Hostile Capital Markets and Overregulation Are Risking Europe’s Economic and Energy Security

There are growing signs of an oil and gas corporate exodus from European capital markets as firms have faced growing financial and policy pressure to pivot away from fossil fuel production. But as Europe’s fiscal and regulatory hostility for oil and gas grows, so too does the risk that the region’s already-fragile energy security will be pushed into the danger zone, along with its economic stability.

More than any other region, European oil and gas companies have faced growing pressure to reskill and restructure their businesses to facilitate renewable energy development. Currently, more than half of global clean energy investment from the oil and gas industry comes from four European companies. Meanwhile, ShareAction demanded last year that five of Europe’s biggest lenders – Barclays, BNP Paribas, Credit Agricole, Deutsche Bank and Societe General – stop financing new oil and gas developments. In light of these calls for oil and gas majors to become major renewables players, Bloomberg Opinion Columnist Javier Blas argues:

“Expecting Big Oil to disrupt the energy industry is foolish — and counterproductive.”

Robin Mills, author of The Myth of the Oil Crisis, concurs:

“The European supermajors have yet to show they can make a financial success of low-carbon ventures in areas such as offshore wind power and electric vehicle charging.”

As recent developments have shown, if European oil and gas can’t attract domestic capital, it will simply look elsewhere. The data shows that capital for oil and gas at a global level remains abundant, driven by increasing demand for fossil fuels in the wake of geopolitical shocks. In 2023, the International Energy Agency (IEA) forecast global upstream oil and gas investments to increase by around 11 percent to $528bn, the highest level since 2015. This is in-step with demand: the IEA’s latest gas demand report forecasts that global demand for gas is set to grow by 2.5 percent this year, five times faster than last year’s 0.5 percent expansion.

Shell is the latest European oil and gas major to openly admit to considering relocating its listing to the United States, citing undervaluation and a dwindling appetite for European investment into oil and gas. In a column for The Guardian, Financial Editor Nils Pratley suggests that the “real explanation” for Shell’s potential relocation is that the market “is deeply sceptical about the pace of energy transition and the returns on capital in renewables.” Indeed, in his first public interview since stepping down in 2021, Shell’s former CEO Ben van Beurden told the FT Global Commodities summit that deeper capital pools in the United States, and the market’s more favourable attitudes towards conventional energy companies, had made European listings less attractive. If Shell were to move its primary listing destination to the United States, this would be a significant blow for UK plc, which is already reeling from a number of high-profile moves across the pond: think names like chip maker ARM, building materials maker CRH, and FanDuel owner Flutter.

It’s clear that a burdensome regulatory and fiscal regime in Europe is becoming increasingly unattractive to both oil and gas corporates, and those who invest in them. As a result of this reduced confidence, the economy, public services and quality of life for oil and gas communities is on the line.  As EID has previously analysed, the UK’s windfall tax on oil and gas profits has already had detrimental impacts on economic prosperity and is risking energy security.  The Aberdeen & Grampian Chamber of Commerce recently criticised the UK government’s extension of the tax, with policy director Ryan Crighton warning:

“We are already seeing investors walking away from deals – with some showing open dissent towards the UK – and if that gathers pace, then the 1,000 jobs we have already lost to the windfall tax could be a drop in the ocean compared to what is to come.” (emphasis added)

Similarly, analysis by OEUK (the UK’s offshore energy industry body) has warned 42,000 jobs and £26 billion of economic value would be wiped out under new Labour proposals to extend the windfall tax on UK oil and gas producers. Institute of Economic Affairs Chief Operating Officer and Energy Analyst Andy Mayer also draws the link between the oil and gas industry and economic prosperity, suggesting:

“The question is, does the UK want companies like BP, Shell, and all the rest – many of whom are now large players in the UK – to continue investing? If the answer to that question is yes, we should celebrate the fact that when these companies do well, we all benefit and when they do poorly, it’s their shareholders are the ones taking the hit.”

This pressure to delist from the London market comes as IEA Chief Faith Birol criticised Europe for falling behind China and the United States after making “two historic monumental mistakes” in energy policy – one of which was relying on Russian gas.

Bottom Line: If Europe continues to create a hostile capital-raising and regulatory environment for oil and gas, corporates will take their investment and development elsewhere – ultimately jeopardising Europe’s economic prosperity and energy security.


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