The energy sector – keeping the show on the road
Economies are slowing down and the world is suffering an energy crisis. This may continue for some time but will not end the ultimate need for more raw, refined and generated energy. Companies in the upstream, midstream and downstream sectors are likely to benefit from increased prices and are becoming more confident in investing in the future.
As highlighted in our second article in this three-part series, as from 2022 the new buzz word is energy security and suddenly ensuring current and future supplies of fossil fuels is the new normal. But what is the energy sector doing to address the power realities and demands?
Sanctions imposed on Russia has had a negative impact on those oil and gas companies that have had a presence there. BP, Shell, ExxonMobil and Norway’s Equinor have all pulled out of joint ventures and in many cases have effectively abandoned billions of dollars’ worth of assets. Shell for example was widely quoted as saying the reduced value of Russian assets, credit losses and “onerous” contract terms will cut earnings for the first three months of the year by between $4 billion and $5 billion when announcing its pullout. But only weeks later it posted its highest quarterly profit of $9 billion in the first three months of 2022.
It might be thought that, buoyed by a revitalised revenue stream along with a promise of less government intervention, oil and gas companies can once again see the potential for increased investment and exploration. Having been preparing to transition for the past several years, the new situation, however, may take some time to get used to for all the oil and gas majors especially if current exploration programmes continue to go well. That is the story of Equinor’s recent activity in the Barents Sea which has opened promising new reserves to extend the Johan Castberg field and give it an operational span today of over 30 years.
It may be too early to say that there has been a major turnaround in strategic thinking, but the early signs are there even in the areas of the world that were moving fastest in ditching fossil fuels. Where concerns on climate change are given lip service but little more, it is likely that investments will increase rather than stagnate.
In its annual energy report, DNV suggests that a greater number of oil and gas companies expect to increase investment in oil and gas portfolios than has been the case since the series of reports began several years ago.
The need for energy security now seems to be the main driving factor in politics so there may be some immediate turbulence for established energy policies as all the challenges and options are weighed up. It is clear that, although the recent turmoil may continue to affect the pace of growth, it does not change the ultimate need for more raw, refined and generated energy. This bodes well for companies in the upstream, midstream and downstream sectors – and opens growth opportunities for renewable energy.
When looking at ageing upstream and midstream assets and refineries infrastructure, there are opportunities to help operators in safeguarding their vital assets and operations. For renewable investments the need for long term protection supporting new expectations for design life is becoming vital.
DNV energy 2022 report - The Power of Optimism: Managing scale and complexity as the energy transition accelerates DNV
Shell boss van Beurden: ‘Supply needs to adjust but to less demand’
Equinor’s Latest Arctic Discovery Is Small, But Further Extends the Runway for Johan Castberg
World Takes Cover From Stock Chaos in Oil, Utilities and China (energyconnects.com)