Good news for OPEC, Russia after Shell received the court ruling

The victory of climate change campaigners over Western oil companies has brought good news for state-owned oil corporations in Saudi Arabia, Abu Dhabi and Russia.

Saudi Aramco Group’s Abqaiq Refinery. Photo: AFP

More jobs for state-owned oil corporations

Failure in court and meeting room means that Royal Dutch Shell (hereinafter referred to as Shell) of Britain and the Netherlands, and two “big” oil and gas companies ExxonMobil and Chevron of the US are under pressure to cut. carbon emissions faster, according to Reuters news agency. But this is good news for state-owned oil companies such as Saudi Aramco, the Abu Dhabi National Oil Company, and Russia’s Gazprom and Rosneft. That is, the national oil and gas corporations and the Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia will have more work to do.

“Demand for oil is far from peaking and (the market) will need supply, but international oil companies won’t be,” said Amrita Sen, an analyst from energy consulting firm Energy Aspects. allowed to invest in this playing field, which means national oil companies have to step in.”

Last week, climate change campaigners won a big victory when a Dutch court ruled that Shell would make massive emissions cuts, which would mean cuts in oil and gas production. According to Reuters, Shell will appeal.

At the same time, two leading US oil corporations Exxon Mobil and Chevron also lost their battles to shareholders’ accusations that the two companies had dragged their feet into the issue of climate change.

“It seems that the West will have to rely more on supplies from what they call ‘hostile forces’,” a senior Gazprom Group executive said humorously, referring to the companies. energy is wholly or mostly owned by the state.

Saudi Aramco, Adnoc, and Gazprom all declined to comment on the case. Rosneft, in which the Russian state holds the largest stake, also declined to comment.

A senior Saudi Aramco official said the Dutch court’s ruling against Shell would make it easier for OPEC to expand oil production. “It’s great for Aramco,” he said.

Western oil giants like Shell have expanded their production significantly over the past 50 years, as the West tries to cut its dependence on volatile energy supplies from the Middle East and from Russia.

Major Western energy companies, including BP and Total, have set out plans to drastically cut emissions by 2050. But they are facing increasing pressure from investors to do so. achieve UN-backed goals to limit global warming.

Saudi Aramco is listed on the Saudi stock exchange but the state holds a majority stake. The company is not under pressure to cut carbon emissions like Western energy companies, even though Saudi Arabia’s leaders aim to boost the use of renewable energy in the country.

Russia’s Gazprom predicts that natural gas demand will increase in the coming decades and that it will play a larger role in securing (fossil) energy supplies than renewables and hydrogen. .

The major Western oil companies account for about 15% of global production, while OPEC and Russia have a market share of 40%. This ratio has been relatively stable over the past decades as increased oil demand has been offset by new oil producers, especially private US shale drillers. However, US shale drillers are also facing similar pressures related to climate change.

Consequences of price increase and pressure to pay dividends

Since 1990, global oil consumption has increased to 100 million bpd, from 65 million bpd previously, with Asia accounting for a large share of this growth.

Asian countries like China and India have not committed to cutting oil consumption, but per capita oil consumption in these countries is still a fraction of that of the West. China is forecast to become heavily dependent on gas in an effort to cut its massive coal consumption.

The International Energy Agency (IEA) – which closely follows the energy policies of the West – has recently issued a call that the world should essentially eliminate all new moves in oil and gas development. . But the agency did not specify a clear way to cut oil and gas demand.

In addition to pressure from climate change campaigners, investors, and banks to cut emissions, Western oil giants are also facing the task of maintaining dividends. high in the context of high debt.

“It is important for the global oil industry to align production to the Paris targets (targets in the Paris Agreement on climate change),” said Nick Stansbury, an expert from Asset Management. and multinational financial services Legal & General. Legal & General is one of the world’s largest fund managers with an asset management portfolio primarily in the oil and gas industry. Legal & General currently manages a portfolio of assets worth 1.3 trillion pounds ($1.8 trillion).

“Forcing a company to do so in court (if effective) can only lead to higher prices and projected profits,” said Nick Stansbury.

Meanwhile, risk analysis firm Verisk Maplecroft said that climate-related lawsuits have been filed in 52 countries over the past two decades, of which 90% occurred in the US and European Union (EU). ).

Aramco Group CEO said: “In the West, investments in energy will peak after regulatory concerns and court rulings. Then we will see dividends. reached the highest level”. Aramco pays the highest annual dividend of up to $75 billion.

Over the past five years, the International Energy Agency has warned of massive oil shortages and spikes in oil prices due to lack of investments after oil prices plummeted between 2014 and 2017.

The recent rise in oil prices, coupled with a decline in the power of the Western oil giants, will mean a large amount of wealth is transferred from the West to the oil exporting powers. such as Russia and Saudi Arabia, until oil demand began to decline both in the West and in Asia.

However, “dOil and gas will still be produced, but at lower environmental, social and governance (ESG) standards”. The CEO of a Middle Eastern oil producer is concerned.