People in the debate on how to secure America’s energy future at CERAWeek

Attendees of the CERAWeek by S&P Global 2022 conference in Houston, Texas, USA, on Wednesday, March 9, 2022.

F. Carter Smith | Bloomberg | beautiful pictures

The annual CERAWeek by S&P global energy conference in Houston, which ends Friday, could not have come at a better – or tougher time.

Energy executives, policymakers and thousands of others gathered in Texas this week as Russia’s invasion of Ukraine pushed energy – prices, security, transition to renewables create – made headlines, along with stories of human suffering.

Energy Secretary Jennifer Granholm was the keynote speaker, and she surprised the audience with her powerful call to speed up oil production. Over hundreds of tables and between each session in the hall, experts debated what should happen next, and what the global energy complex will look like in the future. Should the US drill more oil and gas? Does energy security mean building renewable energy and avoiding dependence on hydrocarbons? Will natural gas be the demand fuel? What role do investors play in production policy?

Essentially at the conference, attendees in the oil and gas industry had a feeling of optimism about the key services their company provided. Through conversations with more than a dozen people who have not been named freely to talk about the companies they represent, differing opinions on issues including whether rising oil and gas prices will boost or cool down the energy conversion process. But a common thread is that so-called traditional energy companies need to be part of the conversation.

“I feel really proud to be working for an oil and gas company… we are powering people,” said one conference attendee. Another said: “There has been an attack on the oil and gas industry, before adding that the conflict has brought attention to energy integration. “There’s going to be energy fusion. We’re going to need fossil fuels and then we also need to move to renewables, but it has to be a gradual process,” the person said.

“I’m happy to work in the oil and gas sector… it’s a technology industry [and] “said one attendee.” I think our industry is leading,” another echoed, adding that “natural gas infrastructure can contribute to ambitious environmental goals including decarbonization and zero emissions.” net”.

Energy transition is coming

At this point, no one doubts, even in the oil and gas industry, that the energy transition is coming – it is happening, after all, before our very eyes. But opinions differ greatly on what the speed should be. Forecasts of when oil demand will peak are everywhere. Amid this uncertainty, oil and gas companies have made several forays into decarbonization technologies such as carbon and hydrogen capture, on display at CERAWeek. Companies include Exxon, OxygenSaudi Aramco and Petronas put on a beautiful display of their efforts on these fronts.

“It’s quite interesting,” said one. “There’s a lot that’s going to happen to change and develop the industry differently from what it used to be.”

But in the short term, oil demand is forecast to hit a high above 100 million bpd this year. And with prices already so high, the question of when, or even if, producers increase output is central.

One participant, now a director of an independent oil and gas company, said: “It will cause the industry to accelerate the energy transition, but in the near future I think we will see more oil and gas because the world needs it.”

Of course, of primary importance is Russia’s ability to have a major impact on global energy trade by controlling so much oil and natural gas production, and because this market is “very interconnected.” linked and linked together.”

Attendees of the CERAWeek by S&P Global 2022 conference in Houston, Texas, USA, on Wednesday, March 9, 2022.

F. Carter Smith | Bloomberg | beautiful pictures

Even before Ukraine crisisOil prices have slowly but steadily climbed out of lows not seen during the pandemic. The US Oil Standard even traded briefly in negative territory as the virus dampened demand for petroleum products.

Soaring oil prices threaten recession

Demand has rebounded, while supply remains constrained, pushing prices higher. On the day Russia invaded Ukraine, US and global oil benchmarks jumped above $100, and just over a week later they hit $130. Brent Crude Oil, the international oil marker, is close to touching $140. Russia produces about 10 million barrels of oil per day, almost half of which is exported. The country is a major supplier to Europe, and fears of losing output in an already tight market have sent prices soaring.

President Joe Biden since then ban on energy imports from Russia, though the US doesn’t actually import that much from Russia. It would make much more sense if Europe imposed similar measures. However, even before sanctions targeting the energy industry were announced, buyers shunned Russian products for fear of violating the restrictions.

While US manufacturers may have been eager in the past to open the faucet when prices rose from $50, to $60, $75, $90, and then above $100, companies have emerging from the pandemic with a different mindset. It’s no longer all about growth – a point that has been emphasized many times in Houston. Companies are focusing on capital discipline and shareholder returns in the form of buybacks and dividends. Once the cash is returned to investors, it’s not easy to go back to the same investors – some of whom have had years of poor earnings – and say it’s time to start. drill again.

That’s not to say production hasn’t returned. The number of oil and gas rigs in the week ended Friday increased for the ninth time in the past 10 weeks, according to data from oilfield services firm. Baker Hughes. The number of oil rigs is now 527, the highest since April 2020. However, this number is still much lower than the pre-pandemic level, which was 700 rigs previously.

While high fuel prices are certainly a factor affecting the oil industry, at certain points even oil companies don’t want such high prices. It shifts Washington’s attention to the industry, and risks pushing the economy into recession.

“I think if oil prices continue to stay high, we will definitely go into a recession,” said one Houston attendee, vice president of production for a general oil company. Estimates of where oil prices go next vary widely, but some believe $200 is close if the Russian war breaks out.

“It’s not good for consumers. It’s not good for the industry either,” noted another conference attendee. The national average for a gallon of gas hit $4 on Sunday and prices have increased further during the week.

Attendees ahead of the CERAWeek by S&P Global 2022 conference in Houston, Texas, USA, on Sunday, March 6, 2022.

F. Carter Smith | Bloomberg | beautiful pictures

Tackling climate change is one of the key tenets of the Biden administration, and oil companies say the policies are not friendly to their industry. Licensing delays are often cited. White House officials denied these claims, saying they had issued permits, but the industry had not acted.

A plea for more drilling

But the tone of the administration appeared to be much different in Houston on Wednesday, when Energy Secretary Jennifer Granholm addressed CERAWeek. Basically she beg the drilling companiesin a speech that often contradicts the Biden administration’s decarbonization goals.

She even directly appealed to oil and gas shareholders. “I hope your investors are saying these words to you too: in this time of crisis, we need more supply,” she told an energetic room of executives. .

One industry insider described the predicament that oil and gas companies face – inflicted on shareholders even as officials ask companies to increase output – as a “self-inflicted wound”. “.

The person added: “Investors want capital discipline from oil and gas companies in the US. This reduces the companies’ incentive to increase oil production quickly.

All else being equal, if oil and gas companies decide to increase production tomorrow, it will still be several months before operations come online.

“It’s very difficult to fix these things. No one has. … Nothing is going to happen right away,” said one person.

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