Oil to stay more valuable than renewables even if prices never recover, says HSBC

The energy finance head of the international lender says demand will mitigate low prices as living standards rise and road and air transport requirements increase.

An oil rig extracts crude on July 21, 2008 in Taft, California. HSBC says crude will be more profitable than clean and green energy for years to come. David McNew / Getty

Oil will still be more profitable than clean and renewable energy even if crude prices never rebound, according to HSBC’s global head of energy finance.

“Oil is much more profitable than renewables,” said HSBC’s William Stevens in London on Tuesday.

“You can’t put a price on the wind or the sunshine but you can on oil. Lending to an oil company with an asset in the ground is like lending to a guy who knows the pin to an ATM.”

Mr Stevens comments came on the same day power-hungry Vietnam scrapped plans for two multibillion-dollar nuclear power plants, citing environmental and financial reasons after the cost of the projects skyrocketed.

The two plants in central Ninh Thuan province would have had a combined capacity of 4,000 megawatts and were to be developed with assistance from the Russian state company Rosatom and the Japanese consortium Jined.

The cost of the nuclear power plants, slated to be the first in South East Asia, doubled since they were first tabled in 2009 to an estimated US$18 billion, officials said.

The government said costs mushroomed as developers sought more advanced technology following Japan’s Fukushima nuclear disaster in 2011.

“The project was suspended not due to technological reasons, but the country’s current economic situation,” the government said on its website.

Mr Stevens said even with oil prices 57 per cent below their 2014 peak and louder international calls to curb fossil-fuel emissions, the global demand for crude will play a factor for decades to come. While nearly 200 governments pledged emissions cuts under the Paris climate agreement, the rising fortunes of their populations will demand more oil products.

“Living standards of people in developing nations are going to rise, and they’re going to want more mobility and more goods that will be imported,” said Angus Gillespie, the head of CO2 at Shell.

Electricity can be relatively easily switched to greener sources, generated by nuclear, solar panels, wind turbines or hydropower plants. Transport is trickier. Shell does not foresee a short-term shift to cleaner sources in aircraft or shipping because the average turnover of the technologies is 24 and 25 years, Mr Gillespie said.

Mr Stevens also does not see a significant change to the energy finance space in the near or even medium-term, even if “the lower for longer conversation” on oil “is turning into a lower forever type of conversation”.

New-energy finance will also need time to catch crude, he said.

“It’s going to take a long time, this is a transition period and we don’t see anything in the next 10, 20 years that’s going to migrate capital away from hydrocarbons to a large extent,” he said. “The fact that growth is increasing energy demand means that the trajectory will always be to finance more and develop more projects to meet global growth.”

The only risk to the oil industry is social pressure toward a greener economy and “not because its uneconomic or doesn’t make commercial sense”, he said. Pressure to move “away from funding carbonised industries and move more towards financial non-hydrocarbon generated power and resource based financing”.

* Agencies

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