younger people don’t want to own them. The dividends are great…but you can tell that the world’s turned on them. It’s actually happening really quickly.”
Banks have grown increasingly aware of the reputational consequences of providing lending to oil and gas projects in sensitive areas such as the Arctic, for example. In the United States, Goldman Sachs said in December 2019 that it would decline to finance new Arctic oil exploration and production and new thermal coal mine development or strip mining. Wells Fargo, JPMorgan, and Deutsche Bank have also said they would stop financing new oil and gas projects in the Arctic.
The rule, expected to take effect on April 1, 2021, is set to apply to the largest banks with more than $100 billion in assets.
The largest U.S. banks, however, have criticized the rule during the comment period that ended last week, saying that the new rule “would also appear to prohibit banks from using subjective judgment and qualitative considerations, including reputational risk, in deciding whether to provide a financial service, which is entirely inconsistent with how the OCC has historically expected banks to make risk management decisions.” Of course! It’s a rule coming from Trump, his thinking looks the same.
Commenting on the finalized rule, Greg Baer, president and CEO of the Bank Policy Institute (BPI), a research and advocacy group for big U.S. banks, said on Thursday:
“The rule lacks both logic and legal basis, it ignores basic facts about how banking works, and it will undermine the safety and soundness of the banks to which it applies.” No surprise. The rule mimics the mad man and mad mad repuglicans who demanded it.
The incoming Biden Administration has several ways to stop the rule from taking effect, The Hill comments, including by a Congress review action or a delay in enforcing the rule from the new acting comptroller that President-elect Joe Biden will likely name next week while his nominee for the role is confirmed by the Senate.
Investors flee Big Oil as portfolios get drilled, Even as Earth’s climate has warmed, years of lackluster profits have cooled the investment climate for oil and gas producers by Karin Kirk, January 14, 2021
While climate advocates have long had science on their side, Big Oil has relied on leveraging its financial might and political clout to cast doubt on the practicality of moving the global economy away from fossil fuels and toward a more sustainable path of renewable energy. But that financial might has been eroding for a decade, and in 2020 it took its biggest hit yet.
… The traditional energy industry has been the worst-performing sector on Wall Street for a decade even before the pandemic hit. In 2020, its backslide was historic. The Energy Select Sector SPDR Fund, whose holdings include ExxonMobil and Chevron, lost more than 50 percent between January and October. By some measures, Big Oil’s downturn, compared to the broader market, was the worst performance of any sector going back to before the Great Depression.
Financial hits are coming from several directions at once, with investment firm Goldman Sachs deciding for the first time to allocate more toward renewables than fossil fuels; automakers following the lead of Tesla and pouring money into developing electric vehicle technology to replace internal combustion engines; and the prices of solar and wind coming down as improvements in batteries and storage technology make them ever more practical.
As more movers and shakers begin to agree with climate advocates for financial as well as environmental reasons, a permanent shift within the energy industry seems to be taking shape.
Hopes for climate action are most commonly pinned on election outcomes and public policy successes, but investment banks and fund managers are growing more wary of fossil fuels after pumping more than $2.7 trillion into financing fossil fuel, exploration, production, and infrastructure in the five years since the signing of the Paris Climate Agreement, according to data compiled by the Rainforest Action Network and other advocacy organizations.
Financial support for fossil fuel projects has waned for both environmental and financial reasons. The return on investment of carbon-intensive fuels is no longer the guarantee it once was.
As the outgoing Trump administration prepares to auction-off oil and gas leases in the Arctic National Wildlife Refuge, one key ingredient seems to be missing: Money. (One example: In December, the administration auctioned-off drilling rights for 4,100 acres in California and netted U.S. taxpayers less than $50,000.)
The six largest banks in the U.S. have publicly stated they will not back oil and gas exploration in the Arctic. In December 2019, Goldman Sachs was the first major American bank to announce such a decision, as it also backed away from any new thermal coal mines worldwide.
Morgan Stanley, JP Morgan Chase, Wells Fargo, and Citi all followed suit. Bank of America was the holdout among major U.S. banks, until mounting pressure from indigenous groups, environmental advocates, and shareholders prompted it to announce in early December that it too will withhold funding for Arctic drilling projects.
These commitments apply not only to the wildlife refuge but anywhere in the Arctic, illustrating how market pressures can make an end-run around energy policy.
Without financing from investment banks, new infrastructure projects are unlikely to get off the ground.
Worldwide, 66 financial institutions and insurance companies have formally decided to eliminate or significantly reduce their financial support for oil and gas drilling, and 131 companies are divesting from coal mining and/or coal-fired power plants. The tallies are maintained by the Institute for Energy Economics and Financial Analysis.
Looking forward into 2021, Goldman Sachs forecasts that renewable energy will become its largest area of investment within the energy industry, surpassing oil and gas for the first time in the company’s history. It is not an altruistic move: Fossil fuel projects are viewed as high financial risks, making the cost of borrowing money to finance hydrocarbon infrastructure around four times larger than the cost of capital for clean energy projects.
Shares of ExxonMobil have lost 47% of their value in the past five years. Over that same time span the S&P 500 has gained 84%. These crippling losses once seemed unthinkable for this titan of industry, but in 2020 alone, the company’s market value withered from $300 billion to $176 billion.
ExxonMobil’s poor performance led to the company’s being dropped from the Dow Jones Industrial Average last summer. The company had been part of the index since 1928 and was the oldest stock among the index of 30 large American corporations.
The story repeats itself across the oil, gas, and coal industries. BP, Shell, Conoco Philips, and Marathon Oil have all netted double-digit losses in their stock prices since 2016. Chevron remains the best performer with a mere 6% loss over five years.
Coal companies have returned even less to investors. The stock price of Peabody Energy fell by 91% since 2017. In November of last year, the company announced major cuts in health care and life insurance benefits for its retirees, after determining those programs were “not sustainable.”
ExxonMobil, the largest energy company in the U.S., recently announced that the company is walking away from natural gas projects in the Appalachian and Rocky Mountains, Oklahoma, Texas, Louisiana, Arkansas, western Canada, and Argentina. In a press release, Exxon Mobil euphemistically characterized these projects as “less strategic assets,” acknowledging the value of these ventures is $17 to $20 billion less than previous estimates. In other words – these gas plays are classic examples of stranded assets.
… ExxonMobil also plans to shrink its global workforce by 15%, which translates to 14,000 jobs. The layoffs, described by the company as “efficiencies,” could make it harder for opponents of renewable energy to argue credibly that a green economy is a job killer. The layoffs, described by the company as “efficiencies,” point out that Big Oil no longer necessarily equates to Big Jobs.
Exxon’s losses add to the growing pool of red ink among oil majors in 2020. Shell lowered its valuation by $23 billion, BP by $15 billion, and Chevron by $5.7 billion. Across the industry, these “write downs” have surpassed $100 billion since the end of 2019.
Analysts point out that oil companies are facing challenges from multiple directions. The world is beginning to shift away from fossil fuels, and continuing prospects down the road for a carbon tax makes the future of the industry uncertain. Furthermore, oil prices are low, making sales less profitable. At the start of 2020, the price of oil had fallen by more than half from the 2008 peak of $166 per barrel, and a price war led to overproduction and a glut of supply. …
Despite the slumping price of oil and gas, fossil fuels are largely getting undercut by cheaper renewables for electricity generation. Our World in Data has an excellent explainer on the cost of building and operating power plants, showing how the costs of various types of energy have changed over the past 10 years.
Based on Lazard’s life cycle cost estimates (shorter version) (more detailed version), the price of onshore wind energy has dropped from $135 per MWh down to $40 in 10 years, a reduction of more than 70%. Utility-scale photovoltaic solar has made up even more ground, with a nearly 90% price reduction since 2009. It’s now the cheapest form of electricity over its lifespan, with an average unsubsidized cost of $37 per MWh.
A pair of late-year announcements continued the streak of bad news for the industry as New York state announced it is backing away from fossil fuel investments for its $226 billion state pension fund. The state seeks to minimize “climate-related investment risks,” and intends to divest from companies that don’t meet their standards for low-carbon investments.
The fund has already sold off shares in 22 thermal coal mining companies “that are not prepared to thrive, or even survive, in the low-carbon economy,” wrote New York State Comptroller Thomas P. DiNapoli.
Meanwhile the Rockefeller Foundation, a fortune built by oil, also pledged to divest fossil fuel holdings from its $5 billion fund, while announcing a $1 billion commitment to help build renewable energy in developing nations to enable a green recovery from the COVID-19 pandemic.
These high-profile moves are part of a widening trend in socially and environmentally conscious investing, as fossil fuel corporations are suffering from the dual burden of poor fiscal performance and even poorer environmental performance.
That makes for an easy decision for asset managers, who needn’t pit financial potential versus sustainability; both are major liabilities at the moment. “Investing for the low-carbon future is essential to protect the fund’s long-term value,” New York State Comptroller Thomas DiNapoli wrote in a press release.
… Schadenfreude for fossil fuel corporations is for some an understandable pleasure, but the industry is far from its end times. Billions of dollars are still being poured into new fossil fuel projects. Oil, gas, and coal are still flowing from well heads and mine mouths. The world’s appetite for fossil fuels remains ravenous. Use of all fossil fuels is likely to grow sharply in 2021 as economies rebound from COVID, which may reignite the corporate appetite for developing new fossil fuel resources.
Nevertheless, profit growth is getting ever harder to come by, putting the fossil fuel industry on its heels. Clean energy may be well-positioned to keep gaining ground while fossil fuel projects are on hold.
In a world starved for optimism, a cleaner energy supply would be welcome news.