2021 was the year of the collision of energy strategies


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The past year has been marked by a visible and accelerated energy transition, as politicians and investors have focused more than ever on climate change and ways to slow global warming.

But a flexible White House energy policy and OPEC market control have proven fossil fuels aren’t going away anytime soon.

In his first acts after taking office on January 20, 2021, President Joe Biden quickly showed the direction his administration would take, canceling the Keystone XL pipeline permit and joining the Paris Climate Pact.

He then decided to reverse the “harmful” measures adopted by the previous administration. An executive order signed on Jan.20 imposed a temporary moratorium on the leasing of oil and gas on federal lands, a clear reversal of President Donald Trump’s policy in favor of the oil industry.

The industry has screamed scandal over the moratorium, a cry that would continue to haunt the Biden administration for much of the year and ultimately lead to a new round of leases. Yet analysis by Swiss investment firm UBS found that U.S. crude production was indeed stifled in 2021.

Outside of the Organization of the Petroleum Exporting Countries and its allies, production has been disappointing, with gains of just 200,000 barrels per day, said UBS commodities analyst Giovanni Staunovo.

“The United States stands out here, growing at just 100,000 barrels per day in 2021,” he said.

Meanwhile, Mother Nature, with the winter storm in February, did something the president couldn’t: shut down major segments of the oil and gas industry. More than 5.2 million homes and businesses – mostly in Texas – were without power when everything from wellheads to wind turbines froze. While the storm did not affect the price of oil, it took months for the energy sector to get back on its feet.

Investor pressure to return more money to shareholders, a pivot to a low-carbon future, restrictions on new oil and gas drilling and a surge in demand for crude after the deployment of COVID-19 vaccines have combined to bring America’s energy sector further on its back foot.

“The supply has not kept up with the recovery in demand most of the year,” analysts at Norwegian consulting group Rystad Energy said in a recent presentation.

This left OPEC + to help regulate the market.

The cartel, however, stuck to its decision to gradually increase production, by some 400,000 barrels per day each time it met, despite pressure from the Biden administration at the end of the year to increase production. production.

The year was also marked by rising inflation, as the price of energy products jumped nearly 50% for the 12-month period ended in November. This prompted some of the country’s biggest banks, such as Goldman Sachs, to predict again that oil would hit the mystical price of $ 100 a barrel; Bank of America has predicted crude will hit $ 120 by 2022.

Although far from this forecast, US crude prices recovered quickly in 2021. West Texas Intermediate, the US benchmark, opened the year at $ 48.52 and jumped 71% to over $ 83 in October. before the omicron variant and demand issues brought prices down to around $ 65. By the end of the year, the WTI had again recovered to nearly $ 77.

The sharp rise in crude and a similar rise in the price at the pump forced the White House to seek help. US National Security Advisor Jake Sullivan called on OPEC + to “do more to support the recovery” of the global economy by putting more barrels on the market.

These calls for more oil, however, have fallen on deaf ears. Biden eventually turned to the strategic oil reserve in a bid to cool the market in November. Echoing Rystad’s position, the White House said the decision was made in part because “oil supply has not kept up with demand as the global economy emerges from the pandemic.”

With oil prices soaring, the headlines of major newspapers, including this one, criticized Biden’s energy policies. Why, asked the industry, should OPEC + be called upon to do more when America’s oil and gas reserves are among the largest in the world? On the other side of the debate came concerns that a climate-friendly president might not be so friendly after all.

Biden, however, retaliated by saying the energy transition would not be swift. The idea that the economy will switch to renewables overnight, he said, is “just not rational”.

And he said this shortly before world leaders met in Glasgow on October 31 for the two-week COP26 climate summit.

This duality – the quest for more oil to keep the economy moving while simultaneously pushing for low-carbon alternatives – was a recurring theme for 2021.

“The immediate reality of an energy crisis juxtaposed with warnings of a climate crisis at COP26 not only defined 2021, but underscored the challenge ahead,” said Paul Hickin, director at S&P Global Platts. “The role of oil in the energy transition will be crucial for price, security and sustainability – and is still being developed.”

Investor pressures and federal decisions aside, the world still needs fossil fuels until new, low-carbon technologies such as hydrogen – a somewhat foreign term at the start of the year. – Are growing.

Meanwhile, alarmist headlines on over $ 100 oil faded by the end of the year. WTI is still at multi-year highs, but far from those seen in October. The pandemic will continue for the foreseeable future, as will the energy transition, and both could mean a prolonged rise in energy prices in relative terms.

But relative is the key word – WTI flirted with $ 140 a barrel in 2008 and traded in negative territory in 2020. With low points at the start of the year, the Department of Energy said that he expects WTI to average $ 67.87 per barrel for the year and settle at $ 66.42 for 2022.

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