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State of the oilpatch: Plentiful profits, pricey fuel, and a climate crisis

After 12 months of upheaval in the energy industry, some of the top oilpatch executives are expressing doubt about how quickly the world will transition away from fossil fuels.

That was the general sentiment on the first day of CERAWeek, one of the world’s largest energy conferences, which has attracted more than 7,500 people to Houston, Texas this year, including world leaders and industry personnel from more than 80 countries.

To describe the mood at CERAWeek as upbeat would be an understatement, as oil and natural gas producers continue to rake in extraordinary profits, even as commodity prices have cooled slightly in recent months.

Russia’s invasion of Ukraine has elevated the issues of energy reliability and affordability, some industry leaders say, while cooling the focus on climate change.

“The issue of how we best move toward a low-carbon energy system is one that is getting reframed,” said Chevron chief executive Mike Wirth to attendees.

Chevron's chief executive speaks to an audience from a stage.
There is a need to maintain secure and affordable supplies of energy, said Chevron chief executive Mike Wirth. (CERAWeek by S&P Global )

“Affordability and energy security actually do matter. And so I think the discussion is moving to a more balanced state,” he said.

A disorderly transition away from fossil fuels could be painful and chaotic, he said, pointing to the tight supply of energy and exorbitant prices in Europe during certain times over the last year.

Around the world, rising gasoline and diesel prices fuelled decades-high global inflation in 2022.

Pace of transition will vary

During a panel discussion on the challenge of balancing the need for energy security and affordability, Petronas chief executive Tengku Muhammad Taufik said the pace of the transition to low-carbon sources of energy will vary around the world.

“This is a looming and daunting challenge we have to collectively undertake,” he said.

The chief executive of Petronas motions to the crowd while on stage at a conference.
Petronas chief executive Tengku Muhammad Taufik discusses the need for secure and affordable energy, while addressing the need for climate action. (CERAWeek by S&P Global )

Many companies are trying to thread the needle and find the best way to spend their spare cash. Some investors want increased dividends, while some political leaders, like U.S. President Joe Biden, have called on the sector to boost production to lower energy costs for consumers. Some companies are also having to pay higher taxes to help countries cope with affordability concerns.

“I think the mood has changed dramatically in the last few years,” said Mike Sommers, the chief executive of the American Petroleum Institute, in an interview.

“We went from a situation where everyone was talking about how important the energy transition was to a time when everyone’s really focusing on the importance of energy security, not just in the United States but throughout the world. And I think that’s a consequence of the terrible war that’s going on in Ukraine,” he said.

In total, the global industry’s profits last year reached about $4 trillion US, according to the International Energy Agency, compared with an average of $1.5 trillion in recent years.

Appeal for the environment

On the main stage, John Kerry, the special presidential envoy on climate for the U.S., urged the oilpatch to not cry poor when it comes to the environment.

“It would only take $1 billion expended to meet the task of meeting our methane goal by 2030,” Kerry said, adding the industry response is: “We don’t have the money.”

Some industry leaders are hopeful the industry can reduce emissions, while still producing oil and natural gas. Cutting down on flaring, using zero-leak valves and focusing on methane emissions are some ways of improving environmental performance, said Baker Hughes chief executive Lorenzo Simonelli.

“We’ve got a lot of low hanging fruit when you look at technologies that are available today to enable us to lower emissions,” he said. “We can make those hydrocarbons cleaner.”

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