Private lenders are financing significantly more oil and gas operations than just a few years ago as big banks begin to limit or cease financing those projects, Bloomberg reports. The trend, quantified by data provided by analytics firm Preqin, is especially prevalent among European-based banks in response to stronger limits on fossil fuel lending there.
While it remains to be seen how stronger climate safeguards could impact fossil fuel asset values, the shift to private sources of financing is, in some instances significantly, increasing borrowing costs for fossil fuel companies — for example, an Australian coal company was forced to pay 650 basis points, or 6.5 percentage points above the secured overnight financing rate on a $1.1 billion loan last week.
The privatization of fossil fuel financing also means risky fossil assets will be more difficult to track due to laxer disclosure requirements — similar to how oil majors have offloaded some of their most polluting operations to less climate-sensitive drillers and private equity firms. (Bloomberg $)