NEW DELHI: In a huge leg-up for green energy investing, the London Stock Exchange (LSE) has classified oil and gas stocks as non-renewable energy. The move marks a fundamental change in the global investment culture against the backdrop of growing climate concerns with several countries focussing on renewable energy.
According to FTSE Russell; integrated oil and gas firms, crude oil producers, offshore drillers, oil refining and marketing firms, oil equipment and services, pipelines and coal have been classified as ‘non-renewable energy.’ Also, alternative fuels such as ethanol, methanol, hydrogen and biofuels and renewable energy equipment have been grouped under ‘renewable energy.’
Multilateral and bilateral agencies as well as sovereign wealth funds have been ceasing investments in businesses that contribute to climate change. The LSE move follows the decision of Norway’s Government Pension Fund Global (GPFG), the world’s largest sovereign wealth fund, to stop investing in oil and gas explorers globally.
LSE stocks are broadly classified in groupings such as technology, telecommunications, health care, financials, real estate, consumer discretionary, consumer staples, industrials, basic materials, energy and utilities.
India on its part has taken a lead in adding green energy capacity. The country has an installed renewable energy capacity of about 80 gigawatts (GW) and is running the world’s largest renewable energy programme with plans to achieve 175 GW of capacity by 2022 and 500 GW by 2030 as part of its climate commitments.
The LSE move also comes at a time when the Organization of the Petroleum Exporting Countries (Opec) plus arrangement has extended its compact for production cuts. This will have a wide-ranging impact on energy markets, given that Opec accounts for around 40% of global production. It is expected to have a particular fallout on India due to Opec accounting for around 83% of the country’s total crude oil imports.
Collectively, OPEC plus will curb production by 1.2 million barrels per day (mb/d) for nine months until 31 March.
“In view of the underlying large uncertainties and its potential implications on the global oil market, the 6th OPEC and non-OPEC Ministerial Meeting hereby decided to extend the decision taken on voluntary production adjustments at the 5th OPEC and non-OPEC Ministerial Meeting on 7 December 2018, for an additional period of nine months from 1 July 2019 to 31 March 2020," Opec said in a statement on Tuesday.
This extension of production cuts also comes in the backdrop of supplies from Iran and Venezuela drying up from the Indian energy basket. With tension escalating in the Persian Gulf; India, the world’s third largest oil importer, has been trying to impress upon the Saudi Arabia-led cartel its concerns on volatility in crude oil prices and its impact on Indian consumers.
The United States on its part has promised India adequate crude oil supplies as was articulated by Secretary of State Michael Richard Pompeo. While sourcing crude from other suppliers is not an issue, the price at which it is bought will impact the Indian economy.
India has been calling for a global consensus on “responsible pricing," with China and India moving ahead to set up a joint working group (JWG) on energy to form a buyers’ bloc to bargain collectively for oil supplies.
Retail prices of petrol and diesel in India track global prices of these fuels, not crude, but they are broadly linked to crude oil price trends. Crude oil prices impact India’s oil import bill and trade deficit. Between 2013 and 2017, India’s demand for petroleum products grew at a compound annual growth rate of 5.5%. Opec expects global demand to surge 33%, or 91 million barrels oil equivalent per day (mboed), between 2015 and 2040. Of this, 24%, or a jump of 22 mboed, is expected from India.