Towards new energy policies to maximize the value of oil and gas revenues

Towards new energy policies to maximize the value of oil and gas revenues
Towards new energy policies to maximize the value of oil and gas revenues
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Not long ago, the Secretary-General of the United Nations, Guterres, called record profits made by oil and gas companies “grotesque greed”, stating that “it is immoral for oil and gas companies to make record profits from this energy crisis off the backs of the poorest people and communities, at a cost expensive for the climate.” He then went on to urge all governments to “tax these excessive profits and use the money to support the most vulnerable people during these difficult times.”

A number of international energy and investment experts share my personal opinion that such statements are emotional and irrational for the following reasons (among others):

1. The cash flows obtained by oil and gas companies follow natural cycles that make such companies and energy-based economies achieve very positive flows at certain times (when crude prices in the market are high) and less positive flows at other times. This is what causes the transfer of wealth from time to time between energy-exporting and energy-consuming countries.

2. The recent rise in oil and gas prices was due to the increasing demand for energy with the gradual recovery from the Corona crisis. The war in Ukraine – although it gives some the impression that companies are profiting from a disaster – has also pushed up energy prices in general (not just oil and gas) due to the geopolitical crisis and the redrawing of the global energy map.

3. The rapid reaction to the proposal of unexpected taxes on oil and gas, which may appear on the surface to weaken future investment in oil and gas, but this contradicts the reality, as some countries of the world – including the major industrial and consuming countries that do not usually invest in the fossil energy sector – announced huge investments In this area for energy security reasons.

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4. The traditional point that new taxes will discourage investment in oil and gas has had to become weaker because most governments around the world are actively seeking to transition away from fossil fuels. Thus, imposing taxes with current government trends will accelerate the transition to renewable energy sources and at the same time reshape the global economy.

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Global situations should be analyzed as rationally as possible. Energy markets are so famous for their ups and downs that in 2015, 2016 and 2020 — just the last eight years — net operating margins for the global oil and gas industry were negative. Moreover, compared to other P&S500 sectors, between 2018 and 2021, oil and natural gas earnings per dollar of revenue were, on average, lower than other major P&S500 sectors such as finance, manufacturing, telecom services, and information technology, and these sectors did not show as much volatility as the oil industry. and gas. If additional and heavy taxes are imposed on oil and gas companies now, it may make their business growth financially unsustainable. This may be a joy to some environmental activists, but it’s always wise to be careful what we wish for. In the current global primary energy mix, half of the primary sources come from oil and gas. If this sector becomes financially unattractive, or should we say even less attractive than it has been in the past eight years, we are likely to experience a deep global energy crisis. In fact, renewables and nuclear energy sources take years to develop, and a sudden drop in oil and gas supplies will end up decreasing the total energy supply. This will have very harmful effects on the global economy and end up hurting the most vulnerable people in the world.

Dr.. Abdullah bin Suleiman Al-Abri

Consultant and representative of the Sultanate of Oman at the International Energy Agency

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