BNP Paribas pulling out of new fossil fuel project financing is a blow for a sector where the Paris-based financier has been a historic presence as a leading provider of capital to some of the biggest names in the business.
The French lender announced last Thursday it would no longer provide credit lines towards the development of new oil and gas fields as part of a broader strategy by the bank to wind down its exposure to hydrocarbons and align with net zero climate targets.
The move also includes floating production, storage and offloading vessels, making life even more difficult for suppliers in that market.
BNP Paribas' move is significant since it has historically been one of the leading financiers in the commodities and energy industries.
In 2022 alone, BNP Paribas deployed $20.8 billion to fossil fuels-related companies and their projects, with French supermajor TotalEnergies and oilfield contractor Saipem as two of the largest clients, according to a 2023 report compiled by environmental organisations Rainforest Action Network (RAN), the Sierra Club and Oil Change International (OCI).
Several of the biggest oil and gas names figure among BNP Paribas’ top clients, including Shell, BP, Saudi Aramco, Petrobras and Chevron, the same source suggests.
Norwegian exploration and production company AkerBP is one known client, with BNP Paribas identified by the company as part of an international loan consortium for debt, which matures in 2026.
Aker BP added the proviso that the company is positioned as “one of the most investable companies in terms of climate footprint within our sector.”
In the RAN-Sierra-OCI report, BNP Paribas also stood out as a leading provider of capital for offshore production operations, with $42.13 billion deployed for offshore ventures in 2016-2022.
Total lending to fossil fuels in 2022 from the world’s 60 largest banks stood at $669 billion, the report said.
But the BNP Paribas move merely reflects the direction being taken by many other traditional sources of financing for commodities.
In March, for example, Dutch bank ING said it would not finance new projects in oil and gas approved after the end of 2021 while also reducing its upstream portfolio and its oil and gas trade finance exposure by 19% by 2030.
Asian alternatives
The central role played by such lenders in financing the oil industry and its projects means any retreat from fossil fuels will be consequential.
Yet most sources consulted by Upstream suggested that financial strength of oil companies and growing concerns over energy security and affordability will ensure that alternative sources of financing will emerge.
While Western lenders are becoming more reluctant to be seen as supportive of fossil fuels, the pressures may be less intense in other parts of the world.
“There is a lot of Asian interest [in providing financing] and it’s not just China. A lot of Asia needs security of energy supply,” a equity analyst with a major European bank told Upstream.
Others agreed that fossil fuels will continue to attract capital, despite high-profile withdrawals such as that announced by BNP Paribas.
“I doubt that any one specific bank withdrawing from oil and gas financing on its own will impact the ability of [oil majors] to finance upstream projects. There are many other options and ways to still support and develop new assets,” an equity analyst with a major European bank told Upstream.
The record profits and free cash flows of last year, and recent boosts from trading-related revenue streams, produced “materially deleveraged balance sheets and [higher] net cash positions”, the analyst said, easing debt and allowing for more "self-funded support”.
A source at Shell said BNP Paribas’ decision would not have a material impact on the company’s ability to press ahead with its plans, given the size of the major’s balance sheet.
A spokesperson at Norway’s Equinor made the same point. “[We are] very well capitalised with a strong balance sheet,” she said, adding the company has “no imminent financing plans”.
Analysts acknowledge that while smaller oil companies will have less capability to fund operations or investments from the balance sheet, the situation is even more challenging for contractors on capital-intensive projects, unless oil company clients open up new financing avenues.
“If oil and gas projects aren’t adequately funded, it will only lead to high prices, a disrupted industrial sector and economic challenges,” said Iman Hill, chief executive of the International Association of Oil & Gas Producers.
“It’s vital that financiers reconsider their approach to funding projects that will ensure we maintain the balanced progress we need.”
Meanwhile, the pressures on the banking and financing sectors continue to grow.
Director of non-governmental organisation Reclaim Finance, Lucie Pinson, called on BNP Paribas to go further and “make the cessation of oil and gas expansion a red line that must not be crossed and commit to progressively restricting all financial services to companies that do not meet this demand”.
TotalEnergies, Saipem, Chevron and Adnoc did not respond to requests for comment. Aramco and BP declined to comment.
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