Industry leaders discuss strategies for safeguarding the nation's energy requirements at the annual conference.

• This week, Houston hosted the annual CERAWeek by S&P Global energy conference, attended by energy executives, policymakers, and thousands of others.
• The energy transition is being questioned due to the energy insecurity caused by Russia's war on Ukraine and the resulting increase in oil and gas prices.
• Amid criticism from the Biden administration and the surge in ESG investing, oil and gas companies need to be included in the transition, conference attendees stated.
• One conference attendee stated, "I am truly proud to work for an oil and gas company because we supply energy to the people."

The annual CERAWeek by S&P Global energy conference in Houston, which ended on Friday, could not have been held at a more opportune or challenging moment.

This week, energy executives, policymakers, and thousands of others convened in Texas, with the ongoing conflict in Ukraine pushing energy-related issues, such as prices, security, and the shift to renewables, into the spotlight, alongside stories of human suffering.

Jennifer Granholm, the Energy Secretary, delivered a keynote address and urged the audience to increase oil production. Experts debated the future of the global energy complex across hundreds of panels and sessions in the conference halls. The U.S. should drill more oil and gas, or focus on renewables and reduce dependence on hydrocarbons? Should natural gas be used as a bridge fuel? What is the role of investors in production policies?

The oil and gas industry attendees at the conference expressed optimism on the ground, believing that their companies' vital services are essential. Through conversations with over a dozen people, opinions varied on whether rising oil and gas prices would accelerate or hinder the energy transition. However, a shared sentiment was that traditional energy companies must be included in the discussion.

One conference attendee stated, "I am proud to work for an oil and gas company as we provide energy to the people." Another attendee acknowledged the criticism of the oil and gas industry but emphasized the importance of energy integration. The person explained, "There will be a mix of energy sources. We need fossil fuels, but we must also transition to renewable energy, but it must be a gradual process."

The oil and gas industry is a hub of technology and innovation, with one attendee stating that it is leading the way in environmental goals such as decarbonization and net-zero, while another emphasized the contribution of natural gas infrastructure to these goals.

Energy transition is coming

The energy transition is inevitable, and it is happening before our eyes. However, opinions differ on the pace of the transition. Projections for when oil demand will peak are varied. Amidst this uncertainty, oil and gas companies are exploring decarbonization technologies such as carbon capture and hydrogen. Companies like ExxonMobil, Saudi Aramco, and Petronas showcased their efforts in these areas at CERAWeek.

One individual remarked, 'It's quite thrilling,' due to the numerous changes occurring to transform the industry from its previous state.

This year, it is predicted that oil demand will exceed 100 million barrels per day, with prices already high, the issue of when or if producers will increase production is a pressing concern.

An independent oil and gas company director stated that while the industry will eventually accelerate the energy transition, in the short term, we will likely see more oil and gas usage due to the world's current needs.

Russia's control over a significant amount of oil and natural gas production has a significant impact on the global energy trade, as the market is highly interconnected and interdependent.

Despite the Ukrainian crisis, oil prices had been gradually increasing from the unprecedented lows caused by the pandemic. The price even briefly dipped into negative territory as the virus reduced demand for petroleum products.

Oil price spikes raise recession threat

Since the day Russia invaded Ukraine, demand for oil has increased, while supply has remained limited, resulting in higher prices. On the day of the invasion, U.S. and global oil benchmarks surpassed $100, and just over a week later, they reached $130. The international oil marker almost hit $140. Russia produces approximately 10 million barrels of oil per day, half of which it exports. As a key supplier to Europe, fears of production loss in an already tight market caused prices to skyrocket.

Since President Biden banned energy imports from Russia, although the U.S. doesn't import much from Russia, it would be more significant if Europe imposed similar measures. However, even before sanctions targeting the energy industry were announced, buyers were already avoiding Russian products out of fear of violating the restrictions.

U.S. producers were previously eager to increase production as prices rose from $50 to $100, but now they have a different approach. Instead of focusing solely on growth, companies are prioritizing capital discipline and shareholder returns through buybacks and dividends. Once cash is returned to investors, it becomes challenging to convince them to invest again, especially after years of poor returns. This was emphasized in Houston.

Despite the decline in pre-pandemic levels, the number of oil rigs has risen for the ninth time in the last 10 weeks, reaching a high of 527 rigs, according to data from an oilfield services company.

High fuel prices benefit the oil industry, but at a certain point, even oil companies may not want such high prices. This draws Washington's attention to the industry and increases the risk of a recession.

An attendee in Houston, who is the deputy director of production at an integrated oil company, stated that if oil prices remain high, a recession is likely to occur. While estimates for future oil prices differ, some believe that $200 is imminent if Russia's war continues.

Another conference attendee remarked, "That's not beneficial for consumers and it's not great for the industry either." The national average for a gallon of gas reached $4.10 on Sunday, and prices have continued to rise throughout the week.

The Biden administration has prioritized addressing climate change, but oil and gas companies argue that policies have been detrimental to their industry. One common complaint is about permitting delays. However, White House officials counter that they have granted permits, but the industry is not taking action.

A plea for more drilling

On Wednesday, at CERAWeek in Houston, Energy Secretary Jennifer Granholm urged companies to drill, despite the Biden administration's decarbonization goals, in a speech that sometimes contradicted the administration's tone.

She directly addressed oil and gas shareholders, stating, 'I hope your investors are saying these words to you as well: in this moment of crisis, we need more supply,' before a room full of energy executives.

The oil and gas industry is facing a "self-inflicted wound" due to being caught between the need to satisfy shareholders and the demand to increase production from officials.

Oil and gas companies in the U.S. have been receiving capital discipline from investors, which has led to a significant increase in shareholder returns. This has decreased the companies' motivation to quickly increase oil production.

If oil and gas companies decided to increase output tomorrow, it would take months for operations to be fully operational.

"Fixing these things is extremely difficult. No one has done it yet. Nothing will happen quickly," said one person.