(Byline Times, London, 16 June 2023) OECD countries are continuing to pour tens of billions of pounds into fossil fuel projects, despite their obligations to switch to clean energy sources. Advanced economies are breaking their own climate change obligations by investing massively in fossil fuels rather than switching to clean energy sources, according to a landmark new report. The OECD’s export finance initiatives are in contravention of internationally-determined climate change obligations. In 2021, 39 governments signed the Clean Energy Partnership at the COP26 conference in Glasgow, an agreement which committed to “driving multilateral negotiations in international bodies, in particular in the OECD, to review, update and strengthen their governance frameworks to align with the Paris Agreement goals”. Yet despite 52% of OECD countries having signed the Partnership agreement, fossil gas received 30% of all OECD export finance between 2018 and 2020. The report confirmed that “despite long standing commitments to align financial flows with climate goals, public finance and, in particular, export finance remains skewed in favour of fossil energy”.
Index for June 2023
Volume 22, Issue 6
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(Price of Oil, Paris, 23 June 2023) The Organisation for Economic Co-operation and Development (OECD) recently agreed on terms and conditions for climate-friendly export financing as part of its revised Climate Change Sector Understanding (CCSU). While the agreement enables incentives for renewable energy projects like solar and wind, it also provides incentives for hydrogen and ammonia, including fossil gas derived hydrogen, and fossil fuel power plants with carbon capture and storage (CCS). The agreement does nothing to restrict oil and gas financing. The OECD’s export credit agencies are the world’s largest international public financiers of fossil fuels. Recent analysis by Oil Change International shows that OECD countries supported fossil fuel exports by an average of $41 billion from 2018 to 2020, almost five times more than their clean energy support ($8.5 billion) over the same period. As such, OECD Export Credit Agencies (ECAs) play a critical role in propping up high-emitting projects, such as LNG infrastructure, which in turn shapes our future global energy system. For example, OECD ECAs have supported 56 percent of new hazardous liquified gas (LNG) export terminal capacity built in the last decade. According to International Energy Agency (IEA) and Intergovernmental Panel on Climate Change (IPCC) scenarios, maintaining a 50% chance to limit global warming to 1.5°C requires an immediate end to investments in new oil, gas, and coal production and LNG infrastructure. This underlines an urgent need for the OECD to, as called for by over 175+ CSOs, end export support for new fossil fuel projects.
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(Enviro News, Lagos, 9 June 2023) The Norwegian government has been accused of climate hypocrisy after it emerged that the government export credit agency, Eksfin, has approved finance for the Sakarya gas field in the Black Sea. The Sakarya gas field project, owned by Turkish Petroleum, a Turkish state-owned enterprise, is considered to contain “the largest gas reserves discovered in the Turkish Exclusive Economic Zone as well as in the Black Sea.” The field is set to continue production “until the field reaches its economic limit in 2057.” Norway has previously been criticised for being the last country in north-west Europe to not sign the Glasgow Statement, an agreement at the COP26 climate conference that commits signatories to end government-backed finance for international fossil fuel projects. Previous analysis of the Sakarya gas field by Oil Change International shows that the project will emit at least 140 million tonnes of carbon dioxide in its first phase. Norway’s annual emissions of 48.9 million tonnes (as of 2022) mean this project will emit nearly three times the annual emissions of the entire country. Campaigners are accusing the Norwegian government of inconsistency and hypocrisy. While Norway is a major donor to aid projects that help developing countries mitigate and adapt to climate change, it is also financing fossil fuel projects that make climate change worse.
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(Upstream Online, London, 23 June 2023) The UK’s top court has thrown out an application by Friends of the Earth (FoE) to appeal a case it lost earlier this year against the government’s funding of TotalEnergies’ $20 billion Mozambique LNG project. FoE had argued in the Court of Appeal in January this year that the UK should not have provided export credit finance to the huge liquefied natural gas project because it went against the government’s climate change policy and failed to adequately take into account Scope 3 emissions from the scheme.
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(Reuters, Jakarta, 24 June 2023) Indonesia's state energy company Pertamina (PERTM.UL) reached a $3.1 billion financing deal with a number of export credit agencies and commercial banks to fund the upgrade of its Balikpapan refinery, the company said on Saturday. The lenders include export credit agencies from South Korea, Italy and the United States, and 22 commercial banks. Pertamina will use the funds for the expansion of its Balikpapan oil refinery to a capacity of 360,000 barrels per day (bpd), from 260,000 bpd. Pertamina claims it will be able to produce more environmentally friendly fuels. [Oil Change International noted in May that US President Biden has broken a major G7 climate promise by financing this Indonesian oil refinery.]
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(Hydrocarbon Engineering, Surrey, 13 June 2023) Italy’s State Export Credit Agency (SACE) has signed a financial memorandum with Uzbekistan’s largest oil company, Saneg, concerning an innovative methanol-to-olefin gas chemical complex (GCC MTO), that is currently under construction in the Bukhara region of Uzbekistan. Masrur Shakirov, General Director of GCC MTO, said: “Italian financial and technical support have been crucial to the development of this facility from the very beginning. The new memorandum confirms Italy’s ongoing commitment to supporting GCC MTO, while providing substantial new credit facilities to Saneg from Italian financial institutions.” This is the second major agreement recently finalised concerning GCC MTO. On 25 May 2023, Gas Chemical Complex MTO Central Asia LLC signed an industrial gas processing agreement with Air Products to build a methanol production facility. Known as Methanol Island, the facility would have capacity of 1.34 million tpy, as part of the GCC MTO complex.
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(Global Trade Review, London, 28 June 2023) Mercuria has secured over US$5bn in new and renewed financing facilities, including its first funding backed by an export credit agency (ECA). The global commodities trader, which focuses on energy products, metals and minerals, says it has closed three financing arrangements from a range of global banks. Among those is a €500mn (US$546mn) multi-currency facility guaranteed by Italy’s ECA Sace, to supply the country with natural gas and LNG. Mercuria group CFO says the deal is the trader’s first ECA-backed transaction and comes after Italy agreed to support a similar financing deal with Mercuria’s rival Trafigura for the supply of metals to the country. While both are import deals, they were struck under Sace’s Push Strategy, which aims to support Italian suppliers’ access to international markets by targeting large foreign buyers. Natixis, Société Générale, UBS and UniCredit are mandated lead arrangers on the facility while Abu Dhabi Commercial Bank is lead arranger. Mercuria Energy Group Ltd is a Cypriot-domiciled multinational commodity trading company active in a wide spectrum of global energy markets including crude oil and refined petroleum products, natural gas, power, biodiesel, base metals and agricultural products.
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(Yahoo Finance, Brazil, 20 June 2023) SBM Offshore is pleased to announce it has signed the project financing of its floating production storage and offloading unit (FPSO) Alexandre de Gusmão for a total of US$1.615 billion. The project financing is provided by a consortium of 12 international banks with insurance cover from 3 international Export Credit Agencies. It will have a processing capacity of 180,000 barrels of oil and 12 million m3 of gas per day. The FPSO construction is progressing as per plan with the expected first oil in the second half of 2024. FPSO Alexandre de Gusmão is owned and operated by special purpose companies owned by affiliated companies of SBM Offshore (55%) and its partners (45%). The FPSO will be deployed at the Mero unitized field located in the Santos Basin approximately 160 kilometers offshore Rio de Janeiro in Brazil, under a 22.5-year lease and operating contract with Petróleo Brasileiro S.A. The Mero unitized field is operated by Petrobras (38.6%), in partnership with Shell Brasil (19.3%), TotalEnergies (19.3%), CNPC (9.65%), CNOOC (9.65%) and Pré-sal Petróleo S.A. – PPSA (3.5%), representing the Government in the non-contracted area. [Despite very extensive press coverage of the project, not one article mentions which 3 ECAs are providing insurance coverage.]
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(Global Trade Review, London, 19 June 2023) The EU is weighing the launch of an export credit facility that could reinsure member state export credit agencies (ECAs) and refinance commercial loans, as it seeks to arrest the relative decline in exports from the bloc to key overseas markets. The European Commission, parliament and member states are now in talks to devise a strategy on export credits following the publication last week of a feasibility study which recommended several steps the EU could take in the next three years. Policymakers are seeking to harness the financial might of ECAs and export-import banks across its 27 countries by aligning them to key EU strategies such as transitioning to green energy, overseas investment and competition with China and the US. The feasibility study, authored by independent consultants and launched by the Commission last year, lamented a 5% drop in the EU’s share of merchandise goods exports to high-risk third countries in the decade to 2020, and double-digit declines in the share of EU contractors in business in Africa, Asia and the Middle East. Exports to third countries prop up some 38 million EU jobs, according to the study. ECAs are widely used by contractors to insure and lower the cost of financing capital-intensive infrastructure projects in what are deemed to be high-risk markets for credit, which include major developing economies such as Turkey, Vietnam, South Africa, Nigeria and Pakistan.
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(Yahoo Finance, Berlin, 22 June 2023) The German government has loosened its requirements for export credit guarantees for companies doing business with Ukraine in an effort to shore up economic recovery in the country, the economy ministry said Thursday. Effective immediately, the application procedure will no longer require bank guarantees if the risk is justifiable, replacing a stricter case-by-case examination, the ministry said. It added that small- and medium-sized companies stood to benefit from the changes. "The simplified procedures that have now been decided will speed up many things," Economy Minister Robert Habeck said. In 2022, the German government secured goods and services worth 14.9 billion euros ($16 billion) with export credit guarantees. In 2021 - before Russia's full-scale invasion of Ukraine - the figure stood at 20.2 billion euros. Export credit guarantees for business with Russia and Belarus are no longer issued by the German government as a consequence of the war in Ukraine.
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(Global Trade Review, London, 19 June 2023) Ukraine’s central bank has lifted restrictions on domestic firms’ repayments on loans backed by foreign export credit agencies (ECAs), wagering that the move will help attract much-needed foreign investment and financing for imports. The National Bank of Ukraine slapped a wide-ranging ban on cross-border currency transfers and purchases of foreign currency last year, immediately after Russia’s invasion of the country. The prohibition included the repayment of principal and interest on loans extended by foreign lenders, a decision that contributed to most ECAs suspending coverage of Ukraine.
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(Zawya, Dubai, 19 June 2023) Japan’s export credit agency, Nippon Export and Investment Insurance (NEXI), has acquired a stake in the African Trade Insurance Agency (ATI), a Pan-African guarantee institution, following a capital infusion of $14.8 million. The equity investment supports the cooperation between Africa and Japan under the Tokyo International Conference on African Development (TICAD), ATI said in a statement. “As Japan expands its foreign direct investments and footprint into Africa, its membership in ATI will not only improve our institution’s capacity to support trade and investment across the continent but will also attract more Japanese investors under the African Continental Free Trade Area (AfCFTA),” said ATI Chief Executive Officer Manuel Moses.
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(TFX News, London, 31 May 2023) The spectre of increasing sovereign debt has the potential to swamp future export finance deals and projects in several African jurisdictions. The changes to the OECD Arrangement on officially supported export credit financing put forward in March this year has been ‘music to the ears’ of all those in the industry calling for fundamental reform. We expect to hear more detail from the OECD in July, but from the provisional announcement it looks like tenors on certain transactions will be extended and repayment schedules relaxed for deals in certain sectors, giving greater impetus to deals and projects in the energy transition arena as well as providing a boost to social infrastructure transactions. Many African markets are seen as being challenging largely because of a range of serious risks – and the main ones are often cited as: the debt trap, coups, civil war, terrorism and political risk. In fact, at a recent TXF conference I learned that there are currently 68+ armed conflicts taking place across Africa – when I had originally estimated 40. This announcement has been strongly welcomed by those working in emerging markets, and particularly those active in African markets where so much basic infrastructural and social project work is required ... and where ECA-backed finance will be key.