Today’s Key Takeaways: Growing demand for oil influences banking view of funding. Russia wants rubles for gas from “unfriendly countries.” Miners welcome new SEC rule? OPEC expresses concern about Russian oil ban. Redistricting winners and losers.
NEWS OF THE DAY:
Not All Banks Are Jumping On The Net-Zero Bandwagon
Irina Slav, OilPrice.Com, March 23, 2022
- The banking industry, unlike many others, has not been subjected to a lot of shareholder pressure with regard to funding oil and gas industry activities.
- Wells Fargo, JPMorgan Chase and RBC Capital markets were some of the biggest funders to the oil industry last year.
- A growing thirst for oil and an even faster-growing appetite for affordable energy make energy funding an even more important topic.
Banks have gone from oil industry backers to some of the loudest critics of the industry and the most ambitious target-setters in a few short years. Some of the biggest lenders in the world have joined the Net Zero Banking Alliance and have made pledges to limit their business with oil and gas. Some, however, are fine doing business with the “dirty” pariah industry.
Bloomberg reported this week that Wells Fargo provided $28 billion in funding to oil and gas companies last year. This made the Wall Street major the biggest oil lender for the year, followed by JP Morgan Chase with $27.9 billion in financing for oil and gas projects, and RBC Capital Markets, which provided $20.3 billion to the industry.
All three banks—along with all other lenders to oil and gas—have made net-zero commitments and outlined some specific steps they will be taking to get there. But Wells Fargo was late to the net-zero party. In fact, it took its time before it joined it.
This is quite uncharacteristic in today’s reputation-ruled, social media-vulnerable corporate world. Yet Wells Fargo’s energy team appears quite unconcerned about targets and pledges for one simple reason: the transition that everyone seems to be so enthusiastic about in the banking world is not happening overnight.
“There’s this idea or dynamic that it’s a light switch,” Scott Warrender, head of the energy and power team at Wells Fargo told Bloomberg. The green revolution? “Our view — and in reality — it will play out over a much longer time frame.”
Wells Fargo is by no means alone in this view, judging by the latest data from nonprofit organization Reclaim Finance. The organization says on its website that its purpose for existence is to “publicly expose financial institutions who hinder climate-related regulations, and whose practices violate human rights and destroy the environment.” It also has an oil and gas policy tracker “to detect greenwashing by the finance sector.”
Using this tool and with the help of other transition-focused organizations, Reclaim Finance found that less than half of the 150 banks and other financial institutions that dominate the global financial industry have actually implemented policies that exclude funding for oil and gas projects.
The revelation echoes an earlier one made by ShareAction, another nonprofit organization, which promotes “responsible investment”. According to ShareAction’s data, European banks led by HSBC, Barclays, and BNP Paribas continue to provide financing for oil and gas exploration despite government efforts to reduce economies’ reliance on fossil fuels.
The nonprofit slammed lenders for this behavior, saying that either way, it will end badly for them: “If oil and gas demand decreases in line with 1.5C scenarios, prices will fall and assets will become stranded,” ShareAction senior research manager Xavier Lerin said in February as quoted by the BBC. “On the other hand, if demand does not fall enough to limit global warming to 1.5C, the economy will suffer from severe physical climate impacts.”
Judging by banks’ continued business with oil and gas, the threats listed by Lerin are not exactly top of the agenda. And there is a good reason for this. Despite a much-publicized scientific consensus on climate change and a sense of urgency continuously fed by various organizations and their officials, bankers like Wells Fargo’s energy team seem to be aware of the more immediate realities.
These realities include a growing thirst for oil and an even faster-growing appetite for affordable energy. These are things that need to be responded to right now, and even the International Energy Agency recognized this when it called on OPEC to increase investment in new oil and gas production just months after saying new investment in oil and gas would not be needed because of the net-zero transition.
Noting that global spare oil production capacity was dwindling, the IEA said in its October 2021 Oil Market Report that “Shrinking global spare capacity underscores the need for increased investments to meet demand further down the road.”
Such a statement considerably undermines arguments about stranded assets that the environmentalist lobby is putting forward as a means of spurring shareholders into action to green-up the companies they participate in.
Even with threats about catastrophic climate change effects, it has proven impossible to reduce the world’s need for energy. Since the most readily—and continuously—available energy continues to be that derived from fossil fuels, it is only natural for banks to continue financing its production.
According to the Bloomberg report, the banking industry, unlike many others, has not been subjected to a lot of shareholder pressure with regard to funding oil and gas industry activities. Yet this could change: environmentalists are pushing increasingly harder against banks’ continued business with the oil and gas industry.
Many U.S. oil and gas independents are already struggling with finding the money they need to keep drilling because of some banks’ newfangled aversion to the industry. Large lenders are making pledges that include shrinking their exposure to oil and gas. Just how well this will end remains to be seen.
Exclusive-OPEC officials tell EU of unease about proposed ban on Russian oil, sources say
Alex Lawler, Yahoo! Finance, March 24, 2022
OPEC officials believe a possible European Union ban on oil from its partner Russia would hurt consumers and the group has conveyed its concerns to Brussels, OPEC sources said.
Major OPEC members, such as Saudi Arabia and the United Arab Emirates, have tried to navigate a neutral course between the West and Moscow, while OPEC+, a grouping that includes Russia, has steered clear of the Ukraine issue in its policy meetings.
The EU, which relies heavily on Russian crude, has already imposed tough sanctions on Russia, including freezing its central bank’s assets. The bloc has been discussing whether and how to put sanctions on Russia’s energy industry.
OPEC officials including Secretary General Mohammad Barkindo met EU Energy Commissioner Kadri Simson on March 16 to discuss the “extraordinary times” for the energy market, Simson said on Twitter.
One of the OPEC sources said the group’s concerns were made clear to the EU. “They are very well informed,” said the source, declining to be identified.
Asked for comment on the March 16 meeting, an EU official said: “OPEC presented their analysis of the oil market situation and informed us of their plans in terms of oil production.”
“As we have consistently said, nothing is off the table in terms of future sanctions,” the EU official said.
OPEC’s headquarters in Vienna did not immediately respond to a request for comment.
European gas prices jump after Putin says ‘unfriendly’ countries must pay in rubles
Lexi Lonas, The Hill, March 23, 2022
European gas prices jumped on Wednesday after Russian President Vladimir Putin said “unfriendly” countries must pay for gas in rubles.
Some European countries, such as the United Kingdom and the Netherlands, saw their wholesale gas prices go up 30 percent, Reuters reported.
The ruble also went up to 97.7 against the dollar, although it is still 22 percent below its value before the war.
These actions occurred after Putin announced gas needed to be paid in rubles in retaliation for the sanctions the West have put on Russia.
“Unfriendly countries” include the U.S., members of the European Union, Britain, Japan, Canada, Norway, Singapore, South Korea, Switzerland and Ukraine.
Putin said these countries have made “illegitimate decisions on the so-called freezing of the Russian assets” and it “made no sense” to give goods and not receive payment in rubles.
Europe gets 40 percent of its natural gas from Russia, while the U.S. has already announced it would be halting imports of Russian oil.
Thousands have died and millions have fled to escape the fighting that began in Ukraine on Feb. 24.
The U.S. on Wednesday said it found Russian troops had committed war crimes in Ukraine as Russian forces have targeted residential buildings and hospitals.
Oil prices have surged to their highest levels since 2008 on supply concerns arising from events in Ukraine, boosting fuel prices for consumers that were already facing higher inflation as economies recover from the COVID-19 pandemic.
Russia is an ally of the Organization of the Petroleum Exporting Countries and co-chairs the OPEC+ group of producers which since 2017 has cooperated on oil supply to support oil markets.
While the United States and Britain have targeted Russian oil, this is a divisive choice for the EU, which relies on Russia for 40% of its gas.
EU foreign ministers disagreed on Monday on whether and how to impose sanctions on Russian energy.
Stopping short of a ban on Russian oil would indicate EU members were “persuaded by their energy realities not their wishes”, the OPEC source said.
Mining Industry Not That Worried by SEC’s Proposed New Climate Reporting Rules
Aoyon Ashraf, Coin Desk, March 23, 2022
Some of the requirements might be challenging for smaller publicly-traded miners to comply with, however.
This week’s proposal by the U.S. Securities and Exchange Commission (SEC) for publicly traded companies to report information on greenhouse-gas emissions and risks related to climate change seem like they could be major challenges for energy-intensive crypto mining firms. However, several in the industry say they’re not that concerned about the potential new rules and even welcome them.
The SEC’s proposal would require publicly traded companies to report greenhouse-gas emissions from their operations and from the energy they consume, and some to obtain independent certification of their estimates. Among crypto-linked companies, digital asset miners would be the most affected by such rules, given their demand for large amounts of energy to run their operations.
“We welcome it,” said Fred Thiel, CEO of Marathon Digital (MARA), one of the largest publicly traded bitcoin mining companies, which aims to make its operations 100% carbon neutral by the end of 2022. “We don’t think as a miner, complying with the reporting requirements is going to be necessarily onerous,” he said, adding that the report would add transparency for Marathon’s “shareholders and to the community that we serve.”
The bill will also highlight the miners that use more renewable energy and help investors decide which companies will fit their environmental, social and governance (ESG) mandate, noted Ethan Vera, co-founder and chief operating officer of crypto mining and data firm Luxor Technologies.
“The latest proposed bill by the SEC for public companies to disclose the amount of emissions that they produce will shed light on the miners that aren’t using renewable energy,” Vera told CoinDesk. “A growing [number] of public investors have strict ESG guidelines that guide their investment decisions and make them prioritize bitcoin miners that fit in that category,” he added.
With the U.S. becoming the digital asset mining capital of the world, after China’s sweeping ban on the crypto sector, the impact of crypto mining on the environment has become a big debate both in the U.S. and around the world. Most recently, the Environmental Conservation Committee of the New York State Assembly voted on Tuesday afternoon to move along a proposed law that would ban so-called proof-of-work (PoW) cryptocurrency mining for two years. Earlier this month, a similar PoW ban narrowly failed to pass in a European Union Parliament committee vote.
These efforts to regulate the mining industry may not have come into effect yet, but it shows that lawmakers around the world and U.S. are taking a hard look at the environmental impact of crypto mining. “The SEC’s agenda isn’t startling, given Gary Gensler’s past statements and the Biden administration’s goal to tackle perceived climate risks,” said Will Foxley, content director at bitcoin mining service provider Compass Mining, as well as co-host of CoinDesk TV’s “The Hash.”
An advantage for larger firms
The SEC’s proposal will be open for public comment for at least two months before the agency will begin its work on a final rule. However, if the proposal requires companies to report more detailed emission disclosures, it may be challenging to comply with, said Zach Bradford, CEO of CleanSpark (CLSK), a Nasdaq-listed bitcoin miner that uses renewable energy sources.
Overall, the bill would require firms to disclose their governance of climate-related risk; the material impact, if any, of those risks on a firm’s business, strategy, or outlook; and how these risks might affect its financial statements. Bradford thinks this part will be easily handled by miners.
However, the proposed bill would also require companies to disclose varying levels of information about their own emissions. Scope 1 pertains to direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organization – for example emissions associated with fuel combustion in boilers, furnaces and vehicles, according to the Environmental Protection Agency (EPA). Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling. Finally, the bill would also require some companies to report Scope 3 details, which include the emission disclosures of its supply chain and customers.
This level of detail might take a long time for miners and other companies to comply with. “I would expect that reporting of level 1 and level 2 emissions in a mandatory fashion will encounter an uphill battle,” Bradford said, adding that complying with them will be “fairly heavy and expensive lift, especially for smaller filers.”
Compass’s Foxley agreed. “The difficulty for miners comes in terms of reporting. More regulation means more paperwork, which increases overhead,” he said. “We’ve seen this story before in other industries: large-capital backed miners will benefit at the expense of smaller players.”
Large companies may not be completely spared either, however, if they are required to include independent assurance of their Scope 3 emission disclosures, Bradford said, noting that “if this portion does pass, I would expect a fairly long adoption period being added to a final rule.”
Either way, Bradford said he expects CleanSpark will not be impacted significantly by the proposed new rules. “At CleanSpark, we are always aiming to be ahead of the regulatory environment so we anticipate a minimal impact to our reporting and operational efforts should any of these rules be adopted,” Bradford said.
Incentives to use cleaner energy
Moreover, implementation of this new regulation by the miners will likely incentivize more adoption of renewable energy. “If this ends up raising the cost of capital for carbon-heavy miners, in the absence of any subsidies put in place to counter the effect at local or state levels, it will merely incentivize a shift in hash power away from the most carbon intensive parts of the U.S. and into the more renewables dominated regions,” said Chris Bendiksen, bitcoin research lead for digital asset manager CoinShares.
In fact, a fourth-quarter survey by the Bitcoin Mining Council estimated that bitcoin miners globally are now utilizing a 58.5% mix of sustainable energy for their mining operations, up one percentage point from the third quarter.
The SEC’s proposed new regulation could raise the adoption of more sustainable energy sources for crypto miners even further. “By asking public companies to report their carbon footprint, I think, it only pushes people towards more use of renewable energy, which only helps the deployment of renewable energy and speeds our transition from legacy fuel types to renewables,” Marathon’s Thiel said.