In the latest move back to common-sense energy policy, banks around the world are no longer shunning essential energy investments, and instead committing to reinvesting in the world’s energy future. This is welcome news considering that for years, financiers had been underinvesting in fossil fuels, thereby risking future energy shortages.
Most recently, Deutsche Bank, Canadian lender RBC, and Japanese public investment arms have taken steps to expand their investments in oil and natural gas. But why were these banks holding back in the first place, and what caused them to return to common sense? Let’s dig in.
The IEA: A Leading Indicator?
The International Energy Agency, historically the world’s most trusted source for energy market forecasts, seems to have led the charge away from, and now back to, investing in fossil fuels.
As EID has described, the IEA began shifting away from its mission as a neutral market watchdog in 2020 and, under pressure from activists, morphed into a net-zero cheerleader. In recent years, the agency ceased creating energy market forecasts based on actual demand, pushed unrealistic claims of “peak oil” by 2029, and published overly optimistic forecasts of renewable energy and electric vehicle (EV) growth.
Last summer, the Financial Times pointed out that this shift at the IEA caused a number of international banks to withhold financing new oil and gas projects. Deutsche Bank, for example, used the IEA’s net-zero scenario as a benchmark to develop “net zero pathways for its overall loan portfolio,” and committed to essentially eliminating its investments in fossil fuels.
Now, Deutsche Bank is recanting its pie-in-the-sky net zero goals, just as the IEA is reversing on its green push. The agency has recently floated that it may once again publish business-as-usual forecasts, and IEA Director Faith Birol affirmed at CERAWeek in March that it once again supports investments in fossil fuels:
“I want to make it clear … there would be a need for investment, especially to address the decline in the existing fields… There is a need for oil and gas upstream investments, full stop.” (emphasis added)
In case it wasn’t clear before, the tide is turning, and reality is finally reclaiming its seat at the energy policymaking table.
Fossil fuel Investment Needed to Improve Living Standards and Support the AI Revolution
Beyond the obvious benefits that renewed investment will bring for banks and the millions of pension holders that invest in them, financing reliable sources of energy is crucial to increase prosperity and economic activity around the world.
As NJ Ayuk, the Executive Chairman of the African Energy Chamber (AEC) wrote in an op-ed for the Washington Times earlier this year, developing economies need more fossil fuel development to raise living standards, just as the United States and other countries have done:
“Europe, the United States and China have made incredible strides in addressing malnutrition, life expectancy and disease by powering economic growth with uninhibited access to coal, oil and natural gas. Why can’t we?”
But more fossil fuels aren’t just needed abroad. Here in America, investment in oil and natural gas infrastructure leads to lower energy costs for American families and domestic businesses. It’s also essential to maintain an edge in emerging, energy-intensive technologies like artificial intelligence.
A recently published report from the International Monetary Fund (IMF) touched on this topic, stating that AI-driven demand for data center energy consumption is rising faster in the U.S. than anywhere else on earth:
“Data center energy consumption is growing fastest in the United States, home to the world’s largest concentration of centers. Power needed for US server farms is likely to more than triple, exceeding 600 terawatt-hours by 2030, according to a medium-demand scenario projection by McKinsey & Co.” (emphasis added)
Indeed, to lead the AI-race and create jobs here in America, it’s crucial that investors do not place artificial constraints on fossil fuel-based power sources.
Bottom line: Financiers are finally turning a corner and returning to their fiduciary mission of providing returns for investors. At a time when energy demand is rising, citizens, companies, and America writ large will benefit from to this return to normalcy.
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