Wednesday, October 27, 2021

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    Don’t expect big oil to fix the energy crunch

    NSOWER CUTS In China. India’s coal shortage. Soaring electricity prices across Europe. Gasoline battle in Britain. Lebanese fainting and fuel flames. Symptoms of dysfunction in the global energy market are ubiquitous.

    Recently, the mayhem has pushed US oil prices to over $ 80 a barrel. This is the highest level since late 2014. European natural gas prices have tripled this year. Perhaps the demand for coal in the historic slag mountains has skyrocketed. The CEO of one commodity trading company says he will come to his office at 5 am to get the latest news about power outages in one or another country in Asia. And winter, when heating is needed, has not yet arrived in the Northern Hemisphere.

    A few years ago, fossil fuel producers would have responded to such price signals by rapidly increasing production and investment. In 2014, when crude oil exceeded $ 100 a barrel, European supermajor Royal Dutch Shell invested more than $ 30 billion in capital expenditures on upstream oil and gas projects.Then invested $ 53 billion BG Britain’s rival Group will become the world’s largest producer of liquefied natural gas (LNG).

    Not this time. Climate change has put unprecedented pressure on oil and gas companies, especially European companies, to move away from fossil fuels. As part of Shell’s long-term shift to the low-carbon gas and electricity markets, upstream capital investment shrank to approximately $ 8 billion this year. Last month, it shale a once-acclaimed shale asset in the Permian Basin of Texas to American rival ConocoPhillips for $ 9.5 billion. It has withdrawn from its land operations in Nigeria, the country where it first set foot in 1936. Recently, it announced that it would reduce oil production by 1-2% every year until 2030. We asked what the soaring energy prices mean for investment. Sawan, who is responsible for upstream oil and gas production, is dull. “From my point of view, that doesn’t mean anything,” he says.

    This view pervades much of the oil industry. In Europe, listed oil companies are being pressured by investors to stop drilling new wells, primarily for environmental reasons. As upstream investment increases as prices rise, promises for cleaner energy can be “denormalized.” BCG,consultant. In the United States, a listed shale company that was keen to “bankrupt” every time oil prices soared is now in the hands of shareholders who want to return profits through dividends and repurchases rather than puncturing the ground. It’s gone.

    State-owned oil companies are also budget-constrained, in part due to the covid-19 pandemic. Saudi Aramco and Abu Dhabi National Oil Company (ADNOC) We are expanding production. As a result, investment in oil and gas exploration and production is expected to slump globally, surpassing $ 800 billion in 2014 to only about $ 400 billion (see graph).

    Leave on the ground

    Meanwhile, as the pandemic eased, demand returned with amazing buoyancy. For the first time, the oil market could skyrocket to a point of lack of reserves, according to commodity investment firm Göring & Rosenkwajig. It may be only a temporary situation.With Aramco ADNOC You can respond quickly. But temporarily, at least, the price of crude oil has risen sharply, adding to the economy already suffering from soaring household natural gas and energy-intensive activities, from steelmaking and fertilizer production to wine bottle glass blowing. It will be a burden.

    From an environmental point of view, price increases may be welcomed when absorbing fossil fuel demand, especially if the global carbon tax does not bite. In the “World Energy Outlook” published on October 13, the International Energy Agency (IEA), Energy predictors said this year’s recovery in fossil fuel consumption could cause the second-largest absolute increase in carbon dioxide emissions to date. To reach the “net zero” emissions target by 2050 IEA It states that no investment in new oil and gas projects will be required after 2021. Instead, we need to triple our investment in clean energy by 2030.

    NS IEAThe claim that new natural gas projects, which are less polluted than other hydrocarbons, are not needed depends in part on investing in low-emission fuels such as hydrogen. But it admits, these are “out of orbit.” This represents the risk of treating all fossil fuels, each of which is responsible for carbon emissions, as an equivalent criminal. Reducing the supply of natural gas without backup can be counterproductive.

    For one thing, gas is currently the main alternative to steaming coal in countries such as China and India, which are keen to reduce electricity-related emissions.Investment company Bernstein predicts Chinese imports LNG It could almost double by 2030, making it the largest buyer in the world.Bernstein expects global if there is no investment in new projects LNG 14% less capacity than previously required. It will prevent Asia from withdrawing from coal.

    In addition, natural gas plays an important role in maintaining grid stability, especially where it relies on intermittent wind and solar power (at least until the world’s grid is more interconnected). .. In such markets, the marginal cost of natural gas often sets the price of electricity, even though most of the electricity comes from renewable energy with zero marginal cost. The higher the price of gas, the higher the cost of electricity. This can weaken general support for clean power.

    Whether or not a new supply will come remains in the air. As another commodity trader boss observes, “no one is investing because natural gas has been put into a dirty fuel line.” For private sector super majors, the problem is that they are divided almost evenly between oil and natural gas production. The two fuels tend to be intertwined in the investor’s mind, as both often come out of the ground together. This is frustrating. “It’s an incredibly short-sighted view that we put oil together with gas,” says one super-major executive. Still, his company seems unlikely to go against investors by significantly increasing gas production.

    Executives from another major oil company say rising prices could put more investment pressure on them, but they do not deviate from their long-term climate change efforts. Instead, he says, new investments are likely to come from two sources that are not under public pressure. A state-owned oil company and a privately held company. Executives say that most of the recent increase in rig numbers in the Permian basin is due to unlisted flakers rather than listed ones. Some people compare this to the smuggling of alcoholic beverages during the Prohibition era. The higher the price of oil and gas, the higher the incentive to produce them. In short, this happens out of the public eye. ■■

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    This article was published in the Printed Business section under the heading “Playing for time”.

    Don’t expect big oil to fix the energy crunch Source link Don’t expect big oil to fix the energy crunch

    The post Don’t expect big oil to fix the energy crunch appeared first on California News Times.

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