Next winter will be worse than this one, oil CEOs warn

PCK Schwedt oil refinery in Schwedt, Germany on Monday, May 9, 2022.

Christian Bocsi Bloomberg | Getty Images

ABU DHABI, United Arab Emirates – Politicians and governments around the world are looking for potential unrest as many countries grapple with rising energy costs and rising inflation.

The world economy is facing a crisis from several sides – the war in Europe, the lack of oil, gas and food, and the rise in inflation, which has increased accordingly.

Concerns are centered on the coming winter, especially in Europe. The freeze, combined with oil and gas shortages resulting from Western sanctions against Russia for its invasion of Ukraine, threatens to upend lives and businesses.

But where there is concern this winter, it is the winter of 2023 that people should be worried about, major oil and gas officials have warned.

“We have a very cold season in the future, and because of this we will have a very cold season next year, because the production that is available in Europe in the first half of 2023 is less than the production that was available to us in the first half of 2022, “a Russell Hardy, CEO of oil major Vitol, told CNBC’s Hadley Gamble at the Adipec conference in Abu Dhabi.

“So the consequences of the lack of energy and the reason for the increase in prices, all the things that have been discussed here about the cost of living, the anticipation of future problems, must be clearly considered,” he said.

We are fine in the winter. But as we said, the story is not cold. It will be next, because we will not have Russian gas.

Claudio Descalzi

CEO of Eni

BP CEO Bernard Looney, speaking at the same event, agreed. Electricity prices are “nearly out of whack,” with some people “already spending 50% of their income on electricity or more,” he said.

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But through a combination of increased natural gas reserves and government spending on social aid, Europe can overcome the crisis this year.

“I think it’s been answered this winter,” Looney said. “With the next winter I think many of us worry, in Europe, it can be very difficult.”

Europe has no oil and that is a 'big weakness,' says Eni's CEO

CEO of an Italian oil and gas giant Eni he complained the same.

This winter, gas storage facilities in Europe are about 90% full, according to the International Energy Agency, guaranteeing a huge shortage.

But a large part of it is made up of Russian gas that was imported in the past months, as well as gas from other sources that were easier to buy than usual since the Chinese exporter was buying less due to the economic slowdown.

“We are in good shape this winter,” Eni CEO Claudio Descalzi said. “But as we said, the issue is not this winter. It will be the next one, because we will not have Russian air – 98% [less] next year, maybe not.”

The protests have already started

This could cause a huge upheaval – already, small to medium-sized protests have started around Europe.

Anti-government protests in Germany and Austria in September and in the Czech Republic last week – the latter of which has seen household income rise tenfold – could be a small taste of what’s to come, experts have warned. Other electricity managers agreed.

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Yes, there is a real risk that governments without a steady hand in policymaking in Asia could end up in chaos.

Datuk Tengku Muhammad Taufik

CEO of Petronas

“We have seen that every movement in the price at the pump, or something as simple as LPG [liquefied petroleum gas] in cooking, it can cause chaos,” said CEO of Malaysian oil and gas company Petronas, Datuk Tengku Muhammad Taufik.

He explained how the strengthening dollar and rising oil prices pose a major threat to many Asian economies – many of which are among the world’s largest exporters of oil and gas. And this is happening while there is already support to help lower prices for citizens.

Inflation in the euro zone remains very high. Protesters in Italy used empty trolleys to protest the economic crisis.

Stefano Montesi – Corbis | Corbis News | Getty Images

Many Asian economies have already been shaken by the pandemic, which has led to “an economic boom [small and medium enterprises] in Asia will just collapse,” said Taufik. “So, yes, there is a real risk that governments without a steady hand in policy making in Asia could end up in turmoil.”

Anger at the huge profits of the oil industry

Much of the protestors’ anger also goes to the power companies, which have been making huge profits as bills rise.

In response to this, many officials who spoke to CNBC said that it is a matter of the market and its importance, and it is up to governments to implement policies that support the creation of electronic funds. These funds, they emphasized, have been improving in recent years as countries push for renewables reform.

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BP CEO: A diversified energy system is a cost-effective solution

The world must face the “deals and realities of today and tomorrow,” said BP’s Looney, stressing the need to “sell hydrocarbons today, because today’s energy system is a hydrocarbon system.”

Many policy makers and organizations continue to criticize the use of fossil fuels, warning that the biggest problem is climate change. In June, the Secretary General of the United Nations, Antonio Guterres, called for an end to oil money, and called the new research money “fraud.”

Oil officials said that this strategy is not realistic, and it is not an option if countries want economic and political stability.

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However, at the same time, he admitted that the energy transition itself needs a lot of attention and money to solve the big problem next year and beyond, when there is no Russian gas to store and other options are increasing.

“In Europe, we pay six times, seven times [as much as] 15 times the cost of electricity in the US,” said ENI’s Descalzi.

“So what we have done in Europe, every country, has given aid to reduce the cost of companies and citizens. How long can this continue?” he asked.

“I don’t know, but it is not possible for it to continue forever. Both countries have a very large debt,” he said. “So they have to find a sustainable way to solve this problem. And the sustainable way is what we have said so far – we have to be more and be faster in the change. This is true.”

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

Watch the full CNBC interview with Goldman Sachs' Jeff Currie on oil prices, the supercycle and more.


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