The vast total captured by the petrostates and fossil fuel companies since 1970 is USD 52 trillion, providing the power to “buy every politician, every system” and delay action on the climate crisis, said Professor Aviel Verbruggen, the writer of the analysis. Cartels of countries artificially restricting supply inflated the vast profits.

The analysis, based on World Bank data, assesses the “rent” secured by global oil and gas sales, which is the economic term for the unearned profit produced after the total cost of production has been deducted, a British newspaper reported.

The study is yet to be published in an academic journal. Still, three experts at the University College London, the London School of Economics, and the thinktank Carbon Tracker confirmed the analysis as accurate, with one calling the total a “staggering number”.

It appears to be the first long-term assessment of the sector’s total profits, with oil rents providing 86% of the total.

“I was really surprised by such high numbers — they are enormous,” said Verbruggen, energy and environmental economist at the University of Antwerp, Belgium, and a former lead author of an intergovernmental panel on climate change report.

“It’s a huge amount of money. You can buy every politician, every system with all this money, and I think this happened. It protects [producers] from political interference that may limit their activities,” he said.

The rents captured by exploiting the natural resources are unearned, Verbruggen said, adding, “It’s real, pure profit. They captured 1% of all the wealth in the world without doing anything for it.”

The average annual profit from 1970-2020 was $1tn but he said he expected this to be twice as high in 2022, a British newspaper reported.

The profit-grabbing is holding back the world’s action on the climate emergency, he said.

“It’s really stripping money from the alternatives. In every country, people have so much difficulty just to pay the gas and electricity bills and oil [petrol] bill, that we don’t have money left over to invest in renewables,” he added.

Verbruggen’s analysis used the World Bank’s oil rent and gas rent data, which the bank compiles country by country and is expressed as a percentage of global GDP. He then multiplied this by the World Bank’s global GDP data and adjusted for inflation to put all the figures in 2020 US dollars.

According to International Monetary Fund, the fossil fuel industry also benefits from subsidies of USD 16 billion a day.

Mark Campanale, at Carbon Tracker, said, “Not only is the scale of these rents eye-watering, but it is salient to note that, in the midst of a cost of the living crisis, caused by record oil and gas prices, this flow of money to a relatively small number of petrostates and energy companies is set to double this year. Shifting to a carbon-neutral energy system based on renewables is the only way to end this madness.”

University College London Professor Paul Ekins said, “Some of the rents go to governments as royalties. But the fact remains that, over the last 50 years, companies have made a huge amount of money by producing fossil fuels, the burning of which is the major cause of climate change. This is already causing untold misery around the world and is a major threat to future human civilization.

“At the very least these companies should be investing a far greater share of their profits in moving to low-carbon energy than is currently the case. Until they do so their claims of being part of the low-carbon energy transition are among the most egregious examples of greenwashing,” he added.

Emissions from the burning of fossil fuels have driven the climate crisis and contributed to worsening extreme weather, including the current heatwaves hitting the UK and many other Northern hemisphere countries. Oil companies have known for decades that carbon emissions were dangerously heating the planet.

Verbruggen said oil-rich nations, such as Russia and those in the OPEC cartel, including Saudi Arabia, kept rents high by restricting supply: “They change the fundamentals of the markets.”

Military action, such as the US-led invasion of Iraq in 2003, and political action, such as the embargo on oil exports from Iran, had also increased the rents, he said.

If all available oil and gas could be freely supplied to the market, the price of conventional oil would be USD 20-30 a barrel, Verbruggen said, compared with about USD 100 today.

May Boeve, the head of the campaign group 350.org, said, “These profits have enabled the fossil fuel industry to combat all efforts to switch our energy systems. We have to dismantle such rent-seeking systems and build our future based on accessible and distributed renewable energy that is more sustainable and democratic in every way.”

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Fearing the wrath of the populace, governments are reacting and pre-empting protests. Germany has decided to waive off more than half of a surcharge on energy bills that were meant to incentivize and promote green energy usage. In France, the government has decided to limit the power tariff hike to only 4% this year. The state-run energy corporation sold power to other distributors at a lower than market price to ensure prices don’t shoot up. Further, as a pro-low income group measure, such households were given €100 to withstand the winter season.

Spain, which has seen protests over the issue, has decided on tax breaks till May 2022 to ensure that prices don’t rise exponentially. Further, there is a proposal to tax energy companies on excess profits made to deter them from raising price rates stiffly. Neighbours Italy had elected to go for a tax cut and subsidies too to prevent skyrocketing domestic energy spending. In the last six months or so, the country has spent more than €8 billion to that effect.

The condition is likely to worsen in the coming days as the war rages on with Russia continuing its onslaught on neighbouring Ukraine and the former being slapped with multiple sanctions by the West. Russian supply accounts for more than 30% of Europe’s gas usage annually. Already the sounding of the war has seen major worldwide implications. The Brent oil had surpassed $100 a barrel mark for the first time in seven years.

The rise in energy costs has also had a secondary effect on rising consumer prices for common goods and services. According to a Reuters report, prices have gone up by 5% on an average in January this year compared to a year ago.

This comes at a time when Europe and the UK as a whole are already suffering from low reserves.

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In other news, China’s Sinopec Corp received its first cargo of liquefied natural gas (LNG) under a new term supply deal signed last year with Qatar Petroleum. The tanker Al Sahla, carrying 94,000 tonnes of Qatari gas, was discharged into Sinopec’s Tianjin terminal earlier this week. This part of the deal is signed with Qatar Petroleum in March for an annual supply of 2 million tonnes for 10 years, with supply starting this month.

Mike Sabel, Chief Executive Officer of Venture Global LNG, told the media, “This sales agreement is historic…This deal will also strengthen bilateral economic and trade cooperation between the U.S. and China, representing tens of billions of dollars in trade over the course of contract.”

The deal is expected to double China’s imports of US LNG. Reports suggest that China imported 6.32 million tonnes of LNG from the United States in the first nine months, Chinese customs data showed. But the company has not specified the value of the deal or when supply would begin. Analysts expect the Plaquemines plant will begin production in 2024.

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The governing body, in its Global Economics Prospect Report also mentioned that the international organization revised its expansion rate by 1.6 percent upwards, compared to its June forecast. Additionally, non-oil activities are also expected to strengthen over time, aided by higher vaccination rates and rising investments. But, the World Bank trimmed its 2023 growth forecast by 0.9 percent to 2.3 percent

With oil prices averaging at $74/barrel, and aided by strengthening demand, the Gulf Cooperation Council economies are set to grow by 4.7 percent this year and by 3 percent in 2023. Coming to the Middle East and North Africa (MENA) region, the region’s growth expectation is altered by 0.8 percent to 4.4 percent in 2022, saying that both oil exporters and importers would benefit from a weakening pandemic and a fall in oil production cuts.

Even then, the World Bank mentioned that there are uncertainties that still remain high especially with falling fiscal support. As for next year, MENA is set to grow by 3.4 percent. Other additional risks for the region include factors like the resurgence of Covid-19 cases, climate disasters and changes in oil prices.

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It was also announced that Saudi Arabia will invest $220 billion to transform Riyadh into a global city by 2030, and through this investment is expected to attract similar levels of investment from the private sector, as announced by the head of the royal commission for the capital. Saudi Arabia also plans to double the population and economy of its capital city in the next ten years. Currently, it has 7 million people.

The Gulf Kingdom is the world’s top oil exporter and it is looking to diversify its economy away from crude revenues by creating new industries and investment opportunities. Saudi Crown Prince Mohammed bin Salman said that he wants the kingdom’s capital to become one of the world’s biggest 10 cities under his economic reform strategy.

For a long time, Saudi Arabia has been viewed by international bankers and executives as a place to visit for work before going somewhere else to unwind. But that is going to change as the Saudi capital is not only fast transforming into a global and regional hub of business activities, it is also becoming a centre of entertainment facilities that has a lot of attractive festivals.

Since 2019, the number of foreign investors registered at the Tadawul has more than doubled from 6 percent and Saudi Arabia’s foreign direct investment (FDI) inflows rose during the pandemic. The Regional Headquarters Program also started at the beginning of the year, and it aims to tempt 480 global companies to make Riyadh its home in the region.

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Interestingly, the same oil fields went unsold during the 2019 oil auction held by Brazil. To encourage bidders, this time Brazil slashed its exploration rights fee by 70 percent.

Notably, Petrobras was the biggest bidder with $750 million, followed by Total and British-Dutch Shell with $510 million and $180 million, respectively. Malaysia’s Petronas and Qatar Petroleum meanwhile spent $260 million each for rights to the largest block, Sepia.

Recently, Petrobras has handed a contract to offshore driller Seadrill for work in the Buzios field located offshore Brazil. The contract is expected to be worth around $264 million.

Seadrill is expected to begin work for Petrobras’ in December 2022 and the contract is expected to be for a period of 1040 days.

Seadrill’s chief executive officer, Stuart Jackson told the media, “Petrobras is a long-standing and valued customer of Seadrill and signing a third contract with them this quarter is testament to our strong partnership and commitment to the Brazilian market. Seadrill is focused on growing our fleet in strategic basins where we see high growth potential, such as Brazil, where we are now the largest international drilling contractor.”

Petrobras is mulling selling its 100 percent stake in the Catua Field, in the Campos Basin. The field is located in the waters of Espirito Santo State, around 128 kilometres offshore.

The field was discovered by Petrobras in 2003 and according to the company, the estimated stock tank original oil-in-place (STOOIP) is up to 993.82 MM oil boe.

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Seadrill is expected to begin work for Petrobras’ in December 2022 and the contract is expected to be for a period of 1040 days.

Seadrill’s chief executive officer, Stuart Jackson told the media, “Petrobras is a long-standing and valued customer of Seadrill and signing a third contract with them this quarter is testament to our strong partnership and commitment to the Brazilian market. Seadrill is focused on growing our fleet in strategic basins where we see high growth potential, such as Brazil, where we are now the largest international drilling contractor.”

Petrobras is mulling selling its 100 percent stake in the Catua Field, in the Campos Basin, media reports said. The field is located in the waters of Espirito Santo State, around 128 kilometres offshore.

The field was discovered by Petrobras in 2003 and according to the company, the estimated stock tank original oil-in-place (STOOIP) is up to 993.82 MM oil boe.

Earlier this year, it was reported that Brazilian President Jair Bolsonaro is considering the privatisation of Petrobras. A decision, however, is yet to be taken.

Bolsonaro told a local radio station, “I want to privatise Petrobras, yes, I do. I shall see together with the economic team what we can do.”

Recently, Brazil’s Minister of the Economy Paulo Guedes also revealed that the Jair Bolsonaro led administration will privatise Petrobras within a decade.

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Natural gas prices in Europe have soared by over 400 percent since the beginning of the year. Electricity prices have also increased by over 250 percent during the same period. Meanwhile, in the US natural gas price has more than doubled. Natural gas is mostly used for electricity and to generate heat in the UK during the winter season. Furthermore, the price of coal in the US has soared by nearly 400 percent this year to reach $270 per ton. The crisis is as we understand is considerably worse in Europe. Electricity prices in the continent have soared significantly as well. Natural gas prices have surged as well to $30/mm Btu.

This is resulting in inflation which means prices for energy-intensive metals are also increasing. For example, prices of metals such as nickel, steel, silicon have increased due to the energy crisis. Besides metals, prices of fertilizers have ramped past 2008 record highs to nearly $1,000 a ton. It is noteworthy that the prices were around the $300 to $450/ton mark in the last couple of years. The price for copper too has increased to a record high of $4.50 per pound. Copper is an important metal and raw material for the solar or wind energy industry, which emphasis is growing day by day as and is seen as an important factor to tackle climate change.

In Britain, renewable power production this year was much lower than normal as a result of a windless summer. The region meets around 24 percent of its energy needs through the wind. However, due to low production this year, it means the UK has to rely on coal. Over the years, Britain has transitioned away from coal as an electricity source. Prime Minister Boris Johnson said that the UK remains committed to wind power generation. He went on to say that he wants the UK to become the ‘Saudi Arabia of wind power’ with offshore wind farms generating enough electricity to power every home in the UK in the next 10 years.

However, the landscape is pretty different in the present time. Soaring electricity prices is a matter of growing concern for politicians across Europe. The crunch in the gas market is forcing countries to revert to coal. This goes against Europe’s fight against climate change and that the fact that the UK hosted the 2021 United Nations Climate Change Conference, more commonly referred to as COP26 at the SEC Centre in Glasgow.

In Asia, thermal coal prices also keep hitting record highs. In short, there isn’t enough coal to meet demand. Economies in the region are slowly resuming activities and are in the process of an economic revival, be it China, Malaysia or India. It has led to greater demand and is one of the primary causes of an emerging electricity crisis in China. Coal stockpiles are running low in India too, however, the government claimed there are enough stockpiles to keep the wheels running.

The International Energy Agency said in a report, “Record coal and gas prices, as well as rolling blackouts, are prompting the power sector and energy-intensive industries to turn to oil to keep the lights on and operations humming. Higher energy prices are also adding to inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in the economic recovery.”

The agency further added that global energy demand is set to increase by 4.6 percent in 2021. This will be led by emerging markets and developing economies – pushing it above its 2019 level. Demand for all fossil fuels is on course to grow significantly in 2021, with both coal and gas set to rise above their 2019 levels.

Europe’s energy crisis
Even though there isn’t a simple answer to this, a natural gas supply shortage in the region caused the energy crisis in Europe. But why is there a shortage in the supply of natural gas? There are many factors that are also contributing to the crisis. To understand this crisis better, we must understand that nations across the globe are pledging to reduce emissions and become carbon neutral in the next few decades. Reduction in the usage of coal is an important factor when it comes to tackling climate change. As nations are transitioning away from coal, they are meeting their energy demands with other sources such as natural gas or renewable energy sources. According to the bloc’s statistical office, Eurostat, the EU imported around 90 percent of its natural gas from outside the bloc in 2019.

As a result of the pandemic, the whole world entered into a state of lockdown and global energy demand fell significantly. This led to a drop in natural gas prices. With the Covid-19 vaccination drive ongoing, nations are resuming economic activities and as a result, energy demand has also increased significantly. However, supply has struggled to keep pace.

Given natural gas prices are higher in Asia, it is quite normal for producers to prioritise Asian markets over Europe. This is normally not problematic for Egypt, however, since the demand for natural gas in Asia began skyrocketing this year, supply has become extremely constrained. Normally, what Europe does is stockpile gas reserves when prices are low. But this year, it was not possible due to constrained supply. With the winter seasons approaching, people in Europe are rightfully concerned over their low gas supply.

The pandemic has also made matters complicated or in short, have played a part in the crisis. Due to the lockdown measures and other Covid-19 related restrictions, the production of coal in countries such as Indonesia, Australia, and India have taken a hit. This has forced countries in Asia to rely even more on natural gas to meet their energy needs further reducing the available supply for Europe.

To fully understand the energy crisis, we must also understand the role of Russia. As per reports, Russia supplies about 50 percent of the EU’s natural gas imports. Many Russian gas pipelines do flow into Europe through Poland and Ukraine, but most of them have been inactive. As the energy crisis deepens, many pointed the finger towards Russia and blamed the country for being an opportunist and benefitting from the crisis.

This is because Russia is pushing for German approval of its Nord Stream 2 pipeline. Also, Russia is hesitant to sell Russian gas on the spot market. Russia’s state-owned energy giant Gazprom has been accused by the likes of the International Energy Agency (IEA) and European lawmakers of purposely not boosting its natural gas supply to Europe. In a statement, the IEA said, “The IEA believes that Russia could do more to increase gas availability to Europe and ensure storage is filled to adequate levels in preparation for the coming winter heating season.”

Global energy crisis
The energy crisis is not just limited to Europe at this moment. In China, energy prices are soaring because of increasing consumer demand as economic activities return to normal after the pandemic. Production to meet the increasing demand, however, has failed to bounce back. This has led to a supply and demand imbalance. Similarly, in the UK, a shortage of truck drivers who ferry fuel to pumps has led to the fuel crisis. The shortage is attributed to Brexit and also restrictions imposed due to the pandemic.

Many also believe the rise in energy prices is a result of increasing restrictions announced by governments on traditional energy sources such as coal. In their bid to tackle climate change, regulators across the globe are discouraging the use of traditional energy sources and simultaneously encouraging the use of renewable energy. China, which is one of the biggest polluters, pledged to reduce emissions by 65 percent by the end of 2030 and has cracked down heavily on coal mining.

The UK generates around 24 percent of its energy needs from wind. However, due to low production this year, it means the UK has to rely on coal. Many also argue that shifting focus too quickly on renewable energy is also a reason for the energy crisis. What we need is a proper transition from traditional sources to renewable energy. An aggressive push may have led investors to under-invest in traditional energy sources. A report released by Rystad Energy supports this. The report revealed that investments in traditional sources by European or US-based oil companies shrunk by more than half between 2015 and 2021.

What lies ahead?
Europe’s energy crunch is expected to further worsen as the northern hemisphere winter approaches. With natural gas prices skyrocketing, many fear the EU’s integrated energy system could be on the verge of breakdown. To sustain the winter, many member nations are already resorting to hoarding what supplies they have. This only adds to the trouble as it provides a platform for an intra-EU political squabble.

As of now, it looks like energy supplies are likely to remain constrained. Boosting production in a short period of time is not easy. Also, the rise in prices is not helping either. In fact, the crunch is expected to worsen depending on the weather conditions. A much severe winter means higher energy demand. It will be interesting to see how the EU and leaders across the continent respond to the crisis.

While there are calls for measures to control prices, it can only make matter worse. Even if regulators do introduce measures to control prices for natural gas, it will discourage producers who will think twice before deciding to boost production. While a limited supply means energy must be used efficiently, a price cap could potentially lead to consumers overusing energy and only adding to the crisis. A lot of Chinese thermal plants are shutting down because of the introduction of measures to control prices.

During the winter, energy sources such as solar or wind energy often turn out to be unreliable, especially in Europe. With prices of natural gas increasing, Europe may be forced to rely on traditional fossil fuels. This means governments across Europe will have to rethink their energy policy.

The IEA’s Global Energy Review 2021 estimates that CO2 emissions will increase by almost 5 percent this year to 33 billion tonnes, based on the latest national data from around the world as well as real-time analysis of economic growth trends and new energy projects that are set to come online. The key driver is coal demand, which is set to grow by 4.5 percent, surpassing its 2019 level and approaching its all-time peak from 2014, with the electricity sector accounting for three-quarters of this increase.

Natural gas prices in Europe have soared by over 400 percent since the beginning of the year. Electricity prices have also increased by over 250 percent during the same period. In October, the UK recorded a stellar 37 percent spike in UK wholesale gas prices within a period of 24 hours. As a consequence of the rise in prices and the overall crisis, manufacturers of steel, chemical and fertilizer businesses are calling on the government for support as well.

The prices of natural gas, oil and coal have hit highs that were not seen in recent years. Coal supply disruption in China has also led to factories being shut down. This has halted the country’s recovery from the Covid-19 pandemic, which started in Wuhan in late 2019. Energy prices do affect economic decisions across the supply chain. Furthermore, soaring energy prices have had a significant impact on economic policies. Many European, as well as Asian companies, are shutting down operations due to increasing energy costs.

The IEA said that global energy demand is set to increase by 4.6 percent in 2021. This will be led by emerging markets and developing economies – pushing it above its 2019 level. Demand for all fossil fuels is on course to grow significantly in 2021, with both coal and gas set to rise above their 2019 levels. Oil is also rebounding strongly but is expected to stay below its 2019 peak, as the aviation sector remains under pressure.

Long winter in Europe
During the start of this year, the northern hemisphere witnessed a series of very cold and extreme weather events. If the same is repeated this year, it will put additional pressure on the energy stock which is already depleted and stretched severely. Chartering ships to transport LNG has also taken a hit due to a lack of shipping capacity. Daily spot LNG vessel charter rates have spiked above $100,000 in each of the last three northern hemisphere winters and hit an all-time high of well above $200,000 during the unexpected cold spell in northeast Asia in January 2021 – amid physical shortages of available shipping capacity, according to the IEA.

Governments are doing their bid to deal with the crisis. For instance, the Italian government has announced a €3.4 billion budget to support low-income households in the country. Italy has suspended grid charges for private residents and has promised to further subsidise electricity costs. In France, the French government has decided to let gas prices rise by 12.6 percent before freezing prices at least till the end of April. The government is handing out energy vouchers to the vulnerable to help them deal with the energy crisis. The Spanish government has decided to suspend supply cuts in the country for vulnerable residents until 2023.

The post Are we headed for a global energy crisis? appeared first on International Finance.

In a statement, Aramco said, “India offers tremendous growth opportunities over the long term. It will “continue to evaluate new and existing business opportunities with our potential partners.”

Aramco earlier signed a non-binding letter of intent in 2019 for a potential 20 percent stake in Reliance’s oil-to-chemicals unit which was valued at around $15 billion. However, last week Reliance said that the companies would walk away from the deal.

In September, it was reported that Aramco was planning to open up the Jafurah gas field to foreign investors as it looks to fund a $110 billion project to help it diversify from oil sales. The Jafurah gas field is one of the largest unconventional gas fields in the world.

It was reported that talks are still in the early phases and Saudi Aramco could decide to pursue other ways of gathering money to fund the project.

According to media reports, Saudi Aramco is also planning to split its gas production division into two- Southern Area Gas Operations and Northern Area Gas Operations.

Earlier this year, Saudi Aramco has started the process of selling its first dollar-denominated Islamic bond or Sukuk. The sale of Sukuk by Aramco started on June 7 and concluded on June 17th.

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The field was discovered by Petrobras in 2003 and according to the company, the estimated stock tank original oil-in-place (STOOIP) is up to 993.82 MM oil boe.

The idea of privatising Petrobras is being considered by the Brazilian government. Recently, Brazil’s President Jair Bolsonaro said during a radio interview, “This is on our radar. But privatising a company is not just putting it on a shelf and whoever offers the highest bid takes it, it is very complicated.”

It was the second time that Bolsonaro was discussing the same. After Jair Bolsonaro’s comments on privatisation of Petrobras, the company saw its stock price rise.

Earlier this month, Bolsonaro told a local radio station, “I want to privatise Petrobras, yes, I do. I shall see together with the economic team what we can do.”

Recently, Brazil’s Minister of the Economy Paulo Guedes also revealed that the Jair Bolsonaro led administration will privatise Petrobras within a decade.

He told the media, “What is the plan for the next 10 years? Continue with the privatisations. Petrobras, Banco do Brasil, everyone getting in line, getting sold and transforming into social dividends.”

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