Fun with flaps

It’s always annoying when things you expected to happen one way happen another way that you don’t particularly like. But when things happen in a way you never even dreamed of them happening, well, that’s a whole other level of unpleasant.

Unpleasant may, in fact, be too mild a word to describe what many a climate NGO manager probably felt upon reading a recent Bloomberg report, in which the publication complained that Oil Producers Flush With Cash Cut Reliance on Funding Markets.

The story is a nightmare come true for activists and their financial backers. It is an especially bad nightmare come true because these guys didn’t even know they were having it — in yet more evidence that few assumptions are ever safe and you’d better plan for many scenarios rather than just the one you want to see pan out.

Funding new business ventures with money borrowed from banks is a well established practice across industries. Loans, I gather, often make better financial sense than using your own cash and, if we talk about oil and gas specifically, new business ventures are often quite costly, making it rather impossible to use the companies’ own cash. At least this used to be the case.

Last year, Bloomberg informed us grimly in the above report, bank lending to the oil and gas industry (and coal!) fell by 6%. Now, that could have been the result of banks refusing to do as much business with oil and gas drillers as before. It partially was, probably.

But according to Bloomberg Intelligence, the bigger reason for the decline was fatter cash reserves for the industry players thanks to stronger profits. And these stronger profits came from higher oil and gas prices… which came from the fact that demand for hydrocarbons remained strong despite attempts to stifle it.

It’s a horror story in the making. Oil and gas producers have so much cash on their hands they don’t need to borrow as much as before. And no one can make them. It’s like Russian sanctions but worse — or better, depending on your perspective.