Are Credit Rating Agencies Punishing Petrostates for Energy Transition Risks?

CCS projects “accelerated” in 2022 with the CO2 capture capacity of all CCS facilities under development growing 44% over the past 12 months, bringing the total capacity of those projects to 244 mtpa of CO2. In a report released in mid-October, the Global CCS Institute said 61 new facilities were added to the project pipeline in 2022 for a current tally of 30 projects in operation, 11 under construction, and 153 in development. The Americas, especially North America, lead the world in CCS deployment. Recent US and Canadian governmental incentives were cited by the Institute in a regional overview. The US Inflation Reduction Act of 2022 includes enhancements to Internal Revenue Service Section 45Q and $369 billion in funding for climate and energy. The legislation extends the start of construction timing to the end of 2032; lowers capture thresholds, including direct pay; and expands transferability. The US Infrastructure Investment and Jobs Act includes more than $12 billion to be spent on CCS over the next 5 years. Canada’s 2022 federal budget includes an investment tax credit: the credit rate is 60% for direct air capture projects, 50% for all other carbon capture projects, and 37.5% for transportation, storage, and use from 2022 to 2030. From 2031 to 2040, the tax rates drop to 30%, 25%, and 18.75%.The boost in activity is reflected in recent CCS‑related updates reported in JPT: - ExxonMobil joined CF Industries and EnLink in a blue ammonia project in Louisiana that could capture and store 2 million metric tons of CO2 starting in 2025. - Technip Energies signed a letter of intent to design and build a large-scale floating storage and injection hub offshore Australia. It would be the world’s first, since to date, offshore carbon capture and storage projects use pipelines to transport CO2 to injection sites. - Equinor and Wintershall Dea have agreed to develop a comprehensive CCS supply chain system connecting Germany with CSS storage on the Norwegian Continental Shelf. - Texas and Louisiana are stepping up efforts to assume regulatory authority for an emerging wave of CCS projects.- In October, Canada released draft guidelines on how new oil and gas projects should demonstrate “best-in-class” greenhouse gas emissions performance. SPE’s CO2 Storage Resources Committee, under the SPE Carbon Dioxide Capture, Utilization, and Storage Technical Section, published Storage Resources Management System (SRMS) Guidelines to support the commercialization of CO2 storage. Released in September, the guidelines include suggestions for the application of the SRMS with the intent of including details of the processes of quantification, categorization, and classification of storable quantities so that the subjective nature of subsurface assessments can be consistent between storage resource assessors. The role of petroleum engineers in achieving technically sound results in energy transition projects of all kinds was highlighted during a presentation at the SPE Annual Technical Conference and Exhibition by Josh Etkind, global upstream deepwater digital transformation manager for Shell, and Rita Esuru Okoroafor, assistant professor, Texas A&M University, Harold Vance Department of Petroleum Engineering. In their presentation in the SPE Pavilion, “Transferable Skills: Petroleum Engineering and Geoscience Skills Are Shaping the Low-Emission Energy Transition,” they shared a chart showing the core oil and gas-related technical skill sets required for low-emission energy technologies. Etkind and Okoroafor emphasized the opportunities offered by the technologies shown in the chart below for upstream petroleum engineers and young engineers entering the industry. Looking only at CCS, the Global CCS Institute’s call for the growth of global CO2 storage to “billions of tons per year to meet climate targets” from the current 40 mtpa also points to a growing need for the relevant skills and technical knowledge.

Forecasting credit ratings of decarbonized firms: Comparative assessment of machine learning models

If the world is to achieve an energy transition to address climate change, global finance must shift rapidly away from fossil fuels and toward clean energy. Despite the prominence of global finance in International Political Economy (IPE), it is striking that one of the key institutions – export credit agencies (ECAs) – that provide a significantly larger volume of public investment in fossil fuels than multilateral financial institutions, such as the World Bank, has been largely overlooked in the literature. In this commentary, we argue that IPE scholars are well placed to lead research on the role of ECAs in the energy transition. Specifically, we consider ECA behaviour, such as lending decisions, to be the outcome of interest, and propose three possible sets of factors that are likely to shape ECA lending: Namely, domestic political economy factors, climate governance and international security. In doing so, we set out a research agenda for IPE in relation to ECAs by laying out a series of research questions and linking them to adjacent streams in the literature. This largely unexplored research agenda has great potential to expand not only our understanding of ECAs in IPE, but also the shape of the energy transition in the 21st century.

As the world contends with the realities of climate change and the necessary structural changes to our energy supply and consumption systems to address that change, energy transition initiatives have dramatically increased over recent years. To achieve the net zero and other emissions reduction goals set by governments, corporates, and other institutions around the world, unprecedented amounts of public and private investment will be required to fund what is one of the most significant structural changes seen across the energy and industry sector since the Industrial Revolution. This section explores the multifaceted landscape of energy transition, focusing on the global shift from high-emission energy sources to sustainable alternatives. It highlights the drivers of this transition, including climate change awareness, regulatory and policy shifts, technological advancements, and domestic supply considerations. It further examines the evolving project finance models tailored for energy transition projects, addressing risk allocation and mitigation strategies essential for bankable projects. Key verticals such as the battery value chain, alternative fuels, green metals, and carbon capture utilization and storage are discussed in detail, presenting their significance in the broader energy transition framework. This section also underscores the role of various project participants, from startups to traditional large corporates, and the increasing involvement of credit providers such as export credit agencies and multilateral development finance institutions.

Reduction of CO2 emissions has become a key component of many E&P company strategies, reflecting the accelerating demands of interest groups, activist investors, and country specific legislation for specific targets and measures of carbon footprint reduction. Underlying this requirement for change are the existing investments and cash flows resulting from the core ‘conventional’ business opportunities, that while potentially carbon heavy generate the cashflows needed to sustain and grow the business. Our work with several major energy firms has shown that assumptions and decisions impacting the pace of needed change need to be carefully tested, as many of the optimal decisions are counter intuitive. An example at a large integrated company was the insight that expansion of its shale resource investments accelerated the transition to a lower carbon footprint, given the cashflow generation and potential to advance low carbon alternatives in parallel. A portfolio model has been developed that replicates many of the options a company might assess in developing a strategy for carbon reduction and energy transition. This includes estimations of carbon generation from existing businesses as well as carbon reducing strategies ranging from carbon capture to new clean energy sources such as wind, solar, or hydrogen. A case study is used to represent the existing performance delivery and expectations for a large, integrated oil firm as it ‘transitions’ into a cleaner, low-carbon company. This modelling provides a window into the complexity of timing trade-offs, criticality in specific early investments, and drivers to the decisions surrounding a transitional business. The impacts of stasis, premature ‘forced’ transition, and errors in new clean energy ‘bets’ are assessed and tested, providing insights into risk mitigation strategies and alternatives. The case study clarifies the complexity in trade-offs within what appears to be a ‘simple’ energy transition strategy. This highlights the value and insights resulting from quantitative modelling of these decision structures. This paper provides examples of current methods of quantifying and assessing carbon reducing strategies. As the actual costs of generation depends on political considerations and societal demands, a wide range of typical company assumptions is outlined. In assessing alternative sources, the paper outlines the related ‘costs’ in the most touted clean-energy alternatives, both in the costs of implementation as well as the possible costs or charges resulting from future carbon generation. While most integrated energy companies have considered carbon reduction within their strategic plans for many years now, the investments in carbon reduction are for the most part negligible in comparison to conventional investments. International attention to carbon reduction and changes in societal expectations are putting additional pressures on companies to adapt more rapidly. However, transition introduces additional uncertainty, as seen by the possibility of a reduction in the credit ratings of some companies. Planning and understanding the proposed path is key to success.

There are many challenges to foster green and energy transition in emerging and developing countries, and the roles for export credit agencies (ECAs) range over from updating the underwriting policy or way of business, to developing a new program. The COVID-19 pandemic and the Russian War against Ukraine heightened political risks of global infrastructure development, including renewable energy in those countries. ECAs are expected to offer a risk mitigation or management tool, such as investment insurance, to enhance the investability of the project. The pathways to carbon neutrality in different countries are varied. Therefore, it would be necessary for ECAs to underwrite a transaction based on regional and country-specific circumstances while confirming alignment with the Paris Agreement by each project. Furthermore, it is also critical for ECAs, particularly through insurance or guarantee programs to play their roles as catalysts to mobilize private capital to fill the funding gap of energy transition. The key would be for ECAs to be more innovative for all aspects of their own business model to realize the challenges.

To determine how the financing strategies and tactics of petroleum companies are affected by volatile market conditions, a cash-flow analysis was conducted of 30 oil companies with market capitalization ranging from USD 95 million (juniors) to USD 360 billion (majors). Our focus is on two critical recovery periods: 2004-2008 and 2009-2014. These intervals of market recovery are separated by the Great Recession of 2008-2009. The companies are divided into six traditional peer groups, classified by market capitalization and credit rating: oil majors, public private partnerships (PPP oils), independents, unconventionals, small caps, and juniors. Our analysis indicates that a high impact commodity price shock such as occurred during the global recession of 2008/2009 is more damaging to smaller companies than to bigger companies. However, post-recession data indicates that several of these smaller companies were able to recover and modify their practices to better protect themselves against future recessions. Smaller companies reduced dependence on external financing (from 35% to 15%), and of 16 companies in the “smaller” classification, 5 completely eliminated the need for long-term borrowing due to significant improvement in retained earnings. Success factors identified in this study include balancing capital expenditure with cash flow from operations, diversifying investments, divestiture of some assets, and focused efforts to reduce cash operating costs.

Significance African oil output has fallen in recent years, hitting government revenues, external balances and credit ratings. Meanwhile, debt servicing costs have risen. With investors more conscious of carbon budgets, these economies face a struggle to emulate richer peers in converting and leveraging energy revenues and infrastructure into non-oil growth and a smaller carbon footprint. Impacts African oil exporters are struggling to prepare for the energy transition, raising the risk of a greater number of assets being stranded. In many countries in the region, security issues have limited the expansion of both the energy and non-energy economies. Declines in oil output capacity may leave African oil producers with less leverage when OPEC reallocates potential output quotas in 2024. Currency overvaluation hit Nigerian private activity; the currency has adjusted but high overshooting risk may require sizable rate rises.

Facilitating Climate-Smart Investments

As global interests in climate change are growing, international credit rating agencies and investors allow for individual enterprises’ action plans for that issue as a key indicator for their corporate competitiveness. As such, multinational companies promote their efforts into the energy transition by unveiling their objectives and attainment of voluntary renewable energy 100% (RE 100). The establishment of their goals for RE 100 is likely to obligate their business partners to encourage wider use of renewables while the corporate sourcing conditions for renewables and institutional strategies in Korea are still nascent. Accordingly, the arrangement of both effective measures to facilitate corporate renewable energy procurement and reasonable standards to validate the renewable electricity consumption is now required to keep domestic industries immensely competitive, simply not to fulfill the national target of green gas emissions. Though multiple procurement pathways vary across countries based on how they are implemented and detailed market rules and regulations, utility green tariffs, which have emerged recently in U.S. markets, are highly regarded as economical and stable options to meet renewable energy demand from corporations. Typically, in utility green tariffs, the utility procures renewable energy on behalf of the electricity customers, and they pay a special utility green tariff rate for the renewable energy service. Compared with other potential opportunities, utility green tariffs have an overwhelming advantage of reduced financial burdens on renewable energy purchases by realizing the renewable energy offerings with overall cost savings through enabling renewable generators to seek assurances that their investments in renewables should be returned on a long-term basis. Finally, this paper purports to come up with a viable and vibrant green tariff mechanism in Korean electric power transaction frameworks and, at the same time, the overarching insights into various requirements considered to trigger this scheme in an amicable manner.

Regulatory reform options to revitalize the US natural gas value chain

The purpose of the article is to study the specifics of financing investment projects on the principles of sustainability and circularity, the demand for which will grow in the conditions of post-war reconstruction of Ukraine, which will take place taking into account the European integration imperatives of the international economic policy of Ukraine. It is proven that “sustainability” is a kind of framework concept that simultaneously imposes restrictions and creates opportunities for attracting capital. In the conditions of post-war reconstruction of Ukraine, it becomes promising to increase in the portfolio of investment projects those that are oriented towards the implementation of circular business models that serve as a tool for implementing green and circular transitions. Revision of value and supply chains taking into account the “dominant of circularity” is an imperative of the “green” European integration course.The circular economic model is an innovative platform and ensures sustainable development by moving from a linear model based on consumption and recycling to one in which the service life of products is maximized, natural resources are reused, and materials and waste are minimized. Currently, three distinct cycles of circularity are distinguished, which are gradually becoming wider: closing resource cycles, which is determined by the relatively traditional economic system; slowing down resource cycles and material flows through the continuation and intensification of the use of products to preserve their value and cost over time; narrowing resource cycles through more efficient use of materials, resources and products of the linear system. The transformation processes taking place in the financial sector under the influence of the greening of financial policies not only of companies, but also of the Central Banks of the leading countries of the world, show that ignoring the sustainability factor and non-compliance with ESG criteria will affect the credit ratings of institutions in particular and reputational positions in general. “Green” factors increasingly aggressively determine the ability of small and medium-sized enterprises (SMEs) to apply for grant support for financial provision of circular and sustainable projects. Circular, green and energy transitions in the context of sustainable development will act as a universal tool for achieving many Sustainable Development Goals (SDGs), which will make it possible to attract financial resources from special funds that deal with solving global development problems. Europe strives to become the world's first climate-neutral continent by 2050. The EU must transform into a fair and prosperous society with a modern and competitive economy. This highlights the need for a holistic and cross-sectoral approach, in which all relevant policy areas contribute to achieving the ultimate climate-related goal. The implementation of environmental initiatives at the global, regional, inter-country and macro-, meso-, micro-levels is facilitated by political initiatives of actors at the global, regional and national levels. Therefore, The European Union (EU), having adopted ambitious goals of achieving climate neutrality, uses the European Green Deal, which is fundamentally capable of modifying the investment and financial landscape, which should be taken into account when selecting investment projects within the framework of post-war reconstruction programs. In the process of post-war reconstruction of regions, the challenges of solving the problems of energy security, resource security, water resources management will be on the agenda. Ukraine during the post-war development has all the prerequisites for acquiring the status of a green and circular center of Europe. In the context of decentralization, the coordination of relevant initiatives becomes significantly more complicated: on the one hand, the liberalization of the institutional space provides a lot of flexibility to municipalities and communities, on the other hand, post-war socio-economic development creates a demand for strategic planning of Ukraine's place in the international division of labor, and therefore - strategizing its industrial development on the basis of sustainability. Under these conditions, the European Green Deal can become a kind of strategic framework that will clearly define the standards for greening business principles. It is fully foreseen that attracting financing from EU funds will involve increasing requirements for corporate social responsibility of enterprises.

Now in its fourth edition, International Project Finance is the definitive guide to legal and practical issues in international projects. It explores the application of English and New York law in cross-border documentation and financing projects in civil law jurisdictions. The volume examines various funding sources, including banking, international bond documentation, and Islamic financing practices, addressing their legal and documentation challenges. It also provides insights into managing project defaults and workouts, and covers the roles of export credit agencies and development finance institutions, along with extensive dispute resolution strategies. Beyond the basics of structuring and documenting project financings, it delves into sector-specific differences in energy transition; transportation; infrastructure/public private partnerships; conventional, renewable, and nuclear power; mining; and oil and gas. New chapters focus on environmental and social considerations in project finance transactions and the emerging energy transition sector. The new edition includes broader perspectives on project finance in civil code jurisdictions in the Middle East and Latin America. This book offers a thorough understanding of international project finance, including practical guidance on identifying and assessing project risk, with relevant documentation such as risk matrices and checklists. With its focus on international projects and practical application of the law, International Project Finance: Law and Practice is an essential reference for practitioners in the field.

Achieving a clean energy transition requires global financial flows to be redirected away from fossil fuels and into renewable energy. While capital market actors and multilateral financial institutions have been the subject of significant scholarly attention, public bilateral financial institutions, especially Export Credit Agencies (ECAs), have been largely overlooked. This is an important oversight given ECAs are the source of billions of dollars of public finance for fossil fuels, which has helped to lock-in recipient countries to fossil fuel energy systems. Using a panel dataset of ECA transactions in the energy sector, we show that despite some improvements in financial flows after the Paris Agreement in 2015, fossil fuel investments remain pervasive and growth in clean energy investments is minimal. To better understand changes in ECA portfolios, we examine the cases of the Export-Import Bank of the United States (ExIm) and UK Export Finance (UKEF). Drawing on elite interviews, we identify three factors that are shaping ExIm’s and UKEF’s capacity to promote renewable energy exports: the extent of political control over the bureaucracy, the size and composition of green industrial bases, and the policy tools available to both ECAs to support the renewables sector. This has important implications for policymakers seeking to green ECA portfolios.

In Latin America, the energy crisis has worsened due to the dependence on energy services and fossil fuel imports from highly industrialized countries at prices established by the international market; this is particularly relevant to the construction industry, which presents a significant deficit in optimal energy consumption. Hence, some governments have established public policies to maximize the efficiency of these services and, at the same time, minimize the carbon footprint. In this research study, we reviewed the public policies, strategies, and incentives for energy efficiency (EE) implementation in the residential sector established by the Mexican government. A scoping review methodology was chosen and implemented in the following steps: 1. Research inquiry identification. 2. Determination of the relevant literature and studies. 3. The literature selection. 4. Data graphing. 5. Results collection, overview, and submission. In this systematic review, we identified five mandatory standards (NOM-008-ENER-2001, NOM-009-ENER-2014, NOM-018-ENER-2011, NOM-020-ENER-2011, and NOM-024-ENER-2012), six optional standards, four strategies (Green Mortgage, Integral Sustainable Improvement in Existing Housing, ECOCASA, and NAMA), and three kinds of incentives (green bonds, credit and interest rates (Green Mortgage, FIDE, and Ecocasa), and taxes (Income Tax Reduction)). As a result of the implementation of the above, as of December 2020, NAMA financed 5106 developers of 38 projects in 15 states; contributed to a reduction of 126,779 tons of CO2; and aided 19,913 people. From 2013 to December 2023, EcoCasa subsidized 71,440 households for a total of 224 projects in 25 states; contributed to a reduction of 2.6 million tons of CO2; aided 285,760 Mexicans; and issued EcoCasa certificates for 3,473,556 m2. The results of the EE indicators in residential buildings showed an increase in the housing unit number as well as an increase in household appliances, with those based on power consumption prevailing. The residential sector ranks third in power consumption in Mexico, consuming an estimated 790 pj, of which 76% corresponds to thermal energy and 24% to electric power. Among countries in Latin America and the Caribbean, Mexico has achieved an Energy Transition Index of 62%.