Energy security is now the phrase on everyone’s lips and yesterday’s villains are today’s saviours
Energy security is back on centre stage.
A record-breaking 7,200-plus people jammed into Houston’s Hilton Americas last week for what is often dubbed the Super Bowl of the energy world – CERAWeek. And the mood was buoyant.
After years of getting painted as climate villains, the global oil and gas industry celebrated a more friendly shift in “vibes” as thousands of executives, policymakers and ministers descended on Houston, Texas, for the annual energy jamboree.
A year after Russian troops mounted a full-scale invasion of Ukraine, throwing global energy markets into a spin, there was a sense among the energy leaders at CERAWeek that the world’s priorities had shifted back in their favour. Energy security was now the phrase on everyone’s lips, and the oil sector had its swagger back. This attitude was in sharp contrast to past years when the industry executives faced a barrage of questions on ‘lack of action’ about climate change and rising global temperatures.
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Recent developments, from the Ukraine crisis to lack of investment in the industry to the rising global consumption post-pandemic to the resultant tight demand and supply scenario, have brought about a sea change in perceptions. Many now feel that over-emphasizing a ‘green revolution’ may result in its own crisis.
Even the Biden administration, which has often clashed with the energy industry, is getting the message. Seeking a detente with the industry, it sent a large delegation to the event. U.S. energy secretary Jennifer Granholm told industry insiders lunching at the Hilton’s main hall that the world would be able to navigate the post-invasion crisis “thanks in no small part to many in this room”.
In the past 12 months, the oil market has succeeded in absorbing both the shock of Russia’s invasion of Ukraine and the sanctions imposed by the United States, the European Union and their allies in Asia, according to John Kemp in his piece for Reuters. As a result, after adjusting for core inflation, benchmark oil prices have retreated by nearly 40 per cent from their post-invasion high on March 8, 2022.
But the industry remains on edge. Global majors concede that, while energy markets are currently in balance, tight spare capacity and supply uncertainties related to Russian oil exports could easily disrupt the stability.
China’s oil demand is also expected to grow 500,000 to 600,000 barrels per day (bpd) in 2023, with global oil demand growing by 2.3 million bpd in 2023, according to OPEC’s Secretary General Haitham Al Ghais.
However, “There is very small spare capacity available so small changes in supply (would) have an impact,” Anders Opedal, Chief executive of Norwegian energy giant Equinor quoted as saying. “It is easy for the market to move in either direction.”
Opedal predicted natural gas supply uncertainty faced by Europe and caused by the Russian invasion of Ukraine will continue in 2024 and likely 2025. Tighter global crude supplies are also possible after the Kremlin threatened last month to cut 500,000 barrels per day (bpd) of supply from March.
Crude prices may rise in the second half of the year as Chinese demand returns to the market, trading giant, Gunvor Chief Executive Torbjorn Tornqvist said early last week.
Washington is aware of the tight balance. According to the Financial Times, ‘in a bid to keep energy supplies stable and regain some oversight of Moscow’s exports, the U.S. has privately been urging some of the world’s largest commodity traders to shed concerns over shipping price-capped Russian oil.’ U.S. Department of Treasury officials met executives and traders at Trafigura and Gunvor among others. “We’ve been actively encouraged by the Americans … to re-engage on moving the oil,” one trader who spoke with the Treasury told FT.
When even Biden is finally facing reality, the industry has a reason to feel a bit of swagger.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.
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