GIF COMMENT: Energy majors are returning to fossil fuels as a profit-making opportunity but EU’s investment climate deteriorates

LONDON (ICIS)–It seems like we live in two parallel worlds.

One that abides by axioms of objective reality – apple will always descend perpendicularly to the ground , parallel lines never meet and shortages lead to high prices. And the other one – the realm of wishful thinking.

Western energy firms – Britain’s Shell and BP, America’s ExxonMobil and Chevron, and France’s TotalEnergies in February reported record annual net profits for 2022, with some estimates putting their combined gains at €140bn.

Norway’s Equinor joined the party to boast $79bn (€73.6bn) earnings, $42.8bn of which went to government coffers in windfall tax.

Is it time to open the champaign?

In the middle of the global energy crisis western supermajors are awash with cash.

The staggering returns were due to skyrocketng gas prices last year after a big chunk of Russian supplies to Europe fell out of the equation.

In the spirit of giving it back, the companies could reinvest some of their profits in energy production, securing a pathway out of energy poverty as future Russian supplies look increasingly uncertain.

Will they invest, where and in what projects?

Some messages from the corporations themselves show that money talks and investment will be allocated in places that guarantee returns.

BP, as one example, has signalled a rethink in its strategy of the past few years and announced plans to invest in oil and gas projects.

CEO Bernard Looney told Bloomberg TV: “We have to invest in today’s energy system, and the reality is that today’s energy system is predominantly an oil and gas system. And that needs investment.”

For BP a secure energy transition means both: increased investment in lower carbon technologies to facilitate fast emissions reduction and continued investment in hydrocarbons. This decade, the company plans to plough $8bn more in today’s oil and gas-based energy systems and sustain the 2022 production level until 2030. In order to capture any possible short-to-medium bullish price trend money will go towards shorter-cycle, fast-payback oil and gas projects and oil and gas assets that BP now wants to retain for longer.

EU governments, however, continued to signal their disapproval of fossil fuel energy development for Europe.

In fact, they are leaving the international Energy Charter Treaty – a 1998 document designed to protect energy industry investors from hostile government policies – en mass.

Ironically, the treaty that originally included 50 signatories was meant to protect investors in former Soviet Union countries following its collapse. Its goal was to encourage trust, open markets and energy security in the region.

The EU is now planning a joint exit from the agreement as its own investment climate looks unstable and untrustworthy.

Germany has fallen to the 18th place out of 21 industrial economies in terms investment attractiveness, followed by Hungary, Spain and Italy according to economic research institute ZEW , Rising energy costs, labour shortages, high taxes, complex bureaucracy and slow pace of innovation now describe Europe’s economic powerhouse.

European energy companies are now turning to Africa as a safer, cleaner and more economical place to invest.

Europe, in the meantime, is closing down its largest gas field – Groningen – instructing banks not to lend money to hydrocarbon projects and companies to cut the duration of long-term gas contracts .

I love ballet as an artform creating an illusion of defying gravity. Here on earth, however, apple will always fall down.