Oil and gas firms could face a decade of credit downgrades, says Fitch

investmentnews.com:

Much of the fossil fuel industry may be facing an era of credit downgrades if producers prove too slow to adapt to a low-carbon future, according to Fitch Ratings.

Oil and gas companies stand out as the most vulnerable issuers in an analysis by Fitch, which sought to gauge how businesses will cope with climate risks such as increasingly stringent emissions regulations.

Fitch’s models show that more than a fifth of global corporates across regions and sectors face a material risk of a ratings downgrade due to an “elevated” level of climate vulnerability over the coming decade. Half of those issuers are in the oil and gas industry, while coal and utilities also stand out as being particularly exposed to the risk of downgrades, the analysis shows.

What’s more, over half the global issuers potentially facing downgrades due to climate risk are currently investment grade, according to FItch, which based its report on a sample of 715 companies.

The International Energy Agency estimates that global demand for oil will peak this decade. But other researchers warn that the tide may turn even sooner. According to Inevitable Policy Response, a forecasting group whose data was used in the Fitch analysis, peak oil may come in 2025, after which demand will sink more than 60% over the next two-and-a-half decades. 

The scale of the demand slump ahead “is a very big number,” Sophie Coutaux, head of ESG for corporate ratings at Fitch, said in an interview. There’s now a “big question mark” as to whether producers will “be able to adapt,” she said.

The warning comes as much of the oil industry doubles down on its core business, after the war in Ukraine spurred an energy crisis that fanned fossil fuel prices. Oil majors have used cash flows