By Alice Uribe

SYDNEY-- National Australia Bank Ltd. has issued a new policy capping lending to the oil-and-gas sector, but says it will directly finance greenfield gas extraction in Australia where it "plays a role in underpinning national energy security."

Following a review this year, NAB said it has limited oil-and-gas exposure at US$2.4 billion, and would reduce its exposure from 2026 through to 2050.

This, NAB said, is aligned to the International Energy Agency's Net Zero Emissions 2050 scenario, which outlines a path to limit temperature rises to 1.5 degrees Celsius by 2050. It is the first Australian lender to issue an oil-and-gas lending policy.

NAB Chief Executive Ross McEwan said the lender was making sure it was able to help its customers transition.

"I think this is going to be vital for Australia but also globally. Banks like ourselves have to help customers transition which will mean some lending into these sectors to help them do that," he said during a media call.

For fiscal 2021, NAB's lending to oil-and-gas extraction was 2.9 billion Australian dollars (US$2.15 billion).

As part of the new policy, NAB said it would only consider directly financing greenfield gas extraction in Australia where it plays a role in underpinning national energy security.

Mr. McEwan said this would likely be a "rare exception."

"We expect we will assist where there is, in the national interest, both over a state or a federal area, where investment in gas is required," he said.

"But we expect this to be very minimal if at all, but we have said we will be there to assist on a national supply level."

Following the review of its oil-and gas-related exposures, NAB also said it won't directly finance greenfield gas extraction projects outside Australia, but will continue to support integrated liquefied natural gas in Australia, New Zealand and Papua New Guinea, and selected LNG infrastructure in other regions, under the oil-and-gas exposure cap.

NAB said it won't directly finance greenfield oil extraction projects or onboard new customers with a predominant focus on oil extraction, and won't finance oil-and-gas extraction, production or pipeline projects within, or impacting, the Arctic National Wildlife Refuge area or any similar Antarctic Refuge.

Finally, NAB said it won't directly finance oil/tar sands or ultra-deep-water oil-and-gas extraction projects.

Climate action group Market Forces said it thinks the material impact of the new policy on NAB's lending for new fossil fuel developments moving forward isn't clear, and questioned the policy's application to "direct finance" specifically, whereby banks fund a project as opposed to its owners.

This updated lending policy for companies and institutions working in a number of carbon-intensive sectors follows NAB's 2019 review of its thermal coal-related exposures, where it said it wouldn't finance new or material expansion of coal-fired power generation facilities.

NAB in 2019 signed the United Nations Environment Programme Finance Initiative's Collective Commitment to Climate Action, which committed it to evolve its business operations and lending portfolio to be net zero by 2050.

The lender on Tuesday reaffirmed its earlier announcement that it would set and publish decarbonization targets across its lending portfolio in its 2022 annual reporting suite.

Write to Alice Uribe at alice.uribe@wsj.com

(END) Dow Jones Newswires

11-08-21 1933ET