Guest essay by Eric Worrall
When will the food shortages begin? Bankster support for Western Net Zero declarations is killing oil and gas investment, driving up the price of gasoline, electricity and home heating. My question – how much damage can affordable energy production sustain, before food production begins to fail?
Net zero tightens noose on energy players
Escalating climate pressures are starting to strangle capital flows for oil and gas producers, with fresh initiatives at the COP26 summit and Australia’s new 2050 net zero emissions goal only expected to further dial up the difficulties.
Peter Fredricson, acting chief executive at Papua New Guinean oil and gas producer, Oil Search says bank appetite to lend to the sector has dropped since early 2021 as environmental, social and governance (ESG) factors climb up the agenda, driving up the cost of capital.
“I’ve been quite surprised by the speed with which it has developed,” Mr Fredricson told AFR Weekend, pointing to funding as a key reason why Oil Search’s proposed $21 billion merger with Santos makes sense.
“We’ve recently gone to the market for a refinancing of a syndicated facility and I have to say, we were disappointed with the number of banks that were prepared to be involved this time round.”
Increasingly “fickle” bank debt markets for oil and gas companies and the uncertain outlook for the cost of capital for the sector were singled out this week by independent expert Grant Samuel as reasons for Oil Search shareholders to support the deal with Santos despite it falling short on value.
“They’ve all got them now,” Mr Fredricson said of the bank lending restrictions, while noting plenty of debt capital is still available for investment-grade oil and gas producers in the 144A bond market in the US. Oil Search is unable to access that market given its 100 per cent reliance on PNG for revenue.
Goldman Sachs says a divergence in the cost of capital for high-carbon and low-carbon investments is one factor behind what it describes as a “structural underinvestment” in key energy, materials and heavy transport sectors.
The bank estimates the spread in the cost of capital between petroleum and renewable developments has widened by more than 10 percentage points in the last five years, contributing to underinvestment in oil and gas and some other carbon-intensive sectors.
Goldman Sachs says that is equivalent to a carbon tax of $US80 per tonne of CO2 for offshore oil projects and $US40 per tonne for LNG, and is driving a historic turning point in energy investment, with global renewable power spending now overtaking oil and gas developments for the first time in history.
History shows it is entirely possible for countries to stupid themselves into collapse.
Food production in ancient Rome crumbled towards the end, because corruption and greed amongst Rome’s rulers, and an expanding welfare state, drove taxes to unsustainable levels. There were other factors, such as a deterioration in climatic conditions after the end of the Roman Warm Period, but plenty of nations survived the dark ages – it was the failures of Roman society which delivered the fatal blow.
Food production in the Soviet Union was depressed, because the Communists refused to liberate the farming sector from the shackles of collectivism.
Now banker supported government climate activism, strangling capital supply for affordable energy production, could be about to create a Western food crisis.
Cheap energy and economic liberty are the reasons our world can support seven billion people, with only a fraction of that population working in agriculture, at least in Western countries.
Before cheap energy, almost everyone was a farmer. Any interruption to the supply of cheap energy could cause the current system of abundant Western food production to fail.
I have no doubt this crisis was engineered, by people who genuinely believe renewable energy will sweep in and replace fossil fuel, once the old energy system is destroyed. But green energy is a pipe dream, an engineering impossibility.
The question is, what will the architects of the gathering energy underinvestment crisis do, when they realise their green energy revolution has failed? If history is any guide, admitting their mistake and rushing to undo the damage is not at the top of the list of likely responses.