At CERAWeek, insiders discuss how America’s energy future can be secured

S&P Global’s annual CERAWeek energy conference in Houston, which ended Friday, couldn’t have come at a better — or more tense — timing.

Energy executives, policymakers and thousands of others gathered in Texas this week as Russia’s invasion of Ukraine pushed energy — prices, security, the transition to renewable energy — into the headlines alongside stories of human suffering.

Energy Secretary Jennifer Granholm was a keynote speaker and surprised the audience with a powerful call to increase the pace of oil production. At hundreds of panels and between each session in the conference halls, experts discussed what happens next and how the global energy complex should look in the future. Should the US Drill More Oil and Gas? Does energy security mean expanding renewable energy and moving away from hydrocarbon dependency? Will natural gas become the bridge fuel? What role do investors play in production policy?

On site at the conference, among participants from the oil and gas industry, there was optimism about the vital services their companies are providing. Speaking to more than a dozen people, who were granted anonymity to speak freely about the companies they represent, opinions varied, including on whether rising oil and gas prices will propel or undermine the energy transition. But a common thread was that so-called traditional energy companies need to be part of the conversation.

“I’m really proud to work for an oil and gas company…we power the people,” said one conference attendee. “There was a sort of attack on the oil and gas industry,” said another, before adding that the conflict has pushed energy integration into the spotlight. “There will be an energy mix. We need fossil fuels and then we need to move to renewable energy too, but it has to be a gradual process,” the person said.

“I love working in the oil and gas industry…it’s a technology industry [and] Innovation,” said one participant. “I think our industry is a leader,” reiterated another, adding that “natural gas infrastructure can contribute to ambitious environmental goals, including decarbonization and net zero.”

Even in the oil and gas industry, no one is currently in doubt that the energy transition is coming – after all, it is unfolding before our eyes. But opinions differ widely on what the pace will be. Forecasts of when oil demand will peak are everywhere. Against this uncertain backdrop, oil and gas companies have made some forays into decarbonization technologies such as carbon capture and hydrogen, which were showcased at CERAWeek. Companies like Exxon, Oxy, Saudi Aramco and Petronas showcased their efforts on these fronts with elegant displays.

“It’s pretty exciting,” said one person. “There is a lot going on to transform and grow the industry from what it once was.”

But in the short term, oil demand is expected to peak in excess of 100 million barrels per day this year. And since prices have already risen, the main question is when or if producers will increase production.

“It’s going to push the industry to accelerate the energy transition, but I think we’re going to see more oil and gas in the near future because the world needs it,” said one attendee, who is a director at an independent oil and gas company.

The primary focus, of course, was Russia’s ability to have a major impact on global energy trade by controlling so much oil and natural gas production and because the market is “so interlocked and interconnected.”

Even before the Ukraine crisis, oil prices were slowly but steadily climbing out of unprecedented lows during the pandemic. The US oil benchmark even briefly traded in negative territory as the virus weakened demand for petroleum products.

Since then, demand has recovered while supply has remained limited, driving prices higher. On the day Russia invaded Ukraine, US and global oil benchmarks jumped over $100 and just over a week later surpassed $130. Brent crude, the international oil marker, hit nearly $140. Russia produces about 10 million barrels of oil a day, about half of which is exported. The nation is a key supplier to Europe and fears of lost production in an already tight market sent prices soaring.

President Joe Biden has since banned energy imports from Russia, although the US doesn’t actually import that much from Russia. It would be far more significant if Europe implemented similar measures. But even before sanctions on the energy industry were announced, buyers were avoiding Russian products for fear of running afoul of the restrictions.

While US producers may have previously been eager to open the taps as prices surged from $50 to $60, $75, $90 and then over $100, companies have emerged from the pandemic with a different mindset. It’s not just about growth anymore – a point that was emphasized again and again in Houston. Companies focus on capital discipline and shareholder returns in the form of buybacks and dividends. Once boatloads of cash are returned to investors, it’s not easy to get back to the very same investors — some of whom have weathered years with poor returns — and say it’s time to start drilling again.

That’s not to say production hasn’t returned at all. Oil and gas rig counts for the week ended Friday rose for the ninth time in the last 10 weeks, according to data from oilfield services company Baker Hughes. The rig count now stands at 527, the highest since April 2020. However, the number is still well below pre-pandemic levels, which were over 700 rigs.

While high fuel prices are undoubtedly a source for the oil industry, at a certain point even oil majors don’t want such high prices anymore. It draws Washington’s attention directly to the industry while threatening to plunge the economy into recession.

“I think if oil prices stay high then we’re definitely going to go into a recession,” said a Houston attendee who is a deputy manager of production at an integrated oil company. Estimates of where oil prices are going next vary widely, but some believe $200 is just around the corner if the war in Russia rages on.

“It’s not good for the consumer. It’s not very good for the industry either,” noted another conference attendee. The national average for gasoline per gallon was over $4 on Sunday and prices continued to rise throughout the week.

Tackling climate change has been a key tenet of the Biden administration, and oil and gas companies say the policy has been unkind to their industry. Approval delays are often cited. White House officials dismiss these claims and say they have issued permits, but the industry is not acting.

But the government’s tone appeared to be very different in Houston on Wednesday when Secretary of Energy Jennifer Granholm addressed CERAWeek. In a speech that has often been at odds with the Biden administration’s decarbonization goals, she essentially urged companies to drill.

She even appealed directly to oil and gas shareholders. “I hope your investors say these words to you too: in this moment of crisis, we need more supply,” she said to a room full of energy executives.

One industry figure described the plight of oil and gas companies – who are indebted to shareholders even when officials are asking companies to increase production – as a “self-inflicted wound”.

“Investors wanted capital discipline from oil and gas companies in the US. As a result, we returned a lot of money to shareholders,” the person added. This reduces the incentive for companies to quickly ramp up oil production.

All else being equal, it would be months before oil and gas companies ramped up production tomorrow before operations resumed.

“It is very difficult to fix these things. Nobody did. … Nothing will happen immediately,” one person said.