The banks funding LNG expansion

The gas industry can’t build toxic new facilities without billions of dollars in financing. Most of this funding comes from major banks, who provide loans directly to fossil fuel companies and also help them sell bonds to investors (i.e. underwriting). 

Banks collectively provided 213 billion USD to new and expanded methane gas production from 2021 to 2023, according to research from Reclaim Finance. Here’s how it breaks down across countries:

• U.S. banks are at the top of the list: just six U.S. banks—JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley, and Wells Fargo—are responsible for nearly one-fifth of global LNG financing. 
• Japanese banks follow, providing $30 billion in LNG funding from 2021 to 2023. Mitsubishi (MUFG), Mizuho, and SMBC rank among the top five banks globally financing LNG expansion. 
• Canadian banks including Royal Bank of Canada (RBC), Scotiabank, and Canadian Imperial Bank of Commerce (CIBC) are not far behind, providing $16 billion to methane expansion in the same period.

• European banks such as Santander, ING, Crédit Agricole, Deutsche Bank, and HSBC all break into the top 30 of LNG financiers. Meanwhile, banks from France, Spain, the UK, Germany, Italy, the Netherlands and Switzerland collectively contributed 27% of total financing.

Major banks fund LNG in two main ways: providing loans directly to fossil fuel companies and also help them sell bonds to investors (i.e. underwriting). 

What are bonds?

Over half of fossil fuel financing comes from bond issuances – so this is a crucial funding tap to big polluters. Here’s how it works: 

1. Fossil fuel companies issue bonds, like IOUs, to investors, with the help of banks (underwriters)
2. Investors lend money to the issuing company for a set period of time, over which the issuer makes regular interest payments. 
3. At the end of that period (often several years), the bond “matures” and the issuer repays the full value of the bond to the bondholder.

In order to sell bonds, fossil fuel companies need banks to play several important roles:

1. Banks arrange the bond deals, helping them access investors and raise money;
2. Banks advise the companies issuing the bonds, and collect fees for their services;
3. Banks provide credibility to bond sellers, enabling them to borrow large amounts of money at cheaper rates than loans.

One-fifth of global LNG financing—$51.2 billion—comes from 85 U.S. banks, and just six U.S. banks are responsible for 80% of all the US finance to LNG expansion, making Wall Street the largest source of LNG funding worldwide.

If it isn’t enough for financiers that LNG is bad for local communities’ health and the livability of our very planet—it’s also a terrible investment. Independent analysts, including at banks themselves, are predicting that the race to build new LNG facilities will create an oversupply of gas projects amid declining global demand, due to factors including the global energy transition and the high cost of LNG. The International Energy Agency is projecting that global gas demand will peak in 2025 and then decline through 2030. In an LNG glut scenario, prices will tank, leaving investors and financiers holding the bag.