Analysis of earnings reports and estimates carried out by S&P Global Commodity Insights for the Financial Times finds: Aggregate net income for publicly listed oil and gas companies operating in the U.S. exceeded $200 billion for the second and third quarters of the year.
Citing the analysis, the media outlet reported over the weekend: U.S. oil producers have cashed in on a period of geopolitical turmoil due to the conflict in Ukraine that has shaken up the global energy market and sent prices skyrocketing. The $200 billion figure, which included super-majors, mid-sized integrated groups and smaller independent shale operators, marks the sector’s “most profitable six months on record and puts it on course for an unprecedented year,” it wrote.
“Operating cash flow will likely be record-breaking – or at least very close to it – by year’s end,” executive director for upstream equity research at S&P, Hassan Eltorie, told the FT.
The report also noted that last week U.S. President Joe Biden dubbed the outsized earnings a “a windfall of war” and accused companies of “profiteering” from the conflict. Biden threatened to ask Congress to hit producers with higher taxes unless they invested the cash haul into pumping more oil to bring down prices at the pump.
Responding to the prospect of a windfall tax, Darren Woods, chief executive of ExxonMobil, which had its most profitable quarter ever, reportedly said his company’s chunky dividend should be considered its way of “returning some of our profits directly to the American people.”
The bumper profits have been underpinned by soaring free cash flow, a key industry metric which is defined as cash flow from operations minus capital spending, the report explained. It also pointed out that benchmark Brent crude has averaged more than $105 a barrel over the second and third quarters – well above an average of around $70 per barrel over the past five years. Brent hit a high of almost $140 a barrel in early March.
Meanwhile, Wall Street has reportedly demanded that companies prioritize shareholder returns over expensive drilling campaigns in pursuit of ever-greater output growth.
According to estimates from investment bank Raymond James, cited by the FT, capital spending by the world’s 50 biggest producers will be around $300 billion this year, roughly half of what it was in 2013, the last time prices were at a comparable level.
“Over the past five years, the industry has shifted from ‘drill, baby drill’ to focusing on what shareholders actually want, which is return of capital,” said Pavel Molchanov, an analyst at Raymond James. “Dividends and share buybacks have never been as generous as they are now,” he noted.
Berlin On Washington’s Profiteering
The U.S. and other “friendly” gas-supplier states have been profiting from the worsening energy crisis in the EU, Germany’s Economy Minister Robert Habeck said on Wednesday.
“Some countries, including friendly ones, sometimes achieve astronomical prices. Of course, that brings with it problems that we have to talk about,” Habeck said, in an interview with the regional paper NOZ translated by NBC News. He called for more solidarity from Washington when it comes to assisting its energy-pressed allies in Europe.
“The United States contacted us when oil prices shot up, and the national oil reserves in Europe were tapped as a result. I think such solidarity would also be good for curbing gas prices,” Habeck suggested.
According to the minister, the EU “should pool its market power and orchestrate smart and synchronized purchasing behavior, so that individual EU countries do not outbid each other and drive up world market prices.”
The bloc is facing a tough winter, with gas shortages predicted due to drastically reduced Russian supplies amid Western sanctions and the recent sabotage of the Nord Stream 1 and Nord Stream 2 gas pipelines.
The U.S. likely stands to gain the most from the destruction of the two undersea pipelines, which were damaged by a series of explosions off the Danish island of Bornholm last week. Washington has for years been trying to convince European leaders to swap Russian gas for its liquefied natural gas, with Secretary of State Antony Blinken calling the sabotage of the Russian pipelines a “tremendous opportunity.”
Energy Bills Hit Record High In EU And UK
The average retail gas price across the EU and the UK doubled in October compared to the previous month, when it amounted to €0.18 per kilowatt-hour, Bloomberg reported on Monday, citing data from energy consultancy VaasaETT.
Electricity costs for consumers have reportedly soared 67% to €0.36 per kilowatt-hour.
The surge occurred despite EU governments’ latest attempts to protect households against spiraling energy prices by providing billions in subsidies. EU leaders have pledged more than €550 billion over the past year to help businesses and households tackle the energy crisis.
According to Philip Lewis, chief executive officer at VaasaETT, it is likely household bills would have been even higher if it were not for the financial aid.
On a monthly basis, the average unit rate for electricity reportedly increased 3.4% in October, while that for gas grew by 2.5%. The biggest monthly gains were recorded in Dublin, Ireland, where power rates climbed 44%, while the average gas price in Rome surged 97%.
“If we were essentially to have the crisis more or less lasting for another whole year, or more than a year, that cost, of those measures for these governments, is going to be enormous,” Lewis said, as quoted by media.
“Eventually customers will forget that those prices are not real prices – they will take them as the norm and then it becomes essentially impossible to remove them,” he added.
The EU and Britain are facing a sharp rise in energy prices and record inflation amid anti-Russia sanctions and a policy of abandoning Russian fuel. The situation is expected to lead to energy rationing and shortages across Western Europe.
Energy Disaster Waits For EU
The EU is “in good shape” in terms of energy reserves this winter, however, a real risk of a shortfall lies ahead in 2023, major oil and gas executives have warned.
The region is facing an unprecedented energy crunch following a drop in imports from Russia. The oil and gas shortages, and record-high inflation, have resulted in an overall cost-of-living crisis across the bloc.
But while concerns are focused on the turmoil of the coming winter, it is the next cold season that they should really worry about, CEO of major oil trader Vitol, Russell Hardy, has said.
“We have got a difficult winter ahead, and subsequent to that we have got a more difficult winter in the year ahead of that because the production that is available to Europe in the first half of 2023 is considerably less than the production we had available to us in the first half of 2022,” he said at a conference in Abu Dhabi last week.
Energy prices have gone off the charts and are close to “unaffordability” with many household “spending 50% of their disposable income on energy or higher,” BP CEO Bernard Looney has warned, agreeing with his colleague that the next winter “in Europe could be even more challenging.”
Even though the EU has managed to fill its energy stockpiles by 90%, according to IEA data, the reserves are made up mostly of Russian gas. But as the bloc is speeding up the transition away from Russian pipeline deliveries, there will be no supplies from the bloc’s former biggest supplier.
“The issue is not this winter. It will be the next one because we are not going to have Russian gas – 98% less next year, may be nothing,” Eni chief Claudio Descalzi pointed out.
Given the demand from China, a major importer of gas, and skyrocketing LNG prices, executives of energy companies are worried about possible social unrest, pointing at some EU countries, like the Czech Republic where households saw their energy bills increase tenfold.
Save Every Kilowatt Hour: Austrians Urged
Austrian officials have urged citizens to reduce their energy consumption after the stress testing the country’s grid system showed that a cold winter could push the country’s power supply to the limit.
Speaking to reporters on Monday, Austrian Climate and Energy Minister Leonore Gewessler warned of tough months ahead, with the network’s operator calling the “situation extremely challenging but manageable” in a “realistic scenario.”
The minister noted that critical scenarios would become less likely if people and companies used electricity sparingly. “This is why I ask everyone in our country – help, save energy if you can. Together we will overcome this crisis.”
The stress-testing carried out by the national grid operator APG comes amid growing fears over energy security this winter. Austria had previously relied on Russia for 80% of its gas imports. With the EU goal to reduce energy dependence on Moscow, Vienna needs to find more expensive alternative supplies. According to officials, large companies would have to slash energy consumption if power plants failed in Germany or if fewer nuclear power plants continued to operate in France.
“The stress test is not an indicator of a blackout,” APG CEO Gerhard Christiner insisted, while warning that “extreme events” such as a very cold winter can “never be ruled out,” adding that “every kilowatt hour that is saved makes a difference.”
In June, Austria reopened its largest coal-fired power plant due to concerns over a possible emergency in gas supplies, returning to the use of fossil fuel despite a commitment to fight climate change.
Nord Stream Explosion: A Tremendous Opportunity, Finds U.S.
The U.S. views the sabotage of the Nord Stream gas pipelines as a “tremendous opportunity” to wean EU states off Russian energy, Secretary of State Antony Blinken told reporters on Friday.
With winter approaching, Blinken said that the US wants the bloc to use less fuel.
Washington has for years been trying to convince EU leaders to swap Russian gas for its LNG.
Speaking to reporters in Washington, Blinken boasted that the U.S. is now “the leading supplier of LNG to Europe.”
“It is a tremendous opportunity to once and for all remove the dependence on Russian energy and thus to take away from Vladimir Putin the weaponization of energy as a means of advancing his imperial designs,” Blinken declared.
The US likely stands to gain the most from the destruction of the Nord Stream 1 and Nord Stream 2 gas pipelines, which were damaged by a series of explosions off the Danish island of Bornholm earlier this week.
While the way is now open for the U.S. to sell its more expensive LNG to Europe, the shortfall cannot be covered overnight. U.S. exporters warned throughout the summer that they will not be able to ship enough gas to meet demand on the continent, and many of Europe’s import terminals are still under construction or in planning.
Firewood In Hot Demand
Food shortages have been predicted in Germany and firewood is in hot demand across the continent as citizens struggle to heat their homes.
Cut Winter Power Use: Japanese May Be Asked
The Japanese government plans to call on households and businesses to save electricity when possible, starting from December, NHK broadcaster reported this week, citing an “unpredictable” power supply situation.
According to the report, Tokyo says utilities are likely to secure a reserve power supply capacity rate of 3%, the minimum needed for a stable supply nationwide. However, procurement costs of liquefied natural gas remain high. Officials are reportedly blaming Russia’s military operation in Ukraine for the higher costs.
“The government will endorse on Tuesday a request for households and business to save power between December and March, without going out of their way to do so,” NHK reported, noting that a similar request had been made in the summer, when demand for power surged as temperatures went up.
The media outlet quoted the authorities as saying that if all households manage to cut energy consumption by 1%, enough electricity could be saved to power 15,000 convenience stores for a day. “The government will ask that people layer their clothes indoors and switch off lights that are not in use.”
Tokyo also believes that a 1% cut in electricity use by all offices would be enough to power some 100 thousand households, according to NHK. It reportedly plans to ask companies to reduce their use of lights and air conditioning when possible.
Russia accounts for around 10% of Japan’s LNG imports annually. The East Asian nation has drastically increased energy purchases from Moscow in recent months amid growing fears of a shortage, data shows.
Russia-Iran Massive Oil Deal
Iran expects to sign a $40 billion agreement with Russian energy major Gazprom in December, Iranian Deputy Foreign Minister Mahdi Safari said this week.
“We have closed a $6.5 billion with Gazprom. We hope that the remaining agreements totaling $40 billion will be signed next month,” Safari told ISNA news agency, adding that negotiations are underway.
The National Iranian Oil Company and Gazprom agreed in July to cooperate in the development of two gas deposits and six oilfields in Iran. The document also includes swaps in natural gas and oil products, the implementation of LNG projects, and the construction of gas pipelines.
In early October, Russian Deputy Prime Minister Aleksandr Novak announced that Moscow and Tehran may agree to a swap of 5 million tons of oil and 10 billion cubic meters of gas, to be completed by the end of the year.
On Tuesday, Novak said that Russia and Iran have already started swap deliveries of energy resources, in particular petroleum products, and agreed to expand the list of traded goods. He also noted that “the amount of Russian investment in Iran’s oil fields will increase.”
The development comes as Russia and Iran rapidly expand their energy and trade ties amid the Western sanctions imposed on both nations. Barter deals help the countries avoid settlement issues presented by the Western financial system. They also enjoy direct trade links via the Caspian Sea.
Iranian Petroleum Minister Javad Owji said at the bilateral forum that the public and private sectors in both countries are looking to “neutralize the sanctions.”
China’s Oil Import: Five-month High
The world’s largest oil importer, China, purchased 43.14 million tons of crude in October, equating to 10.2 million barrels per day, according to data released by the country’s customs service on Monday. October oil imports were 4% greater than in September and the highest since May.
In September, Beijing moved to boost the export of refined oil products by issuing a 15-million-ton annual quota, which could be rolled over into the first quarter.
According to tanker-tracking data compiled by Bloomberg, the impact of the move will continue to show up in crude import data for several months, with nearly 9.3 million barrels of oil per day sent to China in October, the highest since December 2021.
“China’s crude import growth is mostly triggered by export quota, with domestic demand still sluggish,” Emma Li, an analyst at Vortexa told the media, adding that the latest reduction in the official selling price of Saudi Arabian grades to Asian nations has also likely contributed to import growth.
China’s net fuel exports dropped 43% in October compared to the previous month, according to separate data released on Monday.
The decline came as state-owned refiners ramped up activity during the month, according to industry consultant OilChem, as cited by Bloomberg.
Run rates were reportedly at 76.4% of capacity on November 3, the highest in seventh months. October imports were slightly above the 10 million-a-day level, the average recorded during the pre-pandemic period.
The drop in net fuel exports may reflect a lag effect, as it commonly takes refiners time to import crude oil, process it into diesel or gasoline, and then send it abroad.
