President Biden spent much of 2022 urging American and foreign energy providers to produce more oil and natural gas. He finally got his wish – though not exactly where he expected.
A new analysis by consultancy Wood Mackenzie finds that worldwide fossil fuel exploration in 2022 is at the highest levels in more than a decade. The company measures new energy discoveries in terms of “value creation,” which combines the efficiency of new energy discoveries with the amount of energy discovered. Total value creation in 2022 was $33 billion, assuming oil sold for $60 per barrel. The value will be higher if oil prices go up.
The value of new oil and gas exploration in 2019, the last year before the COVID pandemic, was $22 billion. Exploration picked up slightly in 2020 but stalled in 2021, as energy prices collapsed and energy companies faced intense pressure to cut costs. The value of discoveries in 2022 is 6 times the value of discoveries in 2021.
More than that, 2022 discoveries include many “high-quality hydrocarbons,” according to WoodMac’s analysis, that will require less new infrastructure and energy expenditures to extract—and thus generate lower carbon emissions overall than was typical over the past decade.
The most valuable new find is in the waters off Namibia, at the southwestern tip of Africa. Other important finds are in Algeria, Guyana and Brazil. France’s Total Energy had the largest net worth, followed by the state-owned companies of Brazil and Qatar, and Petrobras and Qatar Energy. The only American company in the top ten was ExxonMobil (XOM)number 9.
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“The oil and gas sector has gone through its biggest reset in years as low oil prices have forced it to cut costs and sharpen portfolios,” says Julie Wilson, director of global exploration research at Wood Mackenzie. They only dig the best prospects, what they see as the lowest cost and least carbon deposit. This means that oil and gas found in 2022 have a greater chance of moving forward to development than creating less value in the past.”
It may take several years for newly discovered energy deposits to reach global markets, as fields need to be developed, and arrangements finalized between drillers, governments and other interested parties. But the recovery in oil and gas exploration marks a kind of return to normal for an industry that has been wracked in recent years by overproduction that has slashed profits, followed by huge losses during the COVID pandemic. At the same time, global warming caused by carbon emissions is driving a shift to green energy and increasing pressure on fossil fuel companies to conserve cash rather than expand.
High oil and natural gas prices in 2022 have exposed a worrying gap between the bona fide goal of reducing carbon emissions and the need for fossil fuels that remain an asset to most of the global economy. US gasoline prices hit $5 a gallon last June, an all-time high, causing acute political trouble for President Biden and other world leaders. Natural gas levels have also risen, sending heating costs in the winter to levels that are still painful.
The Russian invasion of Ukraine and subsequent sanctions on Russia, a major energy producer, led to a fossil fuel supply crisis. But the fundamental factors have already laid the foundation. Oil and gas companies overspend and overproduce during the decade prior to the COVID pandemic, which has kept prices paid by consumers low but dampened returns for energy shareholders. Decreased demand during COVID has spread pain across the industry. From 2015 through 2021, more than 600 we Oil companies and corporations declared bankruptcy.
Biden campaigned for president in 2020 pledging to “Ending fossil fuels. “But he started Oil companies are asking to dig more With gasoline prices approaching $4 a gallon, then $5 in 2022. However, US energy companies are private companies that do not take orders from the government, as do nationalized oil companies in many Middle Eastern countries. Most US energy companies now resist large capacity expansions, fully aware that more energy production usually leads to lower prices, sometimes turning booms into busts. Biden He asked Saudi Arabia and other foreign producers to drill morewith the same unsatisfactory result.
Market forces now seem to convince energy companies that there is money to be made through cautious expansion. Despite the shift to green energy, global demand for oil is Still potentially growing, not shrinking, until at least 2030, according to research firm Energy Intelligence. The demand for natural gas may peak even after that, because gas is the cleanest burning fossil fuel, and it has a major role as a primary source of energy even with the widespread adoption of renewable energy sources such as wind and solar energy.
US energy companies are gradually ramping up production, too. in that Latest forecastthe US Energy Information Administration expects US oil production to reach 12.4 million barrels per day in 2023, which may slightly exceed the record high of 12.3 million barrels in 2019. The EIA believes that US production will reach 12.8 million barrels per day in 2024. That’s not the source of the oil influx Biden might hope for, but it’s a meaningful increase, given that drillers face headwinds like labor shortages and physical inflation, as well as opposition from activists.
The Intel. The Energy Agency expects a A very slight increase In global oil supplies this year, which could be outpaced by increased demand. The rise in the price of retail products such as gasoline or heating fuel depends on two things. The first is Russia. US and European sanctions on Russian energy supplies are set to tighten again in February, which could reduce global supplies of refined products such as diesel fuel. The sanctions aim to cut Russia’s energy revenue without hurting global supplies, but the methods are new and there is a lot that could go wrong.
The other factor is the resilience of the Chinese economy. Strict coronavirus lockdowns have constrained the Chinese economy for most of 2022, and since China is a huge energy consumer, this has helped ease global energy demand. This is one of the big factors behind lower energy prices in the second half of 2022. But China ended those lockdowns, and the economy there appears to be on the verge of recovery. Increasing demand for energy in China will cause energy prices to rise everywhere.
Overall, it seems likely that oil and natural gas supplies will be lower in the next several years than they were before COVID. “The market likes to see a supply cushion,” says Wilson. But we have to get used to a future where we don’t have this excess energy. We will likely continue to be exposed to volatility in oil prices.” This means that every little bit of new production, from anywhere, will be welcome.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @tweet
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