Don’t blame ‘big oil’ for the turmoil in global oil markets

Eleven months ago, on May 17, 2021, the International Energy Agency published a report in which he urged all nations of the world to immediately stop further investment in efforts to find and produce new oil reserves. To achieve its goal of ‘Net-zero by 2050’, the agency said, all governments around the world would need to implement policies designed to create ‘a large decrease in the use of fossil fuels’.

“Beyond the projects already committed as of 2021,” the IEA report says, “there are no new oil and gas fields approved for development in our path, and no new coal mines or mine extensions are required. . Policy’s unwavering focus on climate change on the net-zero path results in a sharp decline in demand for fossil fuels, meaning the focus for oil and gas producers shifts entirely to production, and the reduction of emissions, from the operation of existing assets. Constant demand for coal is reduced by 98% to just under 1% of total energy use in 2050. Gas demand is reduced by 55% to 1,750 billion cubic meters and oil demand is reduced by 75% to 24 million barrels per day (mb/d), from around 90 mb/d in 2020.”

Since that report was issued by the United Nations energy arm, this is what really happened:

  • On August 4, 2021, Fatih Birol, who heads the IEA, said a meeting of the leaders of the Catholic Church that “there is no need to invest in oil, gas or coal”.
  • On October 13, 2021, Mr. Birol issued this incredible tweet acknowledging the dangerous level of underinvestment in oil and gas globally in recent years:

  • But demand for oil and gas has not been “stagnant or falling”; in fact, it has been rising rapidly, bringing with it higher commodity prices. Thus, on November 25, Mr. Birol criticized OPEC and other oil-producing nations for creating an “artificial tightness” in oil markets by refusing to produce more oil;
  • In early November, when the failure of the wind industry in Europe had created an imminent energy emergency on that continent, European governments began a frantic fight to restart the coal and natural gas power plants they had ordered to suspend and buy new supplies from those fossil fuels. ;
  • In late November, US President Joe Biden, concerned about falling poll numbers amid soaring oil and gasoline prices at gas stations, ordered the release of 50 million barrels of crude from the Strategic Petroleum Reserve (SPR);
  • In mid-December, reporters from Bloomberg identified to flotilla of no less than 42 LNG tankers transporting US natural gas to European ports in a single day to help keep homes warm and lights on on that continent;
  • On February 16, Mr. Birol publicly urged again OPEC+ to produce more oil;
  • In early March, with the price of Brent crude at $100 a barrel and the average price of gasoline in the US at $3.57 according to AAA, Vladimir Putin ordered the Russian military to invade Ukraine;
  • On March 14, Mr. Birol again urged oil-producing countries to produce more oil;
  • In response to Putin’s invasion, President Biden sent US envoys to Venezuela to plead with the Maduro government that the US has been sanctioning for several years to, you guessed it, produce more oil to ship to the US;
  • While Mr. Biden was banning new imports of Russian oil into the US, he also made calls to Saudi Arabia and the United Arab Emirates requesting that those countries produce more oil. Those calls reportedly were not returned;
  • Soon after, after half a year of asking almost every other oil-producing nation in the world to produce more oil, the US Secretary of Energy here – produce more oil;
  • The next day, several Democratic members of Congress introduced a bill that would impose a new Windfall Income Tax on, again, you guessed it, domestic oil producers;
  • Five days after that, the Securities and Exchange Commission introduced a proposed regulation governing ESG-related disclosures that many believe is an effort to further restrict the oil industry’s access to capital markets;
  • On March 25, without discussing the idea with major US LNG companies, President Biden made a commitment to the US LNG export industry to vastly increase its deliveries to Europe over the next 8 years;
  • Four days later, the president introduced his new budget proposal, a proposal that once again proposes to repeal all IRS Tax Code tax treatments specific to oil and gas and implement billions of dollars in new taxes on the industry. ;
  • Two days after that, Biden announced an even larger SPR crude withdrawal of 1 million barrels of oil per day for the next 180 days. As part of his announcement of the plan, the president criticized the domestic oil industry for, you guessed it again, not producing more oil.

Either the world wants more oil and gas, or it doesn’t. The US and other governments that are members of the UN and therefore subscribers to the IEA either want to achieve this “Net Zero by 2050” goal, or they don’t. Either they believe the IEA pronouncements, or they really don’t. Oil and gas companies may or may not make the investments required to find the new reserves needed to meet the world’s growing demand for oil and natural gas.

In the 11 months since the IEA urged those governments to stop further investment in oil and other fossil fuels, it has become abundantly clear that these countries and their legislators not only want more oil and natural gas, but also done need plus oil and natural gas. Often, as in the case of Biden’s new order to reduce the SPR, the motives for his political actions are primarily political in nature, but the need is clear nonetheless.

But if you’re wondering why industry leaders often complain that their companies are constantly pummeled by endless contradictory statements and political actions from national and global government agencies, the much abbreviated litany mentioned above serves as a starting point. pretty solid reference.

This is no way to execute an energy transition. It is not a way to reach “net zero by 2050”. Something has to give.

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