G7 to stop fossil fuel funding, calls on OPEC to pump more oil

The G7 on May 27 called on OPEC to pump more crude and committed the group of major industrialized consumer countries to end financing for most overseas fossil fuel projects by the end of 2022, in a joint statement.

"We call on oil and gas producing countries to act in a responsible manner and to respond to tightening international markets, noting that OPEC has a key role to play," the G7 energy and climate ministers said in a joint communique following their ministerial meeting in Berlin. "We will work with them and all partners to ensure stable and sustainable global energy supplies."

The G7's renewed call on OPEC comes as inflation continues to surge across industrialized economies, putting pressure on policymakers to compensate for high oil and energy prices with subsidies and so called windfall taxes. The UK announced a windfall tax on oil companies on May 26 as crude trading above $100/b continues to pressure retail pump prices. In the US, President Joe Biden is also under pressure to ease the impact on consumers caused by higher gasoline prices.

The group also pledged to end public support for "the international unabated fossil fuel energy sector by the end of 2022, except in limited circumstances".

In addition, the G7 reiterated its commitment to the fight against climate change despite Russia's war on Ukraine, which was causing "strong reverberations" in international energy and food prices.

"It is necessary to consider effective measures in order to stop the increase in the energy prices driven by extraordinary market conditions, without compromising key climate policy mechanisms to drive the energy transition," the G7 said.

Important role of LNG

The communique said some G7 members had stepped up their efforts to enhance energy self-sufficiency after the members had agreed early May to phase out Russian energy, including oil, "in a timely and orderly fashion".

The ministers said that decreasing dependence on natural gas from Russia in the EU was of "special urgency".

The importance of LNG investment was stressed, along with the important role that LNG will play it in mitigating potential supply disruptions of pipeline gas.

"We acknowledge that investment in this sector is necessary in response to the current crisis, in a manner consistent with our climate objectives and without creating lock in effects," they said.

Russia was the biggest supplier of natural gas into Europe with the 155 Bcm imported in 2021 accounting for around 40% of demand. Europe is also dependent on Russian oil and was importing about 2.7 million b/d of crude and another 1.5 million b/d products, mostly diesel, before the Feb. 24 invasion of Ukraine.

Many countries in the region such as Germany and the UK are looking to Qatar and the US, to supply them with more gas.

LNG is to play the biggest role replacing Russian gas with the European Commission estimating some 50 Bcm/year additional supply. The US has committed to 15 Bcm/year.

Qatar is a key LNG supplier to the European market, with deliveries totaling some 23 Bcm in 2021, according to data from S&P Global Commodity Insights, meeting around 5% of total European consumption.

Decarbonization

The group urged other major economies, financial and development banks and institution to adopt similar commitments on financing oil, gas and coal projects.

Decarbonizing key industrial sectors to keep a limit of 1.5 C temperature rise within reach was a key priority for its members.

The ministers also agreed to takes steps towards an eventual phase-out of domestic unabated coal power generation while also committing to predominantly decarbonize electricity sectors by 2035.

"The 2020s are decisive years to shape the regulatory policy framework that guides investments reaching beyond 2050 and our industries," the G7 said.

The G7 also said members will commit to a highly decarbonized road sector by 2030, and "accelerating the transition away from new sales of diesel and petrol cars" will be a key focus.

Current plans from operators plus government mandates in certain countries could reduce upstream emissions by 63% in 2050 versus a do-nothing case but short of net-zero emissions targets set by the Paris Accord, according to a recent analysis by S&P Global Commodity Insights.

"Countries with stringent mandates such as Europe (mostly North Sea) will likely achieve net-zero emissions by 2050 while others whose production is operated by small independents and national oil companies (NOCs) would reach a much lower reduction target (-55%), if we assume no changes to the current plans of operators," it said in a recent note.

The race among oil and gas companies to achieve net zero emissions by 2050 is pushing many of them to focus on upstream projects which boast of both low production costs and lower carbon intensity.

The offshore fields in the North Sea and Gulf of Mexico boast low carbon intensity crudes, according to S&P Global Carbon Intensity calculations.

In the past few years, many financial institutions have come under pressure to reduce their funding for oil and gas businesses because of the large carbon footprint of such projects. Those companies have already started to reduce their investments in oil and gas as part of their net-zero carbon targets.

Since 2020, many oil and gas companies have also faced a pummeling from environmental activists and shareholders, pressuring them to set tougher long-term emissions targets and abandon key developments.