Farewell 2021, the year that put OPEC+ back in driving seat: Year in Review

Special Farewell 2021, the year that put OPEC+ back in driving seat: Year in Review
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Updated 04 January 2022

Farewell 2021, the year that put OPEC+ back in driving seat: Year in Review

Farewell 2021, the year that put OPEC+ back in driving seat: Year in Review
  • Renewables were the only energy sector to see investment rise above pre-pandemic levels

LONDON: Greta Thunberg’s excoriating dismissal of world leaders over their promises to address global warming as “blah, blah, blah” wasn’t as it turned out, too wide of the mark in 2021.

Despite earnest commitments, from Washington to Beijing, to reduce fossil fuel consumption and cut planet-heating emissions, demand for crude oil soared in 2021 as the global recovery from the COVID-19 pandemic took off.

Don’t tell Greta, but oil prices are up around 50 percent this year, courtesy of increased demand and tight supply. 

In January, the month when Joe Biden was officially sworn in as president of the US and Washington rejoined the Paris Agreement on climate emissions, a barrel of Brent crude was trading at about $52.

By March it had spiked to $70.

Momentum in oil prices had been building since the last quarter of the previous year, but the immediate catalyst for March’s spike, and indeed this year’s increase in global crude prices, started with OPEC and its allies, who surprised the markets by agreeing to extend its production cuts into April.

Amid a nascent economic recovery, low inventories, and a lack of spare capacity, oil supply suddenly looked a lot tighter.

The sharp increase in oil demand as COVID-19 restrictions began to ease in the middle of the year took suppliers by surprise and led to tensions between the US and OPEC+.

As demand overwhelmed supply, domestic gas prices soared in the US President Biden called on OPEC+ to open up the pumps and boost production, a plea that fell on deaf ears as the group and its OPEC partners continued to opt for restraint.

In reality, like all global oil producers, OPEC+ struggled to increase output due to underinvestment. While oil investment increased about 10 per cent this year, spending has remained well below pre-pandemic levels as pressure remains on private companies to keep oil and gas portfolios in check.

FASTFACT

10%

In reality, like all global oil producers, OPEC+ struggled to increase output due to underinvestment. While oil investment increased about 10 per cent this year, spending has remained well below pre-pandemic levels as pressure remains on private companies to keep oil and gas portfolios in check.

In June, more than 400 blue chip investors controlling $41 trillion in assets called for governments around the world to end support for fossil fuels. Small wonder an International Energy Agency report released this year noted the “balance of investment in fossil fuels is shifting toward state-owned companies.”

Even the US shale industry, which a few years ago was seen as the swing producer for global oil, has reined in spending. As Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, succinctly put it in March: “Drill, baby, drill”, the mantra of the US fracking industry, “is gone forever.”

The International Energy Agency hardly helped investment when in May it demanded an immediate end to fossil fuel extraction, a demand Prince Abdulaziz bin Salman again succinctly described as a “la-la-land” scenario.

Against the backdrop of a hostile environment for fossil fuels, investment in renewables continued to grow this year. Indeed in 2021, renewables were the only energy sector to see investment rise above pre-pandemic levels, up around 10 percent since 2019.

But of course, the problem with calls for disinvestment in the oil industry is that attacking supply does absolutely nothing to curb consumer demand — the real driver of global warming. Thus, as the world tuned into the delayed Tokyo Olympic Games, which began in July, black gold was sprinting towards $75.

By October, just weeks before world leaders gathered to profess their commitment to tackle climate change at the UN COP26 Climate Conference in Glasgow, Brent crude hit a seven-year high at around $86 per barrel.

October’s price rise was largely attributable to forecasts of a supply deficit as demand continued to increase. At the same time, the sharp rise in global gas prices, and even coal prices, since August had forced many power generators to turn away from natural gas towards fuel oil and diesel. 

Wholesale European gas prices have increased more than 800 percent over 2021 due to a combination of global demand and competition between Europe and Asia for supplies.

European leaders also accused Russian President Vladimir Putin, whose country supplies around a third of Europe’s gas, of withholding supply to force the EU to approve its controversial pipeline Nord Stream 2. This pipeline is planned to supply oil to Europe, but bypasses Ukraine, which has longstanding territorial disputes with Russia.

October’s oil spike was again helped by OPEC+, which earlier in the month insisted they would stick to their July pact to gradually increase supply, ignoring fresh calls from President Biden to open the taps as US gasoline prices hit a seven-year high.

In response, and just days after demanding urgent action on climate change at COP26 in November, Biden announced the largest release of emergency oil reserves in US history from the country’s Strategic Petroleum stockpile. The release of 50 million barrels of oil had no impact on prices which jumped 2 percent on the news.

If nothing else, Biden’s action in November revealed that 2021 marked the year that OPEC and its allies found itself back in charge of setting the global price for crude oil.

Despite sliding back toward the end of the year, the decline was largely driven by fears that travel restrictions imposed by governments due to the omicron variant will hit the aviation industry, Brent crude is still trading at near $80 a barrel as December, and 2021, draws to a close.

Looking forward to 2022, a report by JP Morgan in December predicted that oil will hit $125 a barrel next year and, fasten your seatbelts, $150 in 2023, again due to capacity-led shortfalls in OPEC+ production.

“We think OPEC+ will slow committed increases in early 2022, and believe the group is unlikely to increase supply unless oil prices are well underpinned,” the bank said.

A slightly more conservative estimate by Goldman Sachs also predicts high oil next year and in 2023, with crude potentially rising to between $100 and $110 per barrel.

The IEA now predicts crude consumption will reach 99.53 million barrels per day in 2022, up from 96.2 million this year, and more or less back to pre-pandemic levels.

Consequently, carbon emissions are on track to rise by 16 percent by 2030 according to the UN, rather than fall by half, the reduction required to keep global warming below the Paris Agreement limit of 1.5C.

Happy New Year Greta — and all Arab News readers.


Stuck bags add to tangles at Paris airports amid travel boom

Stuck bags add to tangles at Paris airports amid travel boom
Updated 02 July 2022

Stuck bags add to tangles at Paris airports amid travel boom

Stuck bags add to tangles at Paris airports amid travel boom
  • Union activists said many more passengers flew without their bags
  • The scene at Charles de Gaulle on Saturday was busy but typical for the first weekend in July

PARIS: Airlines worked Saturday to deliver luggage to passengers around the world after a technical breakdown left at least 1,500 bags stuck at Paris’ Charles de Gaulle airport, the latest of several tangles hitting travelers this summer.
The airport’s baggage sorting system had a technical malfunction Friday that caused 15 flights to depart without luggage, leaving about 1,500 bags on the ground, according to the airport operating company. The airport handled about 1,300 flights overall Friday, the operator said.
Union activists said many more passengers flew without their bags, apparently because of knock-on effects from the original breakdown.
It came as airport workers are on strike at French airports to demand more hiring and more pay to keep up with high global inflation. Because of the strike, aviation authorities canceled 17 percent of flights out of the Paris airports Friday morning, and another 14 percent were canceled Saturday.
Passengers on canceled flights were alerted days ahead of their flights. The scene at Charles de Gaulle on Saturday was busy but typical for the first weekend in July, when France’s summer travel season kicks off.
Unions plan to continue striking Sunday but no flights have been canceled so far. They have threatened to renew the strike next weekend if negotiations with company management don’t succeed in finding a compromise.
Until now, French airports had been largely spared the chaos seen recently at airports in London, Amsterdam and some other European and US cities. Airlines and airports that slashed jobs during the depths of the COVID-19 crisis are struggling to keep up with soaring demand as travel resurges after two years of virus restrictions.


Oil prices up 2 percent on supply outages

Oil prices up 2 percent on supply outages
Updated 01 July 2022

Oil prices up 2 percent on supply outages

Oil prices up 2 percent on supply outages

LONDON: Oil prices rose about 2 percent on Friday, recouping most of the previous session’s declines, as supply outages in Libya and expected shutdowns in Norway outweighed expectations that an economic slowdown could dent demand, according to Reuters.

Brent crude futures were up $2.20, or 2 percent, at $111.23 a barrel by 1348 GMT, having dropped to $108.03 a barrel earlier in the session.

WTI crude futures gained $2.25, or 2.1 percent, to $108.01 a barrel, after retreating to $104.56 a barrel earlier.

Both contracts fell around 3 percent on Thursday, ending the month lower for the first time since November.

We “still see risks to prices as skewed to the upside on tight inventories, limited spare capacity and muted non-OPEC+ supply response,” Barclays said in a note.

Libya’s National Oil Corporation declared force majeure on Thursday at the Es Sider and Ras Lanuf ports as well as the El Feel oilfield. Force majeure is still in effect at the ports of Brega and Zueitina, NOC said.

Production has seen a sharp decline, with daily exports ranging between 365,000 and 409,000 bpd, a decrease of 865,000 bpd compared to production in “normal circumstances,” NOC said.

Elsewhere, 74 Norwegian offshore oil workers at Equinor’s Gudrun, Oseberg South and Oseberg East platforms will go on strike from July 5, the Lederne trade union said on Thursday, likely halting about 4 percent of Norway’s oil production.

Ecuador’s government and indigenous groups’ leaders on Thursday reached an agreement to end more than two weeks of protests which had led to the shut-in of more than half of the country’s pre-crisis 500,000 bpd oil output.

On Thursday, the OPEC+ group of producers, including Russia, agreed to stick to its output strategy after two days of meetings. However, the producer club avoided discussing policy from September onwards.

Previously, OPEC+ decided to increase output each month by 648,000 barrels per day in July and August, up from a previous plan to add 432,000 bpd per month.

US President Joe Biden will make a three-stop trip to the Middle East in mid-July that includes a visit to Saudi Arabia, pushing energy policy into the spotlight as the United States and other countries face soaring fuel prices that are driving up inflation.

Biden said on Thursday he would not directly press Saudi Arabia to increase oil output to curb soaring prices when he sees the Saudi king and crown prince during a visit this month.

A Reuters survey found that OPEC pumped 28.52 million bpd in June, down 100,000 bpd from May’s revised total.

Oil prices are expected to stay above $100 a barrel this year as Europe and other regions struggle to wean themselves off Russian supply, a Reuters poll showed on Thursday, though economic risks could slow the climb.

India introduced export duties on gasoil, gasoline and jet fuel on Friday to help maintain domestic supplies, while also imposing a windfall tax on oil producers who have benefited from higher global crude oil prices. 


Russia seizes control of partly foreign-owned energy project

Russia seizes control of partly foreign-owned energy project
Updated 01 July 2022

Russia seizes control of partly foreign-owned energy project

Russia seizes control of partly foreign-owned energy project

MOSCOW: Russian President Vladimir Putin has handed full control over a major oil and natural gas project partly owned by Shell and two Japanese companies to a newly created Russian firm, a bold move amid spiraling tensions with the West over Moscow’s military action in Ukraine, according to Associated Press.

Putin’s decree late Thursday orders the creation of a new company that would take over ownership of Sakhalin Energy Investment Co., which is nearly 50 percent controlled by British energy giant Shell and Japan-based Mitsui and Mitsubishi.

Putin’s order named “threats to Russia’s national interests and its economic security” as the reason for the move at Sakhalin-2, one of the world’s largest export-oriented oil and natural gas projects.

The presidential order gives the foreign firms a month to decide if they want to retain the same shares in the new company.

Russian state-controlled natural gas giant Gazprom had a controlling stake in Sakhalin-2, the country’s first offshore gas project that accounts for about 4 percent of the world’s market for liquefied natural gas, or LNG. Japan, South Korea and China are the main customers for the project’s oil and LNG exports.

Kremlin spokesman Dmitry Peskov said Friday that there is no reason to expect a shutdown of supplies following Putin’s order.

Shell held a 27.5 percent stake in the project. After the start of the Russian military action in Ukraine, Shell announced its decision to pull out of all of its Russian investments, a move that it said has cost at least $5 billion. The company also holds 50 percent stakes in two other joint ventures with Gazprom to develop oil fields.

Shell said Friday that it’s studying Putin’s order, which has thrown its investment in the joint venture into doubt.

“As a shareholder, Shell has always acted in the best interests of Sakhalin-2 and in accordance with all applicable legal requirements,” the company said in a statement. “We are aware of the decree and are assessing its implications.”

Seiji Kihara, deputy chief secretary of the Japanese cabinet, said the government was aware of Putin’s decree and was reviewing its impact. Japan-based Mitsui owns 12.5 percent of the project, and Mitsubishi holds 10 percent.

Kihara emphasized that the project should not be undermined because it “is pertinent to Japan’s energy security,” adding that “anything that harms our resource rights is unacceptable.”

“We are scrutinizing Russia’s intentions and the background behind this,” he told reporters Friday at a twice-daily news briefing. “We are looking into the details, and for future steps, I don’t have any prediction for you at this point.”

Asked during a conference call with reporters if Putin’s move with Sakhalin-2 could herald a similar action against other joint ventures involving foreign shareholders, Peskov said, “There can’t be any general rule here.”

He added that “each case will be considered separately.”

Sakhalin-2 includes three offshore platforms, an onshore processing facility, 300 kilometers of offshore pipelines, 1,600 kilometers of onshore pipelines, an oil export terminal and an LNG plant.
 

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Riyadh no longer one of the 100 most expensive cities for expats: Mercer

Riyadh no longer one of the 100 most expensive cities for expats: Mercer
Updated 01 July 2022

Riyadh no longer one of the 100 most expensive cities for expats: Mercer

Riyadh no longer one of the 100 most expensive cities for expats: Mercer

RIYADH: Saudi Arabia’s capital, Riyadh, has dropped 72 places in a ranking of the world’s most expensive cities for expats as it tumbled out of the top 100, according to a report issued by Mercer.

Riyadh was positioned at 103 in Mercer's Cost of Living Index 2022, falling from 29 in the previous year’s list. 

Commenting on Riyadh’s fall, Khaled Al-Mobayed, CEO of Menassat Reality Co., a Riyadh-based real estate developer, said: “The results came in contrary to the expectations, due to the pandemic’s ongoing consequences and the rising cost of logistics and supply chain.”

“Being out of the 100 top expensive cities is a good sign despite the challenges that the economy has gone through,” he added.

UAE's Dubai took over Lebanon's capital, Beirut, as the most expensive city among Arab countries in the region, ranking 31.

Despite being placed third in 2021, Beirut was not even on this year’s list of 227 cities due to the country’s economic turmoil.

The city’s fall reflects the severe drop in value of the Lebanese pound, according to Lebanese economic analyst Bassel Al-Khatib, who pointed out the minimum wage is now worth $20, while it was $450 before the economic crisis gripping the country. 

“Lebanon is extremely expensive to those who get paid in Lebanese pounds yet very cheap for those who get pain in US dollars,” he told Arab News, adding: “Lebanon was expensive for both citizens and foreigners, and with the currency dropping 95 percent and the dollar reaching record levels, the situation changed.”

“Everything has become expensive but not for foreigners who have dollars. All services by the government such as water, electricity fees, or internet are still the same but food prices skyrocketed,” he added.

Abu Dhabi was the second highest Arab city from the region, ranked at 61, while Jeddah came in at 111 this year compared to 94 in 2021.

Jordan's capital Amman ranked 115, followed by Bahrain's Manama at 117, Oman's Muscat at 119 and Kuwait city at 131.

Egypt's capital, Cairo, was placed at 154 while Rabat, Algiers and Tunis came as the least expensive in the region, ranking 162, 218 and 220 respectively.

Hong Kong topped the list as the most expensive city in the world in 2022, moving from second rank last year and taking the top spot from Turkmenistan’s capital, Ashgabat.

Switzerland’s Zurikh and Geneva followed as second and third most expensive cities, replacing Hong Kong and Beirut respectively.

Turkey’s capital, Ankara, came in as the least expensive city, ranking 227, taking the spot from Kyrgyzstan’s capital Bishkek.


France eyes ‘good investment opportunities’ in Saudi Arabia: Official

France eyes ‘good investment opportunities’ in Saudi Arabia: Official
Updated 01 July 2022

France eyes ‘good investment opportunities’ in Saudi Arabia: Official

France eyes ‘good investment opportunities’ in Saudi Arabia: Official

RIYADH: France is intensifying efforts to take advantage of Saudi investment opportunities in all sectors, mostly energy, technology, water and other industrial services, the country's Ambassador in Saudi Arabia said.

Saudi Arabia is an attractive region and a suitable environment for investments in all its vital sectors, Ludovic Pouille told a press conference.

The French government and the private sector are working to expand the number of companies operating in the Kingdom, which currently stands at about 135, Aleqtisadiah reported citing Pouille.

The aim is to gain large investment spaces, and to benefit from the reforms and economic developments undertaken by Saudi Arabia, which constitute a good opportunity for French companies, he said. 

The French ambassador said France will take the model of agreements between the Al-Ula Authority and his country’s institutions in the fields of infrastructure and culture, as a starting point for expanding the map of investments in the future.