Oil CEOs warn this winter’s energy crisis will be nothing compared to the next

ABU DHABI, United Arab Emirates — Politicians and governments around the world are bracing for possible civil unrest as many countries grapple with rising energy costs and rising inflation.

The global economy is facing an onslaught from many sides – a war in Europe, oil, gas and food shortages, and high inflation, each worsening the next.

Concerns are centered on the coming winter, especially for Europe. The cold weather, combined with a shortage of oil and gas resulting from Western sanctions against Russia for its invasion of Ukraine, threatens to disrupt lives and businesses.

But as much worry as there is heading into this winter, it’s really the winter of 2023 that people should be worried about, top oil and gas executives have warned.

“We have a tough winter ahead, and thereafter we have a tougher winter in the year ahead, as the production available for Europe in the first half of 2023 is significantly lower than the production we had at our available in the first half of 2022,” Russell Hardy, CEO of major oil trader Vitol, told CNBC’s Hadley Gamble during a panel at the Adipec conference in Abu Dhabi.

“So the consequences of the energy shortage and therefore the escalation of prices, all the things that have been discussed here about the cost of living, the expectation of the problems to come, clearly have to be considered in this context. “, did he declare.

PB CEO Bernard Looney, speaking at the same panel, agreed. Energy prices “are approaching unaffordability”, with some people “already spending 50% of their disposable income on energy or more”, he said.

But thanks to a combination of high levels of gas storage and government spending programs to subsidize citizens’ bills, Europe may be able to manage the crisis this year.

“I think that’s been worked out for this winter,” Looney said. “It’s next winter, I think a lot of us fear, in Europe, it will be even more difficult.”

The CEO of the Italian oil and gas giant Eni expressed the same concern.

For this winter, gas storage in Europe is around 90% full, according to the International Energy Agency, which offers some insurance against a major shortage.

But much of that is Russian gas imported in previous months, as well as gas from other sources that was easier than usual to buy since the main importer, China, was buying less. due to its slower economic activity.

“We are in good shape for this winter,” said Eni chief Claudio Descalzi. “But as we said, the problem is not this winter. It will be next, because we will not have Russian gas – 98% [less] next year, maybe nothing.”

This could lead to serious social unrest – already, small to medium scale protests have sprung up across Europe.

Anti-government protests in Germany and Austria in September and in the Czech Republic last week – the latter of which saw household energy bills soar tenfold – could be a small taste of what lies ahead, analysts have warned. Some energy executives agreed.

“We’ve seen that any price shock at the pump, or something as simple as LPG [liquefied petroleum gas] to cook, can cause unrest,” said CEO of Malaysian oil and gas company Petronas, Datuk Tengku Muhammad Taufik.

He described how the strengthening dollar and rising fuel prices pose a serious risk to many Asian economies – massive populations that are among the world’s biggest importers of oil and gas. And this is happening while subsidies are already in place to help ease prices for citizens.

Many Asian economies were already reeling from the pandemic, which caused “vast swaths of [small and medium enterprises] in Asia from collapsing,” Taufik said. “So, yes, there is a real risk that governments without a firm hand in policy-making in Asia could deal with unrest.”

Much of the protesters’ anger is also directed at energy companies, which are making record profits as bills keep rising.

In response to this, many CEOs who spoke to CNBC said it was a market supply and demand issue and that it was up to governments to implement policies that were more conducive to people. energy investments. That investment, they pointed out, has taken a hit in recent years as countries push to transition to renewable energy.

The world must deal with “the practicalities and realities of today and tomorrow”, BP’s Looney said, stressing the need “to invest in hydrocarbons today, because today’s energy system today is a hydrocarbon system”.

Many policymakers and institutions are still decrying the use of fossil fuels, warning that the far bigger crisis is that of climate change. In June, United Nations Secretary-General Antonio Guterres called for a scrapping of fossil fuel funding and called any new funding for exploration “delusional”.

Oil executives have argued that this approach is simply not realistic, or an option if countries want economic and political stability.

At the same time, however, they admitted that the energy transition itself requires greater focus and investment in order to avoid a deeper crisis next year and beyond, when there is no no Russian gas in storage and that other options are increasingly expensive.

“In Europe, we pay at least six, seven times for [as much as] 15 times the energy costs compared to the United States,” ENI’s Descalzi said.

“So what we’ve done in Europe, each country, has given incentive grants to try to reduce the cost to industry and to citizens. How long can this go on?” He asked.

“I don’t know, but there’s no way this can go on forever. All of these countries have very high debt,” he said. “So they have to find a structural way to solve this problem. And the structural way is what we’ve been saying so far – we have to step up and be faster in the transition. That’s right.”

“But,” he added, “we need to understand, from a technical point of view, what is affordable and what is not”.