Wall Street on Oil and Natural Gas Investment

Mark Green
Posted October 28, 2022

Key leaders on Wall Street have had some good things to say recently about American oil and natural gas and U.S. energy security, which is welcome for sure. More importantly, they may be signaling the financial sector’s rejection of pressure from Washington to curtail new investment in oil and gas projects – pressure that industry leaders told the Dallas Fed has chilled the investment climate.

We’ve previously noted comments by JPMorgan Chase CEO Jamie Dimon that, especially after Russia’s invasion of Ukraine (reigniting energy security concerns in Europe and across the globe), America should have treated the goal of increasing its oil and natural gas production as a “matter of war … nothing short of that.”

And we certainly noticed a couple of weeks earlier when Mr. Dimon rejected a suggestion from a member of Congress that financial institutions should oppose new oil and natural gas funding. “Absolutely not,” he said during a hearing, “and that would be the road to hell for America.”

Others have joined in, pushing back against calls to shun oil and natural gas – in favor of global economic growth and the best interests of their clients.

BlackRock, one of the world’s biggest financial firms and a bellwether for the investment industry, recently told a United Kingdom government inquiry that it has no plans to halt the financing of new fossil-fuel supplies, according to a Bloomberg report. BlackRock said its overall approach to the energy transition doesn’t include policies that exclude fossil fuels, and the firm said it doesn’t support the International Energy Agency’s (IEA) net-zero scenario, which calls for no investment in fossil-fuel supplies.

Another major financial firm, Vanguard, echoed BlackRock’s response, Bloomberg reported:

Vanguard “does not dictate strategy and operations in portfolio companies, and therefore does not have an enterprise view of the IEA net zero scenario and its recommendations for ‘no new investment.”

There was more from a U.S. Senate Banking Committee hearing last month, as Bloomberg reported separately (emphasis added):

As was the case during past hearings, lawmakers slammed banks for their stance on financing certain forms of energy. Many of the country’s largest lenders have vowed to achieve net-zero carbon emissions in coming decades, including in their lending portfolios. Still, when asked, none of the CEOs present said they plan to stop financing fossil fuels.

That group included Bank of America, JPMorgan Chase and Citigroup, whose CEO, Jane Fraser, talked about the energy future:

“There is a very important balance to be attained over the next few decades: the balance between energy security and energy supply, as well as the transition to cleaner energy sources. That’s going to be an important balance. We will play an important role in both.”

New investment and access to capital is critically important to new oil and natural gas production. API’s “10 in 2022” plan to unleash American energy includes a call for the Biden administration, which in the past has dissuaded oil and gas investment, to:

“… ensure open capital markets where access is based on individual company merit, free from artificial constraints based on government-preferred investment allocations.”

That this appears to be the inclination of some important players on Wall Street is encouraging for the future of American energy, leveraging this country’s oil and natural gas resources for greater economic growth and strengthened security. It’s one front in a larger collision between free markets and government policy mandates, between market demand – for growth, prosperity and security – and efforts to force certain outcomes, irrespective of those demands and needs.

In terms of energy, it’s possible the ongoing transition is seen differently by some in Washington and the bankers. Could Wall Street be signaling it thinks Washington (and Europe), at a minimum, have had the wrong timetable for the transition and perhaps the wrong idea about what it would look like?

Bottom line on oil and natural gas investment: Signals matter. Again, see the Dallas Fed’s survey, cited above. Washington should do its part to communicate support for an inclusive approach to allow for the energy solutions, right beneath our feet, that can help solve the current energy crisis.