Global greenfield foreign direct investment (FDI) in coal, oil and gas projects recovered slightly in 2021 following a steep decline in 2020 due to the Covid-19 crisis. While project numbers grew 26.7% in 2021 compared to 2020, they were still down 34.9% on 2019. Investment in coal, oil and gas has not just been dented by impacts of the Covid pandemic but also by global responses to the climate emergency. UN Secretary General Antonio Guterres said: “Investing in new fossil fuel infrastructure is moral and economic madness” after the publication of a report in April 2022 by the Intergovernmental Panel on Climate Change. Yet the growth in projects seen in this sector in 2021 was stronger than the 18.1% rise in overall global FDI levels, according to Investment Monitor’s Global FDI Report 2022.
Coal, oil and gas FDI up in 2021
The FDI Projects Database shows that greenfield coal, oil and gas FDI rose in 2021, with 95 projects recorded, compared to 75 in 2020. This was well down on the 146 projects of 2019 yet represents a fair rebound for a sector under widespread scrutiny and increasing regulation.
In 2021, more than two thirds (79%) of coal, oil and gas FDI projects were new investments, compared to 81% in 2020 and 76% in 2019. The number of expansion projects has seen the biggest swing in recent years, declining 60% in 2020, before increasing 42.9% in 2021.
Where are the leading destinations for coal, oil and gas FDI?
Western Europe was the region to record the highest number of coal, oil and gas projects in 2021 with 26, only slightly down on the 30 seen in 2019. The 80 projects recorded in Western Europe between 2019 and 2021 was far ahead of any other region, and only South America and Central America and the Caribbean saw gentler declines in project numbers.
CEE and CIS was the region with the strongest rebound in 2021, with 160% growth in projects compared to 2020, followed by Middle East and North Africa with 138% growth. No region recorded any growth in projects between 2019 and 2021 however, with South America proving the most consistent with six projects recorded each year.
Despite its government’s commitment to net zero and promises of a ‘green industrial revolution’, the UK recorded more coal, oil and gas projects in 2021 than any other country, with a 75% growth on the number of projects in 2020. The US was joint second, with the United Arab Emirates, for number of projects in 2021 and was the leading country for number of projects since 2019 (27 projects). Germany had the second highest number of projects since 2019 (22 projects) but the four recorded in 2021 was down on the nine recorded in both 2020 and 2019.
The seven UK projects in 2021 were split between four office openings and three new construction projects. These include two new carbon capture and storage projects in Scotland, a new gas-fired power plant in Wales, and new offices in the UK for Royal Dutch Shell, ExxonMobil Asia-Pacific, Murzuq Oil Services, and VAALCO Energy.
What are the top coal, oil and gas FDI operations?
Sales, administration and marketing continues to be the leading function for FDI in the coal, oil and gas sector, recording 27 projects in 2021 and 102 projects between 2019 and 2021. Manufacturing was the only FDI function to grow in project numbers over the three year period however, with the 2021 total up 77% on 2020 to total 57.
The number of energy generation FDI projects recorded over the three year period remained remarkably steady, with 16 projects recorded in 2019, 14 projects in 2020, and 16 projects again in 2021. This shows how resilient the market for burning fossil fuels to create power remains, despite the best efforts of climate activists.
While there were no new headquarters announced by coal, oil and gas companies in 2020, this grew to eight in 2021. And while no waste management and recycling projects were announced in either 2019 or 2020, in 2022 there were eight projects recorded.
What are the top subsectors for coal, oil and gas FDI?
Petroleum was the top subsector for coal, oil and gas FDI in 2021, having been briefly supplanted by natural gas and gaseous fuels in 2020. There were 31 petroleum projects in 2021 and 102 in total over the three-year period. This compares to natural gas and gaseous fuels which recorded 25 projects in 2021 and 82 over the three-year period.
The largest petroleum project in 2021 was the $15bn power plant and liquefied petroleum gas facility that US-based Millennium Petroleum Group is constructing in Vietnam. The second largest is the $13.6bn second phase refinery and petrochemicals complex being built by China’s Hengyi Petrochemical in Brunei.
Coal and lignite was the only subsector to grow between 2019 and 2021, with five projects in 2021 compared to the four recorded across the two previous years. Fossil fuel power saw the sharpest decline, with project numbers down 64% across the three years, though there were still eight new projects in 2021.
Along with Millennium Petroleum Group’s new power plant in Vietnam, ExxonMobil of the US is building a new LNG power plant in the country next to its new LNG import terminal, and Japan’s Sumitomo Corporation is constructing a new 1.3 gigawatt coal-fired power station in Vietnam too.
Where are the leading coal, oil and gas investor located?
Investment Monitor’s analysis shows that the US remained the leading source market for outbound coal, oil and gas FDI in 2021. US investments in the sector grew from 18 projects in 2020 to 24 projects in 2021, though still remained lower than the 32 projects recorded in 2019.
The UK was the second leading source market, with 13 projects, followed by the Netherlands (nine), and Russia (six).
ExxonMobil had a very busy year in 2021 with 10 projects, and along with other leading investors in the sector such as Shell and Gazprom, it recorded more projects in 2021 than it did in 2019 before Covid-19.
What does the future hold for FDI in coal, oil and gas?
Despite global initiatives to reduce the world’s dependence on fossil fuels as an energy source, the world’s energy system still relies on them being extracted and burned. Since the outbreak of Covid-19 there has been a general decline in investment into this sector, yet it has not been as steep as seen in many other sectors, as shown by the data in the FDI Projects Database.
The Ukraine-Russia conflict has weakened global energy security and put pressure on Western countries previously reliant on Russia gas imports to invest in new sources of natural gas and other forms of energy. This makes it unlikely that 2022 will see any significant decline in coal, oil and gas FDI globally.