Ukraine crisis defies oil industry wariness of high prices

Rising energy prices have fueled calls for the United States to massively increase oil and gas production, but companies are reluctant.

After collapsing at the start of the pandemic, crude prices have gradually rebounded in recent months and, recently fueled by the Ukraine crisis, topped $100 a barrel on Thursday for the first time since 2014.

Oil companies, both giants like ExxonMobil and Chevron and smaller ones, have been careful not to take advantage of the return to profits to grow at all costs.

Investors have favored profits being used to pay down debt or reward shareholders. Some have also pushed for big firms to spend more money on energy that releases less carbon than hydrocarbons.

In addition, the giants of the sector have learned a lesson with the sharp drop in crude oil prices at the beginning of 2020 and the persistent uncertainty about the trajectory of the pandemic and its effects on energy demand.

But given the recent spike in prices, the powerful union of energy producers in the United States, the American Petroleum Institute, considered that Joe Biden had to change course.

The organization called on the president to authorize more exploitation projects on federal lands and the high seas, speed up permitting and cut red tape.

“As Ukraine crisis deepens, US energy leadership matters more than ever”, the group wrote on Twitter.

Republican congressmen also brandished the situation in Ukraine to reiterate their opposition to Biden’s energy and environmental policy, which, among other measures, canceled the Keystone pipeline and imposed restrictions on energy projects on federal land.

Senator Bill Cassidy of Louisiana called for the United States to “will flood” the world with cheap energy for “destroy” the “war machine” Russian financed with oil.

economic war

For Peter McNally, an analyst at the investment company Third Bridge, the companies in the sector will not suddenly transform their strategy.

“Everyone has been telling companies not to extract too much, both shareholders and socially conscious investors and President Joe Biden”, he declared.

The sector has already had a barrel at more than US$100 and prices, every time, have dropped sharply.

Russia’s status as an energy giant, the world’s third largest oil producer and supplier of up to 40% of Europe’s gas imports, has influenced the Western response to the Ukraine invasion.

Washington on Thursday announced a new round of sanctions but refrained from excluding Moscow from the Swift international banking exchange system, which allows money to be easily transferred to pay for barrels of crude.

“A large-scale military conflict between Russia and the West is unlikely, but a deep economic war is almost inevitable”, estimated in a note the head of the firm Rystad Energy, Jarand Rystad, pointing out that Russia could use its energy exports as a weapon.

In any case, at least until recently, US crude producers have been reluctant to increase their investment in new projects.

Devon Energy said last week that it did not plan to increase investment spending in 2022, even though its profits have risen.

During the release of annual results in late January, Chevron boss Mike Wirth also pledged to “remain disciplined” on investment matters.

The company’s long-term crude oil price forecastnot much has changed”, he added.

Rising energy prices have traditionally encouraged the development of alternatives to fossil fuels, said Jim Krane, an energy specialist at Rice University in Houston.

And while the Ukraine crisis exacerbates concerns about short-term energy security, it does not change the need to switch to cleaner sources, he argued.

The conflict “can slow down this process in some places and speed it up in others”, he predicted.