The ongoing energy crisis has caused investors to rethink financing for fossil fuels. According to Consultancy Group, Wood Mackenzie, the more measured approach accounts for real-world constraints on global financial institutions and corporations in making long-term financing and capital allocation decisions.
In its recent “Silver Linings” Playbook, WoodMac pointed out that this shift shows both the complexity and the necessity of securing an orderly energy transition.
“The past year has made abundantly clear that energy supply and demand need to move in sync for economic stability and minimal price volatility. And, crucially, immediate divestment from fossil-fuel positions would serve only to move financial-sector portfolio emissions elsewhere rather than achieve any significant real emission reductions,” WoodMac outlined.
It noted that previously, global financial institutions through the Glasgow Financial Alliance for Net Zero (GFANZ) were mandated by the United Nations (UN) Race to Zero – which underpins GFANZ – to phase out all financing of fossil fuels.
But after a reassessment, the UN updated its guidance and GFANZ clarified that it does not require an immediate end to fossil-fuel financing. Its main goals include encouraging lenders and investors to increase financing of climate solutions.
And with GFANZ members committing to halve portfolio emissions by 2023, WoodMac outlined that the balanced-approach financing can help shift the focus from 2050 goals to action this decade.
“The financial sector is setting targets for the fossil-fuel sectors and will use all the levers at its disposal to work with clients to help achieve emissions reductions. In practice, this will encourage companies to progress only projects with lower and falling carbon intensity, to support gas over oil, to continue to put coal at a disadvantage and to provide support for carbon capture, utilisation, and storage (CCUS) and carbon offsets,” the Consultancy Group noted further.
The latter can be said of ExxonMobil’s operations in Guyana.
Exxon and its American counterparts are pioneers in the development of CCUS technology and prioritising cleaner crude reservoirs with lower breakeven costs.
The emissions intensity from Guyana’s offshore operations is among the best performing in the world. According to Rystad Energy’s Senior Vice President and Head of Latin America and the Caribbean, Schreiner Parker, it is outpacing 75% of global oil and gas producing assets, meaning it emits less.
While the global upstream emissions intensity average is 18 kilograms of carbon dioxide per barrel of oil equivalent (kg CO2e/boe), Guyana’s projects are at 9 kg CO2e/boe.