Tag: Energy

Big Oil rakes in record profit haul of nearly $200 billion, fueling calls for higher taxes

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Deer graze inside the gates of the Exxon Mobil Joliet refinery on the Des Plaines River. Exxon Mobil’s 2022 haul of $56 billion marked a historic high for the Western oil industry.

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The West’s five largest oil companies raked in combined profits of nearly $200 billion in 2022, intensifying calls for governments to impose tougher windfall taxes.

French oil giant TotalEnergies on Wednesday reported full-year profit of $36.2 billion, doubling last year’s total, as fossil fuel prices soared following Russia’s full-scale invasion of Ukraine.

The results see TotalEnergies join supermajors Exxon Mobil, Chevron, BP and Shell in recording a massive upswing in annual profits, after Exxon’s 2022 haul of $56 billion marked a historic high for the Western oil industry.

Altogether, the five Big Oil companies reported combined profits of $196.3 billion last year, more than the economic output of most countries.

Flush with cash, the energy giants have used their bumper earnings to reward shareholders with higher dividends and share buybacks.

“You may have noticed that Big Oil just reported record profits,” U.S. President Joe Biden said in his State of the Union address on Tuesday. “Last year, they made $200 billion in the midst of a global energy crisis. It’s outrageous.”

Biden said U.S. oil majors invested “too little of that profit” to ramp up domestic production to help keep gas prices down. “Instead, they used those record profits to buy back their own stock, rewarding their CEOs and shareholders.”

Biden proposed quadrupling the tax on corporate stock buybacks to incentivize long-term investments, insisting the supermajors would still make a “considerable” profit.

Activists from Greenpeace set up a mock-petrol station price board displaying the Shell’s net profit for 2022 as they demonstrate outside the company’s headquarters in London on Feb. 2, 2023.

Daniel Leal | Afp | Getty Images

Agnès Callamard, secretary general of human rights group Amnesty International, described Big Oil’s vast profits as “patently unjustifiable” and “an unmitigated disaster.”

“The billions of dollars of profits being made by these oil corporations must be adequately taxed so that governments can address effectively the rising cost of living for most vulnerable populations and better protect human rights in the face of multiple global crises,” Callamard said in a statement.

Big Oil executives have sought to defend their rising profits amid a barrage of criticism from campaigners, typically highlighting the importance of energy security in the transition to renewables and suggesting higher taxes could deter investment.

“Ultimately, taxes are a matter for governments to decide on. We, of course, engage and provide perspectives and the key perspective that we try to provide is a context around the fact that companies like ourselves that need to invest multiple billion dollars to support the energy transition require a secure and stable investment climate,” Shell CEO Wael Sawan said Thursday.

His comments came shortly after Shell reported its highest-ever annual profit of nearly $40 billion, comfortably surpassing its previous record of $28.4 billion in 2008.

“For example, windfall taxes or price caps simply erode confidence in that investment stability and so I do worry about some of the moves being made,” Sawan said. “I think there is a different approach that needs to be had which is to really draw investment capital at a time when we need to be able to embed energy security into the broader energy system here in Europe.”

The CEO of Saudi Aramco, the world’s largest energy company, has previously warned about the dangers of pressuring oil companies through higher taxes.

Asked by CNBC’s Hadley Gamble last month if a windfall tax on oil profits was a bad idea, Saudi Aramco’s Amin Nasser replied, “I would say, it’s not helpful for them [in order] to have additional investment. They need to invest in the sector, they need to grow the business, in alternatives and in conventional energy, and they need to be helped.”

Nasser said the transition to renewable technologies required significant investment, and this is likely to take a hit if companies face increased taxation.

Windfall taxes

Former BP CEO John Browne said it is right for governments to tax the windfall profits of Big Oil — on the condition that the taxes are correctly designed.

“The thing about windfall taxes is, and when I ran BP I was subject to this many, many times, is they are jurisdiction dependent … and secondly there is a limit,” Browne told CNBC’s “Street Signs Europe” on Wednesday.

Browne said the issue of windfall taxes was a balancing act for policymakers. “The important thing about a windfall profit tax is if you put them on, you have to take them off,” he added.

Former BP CEO says it is right to tax windfall profits — so long as they are designed correctly

The advocacy group Global Witness says people have every right to be outraged by the extraordinary profits of Big Oil and called for an increased windfall tax.

“Given that we’re entering a global recession and that most of us know people who are struggling, we must all call out profiteering like this,” Alice Harrison, fossil fuels campaign leader at Global Witness, told CNBC via email.

“An increased windfall tax to help those struggling to pay their bills, along with a significant boost in renewable energy and home insulation, would end the fossil fuel era that is harming both people and the planet so severely,” Harrison said.

‘People can see the injustice’

“People can see the injustice of paying eye-watering energy costs while big oil and gas firms rake in billions,” said Sana Yusuf, climate campaigner at Friends of the Earth.

“Fairly taxing their excess profits could help to fund a nationwide programme of insulation and a renewable energy drive, which would lower bills, keep homes warmer and reduce harmful carbon emissions,” Yusuf said.

BP CEO Bernard Looney on Tuesday sought to defend the company from criticism after reporting record 2022 profits of $27.7 billion, saying the British energy major was “leaning in” to its strategy to provide the world with the energy it needs.

BP, which was one of the first energy giants to announce an ambition to cut emissions to net zero by 2050, had pledged emissions would be 35% to 40% lower by the end of the decade. It said Tuesday, however, that it was now targeting a 20% to 30% cut, saying it needed to keep investing in oil and gas to meet demand.

“We’re leaning into our strategy today,” BP’s Looney said. “We’re announcing up to $8 billion more investment into the energy transition this decade and up to $8 billion more into oil and gas in support of energy security and energy affordability this decade.”

Activist investor group Follow This was sharply critical of the move.

“If the bulk of your investments remain tied to fossil fuels, and you even plan to increase those investments, you cannot maintain to be Paris-aligned, because you will not achieve large-scale emissions reductions by 2030,” said Mark van Baal, founder of Follow This.

— CNBC’s Natasha Turak contributed to this report.

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New Western measures aim to turn up the heat on Putin’s oil revenues. Analysts are underwhelmed

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Freight wagons carrying oil and fuel at a petroleum products terminal in Riga, Latvia, on Feb. 2, 2023.

Bloomberg | Bloomberg | Getty Images

The West’s latest attempt to ramp up its oil war against Russia may cause some market dislocation, but some energy analysts remain far from convinced that the restrictions will constitute a “transformative event.”

An EU ban on Russian oil product imports came into effect on Feb. 5, following similar restrictions on EU crude oil intake, implemented on Dec. 5. The Group of Seven industrialized countries, the European Union and Australia on Friday set a ceiling for the price at which nations outside of the coalition may purchase seaborne Russian diesel and other refined petroleum products and still benefit from Western shipping and financial facilities.

The price cap coalition, which is composed of Australia, Canada, the EU, Japan, the U.K. and the U.S., seeks to deplete Russian President Vladimir Putin‘s war chest amid Moscow’s ongoing hostilities in Ukraine.

The EU and its G-7 allies said last week that they had set two price caps for Russian petroleum products — one is a $100-per-barrel cap on products that trade at a premium to crude, like diesel, and the other is a $45 cap for petroleum products that trade at a discount to crude.

Some analysts warned that the measures could cause “significant market dislocations” and that the EU embargo was more complex and more disruptive than what had come before.

Not everyone shares this assessment.

“There is an overwhelming assumption that this will be a huge disruption to everything. I don’t really think this will be a transformative event,” Viktor Katona, lead crude analyst at Kpler, told CNBC’s “Squawk Box Europe” on Monday.

“I don’t really think that this will have the impact that a lot of people can imagine, and the main driver for this will be actually human creativity — and the constant search for a new solution, for a new supply chain or for a new route,” Katona said.

“This will bring us basically into the same story that we had with the oil price cap back in December. People expected a lot of things. In the end, it never really happened,” he added.

‘Russia may struggle to compensate fully’

As part of the sixth EU package of sanctions against Russia that was adopted in June last year, the 27-member bloc imposed a ban on the purchase, import or transfer of seaborne crude oil and petroleum products from Russia. The restrictions applied in early December and February, respectively.

Russian President Vladimir Putin chairs a meeting with members of the Security Council via a video conference on Feb. 3, 2023.

Pavel Byrkin | Afp | Getty Images

Asked whether those predicting significant market disruption because of the measures targeting Russia’s refined oil products were likely to be wide of the mark, Katona replied: “I think they are. I would say that the main development of the past two weeks when it comes to Russian diesel has been happening not in Europe, but in North Africa.”

Katona said North African countries were expected to receive at least 6 million barrels of ultralow sulfur diesel from Russia, estimating that this was roughly one-quarter of what the European Union used to purchase from Moscow.

He explained that a “substantial transformation clause” remains under question because North African countries are not members of the price cap coalition.

“Basically, you drip one droplet of something else into a cargo of Russian diesel and it is already Moroccan, it is already Algerian, it is already Tunisian,” Katona said. “All of these countries have seen quite a substantial uptick in Russian diesel flows. And our expectation is that Feb. 5 kicks in, and there will be a lot of flows from North Africa, basically Russian in all but name.”

Ahead of the Western ban on its oil supplies, the Kremlin reaffirmed its opposition to the measures and warned it would cause more market imbalances.

“It will lead to further imbalances on the international energy markets,” Kremlin spokesman Dmitry Peskov told reporters Friday, according to Russian news agency Tass. “Naturally, we are taking precautions to protect our interests from the risks associated with it.”

Energy analysts at political risk consultancy Eurasia Group said that the latest wave of Western sanctions was likely to dislocate flows rather than cause a severe disruption of supplies, noting that oil product markets have had several months of advance notice to prepare for the restrictions.

“Still, while flows are readjusting, some disruption is possible, especially in the middle distillate market, which was already tight before the latest sanctions,” analysts at Eurasia Group said in a research note.

“Russia may struggle to compensate fully for the loss of EU buyers, especially if a recovering China stops exporting so much surplus fuel and instead starts to import significant quantities again,” they added.

‘Shipments will take longer’

“This is a very substantial disruption to really a key industrial field across much of the euro zone,” Edward Bell, commodities analyst at Emirates NBD, told CNBC’s “Capital Connection” on Monday.

“Russia was the dominant external supplier of diesel to euro zone economies, so the fact that this embargo is now in place means that there will be a little bit of a readjustment and scrambling to get those additional barrels.”

Bell said it appears as though Russia has so far been able to find new markets or expand diesel exports to historical markets, such as to Turkey and partners in North Africa and Asia. “All this means those shipments will take longer,” he added.

“This is not a positive indicator in terms of the direction for prices going downward and easing the burden of energy prices on consumers but in terms of actually disrupting supply it doesn’t like we are in any kind of panic stations just yet.”

Bell suggested Saudi Arabia’s diesel exports to Europe could be set for a “big uptick,” following the West’s embargo on Russian petroleum products.

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ExxonMobil, Chevron’s big cash shows cheap gas isn’t coming back

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If you want a quick outlook on whether U.S. gas prices are likely to return to pre-Covid levels, a good place to start is earnings reports from Chevron and Exxon in the last week.

The outlook: Don’t count on it. In their fourth-quarter earnings reports, both companies showed clear signs of Big Oil’s renewed focus on managing costs, widening profit margins as oil prices stayed relatively high even after coming down considerably from last year’s highs, and confidence that they will be able to keep passing the rewards back to shareholders.

On Jan. 25, Chevron announced a $75 billion share buyback, which will allow it to use excess cash flow to cut the number of shares by up to as much as 20% — over multiple years and contingent on shares also used for employee options programs and M&A rather than just earnings per share increase. Chevron also raised its dividend to about 3.4%, double that of the Standard & Poor’s 500-stock index. On Jan. 31, Exxon announced it had spent $15.2 billion to acquire stock in 2022 – up from $155 million a year earlier, and authorized another $35 billion this year and next.

The moves are the latest page in the industry’s post-2020 playbook: To satisfy investors who pushed energy stocks down more than 40% in a rising stock market between 2014 and 2019, oil companies slowed down drilling overinvestment that had caused cash-flow losses estimated as high as $280 billion. With the conserved cash, they raised dividends and boosted stock buybacks – moves that helped oil stocks double in the year after the 2020 election, as U.S. gasoline prices rose by more than half.

Rob Thummel, senior portfolio manager at Tortoise Capital Advisors, which advises mutual funds on energy investing, said Chevron and Exxon are in position to increase the dividend, increase production, and buy back stock. “They are doing what mature companies do – generate a lot of cash and return it to shareholders,” he said.

Big oil sees political pushback on buybacks

Fuel prices at a Chevron gas station in Menlo Park, California, on Thursday, June 9, 2022.

David Paul Morris | Bloomberg | Getty Images

The industry’s reallocation of money to shareholders from new drilling comes as political leaders, including President Joe Biden, criticize oil companies for not restraining the price of gasoline as crude oil rose from $53 when Biden took office in 2021 to $77.50 now.  Exxon’s fourth-quarter profit margin of almost 14% of revenue compares to 11% a year ago.

“My message to the American energy companies is this: You should not be using your profits to buy back stock or for dividends,” Biden said in October. “Not now. Not while a war is raging. You should be using these record-breaking profits to increase production and refining.”

The White House attacked both companies again this week after the buyback announcements.

In the market, and at the oil companies headquarters, it seems the opinions issued from the White House aren’t much of a factor in setting financial priorities. The price of oil is set on world markets, rather than by individual producers, Thummel said. The role of the Organization of Petroleum Exporting Countries, led by Saudi Arabia, in limiting production is the biggest factor in world prices. U.S. oil production, which does not have a central organization setting prices, has rebounded from a post-Covid low reached in April 2021, and reached 383 million barrels per month in October, closing in on the all-time high of 402 million in December 2019, according to U.S. government data.

Gas prices are also being hit by a loss of refining capacity. Part of this is longer-term, as refiners phased out less profitable facilities during the Covid-related demand drop, and following a wave of mergers forced by declining cash flow and share prices. And part of it stems from temporary shutdowns for maintenance made necessary by the cold wave in much of the country in December, CFRA Research analyst Stewart Glickman said.

Of the two biggest U.S. oil producers, Chevron made the more dramatic changes in the fourth quarter earnings releases, since Exxon had announced its buyback acceleration earlier, Glickman said.

The benchmark now is to spend roughly a third of operating cash flow on capital investment, a third on dividends and a third on stock buybacks. The buybacks can be dialed back if oil prices fall, and would likely be the first big cost cut oil producers would make if crude fell back to $60 a barrel from the current range about $77, he said. Buybacks, unlike dividends, aren’t treated as a “must” by investors each quarter, while cutting a dividend can lead to mass selling by investors.

Chevron is pretty close to Glickman’s recipe, with $49.6 billion of 2022 cash flow yielding $11 billion in dividend payments, $11.3 billion in share buybacks that were accelerating as the year ended to the $15 billion annual pace, and $12 billion in capital investment – enough to boost U.S. production by about 4% even as its international production dropped. Exxon made $76.8 billion in operating cash flow, invested $18 billion back into the business, spent $14.9 billion on dividends and $15.2 billion in stock purchases, according to its cash flow statement.

“What we learned from [earnings announcements] is that the industry is very committed to a conservative approach to spending,” Glickman said. “They could [drill more], but they would have to sacrifice their return thresholds, and neither they nor their shareholders are interested. I don’t blame them.”

Oil production is increasing

Despite the push to pay out more money, the companies have begun to produce slightly more oil in the U.S.

Chevron said its U.S. oil production gain was led by a double-digit increase in the Permian Basin of Texas. Exxon also said Permian production led its U.S. results, rising by nearly 90,000 barrels per day.

“Growth matters when it’s profitable,” Chevron CEO Mike Wirth said on the company’s earnings call on Jan. 27. Chief Financial Officer Pierre Breber said the company’s four major financial goals are dividend growth, buyback growth, capital spending and reducing debt.

Slower growth and cash distribution is the right path for an industry that is growing more slowly, Thummel said, especially since the government is prodding utilities away from relying on natural gas to make electricity and offering consumers tax credits to swap gasoline-powered cars and SUVs for electric models. 

In the early part of the last decade, investors applauded energy companies for investing more than their entire operating profit in new wells, believing that hydraulic fracking would propel the sector to a new wave of growth, Glickman said. And while U.S. production more than doubled during the fracking boom, it failed to produce the expected profit. Today, politicians are trying to foster a transition away from fossil fuels, making it dicey for Big Oil to invest in large offshore drilling plans that may need decades to pay off, he added.

“Why on earth would these companies agree to play ball with that kind of attitude?” he said.

The oil companies’ new approach stands in sharp contrast to that of EV maker Tesla, which has resisted shareholder pressure to begin buying back stock as it begins taking share in a market entwined with the oil companies. Tesla has hung on to its cash flow even as it completes a major factory-building campaign that has seen it add new plants in Texas, China, and Germany to its initial production facility in California. The company also produces batteries for its vehicles in Nevada.

That path works for Tesla because it is addressing a fast-growing market for EVs, while oil companies are trying to milk the cash from their existing, low-growth businesses and invest in new ones like carbon capture before current sources of cash flow like gasoline sales begin to shrink, Glickman said. But even Tesla should be returning cash to holders after a sharp decline in shares last year, Wedbush analyst Dan Ives said.

“Our view is that it’s a no-brainer that Tesla should do a buyback now,” Ives said. “Tesla is in a robust position financially and this would send an important signal. The biggest capital spending is in the rearview mirror for now.” 

But Tesla’s most obvious short-term use of its $22 billion cash hoard might be preparing for any possible impact on profits of the price cuts it announced Jan. 13. 

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Norway’s fossil fuel bonanza stokes impassioned debate about how best to spend its ‘war profits’

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Norway is making more money from oil and gas exports than ever.

Ole Berg-rusten | Afp | Getty Images

Norway’s skyrocketing oil and gas wealth is expected to climb to new heights this year, boosted by higher fossil fuel prices in the wake of Russia’s nearly year-long onslaught in Ukraine.

The ballooning petroleum profits of the Scandinavian country put Oslo in a unique position: As many in Europe are struggling to cope with the region’s worst energy crisis in decades, Norway — already extremely rich — is getting richer still.

It has ignited an impassioned debate about international justice, with many questioning whether it is fair for Norway to rake in record oil and gas revenues at the expense of others’ misfortune.

Opposition lawmakers, prominent economists in the country, and even titans of Norway’s energy industry have called on the government to set an example to the world by pumping its fossil fuel revenues into a new international solidarity fund that helps countries meet their climate goals.

Norway’s Finance Ministry expects the state’s revenues from oil and gas sales to climb to 1.38 trillion Norwegian krone ($131 billion) this year. That’s up from a previous record of 1.17 trillion krone last year, and a nearly fivefold increase from 288 billion krone in 2021.

“They are war profits,” Lars-Henrik Paarup Michelsen, director of the Norwegian Climate Foundation think tank, told CNBC via telephone.

“Most European countries are getting poorer because of the war. Norway is getting richer — much richer.”

Opposition lawmakers, prominent economists and even titans of Norway’s energy industry have called on Prime Minister Jonas Gahr Store’s government to set an example to the world by pumping at least some of its fossil fuel revenues into a new international solidarity fund.

Picture Alliance | Picture Alliance | Getty Images

Michelsen said he was fearful that by choosing to pocket its bumper oil and gas profits, Norway is damaging its international reputation, warning that the country is at risk of being perceived as “very egocentric.”

“We are in a completely different position than the rest of Europe and I think, with that, it also bears a responsibility,” Michelsen said. He called for the government to redirect its extraordinary windfall to further help Ukraine, accelerate Europe’s energy transition and provide climate finance for low-income countries.

“This situation is certainly not of our making and not to our liking,” Norway’s Deputy Foreign Minister Eivind Vad Petersson told CNBC via telephone. He argued that it is critically important for Europe’s energy security that Norway keeps gas production high.

Petersson said the government’s financial support to Ukraine is approaching 1.5 billion euros ($1.63 billion), adding that the country’s policymakers are working on a multi-year program to continue to help Kyiv.

Oil companies are getting richer and richer, but we don’t see that money — and who is really paying for this?

Ingrid Fiskaa

Foreign affairs spokesperson for Norway’s Socialist Left

When asked about accusations that the country is war profiteering, Petersson replied, “No, not really … The indirect effect, we fully acknowledge, is that our revenues have increased, but I do not accept that label.”

“We are very well aware of the responsibility that comes with the fact that we have these resources. Of course, the responsibility to protect it, bearing in mind the crucial role of energy security now in Europe for this winter and possibly next,” Petersson said.

He added that Norway’s government is also “fully aware of the responsibility that comes with being a supporter and donor, not only to Ukraine but also other countries across the world suffering the effects of Russia’s war.”

‘We should contribute more with this money’

Norway, which last year overtook Russia as Europe’s biggest natural gas supplier, has been one of the world’s top crude producers for the past half-century. That’s thanks to its gigantic North Sea petroleum deposits — the spoils of which have been used to provide a robust safety net for current and future generations.

The Norwegian government’s net cash flow from petroleum sales is transferred into Norway’s $1.3 trillion sovereign wealth fund. The government can only spend a small part of the fund each year, but this is still estimated to amount to nearly 20% of the government budget.

The so-called Government Pension Fund Global, among the world’s largest sovereign wealth funds, was established in the 1990s to invest the surplus revenues of Norway’s oil and gas sector. To date, the fund has invested in more than 9,300 companies in 70 countries around the world.

Norway, which last year overtook Russia as Europe’s biggest gas supplier, has been one of the world’s top crude producers for the past half-century.

Jp Black | Lightrocket | Getty Images

“These excess profits, as we may call it, are a direct result of the war,” said Ingrid Fiskaa, foreign affairs spokesperson for Norway’s Socialist Left, whose support is critical for Prime Minister Jonas Gahr Store’s minority government.

Fiskaa highlighted that legislation in Norway limits the use of oil revenues in the domestic economy to avoid high inflation — and that, she argues, strengthens the case for investing in international solidarity.

“There should be a lot more debate on this issue,” Fiskaa told CNBC via telephone. “Oil companies are getting richer and richer, but we don’t see that money — and who is really paying for this? It is the rest of the world. We should contribute more with this money.”

Norway’s aid budget has hovered near 1% of its gross national income for more than a decade, making it one of the world’s most generous donors.

Store’s government was sharply criticized last year for proposing to cut the proportion of GNI it spends on foreign aid to 0.75%. That level is still significantly above the Organization for Economic Cooperation and Development’s average of 0.3%, but civil society groups described the move as “embarrassing” at a time when Oslo was making money like never before.

Norway’s foreign ministry has since pledged to deliver on its aid budget target of 1% of GNI in 2023.



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Amid gas shortages and blackouts, a harsh winter is fueling discontent in Iran

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For weeks, Iran has been hit by cold weather. In a country where most households rely on natural gas for heating and hot water, gas shortages in many regions have paralysed the population, leaving people in sub-zero temperatures. In some regions, schools and public facilities have even been closed. The gas shortage itself has led to widespread power outages in several cities, an increase in air pollution and even more protests, on top of the anti-regime protests that have been wracking Iran since September 2022. 

Iran has the largest known reserves of natural gas in the world after Russia, but Tehran is unable to supply enough energy for domestic consumption. The Iranian regime rejoiced at the idea of a “harsh winter in Europe” that emerged after Russia’s invasion of Ukraine. 

For months, Iranian authorities hoped that European governments would have no choice but to negotiate with Tehran to exchange Russian gas for Iranian gas to avoid their citizens freezing in their homes. But when winter arrived, it was in fact Iranians who were left out in the cold. 

When Iran was hit by a cold snap in January 2023, the authorities initially had to close schools and many public facilities because there was no gas to heat them. Javad Owji, Iran’s petroleum minister, said on January 15, “The closure of schools, universities and government offices in Tehran has helped us a lot, we could save up to 2.5 million cubic metres of gas per day.”

But it wasn’t enough. Neighbourhoods and entire towns went without gas – and thus, without heating – while temperatures reached up to 20 or even 30 degrees below zero. Cities like Amol, Sabzevar, Neyshabur, Gorgan and many others had no more gas.

These gas outages not only led to outrage on social media, but also to a new wave of protests in some cities in Iran. Torbat-e-Jam was one of the cities where the gas outages led to public outrage and widespread protests.

‘Iran’s old and underdeveloped gas industry is not even able to use the country’s natural resources to meet its own needs’

Reza Gheibi is an Iranian economic journalist based in Turkey:

Iran is a country that still burns its natural gas produced from oil wells and is unable to collect it due to its outdated technology and machinery. According to a World Bank ranking, Iran ranks third in the world in this area [Editor’s note: known as oil flaring, or routine flaring], wasting more than $5 billion worth of gas every year in the exploitation of oil wells.

For decades, the Islamic Republic has not invested enough in its oil and gas industry, failing to develop it but also to sustain it. To improve the situation, Tehran needs a lot of money and advanced technologies, and there is none of that in Iran. It needs foreign companies to invest in this sector in Iran, but foreign companies do not risk their money in a country like Iran, where investments are risky and there are many international sanctions. Iran’s old and underdeveloped gas industry is not even able to use the country’s natural resources to meet its own needs.

But the gas shortage has had other effects: people are resorting to electricity to heat their homes and offices, putting even more pressure on the country’s power grid, which itself is mainly fed by power plants that burn natural gas. 

Iranian households consume more than 700 million cubic metres of natural gas per day, while production is 850 million cubic metres. This means that power plants and many other industries that consume gas are without power. Production in many factories is at a standstill because they have no gas. 

When factories stop working, there are fewer products on the market, and that means prices will continue to rise. The horizon is also gloomier. Since, on the one hand, there is no money to maintain and modernise the systems and, on the other hand, consumption is increasing, the gas and energy shortages will not only continue, but will worsen over time. To change this situation, Iran needs more than 80 billion euros, according to estimates by Iranian officials.

As a result, most cities are experiencing several widespread power cuts each week. To avoid general blackouts, the Iranian authorities took more drastic measures: in many cities, including the capital Tehran, city lights were switched off at night, including lights on many streets and highways.


Power outage in the Ashtehard industrial area. The whole area was plunged into darkness and many businesses had to stop working.


In Tehran, the lights on the highways were switched off. Some accidents occurred in the darkness on January 11.

 ‘The city has become strange and dark, and I feel unsafe’

Simin (not her real name) is an Iranian who lives in Tehran:

In the last three days we have had our electricity cut off twice for several hours. And each time, they told us by text message that the power was off because of a technical problem. But my main problem is that in many neighbourhoods the street and highway lights are switched off at night. In this way, the burden of lighting the public spaces has also fallen on citizens. The only source of light in these dark streets are the lights of the houses or shops. I do not go outside often, but every time I do, I am shocked to see the city in darkness. The city has become strange and dark, and I feel unsafe.

Darkened streets, alleys and highways are not only visible from the inside. Satellite images over Iran taken on cloudless nights show the difference. 

Satellite images of Tehran, Isfahan and other regions in central Iran taken on summer nights in 2022 are brighter than the same regions in January 2023.

The photo on the right was taken on January 19, 2023 and the photo on the left was taken on October 18, 2022. The photo in January shows fewer lights in Tehran and Isfahan and in many other regions of Iran in winter. © Observers / NASA

‘Fewer women dare to go out in the streets’

Simin continued:

There are fewer and fewer people on the streets, in cafés or restaurants. After months of protests, the streets seem deserted, especially by the women who have been the engine of the protests for the last four months. We used to go without headscarves on the main streets to have people around us so that if the morality police gave us trouble, we would be defended by other people. Now that the main streets are in darkness, fewer women dare to go out in the streets.



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Italy plays on historic heartstrings with Algeria to boost critical energy ties

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Italian Prime Minister Giorgia Meloni hailed Algeria as Rome’s “most stable, strategic and long-standing” partner in North Africa as she wrapped up a two-day visit on Monday aimed at securing Italy’s energy supplies and promoting her plan for a “non-predatory” approach to investment on the continent.

Meloni, who leads Italy’s most right-wing government since World War II, was making her first bilateral visit abroad since her election last year, underscoring the importance given to Rome’s relationship with gas-rich Algeria at a time when European nations are racing to wean their economies off Russian gas.

Like all ranking visitors, Meloni began her trip by laying a wreath at the Monument of Martyrs, the hilltop memorial commemorating Algerians who died in the country’s struggle for independence from France. Her own country’s contribution to that struggle was the subject of a later stop in central Algiers, at a garden dedicated to Enrico Mattei, the legendary founder of the Italian energy company ENI, who championed – and bankrolled – Algeria’s independence fight in the 1950s and early 60s.

Meloni was accompanied by ENI’s current boss Matteo Descalzi, the chief architect of Italy’s ongoing pivot from Russian gas to Algerian gas. Their visit to the Mattei gardens was symbolic of a rapprochement dictated both by interest and historical affinity.


“In Algerian eyes, ENI is a lot more than a company. It’s a symbol of Italo-Algerian friendship and of a relationship that dates back to before independence,” said the Algerian political journalist Akram Kharief.

“Algeria is always grateful to its allies. It has not forgotten that ENI was one of the very few companies not to flee during the country’s civil war (in the 1990s),” Kharief added. “As a result, the company enjoys privileged access to Algerian contracts and resources.”

Southern Europe’s gas hub

Since the start of Russia’s invasion of Ukraine, Algeria’s ample reserves of natural gas have played a key role in reducing Italy’s energy dependence on Moscow, which accounted for 40% of Rome’s gas imports prior to the war. Meloni’s trip to Algiers come on the heels of two visits by her predecessor Mario Draghi, who secured an Algerian pledge to rapidly ramp up gas exports.

Since then, Algeria has replaced Russia as Italy’s top energy supplier and Rome is pushing to further increase its energy imports from Algeria, hoping to act as a hub for supplies between Africa and northern Europe in the coming years. It also wants guarantees that Algeria can live up to its pledges, amid concerns that the country’s creaking energy infrastructure will prove unable to meet the surging demand.

“Gas flows from Algeria increased last year but not by as much as promised. They even dropped in January, forcing Italy to buy more gas coming from Russia,” said Francesco Sassi, a research fellow specialising in energy geopolitics at the Italian consultancy RIE. “Algeria needs huge investment to boost both its production and export capacities amid a steep increase in local consumption,” he added.

On Monday, ENI’s Descalzi signed a raft of agreements with Algeria’s energy giant Sonatrach aimed at increasing Algerian gas exports to Italy. The two companies also agreed to develop projects aimed at reducing greenhouse gas emissions and possibly building a pipeline to transport hydrogen to Italy.

Announcing the deals at a joint press conference with Meloni, Algeria’s President Abdelmadjid Tebboune said the aim was for Italy to “become a platform for distribution of Algerian energy products in Europe”. He noted that trade between the two countries had already doubled from 8 billion dollars in 2021 to 16 billion in 2022.

Tebboune said his country wished “to enlarge cooperation (between Algeria and Italy) beyond energy”, pointing to Italy’s fabric of small and medium-sized companies as a model “to help Algeria get out of its dependence on hydrocarbons”.

Italian carmaker Fiat already plans to open to a factory in Algeria and Italy’s Confindustria industrial lobby agreed on Monday to pursue greater cooperation with Algerian business. The two sides also hailed an agreement between the Italian Space Agency and its Algerian counterpart to share knowledge and develop joint projects, while Rome offered its expertise to develop Algeria’s untapped potential in the tourism industry.

The ‘Mattei Plan’

The raft of deals and warm words exchanged during Meloni’s visit reflect a traditional affinity between Rome and Algiers, unburdened by the colonial legacy that plagues France’s relations with the North African country. They also underscore a convergence of interests between two countries that have sensed an opportunity in the energy crisis triggered by the war in Ukraine.

Zine Ghebouli, a scholar on Euro-Mediterranean cooperation and Algerian politics at the University of Glasgow, said Italy has “taken advantage of Europe’s gas crisis to position itself as an energy hub”, giving Rome a solid base to strengthen its clout in the Mediterranean region.

“The overall objective now is to move from energy cooperation to cooperation on the economy, defence and foreign policy,” he added, pointing to Italy’s search for stability in North Africa – and particularly in Libya – to stem the flow of migrants crossing the Mediterranean. 

“Italy has shown positive signs regarding technology transfers, for instance. It will be interesting to see whether increased energy cooperation helps foster progress on other subjects too, including migration, and with other countries in the region, such as Tunisia,” Ghebouli said.

Since taking office just over three months ago, Meloni has repeatedly spoken of a “Mattei Plan” for Africa, named after the ENI founder who challenged Anglo-American oil majors over their exploitation of African resources – and whose death in a plane crash 60 years ago remains shrouded in mystery. She has touted the plan as a win-win partnership that will guarantee Europe’s energy security while addressing the root causes of migratory flows from Africa – namely poverty and jihadist unrest.

The approach “addresses what Meloni’s government sees a vital interest: to stem the flow of migrants,” said Kharief. “Italy has neither the coercive means to fight jihadism nor the economic might to foster development in Africa, but it has a broad plan and it has identified Algeria as its key strategic partner in this endeavour,” he added.

During Monday’s news conference in Algiers, Meloni promoted her plan for “collaboration on an equal basis, to transform the many crises that we are facing into opportunities.” She spoke of a “model of development that allows African nations to grow based on what they have, thanks to a non-predatory approach by foreign nations.”

However, the Italian premier has offered scant detail about her plan for a “virtuous relationship with African countries”. Some analysts have described it as little more than a PR stunt by the far-right leader – and evidence of the current Italian government’s desire to act independently of its European partners.

>> A ‘seismic’ shift: Will Meloni’s Italy turn its back on Europe?

By evoking Mattei’s memory, Meloni not only tugs at Algerian heartstrings. She “also harks harks back to a memory of Italy as a major player in the Mediterranean and the Mideast – constructing a narrative that has no grounding today,” said RIE’s Sassi.

“The Mattei Plan is primarily about playing up Italy’s role in tackling Europe’s energy crisis in order to secure the investments that Italy itself needs,” he said, noting that the country will need to upgrade its own infrastructure in order to serve as energy hub for the continent. “It is natural for each country to play the national card,” Sassi added. “But the current energy crisis can only have a European solution.”



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A plan for competitive, green and resilient industries

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We, Renew Europe, want our Union to fulfil its promise of prosperity and opportunities for our fellow Europeans. We have championed initiatives to make our continent freer, fairer and greener, but much more remains to be done.

We are convinced that Europe has what it takes to become the global industrial leader, especially in green and digital technologies. Yet it is faced with higher energy prices and lower levels of investment, which creates a double risk of internal and external fragmentation.

The Russian aggression against Ukraine has shown us that our European way of life cannot be taken for granted. While we stand unwaveringly at the side of our Ukrainian friends and commit to the rebuilding of their homeland, we also need to protect our freedom and prosperity.

That is why Europe needs an urgent and ambitious plan for a competitive, productive and innovative industry ‘made in Europe’. Our proposals below would translate into many more jobs, a faster green transition and increased geopolitical influence.

We must improve the conditions for companies, big and small, to innovate, to grow and to thrive globally.

1. Reforms to kick start the European economy: A European Clean Tech, Competitiveness and Innovation Act

While the EU can be proud of its single market, we must improve the conditions for companies, big and small, to innovate, to grow and to thrive globally.

  • In addition to the acceleration of the deployment of sustainable energy, we call on the Commission to propose a European Clean Tech, Competitiveness and Innovation Act, which would:
  • While the EU can be proud of its single market, we must improve the conditions for companies, big and small, to innovate, to grow and to thrive globally.
  • In addition to the acceleration of the deployment of sustainable energy, we call on the Commission to propose a European Clean Tech, Competitiveness and Innovation Act, which would:
  • Cut red tape and administrative burden, focusing on delivering solutions to our companies, particularly for SMEs and startups.
  • Adapt state aid rules for companies producing clean technologies and energies.
  • Introduce fast-track permitting for clean and renewable energies and for industrial projects of general European interest.
  • Streamline the process for important Projects of Common European Interest, with adequate administrative resources.
  • Guarantee EU-wide access to affordable energy for our industries.
  • Strengthen the existing instruments for a just transition of carbon-intensive industries, as they are key to fighting climate change.
  • Facilitate private financing by completing the Capital Markets Union to allow our SMEs and startups to scale up.
  • Set the right conditions to increase Europe’s global share of research and development spending and reach our own target at 3 percent of our GDP.
  • Build up the European Innovation Council to develop breakthrough technologies.
  • Deliver a highly skilled workforce for our industry.
  • Deepen the single market by fully enforcing existing legislation and further harmonization of standards in the EU as well as with third countries.

We need to reduce more rapidly our economic dependencies from third countries, which make our companies and our economies vulnerable.

2. Investments supporting our industry to thrive: A European Sovereignty Fund and Reform Act

While the EU addresses, with unity, all the consequences of the war in Ukraine, we need to reduce more rapidly our economic dependencies from third countries, which make our companies and our economies vulnerable.

In addition to the new framework for raw materials, we call on the Commission to:

  • Create a European Sovereignty Fund, by revising the MFF and mobilizing private investments, to increase European strategic investments across the Union, such as the production on our soil of critical inputs, technologies and goods, which are key to the green and digital transitions.
  • Carry out a sovereignty test to screen European legislation and funds, both existing and upcoming, to demonstrate that they neither harm the EU’s capacity to act autonomously, nor create new dependencies.
  • Modernize the Stability and Growth Pact to incentivize structural reforms and national investments with real added value for our open strategic autonomy, in areas like infrastructure, resources and technologies.

While the EU has to resist protectionist measures, we will always want to promote an open economy with fair competition.

3. Initiatives creating a global level playing field:

A New Generation of Partnerships in the World Act

While the EU has to resist protectionist measures, we will always want to promote an open economy with fair competition.

  • In addition to all the existing reforms made during this mandate, notably on public procurement and foreign subsidies, we call on the Commission to:
  • Make full use of the EU’s economic and political power regarding current trade partners to ensure we get the most for our industry exports and imports, while promoting our values and standards, not least human rights and the Green Deal.
  • Promote new economic partnerships with democratic countries so we can face climate change and all the consequences of the Russian aggression together.
  • Ensure the diversification of supply chains to Europe, particularly regarding critical technologies and raw materials, based on a detailed assessment of current dependencies and alternative sources.
  • Use all our trade policy instruments to promote our prosperity and preserve the single market from distortions from third countries.
  • Take recourse to dispute settlement mechanisms available at WTO level whenever necessary to promote rules-based trade.
  • Adopt a plan to increase our continent’s attractiveness for business projects.
  • Create a truly European screening of the most sensitive foreign investments.
  • We, Renew Europe, believe that taken together these initiatives will foster the development of a competitive and innovative European industry fit for the 21st century. It will pave the way for a better future for Europeans that is more prosperous and more sustainable.



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Can US shale gas save Europe from its energy crisis?

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On the surface, booming US shale gas production looks like the perfect solution for Europe as its reels from the energy crisis created by tearing itself away from Russian gas. But analysts say it is no panacea.

US shale gas output has lost none of its momentum, as the US shale revolution is fading as far as oil is concerned.

In western Texas’s Permian Basin – one of the world’s most important oil and gas production areas – gas prices actually went negative in October because output was so high that producers had to pay people to take it off their hands.

And compared to oil, “there is potential for more growth”, said Kenneth B. Medlock III, senior director at the Center for Energy Studies at the Baker Institute for Public Policy at Rice University in Houston.

This looks like the perfect situation for the US’s allies across the Atlantic as the energy crisis racks the old continent. Indeed, EU imports of liquified natural gas (LNG) from the US have already soared since Russia invaded Ukraine and Europe cut off its dependence on Russian gas – increasing by over 148 percent in the first eight months after the invasion compared to the same period the previous year. Most of this gas comes from shale drilling.

“The entire reason US LNG exports are even possible to begin with is because of the shale revolution,” emphasised Eli Rubin, a senior energy analyst at energy consultancy EBW Analytics Group in Washington DC. “If it weren’t for that, the US would be importing LNG on a pretty widespread basis, competing with European countries for natural gas supplies.”

‘The problem is export capacity’

Yet analysts caution that, while LNG from US shale can help Europe amid its energy crisis, it will not single-handedly rescue the old continent.

“I don’t think Europe will ever receive as much gas as LNG from the US as it did from Russia through pipelines,” said Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution in Washington DC. “Europe got a lot of gas from Russia; it’s a tremendous amount of gas to replace.”

“There is an issue in terms of how much gas the US can get to Europe, at least in the short term,” Rubin said. “The problem is export capacity, not the amount of gas the US is producing,” Gross agreed.  

Exporting natural gas is a complicated and expensive process, requiring liquification, transport to export terminals, boats to move the gas to the country buying it, then a regasification process when it gets there. A lack of capacity at any of these points creates supply constraints – so supply is lagging a boom in demand. 

The example of the Permian Basin last autumn illustrates this – there was abundant demand for all that gas, but as Rubin put it, “the pipelines do not yet exist to take of all the gas from West Texas to East Texas so it can be exported”.

“The US will take three to five years to really ramp up infrastructure for LNG export,” Rubin continued. “As far as the short-term outlook goes we do have this bottleneck in terms of export capacity.”

Importing non-liquified gas through a pipeline is therefore much cheaper and easier for Europe – coming without the need for liquification, transport by land and boat, and regasification. “One of the reasons why Russian gas was so cheap for Europe was that it came through a pipeline,” Rubin observed.

‘No one saviour’

Hence Europe has been keen to boost gas supplies from its near abroad, especially where pipeline infrastructure is already in place.

EU Commission President Ursula von der Leyen went to Baku in July to sign a deal doubling the bloc’s gas imports from authoritarian Azerbaijan, using a network of pipelines to Italy called the Southern Gas Corridor.

The same month, then Italian prime minister Mario Draghi travelled to Algeria to sign a series of deals to ramp up gas imports, even as a political crisis brewed in Rome. Again, a pipeline makes the gas simpler and less expensive to import than if it came in the form of LNG – namely the TransMed pipeline from Algeria to Italy set up in 1983. Closer to home, gas-rich Norway has turbocharged gas supplies to the rest of Europe, benefitting from the Langeled pipeline. And when it comes to LNG, Qatar has also become integral to Europe’s scramble for new gas sources.

But there are limits to all four of those countries as gas suppliers to Europe. “Any further increases in pipeline exports of natural gas from Azerbaijan and Algeria are likely to be small relative to the increase in global LNG capacity,” noted Stephen Fries, a nonresident senior fellow at the Peterson Institute for Economics in Washington DC and an associate fellow at Oxford University’s Institute for New Economic Thinking. “The pipeline from Azerbaijan to Europe is already operating at capacity. Algeria’s capacity to produce more natural gas is uncertain.”

As things stand Qatar exports over 70 percent of its LNG to Asian countries, locked into long-term contracts. With regard to Norway, the North Sea gas fields “are not depleted but they are not what they used to be”, Gross pointed out.  

In the long term, the ecological transition away from fossil fuels should mean that European countries will no longer want to buy large quantities of gas, with the EU promising to become net zero by 2050 – although whether that will be soon enough to help prevent the catastrophic effects of climate change is another matter entirely.

But this long-term paradigm shift complicates Europe’s bid for a short-term solution to its energy crisis. “The biggest challenge for Europe buying gas is that it’s not clear they will want it for long enough,” Gross put it. “These are multi-billion dollar contracts, and 10 to 15 years of using the gas is not a long enough payback period.

“I hear a lot about US gas supplies saving Europe or someone else saving Europe from its energy crisis – but there’s no one saviour,” Gross concluded. “It’s going to take a portfolio of capacities to replace a lot of gas they got from Russia. That means a lot sources, plus consuming less gas – plus the energy transition.”

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Why we still like Coterra Energy despite the recent fall in natural gas prices

Post By Oil and Gas , , , , , , , , , ,

Pipes at the landfall facilities of the ‘Nord Stream 1’ gas pipeline are pictured in Lubmin, Germany, March 8, 2022.

Hannibal Hanschke | Reuters

Natural gas prices jumped Thursday following a multiweek swoon, providing a lift to shares of Club holding Coterra Energy (CTRA), which lately has relied on the commodity for more than half its operating revenues.

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NPD discuss investments for the future on the Shelf

Post By Oil and Gas , , , , , , ,

Only rarely have we seen so much oil and gas produced on the Norwegian shelf as was the case last year – and only rarely have we seen such significant investment decisions.

Norway has definitely fortified its role as a predictable, long-term supplier of energy to Europe.

2022 was a year marked by the war in Ukraine and the energy crisis. These factors also impacted activity on the Norwegian shelf. The disappearance of Russian gas on the European market led to greater demand for Norwegian gas, which caused Norway to become the largest supplier in Europe by the end of last year.

Some of the underlying causes for this development are that the authorities granted permits to increase production from several fields, there was a high degree of operational stability and Snøhvit also came back on stream after a lengthy shutdown.

Gas production was nine billion standard cubic metres higher in 2022 compared with the previous year. Gas now accounts for more than half of production from the Shelf. A total of 122 billion standard cubic metres (Sm3) of gas was produced.

Numerous investment decisions for new projects were also submitted in 2022.

“These are remarkable investments for the future. This will help ensure that Norway can continue to be a reliable supplier of energy to Europe”, says Director General Torgeir Stordal.

Stordal notes that this is good news for the Norwegian supplier industry, as well as for overall value creation and the welfare and prosperity that flow from the resources on the Shelf.

High production

Production is extremely high, and it will continue to grow in the years to come. Gas production is projected to remain at around 2022 levels for the next four to five years.

A total of approx. 230 million Sm3 of oil equivalent was produced in 2022 – which corresponds to about 4 million barrels per day.?

This consistent high production level can be attributed to three main factors, the first of which is the high number of producing fields on the Shelf (93).

In December, Johan Sverdrup Phase 2 came on stream in the North Sea. Nova has commenced production, Njord in the Norwegian Sea has started up following modification work, and several new fields are projected to start producing in the years to come.

And last but not least, older fields are producing longer, and producing more, than previously expected.

New development plans

A substantial number of decisions were made in 2022 regarding new developments that can help maintain this production. The authorities received 13 plans for new developments (PDOs), as well as several plans for projects aimed at increasing recovery near existing fields, or extending field lifetimes. Decisions have also been made to approve major investments on existing fields.

According to figures provided by the licensees, this entails total investments of around NOK 300 billion and an overall present value of NOK 200 billion. Together this amounts to a growth in reserves of 252 million Sm3 of oil equivalent, half of which is gas.

“It’s great that the industry is investing and making a commitment to developing the resources on the Norwegian shelf. Now we’ll expect the industry to demonstrate that it can implement these projects according to the plans, and thus provide a foundation for robust value creation and good resource management,” says Stordal.

The largest new project is Yggdrasil (previously called Noaka) in the North Sea, where investments are projected to reach NOK 115 billion. This development will help promote the establishment of new infrastructure on the Shelf.

“Good area solutions are incredibly important for the further development of the Norwegian shelf. Even small discoveries can become quite profitable if they’re tied into existing infrastructure,” says Stordal.

Exploration

32 exploration wells were completed last year. They resulted in 11 discoveries, several of which are smaller than expected. That is why resource growth is lower than in the three previous years.

“At the same time, it’s gratifying that the companies have shown a willingness to drill exploration wells that carry greater risk when it comes to finding oil or gas. This is typical in parts of the Shelf or the subsurface where no discoveries have been made previously,” says Stordal, who emphasises that the Lupa gas discovery in the Barents Sea, announced in December, is exciting.

The NPD expects the Barents Sea to hold significant undiscovered gas resources. A lack of infrastructure to export the gas has meant that the industry has been less eager to explore for gas in this area. More discoveries like Lupa could make development profitable, alongside investments in infrastructure to solve the transport challenge.

In January 2022, 53 new production licences were awarded in the Awards in predefined areas (APA) 2021, and there was also substantial interest in APA 2022, where the application deadline was in September.

Emissions are declining

Advances were made in carbon capture and storage last year. Longship will become a reality. Meanwhile, two injection wells were completed in the Northern Lights project, and good progress has been made in organising the terminal facility in Øygarden in Vestland county. Construction of the world’s largest CO2 transport ship is also under way.

There is growing interest in acreage for injection and storage of CO2. In 2022, the authorities awarded three exploration licences for storage of CO2, one in the Barents Sea and two in the North Sea. The initial objective of these licences is to determine whether these areas are suitable for CO2 storage.

Seabed minerals under consideration

Options are being explored as regards potential profitable mineral activity on the seabed on the Norwegian shelf. The objective here is to determine whether this could help secure a future supply of important metals in the transition to a low-emission society.

Once again in 2022, substantial efforts were undertaken to enhance the basis of knowledge regarding seabed minerals.

The NPD has analysed data collected from its own and other scientific surveys over a decade. This knowledge has led to a resource assessment.

The NPD has assisted the Ministry of Petroleum and Energy with an impact assessment in connection with the opening process for exploration for and production of seabed minerals.

The impact assessment is currently available for public consultation.

Long-term perspective

Stordal wants to emphasise that significant resources remain in place on the Shelf, both in fields, in discoveries and in potential discoveries: “The companies must continue to develop the fields, in part by drilling more development wells. They must mature more of the discoveries in their portfolios, and they must also approve decisions to develop more of them. Moreover, they should continue to explore for new oil and gas resources. This is the only secure pathway to make Norway a reliable, long-term supplier of energy to Europe.”

Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/09012023/npd-discuss-investments-for-the-future-on-the-shelf/



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