Our Take: Diverging Views on Policy vs. Price

Western oil firms have historically opposed government interference, but unprecedented intervention amid the current energy crisis — and wider incentive structures driving the energy transition — see them now favoring government direction over price signals to guide investment decisions. Some leading national oil companies (NOCs), on the other hand, still view conventional price signals as the key indicator of industry investment.

• Speaking at the Energy Intelligence Forum in London this week, Saudi Aramco CEO Amin Nasser suggested crude oil — whose benchmark Brent has fallen by some $30 per barrel over the past four months, to around $90 — was improperly priced despite near-term recession concerns given ultra-tight supply fundamentals. Nasser warned that oil was fast-approaching the same state as global gas/LNG markets, which effectively have no spare capacity. “We see only short-cycle projects coming on with quick profits, but not long-term projects that will sustain a plateau for a longer period of time,” he told delegates. Aramco’s own 1 million barrel per day capacity expansion will take until 2027 to complete.

• Nasser acknowledged that pressure from investors and policymakers was keeping a lid on wider upstream investment independent of prices, but his emphasis on price signal disconnects misses the more fundamental shift in play around how Western companies decide how to direct capital. Shell CEO Ben van Beurden said that energy infrastructure and capacity shortages could not be solved by consumers simply paying an energy security premium for oil or gas. “You don’t get there by paying a little bit more for Saudi crude — you get there by a deliberate policy that prepares that,” he told the Forum.

• We note that even when oil prices were riding high above $100 earlier this year, international oil companies were still holding off on committing funds to longer-term projects, with Van Beurden pointing out that multibillion-dollar hikes in capex were not something that could be done overnight. US shale companies have similarly detached from tying higher investment to higher prices. Further complicating matters are recent increases in interest rates — of which there are likely more to come — which raise the cost of capital for project developers, as noted by former BP CEO Bob Dudley, now chairman of the Oil & Gas Climate Initiative.

• Approvals for energy infrastructure projects in Europe are being held up. Cepsa CEO Maarten Wetselaar noted how the continent was looking to import more LNG to replace Russian pipeline gas but that LNG projects took five-six years to bring onstream and needed to be underpinned by a 20-year supply contract. There is plenty of capital willing to help address this issue but there is a “bottleneck” in permitting and regulatory issues, Wetselaar said. “It’s a very boring topic but that is what politicians need to do to help us to get this transition going with urgency.”