S&P Warns Oil Majors A Downgrade Is Coming “Within Weeks”

If you are in the business of selling fossil fuels, you may want to start looking for another line of work. First the president of the United States mandates the federal government to consider the social cost of carbon — a measure of how much damage burning fossil fuels does to the environment — and cancels a cherished transnational pipeline that would bring more of the dirtiest, vilest oil on the face of the Earth into the United States. Then America’s largest car company, General Motors, announces it will stop selling light duty vehicles powered by gasoline and diesel engines in less than 15 years.

But wait. It gets worse. According to The Guardian, S&P, the financial ratings company best known for maintaining the S&P 500 stock index, has warned 13 of the largest oil and gas companies in the world it may downgrade their credit rating within weeks because of increasing competition from renewable energy. The companies involved are Australia’s Woodside Petroleum as well as Chevron, Exxon Mobil, Imperial Oil, Royal Dutch Shell, Shell Energy North America, Canadian Natural Resources, ConocoPhillips, and France’s Total.

In addition, Chinese companies China Petrochemical Corp, China Petroleum & Chemical Corp, China National Offshore Oil Corp, and CNOOC are reportedly on the list of companies that could soon be downgraded. BP and Suncor are not on the list yet but could be in the future if the economic prospects for fossil fuels continue to erode.

S&P told the companies its has increased its risk rating for the entire oil and gas sector from “intermediate” to “moderately high” because the world is moving away from fossil fuels, which it thinks will lead to poor profitability and volatile prices. “In particular, we note significant challenges and uncertainties engendered by the energy transition, including market declines due to growth of renewables; pressures on profitability, specifically return on capital, as a result of high dollar capital investment levels over 2005-2015 and lower average oil and gas prices since 2014; and recent and potential oil and gas price volatility,” S&P said on Wednesday.

The downgrade, if it comes, will lower each company’s credit rating one notch. “This said, we cannot exclude a combination of the industry risk revision and other material factors leading to a two notch downgrade, especially given the potential for negative surprises after the Covid-19 impacts in 2020,” the announcement said. A two notch downgrade would put Woodside Petroleum at BBB-, just above junk status. A lower credit rating can make it harder or more expensive for companies to borrow money, The Guardian reports. Many fund managers will not invest in companies with a junk rating.

BlackRock Piles On

Speaking of fund managers, BlackRock is the biggest fund manager on the planet. This week, its CEO, Larry Fink, warned his company might begin unloading its shares in big greenhouse gas emitters in an effort to support the goal of the Paris climate accords to limit global heating to 1.5 C. “I believe that the pandemic has presented such an existential crisis — such a stark reminder of our fragility — that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives,” Fink said in a letter to corporate CEOs.

Those words are similar to those of President Biden, who signed a flurry of executive order this week committing the United States to taking bold action to address global heating, beginning with the elimination of federal subsidies for the fossil fuel industry. “We can’t wait any longer″ to address the climate crisis, Biden said. ”We see it with our own eyes. We know it in our bones. It is time to act.″ Apparently, some people are listening. Is this the beginning of the end for fossil fuels? It had better be.

Hat Tip: Are Hansen