PCK Schwedt oil refinery in Schwedt, Germany on Monday, May 9, 2022.
Krisztian Bocsi Bloomberg | Getty Images
ABU DHABI, United Arab Emirates – Politicians and governments around the world are facing potential crises as many countries grapple with rising energy costs and inflation.
The world economy is facing an attack from many sides – the war in Europe, and the lack of oil, gas and food, and high inflation, which has worsened the following.
Concerns center around the coming winter, especially in Europe. The cold weather, combined with oil and gas shortages from Western sanctions on Russia for its invasion of Ukraine, threatens to upend lives and businesses.
But as much worry as there is ahead of this winter, it’s really the winter of 2023 that people should be worried about, major oil and gas executives have warned.
“We have a tough winter coming up, and then we have an even tougher winter next year, because the production available in Europe in the first half of 2023 is much less than our production. available to us in the first half of 2022,” Russell Hardy, CEO of oil major Vitol, told CNBC’s Hadley Gamble during a panel at the Adipec conference in Abu Dhabi.
“So the consequences of the lack of energy and therefore the increase in prices, all the things that have been discussed here about the cost of living, the expectation of future problems, obviously must be considered in that context,” he said.
BP CEO Bernard Looney, speaking on the same panel, agreed. Energy prices are “close to affordable,” with some people already “spending 50% of their income on energy disposal or more,” he said.
But with the combination of high gas storage levels and government spending packages to support public debt, Europe could manage the crisis this year.
“I think it was considered this winter,” Looney said. “Next winter I think a lot of us are worried, in Europe, it could be more challenging.”
CEO of an Italian oil and gas giant Eni expressed the same concern.
This winter, Europe’s gas reserves are around 90% full, according to the International Energy Agency, providing assurances about a major shortage.
But much of that was made up of Russian gas imported in the past months, as well as gas from other sources that was easier than usual to buy because big exporter China was buying less because of the economic slowdown.
“We are in good shape this winter,” said Eni chief Claudio Descalzi. “But as we said, the issue is not this winter. It will be the next one, because we will not have Russian gas – 98% [less] next year, maybe nothing. “
The protests have already begun
This could lead to serious social unrest – already, small to medium-sized protests have broken out across Europe.
Anti-government protests in Germany and Austria in September and in the Czech Republic last week – the latter of which saw domestic debt rise tenfold – could be a small taste of what’s to come, analysts have warned. Some energy managers agree.
“We have seen any price shock at the pump, or something as simple as LPG [liquefied petroleum gas] cooking, it can cause chaos,” the head of Malaysia’s oil and gas company Petronas, Datuk Tengku Muhammad Taufik, said.
He explained how the strengthening dollar and rising fuel prices pose a major risk to many Asian economies – many of which are some of the world’s largest exporters of oil and gas. And this is happening while subsidies are already in place to help lower prices for the public.
Inflation in the euro zone remains very high. Protesters in Italy used empty shopping trolleys to demonstrate the cost of living crisis.
Stefano Montesi – Corbis | Corbis News | Getty Images
Many Asian economies were already reeling from the pandemic, which caused “largely [small and medium enterprises] in Asia just to fall,” Taufik said. “So, yes, there is a real risk that governments without a steady hand in policymaking in Asia could face upheaval.”
Anger over the huge profits of the oil companies
Much of the protestors’ anger was also directed at energy companies, which have been making record profits as debt soars.
In response to this, many CEOs who spoke to CNBC said that it is a matter of market supply and demand, and it is up to governments to implement more appropriate policies for energy investment. That investment, they stressed, has taken a hit in recent years as countries push for reform.
The world must face the “practical and realistic issues of today and tomorrow,” BP’s Looney said, stressing the need to “invest in hydrocarbons today, because today’s energy system is a hydrocarbon system.”
Many policy makers and institutions still criticize the use of fossil fuels, warning that the biggest problem is climate change. In June, United Nations Secretary-General Antonio Guterres called for an end to fossil fuel funding, and called any new funding for exploration a “fraud.”
Oil executives argue that this approach is not realistic, and is not an option if countries seek economic and political stability.
At the same time, however, they agree that the energy transition itself requires greater focus and investment to avoid a major crisis next year and beyond, when there is no Russian gas in storage and other options will be more expensive.
“In Europe, we pay at least six, seven times [as much as] 15 times the cost of energy compared to the US,” said Descalzi of ENI.
“So what we have done in Europe, every country, has given funding to try to reduce costs for businesses and citizens. How long will it continue?” he asked.
“I don’t know, but it can’t go on forever. All these countries have huge debts,” he said. “So they have to find a structural way to solve this issue. And the structural way is what we’ve said so far – we have to expand and accelerate the transition. That’s the truth.”
“But,” he added, “we need to understand, from a technological point of view, what is affordable and what is not.”