Rise in oil prices following expected economic recovery, likely decline in oil stocks
LONDON: Climate activists who scored big against Western majors last week had unlikely cheerleaders in the oil capitals of Saudi Arabia, Abu Dhabi and Russia.
The defeats in the courtroom and boardroom mean Royal Dutch Shell, ExxonMobil and Chevron are all under pressure to reduce carbon emissions faster. This is good news for the Saudi national oil company Saudi Aramco, the Abu Dhabi national oil company and the Russian companies Gazprom and Rosneft.
It means more business for them and for OPEC.
“The demand for oil and gas is far from peaking and supplies will be needed, but international oil companies will not be allowed to invest in this environment, which means national oil companies must intervene,” he said. said Amrita Sen of consulting firm Energy Aspects.
Climate activists have won a major victory with a Dutch court ruling requiring Royal Dutch Shell to dramatically cut emissions, which in effect means reduced production of oil and gas. The company will appeal.
On the same day, America’s two main oil companies, Exxon Mobil and Chevron, both lost battles with shareholders who accused them of dragging their feet on climate change.
“It looks like the West will have to rely more on what it calls ‘hostile regimes’ for its supply,” joked a senior executive at Russian oil and gas group Gazprom, referring to the world’s energy companies. wholly or primarily owned by the state.
Saudi Aramco, ADNOC and Gazprom all declined to comment. Oil Major Rosneft, in which the Russian state has the greatest interest, also declined to comment.
A senior Saudi Aramco official said the court ruling would make it easier to ramp up production for OPEC.
“It’s great for Aramco,” said the staff member.
Western oil majors like Shell have grown significantly over the past 50 years as the West seeks to reduce its dependence on energy from the volatile Middle East and Russia.
These same Western energy majors, including BP and Total, have plans to dramatically cut emissions by 2050. But they face increasing pressure from investors to do more to meet the targets. objectives supported by the UN to limit global warming.
Saudi Aramco, listed on the Saudi Stock Exchange but majority owned by the state, is not under the same kind of pressure to reduce its carbon emissions, although the Kingdom’s rulers aim to significantly increase the country’s use of renewable energy. .
Gazprom expects the demand for natural gas to increase over the next decades and to play a larger role in energy consumption than renewables and hydrogen.
Western oil majors control around 15% of global production, while OPEC and Russia hold around 40%. This share has been relatively stable over the past decades, as growing demand has been met by new producers like small private U.S. shale companies, which today face similar climate-related pressures.
Since 1990, global oil consumption has grown from 65 million barrels per day to 100 million barrels per day, with Asia taking the lion’s share of the growth.
Countries like China and India have not made commitments to reduce oil consumption, which, on a per capita basis, is still only a fraction of Western levels. China will depend heavily on gas to reduce its huge coal consumption.
The International Energy Agency, which deals with energy policies in the West, made an emphatic call last month for the world to essentially abandon all new oil and gas developments. But he gave no clear formula on how to reduce demand.
Despite pressure from activists, investors, and banks to cut emissions, Western oil majors are also tasked with keeping dividends high amid high debt levels. Dividends from oil companies represent significant contributions to pension funds.
“It is vital that the global oil industry aligns its production with the Paris targets. But it needs to be done in line with politics, changes on the demand side and rebuilding the global energy system, ”said Nick Stansbury of Legal & General, which manages £ 1.3 trillion (1.8 trillion of dollars) of assets on behalf of savers, retirees and institutions.
“Forcing a company to do this in court cannot (if it is effective at all) result in higher prices and lost profits,” he said. Legal & General, one of the world’s largest fund managers, owns assets in most of the major oil companies.
Climate lawsuits have been filed in 52 countries over the past two decades, 90% of which are in the United States and the European Union, risk consultancy firm Verisk Maplecroft said.
“In the West, energy investments will peak due to fears and concerns about regulations and court rulings. Then we’ll see peak dividends, ”said the Aramco CEO. Aramco pays the highest annual dividend of $ 75 billion.
Over the past five years, the IEA has predicted a severe oil shortage and spike in oil prices due to a lack of investment following the fall in oil prices in 2014-2017.
A rise in oil prices coupled with the declining strength of the oil majors would mean a large transfer of wealth from the West to countries like Russia and Saudi Arabia, until demand begins to decline not only in West but also in Asia.
“The same oil and the same gas will always be produced. Just with lower ESG standards, ”said an executive from a Middle Eastern producer, who previously worked for an oil major, referring to environmental, social and governance performance metrics.