The world’s biggest state-owned wealth fund has just signalled that it’s losing interest in oil and gas – and Australia’s mining industry is getting nervous.
The local energy sector slumped Monday following news that Norway’s trillion-dollar sovereign wealth fund, Government Pension Fund Global (GPFG), was reducing its stake in oil and gas exploration – a big move considering the fund was essentially built on oil.
The company said the move wouldn’t affect some major energy firms that have refineries, such as BHP and ExxonMobil, but a number of Australian companies are likely to be caught up in the move.
If the decision goes ahead, it could see the fund dumping more than $800 million worth of Australian shares in companies such as Woodside Petroleum, Beach Energy, Santos, Oil Search and Caltex.
ANZ senior commodity strategist Daniel Hynes said the move highlights what will continue to be a growing trend away from oil and gas.
“Investor sentiment towards the sector [is] waning…This is just an extension of that,” Hynes told Trading Day.
He said “environmental pressures” and trade war concerns between the US and China have only added to fears weighing the market.
“What it means in the long term is we’ll start to see that supply growth diminish in this market.”
With Norway’s fund scrapping exploration companies, Hynes said it would take a big toll on both the smaller companies largely responsible for oil discovery and the supply of oil and gas down the line.
“It does make it difficult to attract capital by a lot of smaller producers and then that flowing on into additional oil into the market in the coming years.”
He added that the hunt for capital has become an increasing concern for industry stakeholders.
The coal industry
The slide of oil and gas investment is likely to follow in the way of the coal sector, according to Hynes.
“There’s been very little capital going into new capacity [in coal]… And as a consequence, prices are rising.”
Last year, Japan’s Mitsubishi Corp joined a growing list of companies divesting itself of assets linked to fossil fuel production after it said it would sell its stakes in two Australian thermal coal mines following pressure from environmental activists.
Then last month, mining giant Glencore announced that it would not be increasing its coal production capacity beyond current levels – in what was hailed as a landmark moment in the fight against climate change.
“This is going to play out in the oil market as well, I foresee, over the next few years. And as a consequence that supply growth is going to be a lot lower than what demand growth will be.”
“The market is obviously focused on those medium-term issues – you know what happens as the Chinese market continues to slow down… But I do think that some of those issues, such as the trade deal, is causing some concern.”
Watch the full interview above.