The global energy landscape is undergoing a seismic shift, and major banks are making their moves clear. After years of touting environmental, social, and governance (ESG) commitments, U.S. banking giants like JPMorgan Chase, Bank of America, and Citigroup are doubling down on fossil fuel investments, prioritizing profits over climate pledges. According to the 2024 Banking on Climate Chaos report, these institutions are leading a financial charge into oil, gas, and coal, funneling nearly $900 billion into fossil fuel companies last year alone—a $162 billion increase from 2023. This article explores the banks’ pivot, the returns driving their decisions, and how investors can capitalize on private oil and gas operations for tax-advantaged gains. ESG investing has had a positive impact on the governance of the U.S. oil companies. Their commitment to returning shareholder value to investors remains strong.
The European big oil companies had to follow the lead of their U.S. counterparts and return to their roots as oil and gas-focused companies to generate returns for their investors. We will watch to see how the European financial counterparts follow along. They are more invested in the carbon tax and carbon credit programs, so they will still be held to the Net Zero movement until returns can be manifested.
The Big Banks’ Fossil Fuel Frenzy
The Banking on Climate Chaos report, compiled by a coalition of environmental groups including Rainforest Action Network and Sierra Club, paints a stark picture of the banking sector’s priorities. In 2024, the world’s 65 largest banks committed $869 billion to fossil fuel companies, with U.S. banks accounting for nearly half of that total. Leading the pack, JPMorgan Chase poured $53.5 billion into oil, gas, and coal projects, followed closely by Bank of America with $46 billion and Citigroup with $44.7 billion. These figures mark a significant reversal from the downward trend in fossil fuel financing seen since 2021, signaling a strategic shift away from ESG-driven rhetoric.
Why the pivot? The answer lies in economics. With global energy demand rising, oil prices stabilizing, and renewable energy projects grappling with cost overruns and supply chain issues, fossil fuels remain a reliable bet for stable returns. The report highlights that $347 billion of the 2024 financing went to the top 100 companies actively expanding fossil fuel operations, underscoring the sector’s profitability. For banks, the mandate is clear: maximize shareholder value. As the OilPrice.com article notes, “Banks were never designed to hit climate targets. Their mandate is to maximize returns.”
JPMorgan Chase, the world’s top fossil fuel financier, has been particularly aggressive. In 2023 alone, it financed fracking operations with $6 billion and remains a key player in Arctic oil and gas, committing $122 million to top Arctic production companies. Bank of America, not to be outdone, has rolled back previous exclusions on Arctic drilling and coal financing, quietly positioning itself as a major funder of Amazon oil and gas projects with $162 million in 2023. Citigroup, the second-largest global fossil fuel funder since the 2016 Paris Agreement, has invested $55 billion in liquefied natural gas (LNG) and $246 million in Arctic oil and gas since 2016, prioritizing high-yield energy projects.
Returns Fueling the Shift
The financial logic behind this pivot is hard to ignore. Fossil fuel investments are delivering consistent returns in a volatile market. Unlike renewable energy projects, which face regulatory uncertainty and high upfront costs, oil and gas projects offer scalability and predictable cash flows. For instance, midstream oil and gas companies, often structured as master limited partnerships (MLPs), have generated annualized returns of 11.9% with relatively low volatility (22.5%), outperforming active fund managers in the energy sector.
The banks’ own portfolios reflect this trend. JPMorgan’s U.S. Equity Fund (JUEQX), for example, has 11% of its $3.57 billion invested in fossil fuel stocks, capitalizing on the sector’s resilience. Meanwhile, the global energy market’s fundamentals—rising demand in developing nations, geopolitical disruptions, and a slower-than-expected energy transition—bolster the case for hydrocarbons. As JPMorgan’s 2025 energy report notes, “Modern prosperity is highly reliant on fossil fuels,” with 80% of industrial energy inputs still derived from oil, gas, and coal.
Investor Opportunities in Private Oil and Gas Operations
For individual investors, the banks’ return to fossil fuels highlights a lucrative opportunity: private oil and gas operations. These investments, often structured as limited partnerships or direct working interests, offer not only strong returns but also significant tax advantages that make them particularly appealing in today’s market.
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High Returns Potential: Private oil and gas operations, especially in proven basins like the Permian or Marcellus, can yield annual returns of 10-20% or higher, depending on production success and commodity prices. Unlike publicly traded energy stocks, private operations allow investors to participate directly in upstream (exploration and production) or midstream (pipelines and storage) activities, capturing more of the value chain.
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Tax-Advantaged Structures: One of the most compelling reasons to invest in private oil and gas is the tax benefits. Investments in working interests or partnerships often qualify for:
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Intangible Drilling Cost (IDC) Deductions: Investors can deduct 60-80% of drilling costs in the first year, significantly reducing taxable income. These costs cover expenses like labor, chemicals, and site preparation.
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Depletion Allowances: Up to 15% of gross income from oil and gas production can be deducted annually, shielding a portion of profits from taxes.
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Pass-Through Deductions: Many private oil and gas investments are structured as partnerships, allowing losses and deductions to flow through to investors’ personal tax returns, further enhancing after-tax returns.
For high-net-worth individuals or those in high tax brackets, these deductions can offset income from other sources, making oil and gas a powerful wealth-building tool. -
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Portfolio Diversification: Private oil and gas investments have low correlation with traditional equities, providing a hedge against market volatility. With banks like JPMorgan, Bank of America, and Citigroup betting big on fossil fuels, the sector’s stability is reinforced by institutional capital, reducing risk for private investors.
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Access to High-Quality Projects: The influx of bank financing has spurred growth in private oil and gas companies, many of which are now seeking accredited investors for joint ventures. These projects often focus on efficient, technology-driven extraction methods, such as horizontal drilling and hydraulic fracturing, which maximize output and profitability.
How to Get Started
Investors interested in private oil and gas should consider the following steps:
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Work with a Financial Advisor: A qualified advisor can identify reputable operators and structure investments to maximize tax benefits.
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Due Diligence: Evaluate the operator’s track record, geological data, and lease terms to ensure the project’s viability.
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Accredited Investor Status: Most private oil and gas opportunities are limited to accredited investors (those with a net worth over $1 million, excluding primary residence, or income exceeding $200,000 annually).
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Diversify Within the Sector: Spread investments across upstream, midstream, and downstream operations to mitigate risk.
The Bigger Picture
The banks’ shift back to fossil fuels is a pragmatic response to market realities. As the OilPrice.com article aptly states, “Capital is flowing toward fossil fuels for one simple reason: the energy transition isn’t happening fast enough to make renewables the better bet.” While climate advocates decry this trend, the financial logic is undeniable—fossil fuels remain a cornerstone of global energy and industrial prosperity. For investors, this creates a window to capitalize on a sector flush with institutional support and tax-advantaged opportunities.
However, risks remain. Regulatory changes, geopolitical shifts, or breakthroughs in clean energy could disrupt the sector’s trajectory. Investors must weigh these factors against the immediate benefits of high returns and tax savings. For now, JPMorgan, Bank of America, and Citigroup are leading the charge, and savvy investors can follow their lead by exploring private oil and gas operations. This is excellent news for consumers, as more investment available for oil companies will help lower the price at the pump. With the geopolitical issues we are facing at this time, we need all of the investment and oil pumped on US soil.
Disclaimer: Investing in private oil and gas carries risks, including commodity price volatility, operational challenges, and regulatory changes. Consult a financial advisor to determine if these investments align with your goals.
Sources:
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Banking on Climate Chaos Report, 2024
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OilPrice.com: “Banks Drop the Climate Pretense and Follow the Money”
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J.P. Morgan Private Bank, Energy Reports
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Fossil Free Funds, JPMorgan U.S. Equity Fund Analysis
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