Warming of the investment climate: why a boom in investments began in neftegaz
The oil and gas sector is experiencing a new investment boom. The world's largest banks, including JPMorgan Chase, Citigroup and Bank of America, have increased their financing of fossil fuels by more than 20% in 2024, according to a report by a climate activist group. Other figures also show a sharp increase in investment activity in the oil industry. What is the reason for the increase in capital investments, whether this turn means the end of the principles of ESG (Environmental, Social, and Corporate Governance) and whether this process will lead to an increase in production and lower oil prices in the long term — in the material of Izvestia.
Banks are not interested in the climate
According to the 16th report of the coalition of organizations led by the Rainforest Action Network, based on data on lending and underwriting of more than 2.8 thousand companies, investments in coal, oil and gas by the 65 largest banks in the world increased by $162 billion, reaching $869 billion. This is the first time since 2021 that the total amount of fossil fuel financing has not decreased. In 2021 (when investments exceeded $900 billion), many banks announced their support for the goals of achieving zero emissions at the COP26 UN climate Summit in Glasgow.
The current growth coincided with the US withdrawal from the Paris Climate Agreement in the second term of Donald Trump's presidency and the administration's active resistance to the green agenda. The dominant position in the rating was taken by American banks, primarily JP Morgan, which increased financing in all forms by a third, to $53.5 billion. Most diligently, American bankers supported the national shale industry. In words, Citigroup continued to express support for the low-carbon economy, but in reality increased its investments by $10 billion.
Barclays stands out among the European banks. The conglomerate has been particularly active in investing in the coal industry, which continues to grow in China, albeit at a slower pace than before. In turn, Japanese banks, in particular Mizuho, have become major creditors of the gas sector.
"At our own expense"
To what extent can these changes be part of a long trend away from prioritizing ESG programs? This is not an idle question, as oil companies have been sounding the alarm for several years about the reduction in investment, which threatens the world with a shortage of oil in the future. According to Alexey Kaufman, an analyst at FG Finam, the report cannot fully reflect the situation with investment activity in exploration and production.
— Many companies can finance their projects with their own funds. According to the IEA, investments in oil and gas exploration and production increased continuously in 2021-2024, recovering from the covid-19 shock amid steadily higher oil prices during this period. At the same time, this year, the first reduction in investments in oil exploration and production since 2020 is expected against the background of lower prices for black gold due to OPEC+ actions and trade wars. In general, it can be stated that global oil companies follow trends, increasing investments during periods of high oil prices and reducing them during periods of lower prices.
Marcel Salikhov, President of the Institute of Energy and Finance, says that in 2024 there was an increase in the number of both ESG and anti-ESG initiatives among shareholders, but support for environmental and social issues has become less clear.
— In particular, in the United States, some banks and companies have indeed abandoned some ESG obligations, especially after political changes, but globally ESG remains an important area for many large companies. ESG-related assets continue to grow, but the pace has slowed, and the business is moving towards more meaningful and structured sustainability strategies. In previous years, there was too much hype and high expectations in this direction," the expert states.
Orlan Ondar, an analyst at the Implementation company, also said that the Europeans remain faithful to the previous course. According to him, this situation rather reflects a medium-term change in priorities caused by the urgent need for energy resources, as well as geopolitical changes, including the Trump administration's policy of supporting fossil fuels.
— The withdrawal of the largest North American banks from the Net Zero Banking Alliance (NZBA) on the eve of Trump's inauguration highlighted the expected political pressure on the climate agenda. However, this does not mean abandoning ESG programs - the growth of investments in renewable energy continues, albeit at a more moderate pace. At the same time, the largest European banks continue to participate in the NZBA, demonstrating their commitment to sustainable development goals," the source points out.
Deposits are being depleted
According to Tamara Safonova, associate professor at the Institute of Economics, Mathematics and Information Technology of the Presidential Academy, production growth is necessary to compensate for the falling volumes of low-yield and depleted deposits.
— Currently, oil prices are aggressively reacting to hotbeds of international conflict, disruption of supply chains, trade wars, and pricing systems need to be modified. No investor is interested in selling non-renewable strategically important resources below their production cost. In this regard, the issue of introducing new pricing systems on exchange platforms has come up, which, on the one hand, may take into account the limitations of the cost plus system and will not allow for loss—making sales, on the other hand, they will take into account external factors of consumer demand and competitors' prices," the expert summarizes.
OPEC has the floor+
But an increase in investment does not in itself mean an increase in production, and a surplus of oil on the world market can occur only under a number of conditions — all the analysts surveyed agreed on this. So, according to Kaufman, first of all, the market situation rests on the recovery of production from OPEC+, since Saudi Arabia is clearly aiming to at least partially restore the cartel's share.
— Outside OPEC+, a noticeable increase in production can be observed only in certain countries with large projects, such as Guyana. At the same time, the States, whose production level is most dependent on market conditions, may reach a local plateau in terms of volumes. At the same time, the conflict in the Middle East may prevent the formation of a surplus in the oil market, but it is difficult to predict anything here," he added.
In the long term, Kaufman notes, the ESG topic really fades into the background when we talk about the strategies of large oil and gas companies.
— Against the background of the period of increased oil prices and the arrival of the Trump administration, the topic of reducing emissions and developing renewable energy has become less important for oil and gas majors, although it is still present in all strategies and presentations. At the same time, the energy transition as a whole did not stop. China, for example, continues to annually update records for the pace of new capacity commissioning in the field of renewable energy. In general, the growth of renewable energy capacity in the coming years is expected in almost all developed economies," Kaufman notes.
An increase in investments does not mean that in the near future we will see a sharp increase in production and a decrease in oil prices, Orlan Ondar believes.
— The implementation of large projects takes years. At the same time, new investments are most often aimed at replacing declining production in old fields, rather than creating an oversupply. In addition, prices are influenced by other factors such as the OPEC+ agreements, global demand (especially in Asia), and the geopolitical situation. All this limits the possibility of a serious price reduction over the medium and long term," the expert concludes.
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