RIYADH: The current crisis between Ukraine and Russia, which has destabilized the energy market, mainly in Europe, could prove to be a boon for oil companies and hydrocarbon-producing countries, as soaring prices oil should bolster their incomes in fear of a protracted war.
Oil prices were already high and jumped to nearly $140 a barrel on March 7 after the US announced a ban on imports of Russian oil and gas, with the EU and UK imposing tariffs. drastic restrictions on hydrocarbon imports.
Although oil prices fell below $100 at $89.13 a barrel of Brent and $84.90 a barrel of WTI as of 3:30 p.m. KST on March 15, the odds of a further price increases are still present.
“Prices may reach unprecedented highs if the situation continues to deteriorate,” Yousef Alshammari, senior fellow at Imperial College London and CEO of CMarkits, told Arab News.
If Russia decides to cut off its gas supplies, he warned the situation could be worse as there will be a shift to coal and oil, “which means a spike in prices”.
It’s hard to say where the prices will go, said Qamar Energy CEO Robin Mills, adding that “it depends on the scenario.”
“They fell back recently on the ideas of an increase in production from OPEC. But if Russian exports are significantly disrupted, you can expect prices to rise above $150,” he warned in an interview with Arab News.
Disruption of Russian exports
But market disruptions drive prices up.
Mills pointed out that fear of sanctions has already disrupted Russian exports, even if these do not directly target oil.
“It is true that the United Kingdom and the United States have banned Russian oil imports, but they do not import large quantities of it.”
Still, he warned that sanctions funding, self-sanction and the risk of war in the Black Sea are all likely to affect Russian exports.
This could lead to high crude prices, which means oil companies will enjoy large surpluses this year as a result of the pandemic, Alshammari said, adding that it may also lead to new investments in conventional and new energy.
But some oil companies were negatively impacted by the crisis, as they had major operations in Russia.
BP announced that it was selling its 20% stake in Rosneft, the Russian national oil company, at the end of February. This followed Shell’s decision to offload its Russian business by exiting its joint ventures in the country. The company also said it would stop buying Russian oil. At the same time, Exxon Mobil announced that it was closing its operations in Russia.
Incidentally, the three companies remained in Russia despite US sanctions after Moscow annexed Crimea in 2014. Yet these companies this time felt that the risk of staying in Russia outweighed the financial benefits that their presence would bring. could bring.
“The big oil companies that pulled out of Russia lost, including BP, but also Shell, ExxonMobil, and to a lesser extent Equinor and Wintershall. But they will all (still) likely benefit more than proportionally from higher prices,” Mills remarked.
GCC companies will win
Other companies in the GCC region are well positioned to win in the face of this crisis.
“The GCC oil companies will benefit from the much higher prices, and Aramco and ADNOC will at least benefit from the political and fiscal impetus to increase production (which they were already working on),” Mills pointed out.
The CEO of Qamar Energy, however, pointed out that no one has really won in terms of market share so far. OPEC countries, he explained, will gain market share if they decide to increase production (significantly). And the US shale will also gain when it begins to invest more actively in drilling.
This is because high oil prices allow the production of oil shale to become more profitable, as the exploitation of oil shale is generally more expensive.
“All major oil companies outside of Russia are strongly benefiting from the revenue gains,” Mills pointed out.
It should be borne in mind that Europe is heavily dependent on Russian energy. In 2021, 38% of the natural gas used by the EU came from Russia, according to Bruegel, a Brussels-based think tank.
This means that with the sanctions imposed on Russia, importing countries will have to look for other sources of energy, mainly in the GCC.
Besides oil, this includes liquefied natural gas which can be transported by ship. In January, the EU started talks with Qatar on the supply of natural gas.
Additionally, the EU announced in March that it would cut Russian gas imports by two-thirds by 2023.
Investment in sustainable energy
But will the current oil bonanza mean less investment in the GCC for a sustainable energy solution?
Not necessarily, it seems, experts say.
GCC countries have stepped up their sustainable energy projects in recent years. For example, Saudi Arabia has established its National Renewable Energy Program under Vision 2030. The goal of the program is to increase the Kingdom’s share of renewable energy generation and reduce emissions. of carbon.
Through the program, as outlined in Vision 2030, the Department of Energy is working to minimize the use of liquid fuel and diversify the national energy mix dedicated to electricity generation. It also aims to increase the share of natural gas and renewable energy sources to around 50% by 2030.
Sheikh Mohammed bin Rashid Al-Maktoum, vice-president and prime minister of the United Arab Emirates and ruler of Dubai, announced in October last year that his country’s goal was to achieve net gas emissions at zero greenhouse effect by 2050.
Alshammari pointed out that high oil prices will serve to bolster diversification plans.
“We have already seen major announcements from the Saudi government on alternative energy, despite high oil prices, including blue and green hydrogen, tourism and entertainment and minerals,” he added.
In addition, the Kingdom is focusing on localizing technology, which means creating manufacturing centers to manufacture products that are currently imported, Alshammari explained.
For Mills, investing in sustainability will vary from country to country in the GCC.
“In the case of Saudi Arabia and the United Arab Emirates at least, this will strengthen investments for diversification. We do not yet see a major change in oil and gas investment plans by any of the countries of the CCG,” he concluded.