Several recent events point to the continuing vulnerability of the legacy fossil fuels sector.
As Saudi Arabia wound down a G-20 summit on November 20, Yemen’s Houthi insurgents claimed to have hit a Saudi Aramco oil plant in north Jeddah with a drone strike, like the ones in September 2019 which cut Saudi Arabia’s oil production in half.
Meanwhile, earlier this month in the US, Michigan Governor Gretchen Whitmer revoked a decades-old easement allowing operation of the ageing Enbridge Inc. pipeline supplying oil and gas to much of the state, citing safety risks. And Japan’s Sumitomo Corp. has just forecast its worst-ever full year loss of 150 billion yen (US$1.4 billion) on the back of a 26 billion yen write-down on its Bluewaters coal power investment in Australia as banks withdrew from refinancing the project.
Sumitomo’s continuing exposure to fossil fuels lags both the Japanese government’s 2050 net-zero target and corporate peers such as Marubeni Corp., which announced its withdrawal from the $2.1 billion Thabametsi South African coal plant project earlier in November.
Ironically, however, other Sumitomo entities aren’t doing so badly in Japan. Sumitomo Group affiliate Sumitomo Mitsui Banking Corp. was among the seven members of a syndicate of banks which provided A$600 million ($440 million) of financing last month for Neoen’s 400-megawatt Western Downs Green Power Hub, Australia’s biggest solar farm, in southwest Queensland.
Other major pending renewable energy contracts across Australia are liable to be just as lucrative.
Mind you, Sumitomo’s Bluewaters loss is nothing compared to the potential $30 billion write-down on US shale assets announced by Exxon Mobil Corp. in September. Exxon booked a $680 million loss in the third quarter of the year whereas rivals BP, Chevron and Shell – which have shown more positive engagement with renewable energy – achieved modest profits in spite of the coronavirus pandemic.
Last month, US wind and solar energy player NextEra Energy overtook Exxon as the leading energy company in the US by market value, with a market capitalisation of $145 billion versus Exxon’s $142 billion. Exxon was dropped from the Dow Jones Industrial Average in August after 90 years.
In Japan and the US alike, conservative boards and management appear overwhelmed by corporate inertia and unable to shift strategies away from fossil fuels. But there’s no call for shareholders and banks to support them.
The message to pension funds, insurers and institutional investors of all kinds, let alone lenders, asset management houses and stock pickers, should be screamingly clear: fossil fuel assets are going the way of the dodo. Pull out of any you still have, and stay out. Not only will you be saving the planet for your descendants, you’ll also be saving yourselves heavy losses.
