High energy prices: Oil companies write billions in profits

Dusseldorf The big oil and gas companies are currently reporting one record number after another: the highest profits in seven years, a cash flow as last seen in 2008 and less debt than it has been for a long time.

Where the five industry giants Exxon Mobil, Chevron, Shell, BP and Total Energies had to cope with a minus of more than 60 billion dollars last year, “Big Oil” will post a plus of almost 90 billion dollars in 2021. The expectations of the analysts have thus been exceeded for the most part.

The leader is the US group Exxon Mobil with a profit of 23 billion dollars, closely followed by the British Shell. But even the smallest of the bunch, the French Total Energies, still has a net profit of 16 billion dollars.

“In the fourth quarter, oil prices continued to rise, while gas prices in Europe and Asia hit all-time highs on rising demand and European electricity prices are at record levels,” Total CEO Patrick Pouyanné said when presenting the figures on Friday. The LNG business and the electricity segment in particular ensured good results last year.

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This starting position is causing the oil and gas companies to celebrate. After the fossil industry endured the worst economic year in its history in 2020, the profit machines are once again living up to their reputation. This pleases their shareholders in particular.

With the exception of Exxon Mobil and BP, all of the supermajors have significantly increased their dividends. For a year, the prices of the oil companies have risen sharply. Almost all companies have now been able to compensate for the massive price crash when the corona pandemic broke out.

The US companies Chevron, Exxon Mobil and competitor Total Energies from Paris put in the best performance. The British companies Shell and BP are well behind, but were also able to increase.

This is mainly due to the newly discovered spending discipline. Companies spent 2020 aggressively cutting costs, announcing tens of thousands of layoffs and, in some cases, cutting their dividends. That left them well set for 2021, when the slump turned into a remarkable rally.

Oil price will stay high

“The price of oil is the highest it has been in seven years. Supply and demand will be balanced again in 2022,” said BP CEO Bernard Looney at the presentation of the annual figures in London.

Nevertheless, the energy market remains volatile, with gas prices that have risen massively internationally, geopolitical uncertainties and empty storage facilities. “We therefore believe that the price of oil will continue to rise.” The bosses of the major oil companies are unanimous in their warning: Consumers will have to adjust to high energy prices for years to come.

In January alone, the peak price rose by 17 percent to more than 90 US dollars per barrel (159 liters) of North Sea Brent. As a result of the global easing of Covid19 restrictions, the global economy is recovering much faster than expected, as is oil demand.

The International Energy Agency (IEA) even surprisingly adjusted its forecast for 2022 upwards in December. In view of the milder consequences of the omicron variant of the corona virus, the demand dynamics are stronger than many market observers thought, said IEA boss Fatih Birol.

Because the oil companies have been on a serious austerity course since the great price crisis of 2014, they can now look forward to high profits. While this is good news for corporations, it is bad news for consumers. Crude oil rose by around 55 percent last year and the population in Europe and the USA is groaning under record fuel prices.

>> Read here: Demand up, investments down: oil could become scarce at times

“I have no good news to report, oil prices will remain high,” said Total Energies CEO Pouyanné. In France, the situation is so tense that the oil company announced Thursday it would give customers a $100 voucher to help deal with high energy bills.

Shortage of supply in the oil market

Because not only the price of oil has risen enormously, the price of natural gas has more than tripled in the past year. At the end of last year they had reached record highs due to low seasonal inventories.

“What we can expect is volatility over the coming months and years,” BP CEO Looney said after the British company reported its highest earnings in eight years. The tightness in the market is another factor behind the rising oil and gas prices.

Equinor, Europe’s second largest pipeline gas supplier after Russia’s Gazprom, also reported record profits this week. CEO Anders Opedal said he expects the European gas market to remain tight and demand to remain strong this year as below-average inventories need to be replenished. “You could imagine a world where oil prices are much, much higher due to a lack of investment even as the energy transition is accelerating,” Looney said.

Because the European multinationals in particular are largely sticking to their long-term strategy shift. BP aims to reduce oil production by 40 percent, or about one million barrels a day, by 2030, including through the sale of oil and gas assets.

Competitor Shell had already sold its largest US oil field for almost ten billion dollars in September. Also against the background of further reducing investments in fossil fuel production under pressure from politicians, activists and shareholders.

The Association of Petroleum Exporting Countries (OPEC) is fueling the energy price rally. At their summit meeting in early February, OPEC plus decided not to increase production any further than previously planned. The daily production volume will increase by 400,000 barrels. The oil markets are thus kept artificially tight.

More: Opec ignores Western calls for more oil

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