WASHINGTON – Increasing questions around the future of oil demand are making it harder and harder for oil companies to secure financing from banks and other large investors for drilling projects.
As governments move to reduce greenhouse gas emissions through the expansion of electric vehicles, some financial institutions are becoming wary about investing in oil projects that take years to develop when demand could be substantially lower once production begins.
As a result, the cost of securing capital through loans and selling stock is expected to double for oil companies in the years ahead, making projects more expensive and less desirable to investors, said Jim Burkhard, head of oil markets research at S&P Global.
“The investment threshold for investing in new oil is higher today,” he said. “There’s much greater uncertainty about the future of oil demand. You have all these markets saying we don’t want your oil at some point in the future.”
Driving the trend are asset management firms and investments banks less inclined to put money into an industry that has not only struggled financially since the oil price crash of 2014 but is also in conflict with internal mandates to reduce the carbon footprints of the companies in which they invest.
