Energy Market – After reporting record earnings in the second quarter of the year as a result of an increase in energy prices, the West’s energy goliaths are expected to return a record $30 billion to investors. But as they consider how the recession and climate change may affect future demand for fossil fuels, the major five Western oil and gas firms have resisted spending more of their combined record profits of roughly $60 billion on new goods.
An energy supply shortage that has pushed inflation to multi-decade highs and sparked calls from citizens and opposition leaders for governments to raise taxes on energy companies may be made worse by customers’ unwillingness to spend.
The spending approach contrasts with previous cycles of high oil and gas prices, such as the boom of the late 2000s that spurred rapid spending to boost production.
“Given all the uncertainty in the world, now is not the time to lose discipline,” BP Chief Executive Bernard Looney told Reuters after reporting BP’s highest profit in 14 years.
The combined oil and gas output of BP, Shell, TotalEnergies, Chevron, and Exxon in the first half of 2022 reached 14.6 million barrels of oil equivalent per day (bond), some 10% below its pre-pandemic levels, according to Reuters calculations.
While several of the businesses recently modestly boosted their 2022 spending projections, overall, they are still staying within their earlier target spending ranges. The majority of the extra energy market funds are allocated to initiatives that can begin generating quickly or jump-start the beginning of initiatives that are currently underway.
According to Chief Executive Officer Patrick Pouyanne, TotalEnergies increased its spending forecast for 2022 by $1 billion, to a range of $16 billion, in part to speed up field extensions in Angola.
According to Looney, BP is increasing investment by $500 million this year in the area of the energy market, mainly to grow short-term production in the Gulf of Mexico and the U.S. Haynesville onshore natural gas area.
But BP’s 2022 spending budget of $14-$15 billion will remain unchanged and does not alter its target of reducing oil and gas output by 40% by 2030 as part of Looney’s ambition to shift to renewables and low-carbon energy. Around two-thirds of BP’s budget is geared towards oil and gas in 2022 – energy market.
Although the energy crisis caused by major fossil fuel producer Russia’s invasion of Ukraine has in the short term placed the focus on countries using all available supplies, even if that means carbon-intensive coal, Western governments longer term are striving to shift to low-carbon energy.
Within the group of leading energy companies, there has been a clear divergence as Exxon, Chevron and TotalEnergies plan to expand output in the coming years, while BP and Shell aim to keep production largely flat.
On energy market, Exxon expects its 2022 production to remain unchanged from a year earlier at 3.8 million bond but plans to grow its output to 4.2 million bonds by 2027, with most of the growth coming from U.S. shale and Guyana.
Also on energy market, Chevron, which is investing heavily in the U.S. Permian basin and Kazakhstan, plans an annual growth of 3% over the next 5 years to reach over 3.5 million bonds from 2.9 million bonds today.
Energy markets were extremely constrained even before the interruption brought on by the conflict in Ukraine as a result of years of underinvestment, which caused demand to recover from epidemic lockdowns.
On February 24, shortly after the invasion that Russia refers to as a “special military operation,” gas prices in Europe reached record highs and benchmark crude prices rose to levels not seen in 14 years.
The record shareholder returns of $30 billion are expected to rise once more in the third quarter, primarily in the form of share buybacks, compared to quarterly pre-pandemic returns of between $16 and $20 billion.