Australian banks double down on global fossil fuel expansion

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Just when you thought Australia’s banks had reached the nadir, new data shows ‘Big Four’ lending to fossil fuel projects spiked by 50% last year.

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Just when you thought Australia’s banks had reached the nadir, new data shows that lending by the ‘Big Four’ to projects expanding the global fossil fuel industry spiked by 50% last year.

Lending to new fossil fuel projects jumped from $1.509 billion in 2016 to $2.265 billion in 2017. ANZ topped the list, loaning $905 million, a 93% increase on the previous year, to new projects ranging from gas fields in Indonesia’s North Sumatra, to Ichthys LNG off the north of Australia.

New fossil fuel projects are the most detrimental in terms of global chances of keeping the planet on track to meet its Paris climate targets and certainly places the banks in clear violation of any commitment to help hold global warming below two degrees, which the ‘big four’ have all made.

In fact, the carbon pollution enabled by these projects is equivalent to 924% of Australia’s total 2017 CO2-e emissions, enough to cancel out the gains made by Australia’s 2021-30 emission reduction target five times over.

 

There are however some positives to come from the new research.

Overall lending to fossil fuels by the ‘Big Four’ has decreased from $9.1 billion in 2016 to $7.4 billion and there has been no lending from any of the Big Four to new coal projects, either in Australia or abroad since October 2015. Adani of course, is also firmly out of the picture.

Digging deeper, the new data also shows a major divergence within the energy lending practices of the ‘Big Four’.

Whilst NAB and to some extent Westpac have made a clear pivot from dirty to clean energy, CommBank and ANZ’s loan books remain stocked with polluting deals.

Since making ‘two degree’ commitments in 2015, NABs lending to expansionary fossil fuel projects has enabled 192 million tonnes of CO2, 15 times less than the amount enabled by ANZ (2838 mt CO2) and CommBank (2918 mt CO2).

Overall though, the lending betrays a picture of Australia’s banks either misunderstanding what a two degree lending commitment requires, or simply not taking it seriously.

Author: Jack Bertlous, Market Forces Research Director

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30 Comments
  1. john 6 months ago

    just think as a bank ::: We have a proposal to lend money to a Company lets do due diligence can it repay the loan?
    Is it possible the product they are selling may not have a market?
    That is what Banks look at.
    So to lend to a FF Company they measure up the Market situation over the term of the loan and the outcomes from that analyse.
    If they believe that the FF Company will have a marketable product and it will deliver enough profitable outcomes that they will be able to repay the Bank then the said Bank will approve the loan.
    It is not about a Bank supporting some particular Industry it is how they do their Due Diligence to ensure they do not lend money to a Company that over the course of the loan will not go broke.
    Now it quite possible over the next 10 years lots of Fossil Fuel Companies are going to suffer a large down turn in profitability, this one would expect is being looked at by Banks and for that matter people who hold shares in same.

    • neroden 6 months ago

      It is quite certain that no loan invested in coal will be paid back. For investments in oil, there is a window of maybe 10 years when it might be paid back, and after that it will not be; and tar sands and shale will never be paid back. For investments in gas, they may be paid back if the loan term is less than 15 years; not much longer than that though.

      It is clear that many bank lending officers don’t understand the situation. Bank shareholders and those holding funds which have bank shares should understand the situation and get out.

      • john 5 months ago

        I would think Bank Executives would do due diligence.
        If they do not then they should be charged by the Government Supervisory bodies with not doing their job.
        If some country does not have such a supervisory body in place well they are in breach of how to run a country.
        As to the relevant Coal Gas and Tar Sands situation I do not know but will take your figures on board.
        I note with interest that BHPB and Rio Tinto are divesting from Coal.
        They are in the case of GHPB creating a new company called South32 or in the case of Rio Tinto just selling the assets.

        • neroden 5 months ago

          Well, it’s a pretty big mindset shift. The idea that gasoline demand could shrivel up and evaporate is very hard for most bankers to get their heads around. It’s not a simple financial analysis — it’s a microeconomic analysis of the *substitution effect*, which requires that the banker analyze not just the oil industry but *also* the electric car industry, the battery industry, the electric grid, and the power generation business (including the solar and wind industries).

          Most bankers are too specialized to analyze all of these at once. I honestly don’t blame them for screwing it up. If you’re specialized in lending to companies, you aren’t usually used to analyzing gigantic market changes — it’s like bankers lending to brick and mortar retail businesses without understanding the effect that the Internet and Amazon were going to have on them. It was an error, but it was an understandable one, and it was the rare banker who understood the situation.

  2. Roger Franklin 6 months ago

    Jack – a good article. Thank You. Is there any chance of having a second article listing those Financial Institutions (Banks, Super Funds plus others) that are backing RE projects in Australia. People could then use this information to move their funds (or debt) to those financial institutions that they consider are doing “The Right Thing”.

    • Pedro 6 months ago

      Check out the link below for information on divestment from funds and banks that invest in FF projects. I personally went with Australian Ethical investments but there are other super annuation funds as well.

      https://www.marketforces.org.au/info/key-issues/divestment/

    • Barry Manor 5 months ago

      Australian Ethical Super has a really good sustainability charter, as does Bank Australia (formerly MECU Bank). Check them out online…

  3. George Darroch 6 months ago

    These moronic companies occupy a large portion of the sharemarket, and thus superannuation investments. I’m really glad that none of my money goes towards them. A good time to be moving my banking to a sustainable financial institution too.

    • Joe 6 months ago

      …to under the mattress?

      • Pedro 6 months ago

        I divested my Super annuation and have done great so far with 16% growth in the first year. I got out of comm bank and cant say if I am any better off financially, but feel better that my money is not being lent to FF projects.

  4. Andy Saunders 6 months ago

    I’m not so sure. Coal, yes. But not gas.

    Pretty much every extra BTU of gas developed in Australia (and North Sumatra, for that matter) will end up in Asia, the vast majority of which will displace coal burned there.

    That’s roughly halving the GHG impact. I don’t know if that achieves a 2C temperature rise (actually, it is unknowable, because it depends on many other factors), but at least it is a step in the right direction.

    And the linkage of the east-coast gas market to the world market (via the Gladstone LNG plants/export facilities) means that the rise in domestic gas prices has quite rapidly reduced domestic gas consumption/related emissions (at considerable pain, I know).

    Sometimes the simple assumptions are wrong – I suspect that may be the case here.

    • MaxG 6 months ago

      The problem is, money talks, and money doesn’t give a toss about the climate… or degrees of warming — as simple as that.

      • Pixilico 6 months ago

        Unless they lose money. If people divest from them, they’ll have second thoughts for sure.

        • MaxG 6 months ago

          “If”…” — not happening… (unfortunately).

          • Pixilico 6 months ago

            Why? Are financial returns from dirty activities larger than from cleaner ones? All the time?

          • MaxG 6 months ago

            Mostly: yes…
            At least based on what I have seen over the last 50 years.
            Not to forget, that when any ‘dirty’ activity goes per shape, the public picks up the bill, while the banks walk away with their coffers of money; remember the GFC? Impunity for the bankers (causing the problem) guaranteed by the US president!

          • neroden 6 months ago

            In the energy business specifically, financial returns from cleaner activities are now better than financial returns from dirty activities. Yes, this is a change. Please see the VPro Backlight documentary “The Breakthrough in Renewable Energy” for the financial details.

      • Andy Saunders 5 months ago

        Money talks, which is why a good carbon price will work very effectively.

        • MaxG 5 months ago

          And where is it?

          • Andy Saunders 5 months ago

            Non-existent, unfortunately, at least here.

          • nakedChimp 5 months ago

            Because ‘money talks’.. or what do you think part of that money talking is about?
            To avoid a carbon price.

    • neroden 6 months ago

      OK, so I’ve analyzed this. Coal investments are *already* dead. Oil investments are going to be worthless starting wroughly 2025 (maybe a few years earlier, maybe a few years later). Gas will take a bit longer, maybe 2030.

      The financial question is: how many of these loans are (a) for gas, and (b) going to be profitable within 12 years? Because if they aren’t… big defaults and losses.

      • Andy Saunders 5 months ago

        Coal investments are already dead, yes.

        Oil investments, depends on what. US shale payback in good areas is less than 2 years. So I disagree. Oil price and futures are still pretty high, an oil company could hedge and lock in profitability.

        But we were talking about gas, not oil. Most Australian investment is in gas. I don’t know on what you base your analysis, but there are plenty of investment grade Asian customers willing to sign 20-year take or pay gas contracts.

        • neroden 5 months ago

          US shale payback is never. None of the shale companies have ever made a sustainable profit; they’re all financial houses of cards, and most of them are essentially fraudulent. I said I’ve analyzed this.

          Yes, we were talking about gas, not oil. Gas is in the same position as all other fossil fuels: cost of production is rising and cost of switching to alternatives is falling. It’s an economic vise: when the cost of production exceeds the cost of switching, the fuel is dead in the market. It happened to coal already. I have very good models for when it will happen to oil.

          It’s harder to tell exactly when gas will get crushed because it’s further out in the future. The alternatives are heat pumps for most heating, electric resistance for the heating cases where heat pumps don’t work, and solar/wind/batteries for electrical generation. The main reason it’s harder to predict the dates because most gas is a byproduct of oil production (there aren’t a lot of standalone gas wells) and the result is that gas is basically sold below fully loaded cost (it’s subsidized by synergies with oil production; oil covers the costs, so the gas doesn’t have to). So gas will remain cheap until the oil business dries up, at which point we’ll find out how cheaply it can be produced on a standalone basis. I suspect it’s going to be above the cost of alternatives.

          Maybe there are Asian customers signing 20-year take-or-pay contracts. If the prices are high enough to cover fully loaded gas costs, they’ll be regretting them before the end of the 20 years and are likely to pay rather than taking. If they’re not, the suppliers will be breaking the contracts as they declare bankruptcy.

          • Andy Saunders 5 months ago

            “US shale payback is never”

            Have to disagree with you there. You do realise that US oil production is at an all-time high? Does your magic model get as fine grained as say Alpine High type curves? Mine does. Sure, a few years ago there was some poor economics, but most have been shaken out now. Most US shale drillers test their business case against 50-dollar oil, so its reasonably robust.

            Most gas in Australia is not particularly oil-associated (well, some rely a fair bit on condensate, others don’t). CSG for instance has *zero* oil. Many of the offshore NW fields are pure gas/condensate; you’re simply wrong on that assertion. Similarly many other non-Australian fields are gas-only, eg Utica and Marcellus, many of the new west African, Med etc. Your model may have to be adjusted.

            I suspect you don’t really understand what a take or pay long term contract with a high-quality credit means. If they are paying and not taking, the gas supplier isn’t going bankrupt…

            Look, we’re probably on the same side here. There will be considerable fuel switching one way or another, and prices and methods will adjust accordingly.

  5. Radbug 6 months ago

    Watch for June 12. It is highly likely that The Donald will agree to the spur off Gazprom’s Siberia/China pipeline through the DPRK (think transit fees) into the ROK (think humungus price reductions vs Australian LNG & thermal coal.) The ROK takes 10% of Australia’s thermal coal exports & 40% of Australia’s LNG exports – Gazprom will take it all. All that capital, all stranded. Who would have thought it? Kim & Moon tip-toeing through the tulips out there in the DMZ!!!

  6. neroden 6 months ago

    What happens when these loans default? The banks will be insolvent then, right? Do you think they’re going to try to get a taxpayer-funded bailout? Of course they will.

    Hope none of you have your superannuation funds in these banks’ shares.

  7. Steve 5 months ago

    I don’t think the headline, or the article -, does justice to this issue. A look at the two charts shows really, really big differences between the various banks – especially in respect to Co2e enabled.

    Perhaps a heading ‘Some of the big banks doing something about climate change’ wouldn’t read so well….

  8. Steve 5 months ago

    Perhaps a good metric would be nett carbon intensity per $1 billion loan book. This would be something like carbon emissions enabled less carbon emissions disabled from the energy sector. Carbon emissions enabled from lending to carbon emitters / gas drillers etc. Carbon emissions disabled would be based on lending to renewables sector, plus demand response.

    Both would expressed per annum, and divided by total loan book. This would be akin to the Level 3 emissions calculations done by the carbon foot printing crowd but has offsets for renewable generation.

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