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Why There Won't Be Another Shale Renaissance Thanks To ESG

Tyler Durden's Photo
by Tyler Durden
Friday, Jan 21, 2022 - 10:45 AM

This week, oil prices soared to a seven-year high as Goldman Sachs hiked its brent price target to $96 in 2022 and $105 in 2023. 

The oil and gas industry revival comes nearly two years after the virus pandemic triggered one of the worst crashes ever in the industry. Now there's hope America's energy industry will enter a new age of optimism as higher prices could drive investments. 

However, not so fast. It's unlikely a renaissance is coming to the shale patch for one straightforward reason: Wall Street's commitment to financing ESG projects will put a damper on emission-heavy projects. 

Citigroup released a report earlier this week outlining its commitment to achieving net-zero emissions associated with its financing by 2050. To do this, the report said the bank's Energy and Power loan portfolio will aim to achieve an "absolute reduction" in emissions from companies across its energy loan portfolio of 29% by 2030. It expects financed emissions for the Power sector to be reduced by a 63% reduction in portfolio emissions intensity by the end of the decade. It stressed that clients who don't meet their targets would be dropped. 

"We will need to actively engage with our clients across all relevant sectors to map out what decarbonization pathways look like for each industry. And in our efforts, we want to ensure we're supporting a responsible transition for all," the report said. 

Other Wall Street banks have begun to request decarbonization roadmaps from their clients. If clients cannot provide one, their ability to raise capital will become much more challenging. 

For oil and gas companies operating in the world's largest producing oilfield, the Permian Basin, a massive crude-bearing area that stretches from West Texas and eastern New Mexico, the ability to raise money is going to get harder as Wall Street's megabanks are fully committed to a "green new world." 

The lack of funding could have significant implications for Permian output as dwindling investment capital could hinder future production. So far, Permian output has risen above 2019 levels. However, a new shale renaissance is not in the cards without proper funding

Wall Street's move to selectively fund deals based on carbon emissions will smother any chance of a shale renaissance. 

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