2022 was quite the year for Oil and Gas. Economies around the world saw record high inflation rates, we began to move past the lockdowns and high pressures of the Covid-19 pandemic, war broke out in Europe, and an energy crisis has impacted our industry on a global level. Of course, it is not all bad, and there were many positives that came out of 2022. People were freely able to cross borders and see their families again, production in the GOM and overall, in the United States increased, and new policies have been introduced that may play in our favour moving forward. So, what happened in 2022?
War in Ukraine
On 24 February 2022, Russia invaded Ukraine in a major escalation of the Russo-Ukrainian War, which began in 2014. This move was a shock to the world and created long lasting impacts to the global economy, and importantly, the energy markets. With Russia being one of the world’s top Oil and Gas producers, this created a series of events that led to major disruptions in the energy markets in 2022 through the embargos of Russian Oil, the closing off of Russian pipelines, and the subsequent shortage of energy across Europe.
The Energy Crisis
Russia’s invasion of Ukraine sent oil prices on a wild ride in 2022. Prices soared to over $120/bbl, which has only ever happened once before. The loss of Russian imports caused a disruption in gasoline supplies, and later diesel production during a period of high diesel demand. This all led to the highest weekly average diesel and gasoline prices ever in the U.S. This was only a fraction of the wildness that has transpired in global energy markets, namely in Europe.
Supplies of Russian gas—critical for heating, industrial processes, and power—were cut by more than 80 percent this year. Wholesale prices of electricity and gas surged as much as 15-fold since early 2021, with severe effects for households and businesses. In the UK, Household energy bills increased by 54% in April 2022 and were due to increase by a further 80% in October. Even though in the past few weeks there has been a string of good news on the energy front in Europe with gas prices receding sharply and purchases from non-Russian suppliers scaling up, the effects of this energy crisis are being felt across Europe and the world with inflation hitting new highs.
The Strategic Petroleum Reserve is an emergency stockpile of petroleum maintained by the United States Department of Energy. It is the largest publicly known emergency supply in the world; its underground tanks in Louisiana and Texas have capacity for 714 million barrels. To combat rising energy prices, President Biden announced the largest release of oil from the Strategic Petroleum Reserve (SPR) in history.
The US government has pocketed a roughly $4 billion windfall from sales of crude this year out of the Strategic Petroleum Reserve. In the week ending December 9, the US released about 4.7 million barrels of crude, and the Energy Department has said it will conclude deliveries this month. Since President Joe Biden tapped into the reserves in March — just after Russia’s invasion of Ukraine — the US has sold 180 million barrels of crude at an average price of $96.25 per barrel.
A variety of acts and policies have been introduced this year that many in the Oil and Gas industry view as unhelpful and almost anti O & G and for the most part, the administration has mainly focused on promoting the Renewables Energy sector. The Inflation Reduction Act, widely viewed as a climate change bill, was mainly aimed at boosting the renewables sector but also provided some provisions for larger Oil and Gas companies looking to invest in mew carbon and methane capture technologies.
The current administration has also approved new Oil and Gas wells at a fast rate allowing for further exploration and production. However, many critics argue that there has been growing threats to U.S. energy independence by launching an ESG crusade against oil, blocking pipelines, cutting federal leases, and threatening energy companies’ access to capital and the outlook for long-term demand. The mixed bag that has been the current administration has led to scepticism and confusion as to the future of the industry.
A look towards 2023
With the Russian war not looking like its going to be over any time soon, OPEC+ not wiling to open up its reserves, and policy providing a mixed bag of effects on our industry, the future is still uncertain. Of course, analysts predict new trends and technologies to be further adopted such as robotics, AI, cloud computing and carbon capture. We also so in December the first ever energy production from Nuclear fusion. There will be a lot to see and a lot to do in 2023 and the industry will have to come together to ask for stronger institutional and political support in order to weather any storms and move past this energy crisis.