Paris – AFP: 2022 will remain an exceptional year for the major oil companies, which, thanks to the significant rise in prices due to the recovery in demand for oil and gas along with the war in Ukraine, were able to record record profits, while all expectations indicate that they will achieve similar profits. in the current year as well.
Four of the five major companies, namely “Shell”, “Chevron”, “Exxon Mobil” and “Total Energies”, broke their net profit record in 2022, while “BP” recorded a record profit, excluding exceptional items.
Combined net profits for the five companies were $151 billion, while adjusted earnings, which better reflect profitability by excluding losses from withdrawals from Russia, are closer to $200 billion.
And that’s enough to anger governments and NGOs, in the midst of the energy and climate crisis. Even US President Joe Biden spoke last Tuesday of “disgraceful” earnings. Companies fully benefited from the price hike, when the price of a barrel of Brent crude, the global benchmark, approached $140 in March 2022, while gas rose to 350 euros per megawatt hour last summer in Europe, 15 times higher than the usual price.
Prices have fallen since then, but in 2023 “they might hit new highs because the war in Ukraine is not over yet,” says Adi Imcirovic, a researcher at the Oxford Institute for Energy Studies.
Despite the uncertainty in the global economy, the Organization of the Petroleum Exporting Countries (OPEC) does not expect a decrease in demand. On the contrary, it expects a growth of 2.2 million barrels per day in the current year following rising by 2.5 million barrels per day last year.
The political class in the West finds itself in a difficult situation regarding the rise in profits of major companies, once morest the backdrop of the cost of living crisis. In Europe as in the United States, families and businesses suffer from high prices for basic items such as bread or motor fuel. US President Joe Biden wrote on Twitter last week, “I am doing my part to lower prices, and it is time for the giant oil companies to do their part.”
In his speech on the state of the union on Tuesday/Wednesday night, he accused major oil companies of exploiting the recent energy resource crisis for profit, calling for imposing a large tax increase on companies’ share buybacks to direct them to invest more in production. “Last year, they made $200 billion in profits in the midst of a global energy crisis,” he said. I think this is outrageous.”
And in France, the announcement by Total Energies of its $20.5 billion profit fueled the debate regarding imposing more taxes on these huge profits.
In Britain, last May, the government imposed a tax on exceptional energy profits, just as the European Union did at the end of September, as part of what was called a “temporary solidarity contribution” that Exxon Mobil Corporation challenged before the courts. At the time, Exxon CEO Darren Woods said, “What we need now is an increase in supply. Instead, a penalty was imposed on the entire energy sector.”
And following major companies benefited from the recovery in demand following the Covid pandemic in 2021, prices rose once more in 2022 due to the outbreak of the war in Ukraine, Western sanctions targeting Moscow, and the decline in Russian exports.
To be sure, oil companies are investing more and more in solar, wind and other renewable energies, “but not as much as they are paying shareholders,” says David Elms, a professor at the University of Warwick Business School, while BP is “slowing down” its energy transition. . These multinationals have also benefited from betting on “assets with high added value,” such as liquefied natural gas projects, says Moez Ajami, consultant at Ernst & Young for accounting and consultancy.
“The exorbitant prices fueled by European purchases of liquefied natural gas to compensate for Russian supplies also helped increase profits,” says Adi Imcerovic.
But what will happen next? Moez Ajami says that “prices, in my opinion, will rise due to the oil embargo imposed by the West on Russia … and therefore these companies will achieve profits in the year 2023 at the value of those they earned in 2022,” especially since these companies will be able to rely on the recovery of demand with China’s abandonment of the policy Zero covid.
And Adi Imcerovic says that the demand for gas and oil will remain strong thanks to subsidies amounting to tens of billions to help consumers pay their bills, which “prolongs the crisis.”
He adds that with “the provision of subsidies for fossil fuels … demand continues to grow instead of falling,” while “the best remedy for high prices is high prices.” He concludes that EU governments should first only help “the poorest”.
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