Energy transition diverting capital from oil to mining

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Sopuruchi Onwuka

World’s biggest institutional investors have started indicating strong sentiments that would see massive diversion of capital from coal, oil, gas and related infrastructure projects in their portfolios. But industry analysts warn that funding flow to renewable would also exacerbate issues in solid mineral mining operations.

Speakers in a panel discussion at the CERAWeek by IHS Markit monitored online by Oracle Intelligence made it clear that institutional investors have become increasingly selective in the companies to which they allocate funds. Allocation of funds, they said, would now align with environmental credentials of company operations.

The revelation came as United States government is working on regulations that would hold operating companies accountable for methane emission at oil and gas production sites in a measure that brings the country in environmental protection alliance with neighboring Canada.

United States Energy Secretary, Jennifer Granholm, declared at CERAWeek that President Joe Biden’s administration was placing demonstrative focus on bringing the United States up to speed with the rest of the developed world in terms of leaning into the global green energy transition.

With the energy transition sentiments gathering momentum, the Organization of Petroleum Exporting Countries (OPEC) reduced its demand estimates for the second quarter by 690,000 barrels a day, pointing at weakening demand and rising supply from non member producers.

OPEC’s research department stated in its monthly report that downturns associated with global coronavirus pandemic mean that the group’s average supply for the year would dip by 250,000 barrels per day to an average of 27.26 million a day.

At the CERAWeek, Salim Samaha of the Global Infrastructure Partners, an investment fund dedicated to infrastructure assets, stated that oil and gas companies would suffer declining capital in the next few years as institutional investors begin to question environmental credentials of the companies in their portfolios.

Oracle Intelligence reports that the environmental, social, and governance (ESG) investment trend has gone mainstream, and some experts say that peak oil is already upon us. In Europe, multinational oil firms are already repositioning to become energy companies. China which is currently coal intensive is also working on cutting its carbon footprint.

The panelists agree that environmental, social, and governance (ESG) trend was rebalancing the flow of capital for energy projects; draining funds from petroleum projects to sustainable companies and green projects.

The trend emphasizes how petroleum companies would manage the prevailing energy transition to ensure low emission, cheaper production costs and quick returns within the limited time window.

Chief Investment Officer of BlackRock Alternatives Investors and Global Head of BlackRock Real Assets, Jim Barry, said at the CERAWeek by IHS Markit panel that the world’s largest asset manager would make specific commitments about investments that would not happen.

BlackRock sees climate risk and the energy transition as investment issues, adding that energy transition would be central to every company’s growth prospects, according to Chairman and CEO, Larry Fink.

Industry advisory multinational, Wood Mackenzie, stated in a note earlier that the industry as a whole will not be starved of capital because the world will need oil and gas for decades. The company added that upstream oil and gas companies could still attract money more easily if they have clear and transparent ESG strategy as sustainability increasingly shapes strategic decisions.

Vice President, Global Exploration at WoodMac, Andrew Latham, said low-cost, long-life, low carbon-intensive projects would form the core advantaged assets and portfolios that would continue to attract capital.

Whereas big oil firms continue to do their traditional business, they still pledge increased investments in renewables, carbon capture, hydrogen, EV charging networks, and other low-carbon energy solutions, also in response to investor pressure.

Other panelists point out that it would take transition from hydrocarbon mining to solid mineral mining to migrate to cleaner energy.

Global Head of Natural Resources at HSBC, Jan Laubjerg, stated at the event that institutional investors flocking to bankroll opportunities in the energy transition must also realize that green energy would entail increased mining of battery metals.

“Capital provisions from the traditional capital markets [have] still to get comfortable with the economic realities that copper mining is required, that cobalt mining is required” for the energy transition, he said.

Strategic Partner at Cottonwood Venture Partners, Mark Mills, stressed that one of the unexpected consequences of the energy transition push is the absolute quantity of materials required per energy unit delivered to society, which has soared about 1,000 percent.

“The quantity of materials being moved out of the earth will be unprecedented in human history,” Mills noted.

CERAWeek panelists agreed that the supply chain for the energy sector is moving from liquids to gas to solids.