PLATFORM investigates the role of RBS in financing oil and gas projects around the world – This report was first published in Platform’s carbon web newsletter, issue 4.
February saw Britain’s private banks including Royal Bank of Scotland (RBS), HSBC and Barclays post record profits. Revenues were boosted by the high oil price and the increasing importance of private capital to the oil and gas industry. In 2005 RBS’s Commercial Banking and Financial Markets division arranged more project finance than any other bank, bringing in over half the company’s £8.25bn profits. RBS has positioned itself as ‘the oil and gas bank’ driving upstream production. As oil corporations increasingly rely on private banks, RBS profits look set to rise further – at the expense of fence-line communities and climate change.
RBS is closely involved in the Satellite Oil Field Project in offshore Nigeria, the OCP pipeline in Ecuador and BP’s BTC pipeline. Its interests in gas projects span from Egypt to the Gulf of Mexico while loans have been made to Angola’s Sonangol and SOCAR in Azerbaijan. The largest project finance deal of 2004/5 was structured by RBS: Exxon’s $9.3bn Qatargas II. RBS structured financing of the entire supply chain: field development, gas production, onshore facilities, transport ships and the terminal in South Wales to where the gas is being shipped. Banks’ involvement in oil and gas will increase as undeveloped reserves become less accessible.
The push into ‘frontier’ regions – Central Asia, offshore West Africa and the Arctic – requires longer pipelines, deeper drilling and more capital. Shell’s Sakhalin II project has already ballooned from $10bn to $22bn. The high oil price means the oil majors can afford to bear some of these costs themselves, but ultimately investment to open up capital-intensive frontier regions can only come from private banks.
RBS has positioned itself to play a central role in this drive, developing complex loan agreements for megaprojects and supporting independent oil companies in sucking dry declining fields, such as the North Sea.
RBS trumpet corporate social responsibility (CSR) efforts such as calculating their carbon emissions and adopting the self-regulatory Equator Principles. Yet RBS’s emissions calculations are based on power used by cash tills and computer screens, obscuring the far more significant impact of their investments. Meanwhile, project finance practice serves as a reminder of the limits of self-regulation. RBS’s bid for a slice of Shell’s Sakhalin II project, despite clear breaches of both the Equator
Principles and Shell’s own policies, will further the impression that RBS’s drive to profit from oil and gas will override concern for human rights and the environment. As RBS becomes more successful at driving oil and gas production, so its role in feeding climate change and fossil fuel addiction will grow. With global assets of over $1120bn, RBS will play a significant role in determining our energy future.