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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Is Energy Security More Important Than Climate Change?

  • Europe is racing to build new LNG import terminals as it rushes to reduce its dependence on Russian gas.
  • Across the world, energy security is becoming a top priority as inflation weighs on the economy. 
  • At least for now, it appears that climate change concerns are not as important as meeting the world’s growing demand for energy.
Climate Change Energy Security

Europe is racing to build LNG import terminals despite setting increasingly ambitious emission reduction targets. India cannot get enough coal, and it's not the only one. And Big Oil shareholders have become less inclined to vote for climate change commitments. 2022 is truly a year of radical changes in the energy world.

During the last two years, while the pandemic locked down entire countries and destroyed demand for oil with the expected consequences for Big Oil share prices, emission reduction resolutions tabled by activist investors did well.

In fact, they did very well, with 58 percent of Conoco shareholders voting for the company to set emission cut targets and 21 percent of BP shareholders voting for the supermajor to speed up its transition, per Reuters figures. At Exxon, activist investor Engine 1 won three seats on the company's board, which was hailed as a big win for the ESG investment trend. This year, things look different.

For starters, Big Oil is raking in cash thanks to the rally in oil prices. BP booked an underlying profit of $6.2 billion for the first quarter of 2022, although it suffered a $20.4-billion loss from its exit from Russia and Rosneft. Exxon booked a profit of $5.5 billion for January to March. Conoco reported net income of $5.76 billion, and Shell booked $9.13 billion in profits for the same period. Such results are normally enough to whet investors' appetite, but there's more: all the oil majors are still buying back stock as they maintain the shareholders-first course of action they embarked on the moment the pandemic's fallout began to let go last year and prices began to rise. And then the energy crisis began.

Demand for oil and gas rebounded more quickly than expected by pretty much everyone after the lockdowns ended. It then continued to increase while investment in oil and gas production growth lagged far behind it, because of the pandemic and because of the growing worry in the industry that ESG legislation and investment trends will hurt their long-term survival chances. Russia's invasion of Ukraine put the finishing touches to a picture of more demand for hydrocarbons than there was supply.

This picture put energy security in the spotlight, replacing climate change alarm—at least temporarily. Indeed, energy security is a lot more immediate problem for everyone who has to pay for electricity or gasoline, so it was only natural that it would rise to the top of the agenda of hundreds of millions.

Related: Highest Ever U.S. Gasoline Prices Aren’t Destroying Demand

Oil prices have remained above $100 for more than two months now, bar a short dip for West Texas Intermediate when the Biden administration announced the biggest strategic petroleum reserve draw, of 180 million barrels, to counter rising retail fuel prices.

OPEC+ cannot cope with its own production quota, with some large producers from the cartel actually seeing their output decline instead of increasing in line with the group's agreement from last year. Saudi Arabia and the UAE, the two members with lots of spare capacity, have flatly refused to pump more.

Russia's oil is being sanctioned by the West, and exports are falling. Back in March, the International Energy Agency forecast that the current quarter could see a loss of more than 3 million bpd of Russian oil and fuel exports. Now, because of lockdowns in China, the IEA says the world won't feel the loss of this supply because demand is on the decline, too. Judging by oil prices, it will be some time yet before demand falls enough to have an impact on them.

In other words, the world is still thirsty for oil and for gas. It has also become a much more uncertain place for investors, thanks to persistent inflationary pressures in much of the world. As a result, investors are reorienting themselves from ESG to safe-havens. One of these safe havens appears to be the commodity sector, according to a recent Bloomberg report.

Oil and gas, the report noted, provide a natural defense against inflation, and this is particularly true of energy inflation, of which we have seen a lot in the past couple of months. The S&P 500 Energy Index, Bloomberg said, was up 45 percent since the start of the year, while the broader S&P 500 was down 14 percent. Investors once again love oil and gas.

"It might be that Big Oil has convinced some investors the energy crisis overrides the climate crisis," Follow This's Mark van Baal told media in comments on the new trend emerging at this year's Big Oil shareholder meetings.


In fact, Big Oil might not have needed to convince shareholders of anything. The effects of the energy crisis are plain to see and, it bears repeating, a lot more immediate in their impact on the average household than climate change. Hence the rearrangement of priorities. It's safe to say that while the energy supply situation remains tight, the security issue will remain at the top of the agenda, and climate change will remain at number two.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on May 17 2022 said:
    As a rule, economics and energy security always trump climate change policies. The reason is that climate change policies are looked upon by billions of people around the world as a luxury, the domain of the rich, while unemployment, rising costs of living and high energy prices affect the pockets of everyone on the planet.

    Moreover, environmentalists try to frighten us of existential threats to our planet which may or may not happen even in centuries to come while starvation, diseases and rising costs of living are everyday realities.

    People around the world worry about where the next meal will come from and how to keep warm against harsh weather conditions not about whether they are going to die of CO2 pollution or an increase of 1.5 degrees Celsius hundred years from now or the next century.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Alessandro Covi on May 17 2022 said:
    Not only that, but the projections are assuming that we do not find some way of making energy that doesn't produce greenhouse gasses, which spoiler alert, we already have, and it's called nuclear.

    I don't think these people have paid attention of how much technology has progressed in the last 100 years, do they seriously think that we will not find a way to fix this "problem" in a way that does not mean destroying the energy sector right now?

    Energy security is basically as important as food security, in fact, probably even more, without energy you can't do anything, in fact, standard of living is majorly dictated by how much energy you get to use.
  • Andrew Lubbers on May 21 2022 said:
    Ok there Mamdough,
    Climate problems are here and now and getting worse every year. The problem is the environmental solutions presented to people are not solutions at all just money making opportunities for billionaires and people buy up the lies so-called green energy is not green energy. The only thing that's going to slow down climate change is degrowth of our system. We're using way too much fossil fuels to maintain a lifestyle that we won't be able to maintain much longer cuz the fossil fuels are harder and harder to get and we're using them faster and faster this is a problem of idiocy of the human race this is the planet of the humans. Cannot sustain our population with the current system something will have to change but with all the corruption and lies going around nothing's going to happen we're just going to have bigger issues than just climate change it's going to be a perfect storm of energy pollution and all kinds of things good luck peoples.. just keep lying to ourselves and buying the lies of the billionaires who promise green energy.

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