Europe is vying to build liquefied natural gas import terminals, although it is setting increasingly ambitious targets for reducing emissions. India cannot get enough coal and is not the only one. And Big Oil shareholders have become less inclined to vote on climate change commitments. 2022 is truly a year of radical change in the energy world.
In the last two years, while the pandemic has shut down entire countries and destroyed oil demand with the expected effects on Big Oil stock prices, emission reduction resolutions by investor activists have done well.
In fact, they did very well, with 58 percent of Conoco’s shareholders voting for the company to set emission reduction targets and 21 percent of BP’s shareholders voting for the supermayor to speed up the transition, according to Reuters. The Exxon activist investor Engine 1 won three seats on the company’s board, which was hailed as a big gain for the ESG investment trend. This year things look different.
For starters, Big Oil makes money thanks to the oil price rally. BP recorded a major profit of $ 6.2 billion in the first quarter of 2022, although it suffered a loss of $ 20.4 billion since leaving Russia and Rosneft. Exxon reported a profit of $ 5.5 billion in January-March. Conoco reported a net profit of $ 5.76 billion, and Shell reported a profit of $ 9.13 billion for the same period. Such results are usually enough to whet the appetite of investors, but there is more: all oil companies are still buying back shares, as they maintain the shareholder action they took when the effects of the pandemic began to subside. last year and prices began to rise. And then the energy crisis began.
Demand for oil and gas recovered faster than expected by almost everyone after the end of the blockade. It then continued to rise as investment in oil and gas production lagged far behind, due to the pandemic and growing industry concerns that ESG legislation and investment trends will harm their long-term chances of survival. Russia’s invasion of Ukraine has put the finishing touches on the demand for more hydrocarbon demand than supply.
This picture has put energy security in the spotlight, replacing the climate change alarm – at least temporarily. In fact, energy security is a much more immediate issue for anyone who has to pay for electricity or petrol, so it was only natural that it should rise to the top of the hundreds of millions agenda.
Related: Highest gasoline prices in the United States do not destroy demand
Oil prices have remained above $ 100 for more than two months, except for a brief decline for West Texas Intermediate, when the Biden administration announced the largest strategic withdrawal of 180 million barrels of oil reserves to counter rising retail fuel prices. .
OPEC + cannot cope with its own production quota, with some large cartel producers actually seeing a decline in production instead of increasing in line with last year’s group agreement. Saudi Arabia and the UAE, both member states with a lot of spare capacity, have flatly refused to pump more.
Russian oil is sanctioned by the West and exports are falling. As early as March, the International Energy Agency predicted that there could be a loss of more than 3 million barrels per day from Russian oil and fuel exports in the current quarter. Now, due to the blockade in China, the IEA says the world will not feel the loss of this supply because demand is also declining. Judging by oil prices, it will be some time before demand falls enough to affect them.
In other words, the world is still thirsty for oil and gas. It has also become a much more precarious place for investors, thanks to constant inflationary pressures in much of the world. As a result, investors are shifting from ESG to safe havens. One of these safe havens seems to be the harsh sector, according to a recent Bloomberg report.
Oil and gas, the report notes, provide natural protection against inflation, and this is especially true of energy inflation, which we have seen a lot of in the last few months. The S&P 500 energy index, Bloomberg said, has risen 45 percent since the beginning of the year, while the broader S&P 500 has fallen 14 percent. Investors love oil and gas again.
“Big Oil may have convinced some investors that the energy crisis is overcoming the climate crisis,” Mark van Baal of Follow This told the media in a comment on the new trend, which is emerging at this year’s Big Oil shareholders’ meetings.
In fact, Big Oil may not have needed to convince shareholders of anything. The effects of the energy crisis are obvious and, as it should be repeated, are much more immediate in their impact on the average household than climate change. Hence the rearrangement of priorities. It is safe to say that as long as the energy supply situation remains difficult, the issue of security will remain at the top of the agenda and climate change will remain second.
By Irina Slav for Oilprice.com
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