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half3clipse t1_j5ul48s wrote

Reply to comment by Ineludible_Ruin in Danske Bank Quits New Fossil Fuel Financing by echosayswhat

It's more likely to do with new projects just not being a good investment anymore.

Projects that have a short time to generate profit after the first major dollar spend also have high operating costs and are in general financially precarious. 2020 made a lot of banks concerned about the reliability of those projects as investments.

More stable projects on the other hand (eg offshore oil) are massive money sinks, and take a long time to start generating profit. They've historically been a reliable investment, but right now a multi billion dollar investment in fossil fuel generation that will take years to even start production and then even more years to generate profit is not looking good. You're not going to fun those projects unless you're really confident it'll pay out more than a decade in the future. Right now it's not clear they will. Even the big petro companies are no longer blue chips, smaller companies died like flies over the last 5 years.

Petro companies also aren't interested in taking on debt the same way they used to. For a long time it was assumed that any amount of supply could be met by rising demand, and in turn that any hole in the ground would pay for itself. It was seen as a very safe investment unless you mismanaged the project entirely. 2020 changed that view dramatically and lots of projects funded on credit had to be closed down because they were no longer profitable to run. Today those companies don't expect new holes in the ground to always pay for itself, and instead aim to fund expansion projects based on their current income and not bet so heavily on future income from new production.

The reality is that the era of "Drill baby Drill" is over, and that it was infact never really a good idea anyways (see again, 2020). There's far less demand for financing, and the details around what demand is left are more complex. Every bank has fewer petro companies looking to them for financing, and we're probbaly going to see more of this over time. The only banks that will still offer funding will be the ones who want to maintain increasingly specialized departments for handling fossil fuel investments instead of redirecting that effort and overhead to other fields.

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SilverNicktail t1_j5ur5f3 wrote

>It's more likely to do with new projects just not being a good investment anymore.

That in itself is pretty great?

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half3clipse t1_j5uv33n wrote

Sure. Well kinda. Obviously things are complicated. Positive in that it ultimately means petro companies have given up on overtly fighting change and are now preparing to weather it.

It's more that the other poster seem to be under the impression that this just means more money for other banks and Danske Bank is doing this because they specifically aren't making much on it. This means there's 'less' money for oil going around period. Especially compared to a decade ago where you barely had to convince a bank you could actually break ground to get financing.

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SilverNicktail t1_j5uvw1u wrote

> Positive in that it ultimately means petro companies have given up on overtly fighting change and are now preparing to weather it.

I think that's certainly the case for more than a few of them. One of the better EV charger networks in the UK is run by BP of all people. That's a sign to me that they're at least looking for what comes next, even if they're dragging their feet.

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