The Exim Bank’s loans will support the construction of more than 450 new oil and gas wells, boosting fossil fuel production in the Gulf state.
The United States will pump public funds into Bahrain’s expansion of oil and gas production, despite the Biden administration’s pledge to end support for overseas fossil fuel projects.
The U.S. Export-Import Bank (Ex-Im), a federal export credit agency, is moving ahead with plans to support the drilling of more than 450 new oil and gas wells in one of the oldest fields across the Middle East.
The Exim Bank’s board of directors voted on Thursday to notify the U.S. Congress about the potential investment, a required step for projects worth more than $100 million, and observers told Climate Home that funding for Bahrain was almost certain to be secured as early as next month.
At COP26, the U.S., along with 33 other countries, pledged to end direct public financing of overseas fossil fuel projects by the end of 2022. While most other signatories honored the pledge, the U.S. approved more than $2 billion in international fossil fuel finance last year, just under half of which was funded by the Export-Import Bank, according to an analysis by Oil Change International.
“The US is slowing the momentum towards ending international public financing of fossil fuels globally,” said Nina Pusic, export finance climate strategist at Oil Change International. While the US can “spearhead the shift of billions of dollars” from fossil fuels to renewable energy, approvals like this one are “a major setback,” she added.
Oil and Gas Expansion
The Exim Bank’s loan in Bahrain will fund a $4.2 billion program to increase production at a 90-year-old oil field where new reserves were discovered in 2018.
State oil company Tatweep Petroleum plans to drill up to 34 new gas wells and more than 420 new oil wells, as well as build processing facilities and a transportation network.
The plan is expected to unlock reserves that include 5.2 trillion cubic feet of natural gas — nearly six times the amount Saudi Arabia currently produces each year, according to a company filing. Oil production is expected to grow more slowly.
According to the International Energy Agency (IEA), no new oil and gas extraction projects should go ahead if the world wants to keep global warming below 1.5 degrees Celsius.
Pumping oil and gas from the expanded Bahrain fields is expected to release more than 1.4 million tonnes of carbon dioxide into the atmosphere per year by 2026, nearly double the emissions recorded in 2022, according to an environmental assessment submitted by Tatweep.
This does not include emissions that come from end users who burn fuel (known as Scope 3), which typically account for up to 90% of fossil fuel companies’ carbon emissions.
A constant stream of tension
The Exim Bank’s continued support for overseas fossil fuels is a continuing source of tension.
Two members of an advisory group set up by the Biden administration to strengthen the Export-Import Bank’s climate change efforts resigned last week following a controversy over the Bahrain project.
Politico reported that last year, former special envoy John Kerry called Indonesian Exim Bank chairman Leta Jo Lewis to urge him to postpone a decision to fund a roughly $100 million oil refinery expansion in Indonesia. But the bank went ahead with the vote and approved the project.
Ex-Im, the official export credit agency of the United States, is influential in guiding investment in certain sectors by providing government-backed loans, guarantees and insurance to exporters. The agency operates independently, but its directors are appointed by the US President and confirmed by the Senate. Joe Biden has chosen incumbent Joe Lewis as its director.
There are no clear guidelines
Upon taking office in January 2021, President Biden issued an executive order calling on federal agencies, including the Export-Import Bank, to “identify steps the United States can take to advance an end to international financing of carbon-intensive fossil fuel-based energy.” A few months later, the U.S. government signed the UN agreement in Glasgow.
But the Biden administration stopped short of directly forcing the Export-Import Bank to adopt fossil fuel exclusion policies.
“A key issue is that there are no clear guidelines from the U.S. government to the Exim Bank or any other U.S. government agency that explicitly prohibit new public support for fossil fuels,” said Shelley Ombuya, a researcher at Perspectives who wrote the report on Exim Bank policy.
For 2023, the Exim Bank has approved just under $1 billion in financing for projects including an oil refinery in Indonesia and a credit line to help commodities trader Trafigura increase sales of U.S. liquefied natural gas (LNG). Oil and gas investments make up nearly a quarter of the bank’s portfolio.
Export-Import Bank’s argument
The Exim Bank has repeatedly justified its fossil fuel financing by citing a “non-discrimination” clause in its charter that prohibits the bank from rejecting loan applications solely because they relate to a particular industry, such as oil and gas.
But Ombuya said that was “not a completely valid argument,” adding that the Eximbank’s board could reject the application if it did not align with U.S. climate change commitments, which would effectively lead to the rejection of the oil and gas project, he said.
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Activists also say existing tools that screen projects against certain greenhouse gas emissions thresholds could be expanded, without singling out particular sectors. The Exim Bank already applies standards to “carbon-intensive” projects, effectively excluding any financing for coal-fired power plants.
Friends of the Earth filed a lawsuit against the Export-Import Bank at the Organisation for Economic Cooperation and Development (OECD) in December, alleging that the bank was breaching its obligations to develop emissions reduction plans and avoid environmental damage.
A win for America’s fossil fuel companies
The Export-Import Bank says its mission is to support American jobs by helping U.S. companies win lucrative overseas contracts.
Joe Lewis was in Bahrain last year to meet with government officials and business executives with the aim of “expanding the Exim Bank’s footprint in the region and facilitating new opportunities for U.S. exporters in Bahrain.”
The Bahrain project will involve SLB (formerly known as Schlumberger), the world’s largest oilfield services provider.
The Houston-based company specializes in discovering oil and gas deposits, drilling wells and managing reservoirs to enhance production. SLB was involved in the discovery of new oil and gas reserves in central Bahrain and was awarded a $225 million contract for their development in March 2021.
The Export-Import Bank has been contacted for comment.
