The natural gas industry is reeling as the political climate begins to shift against the industry faster and earlier than many expected.

“If large institutional financial banks stop funding fossil fuel companies, that's going to be a real challenge,” Charlie Riedl, executive director of industry trade group Center for Liquefied Natural Gas, said this week at the Gulf Coast Energy Forum in New Orleans, according to S&P Global Platts. “That's a conversation we have to have. If natural gas becomes the next coal, that's going to be a real challenge.”

The coal industry has been battered by all sides over the past decade, crushed by the surge of shale gas itself and by renewable energy, but also squeezed by a shrinking pool of capital as banks and insurers cut off finance. For instance, on Wednesday, insurer Axis Capital announced that it would restrict insurance to both coal and tar sands oil.

To date, the gas industry, although having been under fire from environmental groups for years, has been spared the draconian crackdown by both capital markets and regulatory action. In fact, Big Oil has made a massive bet on natural gas as the future, which oil executives view as a hedge against peak oil demand.

But the political winds are shifting quickly. Earlier this year, Berkeley, California became the first U.S. city to ban new natural gas hookups in new buildings. Menlo Park and Windsor soon followed, and dozens of other cities are exploring similar prohibitions.

Some Democratic presidential candidates have vowed to ban fracking if elected. Related: Oil Prices Jump On A Lone Piece Of Bullish News

The industry risks losing its social license to operate. Record levels of gas flaring in Texas is surely not helping matters.

Charlie Riedl of the Center of Liquefied Natural Gas told S&P Global Platts that the industry has to do more to slash emissions.

It’s notable that the reference to gas becoming the new coal has been uttered by several industry executives in the past few weeks. “The industry really is at a critical juncture,” Woodside Petroleum CEO Peter Coleman said at a recent conference in Houston. “We run the risk of being demonized like that other fossil fuel out there called coal.”

For the oil industry, this is very much an existential problem. Many large oil companies are massive gas producers as well, and their portfolios are trending in a more gas-heavy direction.

Judging by BP’s recent PR blitz, they appear worried about the direction that the conversation on gas is taking.

As the world needs more energy with fewer emissions, we see cleaner-burning natural gas as a perfect partner to renewables. — BP America (@BP_America) October 15, 2019

BP’s CEO Bob Dudley said that Michael Bloomberg’s $500 million campaign to kill off natural gas-fired power plants is “irresponsible.”

“Every scenario I look at, we cannot carpet the world with renewables fast enough,” Dudley told CNBC.

Dudley’s counterpart at Shell also doubled down this week, calling the “demonization” of oil and gas “unjustified.” Shell has gone to great lengths to cast its business as one in transition, and last year the company announced that it would tie executive pay to reductions in greenhouse gas emissions.

By some measures, Shell is ahead of its peers. But that is a low bar to clear. The amount of money spent on clean energy by the oil majors is a pittance. ExxonMobil, for instance, spent a tiny fraction of 1 percent of its overall spending on low-carbon technologies between 2010 and 2018.

Shell’s CEO Ben van Beurden has struck a more conciliatory tone than his American competitors. “Things that we did 10 years ago, and everybody thought was entirely appropriate, correct, and ethical, maybe in today’s value sets [people will] say, ‘How could you do that’?” van Beurden told the FT in an interview last month.

But his patience seemed a little more worn out in an interview with Reuters this week. “Despite what a lot of activists say, it is entirely legitimate to invest in oil and gas because the world demands it,” van Beurden said. “We have no choice” but to continue to spend on long-term oil and gas projects, he added. Reuters noted that the Anglo-Dutch oil giant has plans to give final investment decisions on more than 35 new oil and gas projects by 2025. Related: What’s Behind The Bearish Bias In Oil Markets?

A September report from Carbon Tracker found that the oil majors funneled $50 billion into projects that are not aligned with the Paris Climate Agreement. Those investments were made since just last year. In other words, the industry is betting on, and very much invested in, the world blowing past climate targets.

In the Reuters interview, Shell’s Ben van Beurden dismissed the notion that the company’s projects would not be viable. “One of the bigger risks is not so much that we will become dinosaurs because we are still investing in oil and gas when there is no need for it anymore. A bigger risk is prematurely turning your back on oil and gas,” he said.

But he did admit that he was nervous that the company was losing investor interest amid growing pressure to act on climate change. He said that Shell’s shares were trading at a discount in part because of “societal risk.”

“I am afraid of that, to be honest,” he added. “It is not at a scale that the alarm bells are ringing, but it is an unhealthy trend.”

By Nick Cunningham of Oilprice.com

More Top Reads From Oillprice.com: