“The truth is that gas is much dirtier than portrayed.” It is with these words that Urgewald, the German NGO specializing in climate issues, introduces its new report: Taking the Next Step – why insurers should not support new gas infrastructure. The report explains the often-disregarded impact of gas on climate change and radically challenges the misconception that gas is a transition energy. Reclaim Finance joins Urgewald in denouncing the support AXA and other insurance companies provide to new gas infrastructure projects. These projects are completely incompatible with their climate commitments and their risk management mandate.
Gas is not a climate solution
Gas, whose extraction and consumption represent 25% of all GHGs worldwide, is often presented as an alternative to coal. This is a misconception for two key reasons.
Firstly, according to the Production Gap Report 2020 sponsored by the United Nations, we must reduce gas production by 3% a year up to 2030. Each new development is therefore incompatible with our remaining carbon budget. This also means we must close certain sites before full exploitation.
In addition, beyond strict gas uses, another element is all too often overlooked: methane leaks during transportation and transformation phases of LNG. These are usually estimated at 2-3% over the whole process but could in fact be as high as 9%. Yet, methane (CH4) has, over a 20-year period, an estimated impact on climate 86 times higher than CO2. In other words, gas exploitation is much more polluting than acknowledged. These facts are even more worrying when you realise gas production isn’t shrinking but rather is increasing by 1% a year, as Urgewald reminds us.
When useless infrastructure multiplies
By the end of 2019, 21 infrastructure projects for liquified natural gas transportation or transformation are planned in Europe alone, including six already under construction. Such infrastructures usually need 5 to 10 years to complete and they require 20 years-long supply contracts before starting construction work. Such timeframes reveal the scale of the disaster: these projects will trap Europeans in their dependence over gas well beyond what the Paris Agreement allows for.
Such development gas is in total contradiction with the EU climate commitments and goes agains current downward gas consumption trends, which according to projections will decrease from 13 to 19% by 2040, and by 75 to 85% in 2050.
The uselessness of such new infrastructures is even more striking when looking at the capacity utilization. According to the German Institute for Economic Research, DIW, there are 28 major import LNG terminals and the 8 small scale terminals that currently operate. They run on average at 25% capacity since 2012.
From these figures, it is not surprising there are so many projects cancelled. There are indeed many risks in addition to these economic factors: reputational risks from importing shale gas, legal risks when importing Russian gas under US embargo or when gas extraction impacts local inhabitants. In 2020 alone, Engie cancelled its contract with Next Decade, the Irish government abandoned its Shannon and Cork infrastructure projects, and Uniper indefinitely suspended its Wilhemshaven project.
Insurers, key facilitators of gas exploitation
Nevertheless, this dynamic might well accelerate, since gas is losing the support of key public financial institutions such as development banks and export agencies, which are announcing the end of their support to gas projects. Most recently, the president of the European Investment Bank announced on the 22nd of January 2021: “Gas is over”.
Still, the insurance sector refuses to turn its back on gas. Urgewald’s report shows that since the Paris Agreement, at least 21 major insurers have supported such projects, either through the outcomes of insurance policies, or through investment in shares or bonds. Urgewald lists 24 projects but we suspect this is only the tip of the iceberg.
Amongst those insurance companies, AXA. We already knew that AXA is among the 15 largest insurers of oil & gas worldwide. Urgewald’s report shows us how it is involved in the expansion of gas in Europe with support to no less than five projects planning gas infrastructure expansion since the signing of the Paris Agreement. We can mention the Nordstrem 2 gazoduc project, but also the gas activities of Energinet (Denmark), N.V. Nederlandse Gasunie (Netherlands) and Fluxys (Belgium).
AXA’s unscrupulous support to the gas sector
When focusing on Fluxys, AXA has for instance insured this company against project property damages and business interruption at two of its LNG Terminals. AXA is also its business partner in a joint venture with Fluxys. Fluxys, a Belgian company importing LNG through several terminals in France, Belgium and Germany, is problematic on several levels.
Fluxys plans first on running its operations in the gas sector well beyond what would be a Paris-aligned timeframe. Europe must phase-out gas by 2040, but Fluxys has a supply agreement with Qatar until 2044. The GHG emissions from this contract will add up to 2.3 gigatons of CO2 over the next 25 years – the equivalent of three times the entire GHG emissions of Germany for 2018.
Fluxys also has signed in 2015 a 20-years long agreement with Novatek, a Russian company, to buy 8 million tons of LNG from the Yamal region. However, the gas activity of Novatek threatens the traditional way of life of over 41,000 Nenets and Yamalo inhabitants whose land has been occupied and who now face mass unemployment and multiple addiction problems.
AXA must say no to gas expansion
To sum up, by accepting to insure or invest in this type of company, AXA has helped aggravate the current climate crisis. Additionally, it also threatens fundamental human rights of communities affected by gas extraction pits. With such an investment policy, the risk to register losses is likely considering the current chronic under-using of gas infrastructures in Europe.
It is urgent for AXA, as it is for all European insurers, to immediately stop ensuring any new gas project and to condition its financial support to companies on the end of their gas expansion. Unless this is done, it will be easy for climate activist to denounce the hypocrisy of AXA, which recently joined the Net–Zero Asset Owner Alliance, regarding its climate commitments.