Public money guarantees 'risky' fossil fuel projects: Experts

Oil and gas majors are increasingly reliant on government-backed funding — in the form of loans or insurance

Energy firms are undertaking financially risky natural gas extraction projects from the Arctic to Africa made feasible by government-backed loans and guarantees, jeopardising efforts to curb global warming, experts say.

As pressure from the public and investors to green their portfolios grows, and the cost of renewable energy continues to fall, oil and gas majors are finding it harder to attract investment on new fossil fuel projects.

They are also increasingly reliant on government-backed funding — in the form of loans or insurance — several industry experts told AFP.

Eight export credit agencies awarded loans to French oil giant Total in July, when the company signed a $14.9-billion financing agreement for a liquefied natural gas (LNG) project in Mozambique.

The province where the sites are located, Cabo Delgado, has been grappling with a jihadist insurgency since 2017 that has killed more than 1,000 people.

Certain energy projects have become "very risky in general, let alone in regions with unstable politics", said Dylan Tanner from Influence Map, which monitors the energy sector.

Beyond security issues, the think tank highlighted in a report last year the risk of "asset stranding" due to increasingly competitive renewable energy and tighter climate regulations.

Credit export agencies use government-backed funds to shore up projects.

If the projects go sideways due to geopolitics or become obsolete as technology and environmental policy evolves, they end up costing the state, not private investors.

"If there is a problem, taxpayers will pay for the damages, not the companies," Cecile Marchand, from Friends of the Earth France, told AFP.

"Commercial banks would not take the risk of lending so much money on the long term without any insurance."

As well as the risk of financial loss and stranded assets, experts say projects such as Total's in Mozambique also call into question states' commitment to combat climate change.

The 2015 Paris treaty enjoins nations to limit global temperature rises to "well below" two degrees Celsius (3.6 Fahrenheit) above pre-industrial levels through sweeping emissions cuts.

In order to meet a more ambitious cap of 1.5C of warming, the Intergovernmental Panel on Climate Change (IPCC) — the world's leading body on the issue — says fossil gas use must decline from 132.95 Exajoules in 2020 to 112.51 Exajoules in 2030.

"Such a decline cannot happen if the global gas industry continues to expand," Ted Nace from Global Energy Monitor told AFP.

Mozambique has already been battered by extreme weather events, a consequence of climate change.

Cyclone Idai — the strongest storm on record to hit southern Africa — struck in March 2019, leaving around 700 people dead and displacing 1.5 million others.

A little over a month after Idai, northern Mozambique was hit by another devastating storm, Cyclone Kenneth.

Scientists also warn of the consequences of methane leaks, inherent to LNG projects.

"Total is fully aware of climate concerns, has publicly recognised them for a long time, takes them into account in its strategies and develops concrete actions," a company spokesperson told AFP.

France put an end to hydrocarbon extraction in 2017 but has left the door open to continuing to finance projects overseas until 2035.

Analysts say this puts it on a collision course with the goals of a deal it midwifed — the Paris accord requires each signatory to report only domestic emissions, not those it finances elsewhere.

"This is clearly not fair, since in many cases (such as the Mozambique LNG project), the gas will not be used domestically," Nace said.

"It would make more sense for responsibility for such projects to rest with the wealthy countries that will use the gas."

France's credit export agency Bpifrance is considering giving a guarantee of 700 million euros ($827 million) to Total for a project in the Russian Arctic, an amount confirmed by the company.

Total has a 10 per cent stake in the Arctic LNG 2 project, which aims to export the equivalent of seven billion barrels of oil — 12 times France's annual consumption.

In a document obtained by AFP, Total said the "continued support" provided by the French treasury and Bpifrance has been "paramount to the success of Yamal LNG", the other major extraction projects in the Arctic.

Global Energy Monitor warned last year that new gas exploration — no matter where it occurred — "threatens to lock in massive amounts of greenhouse gas emissions and negate any chance of limiting global warming to the 1.5C tipping point."

Marchand accused the government of being "hypocritical and irresponsible in regard to the climate emergency" by continuing to guarantee projects abroad that clash with the goal of slashing emissions.

Bpifrance did not respond to a request for comment.