'Try Not To Be Better Than Others, But To Be Better Than Yesterday'

As we enter into a New Year it is often a time for many of us to make our ‘New Years Resolutions’; a list of goals that we will endeavour to strive towards. I tend to favour the adage of ‘try not to be better than others, but to be better than yesterday’, which can be adapted accordingly to reflect an improvement on last years performance.

With this in mind, how can we as an industry look to be better than last year?

For a start it seems that company executives around the world are optimistic about the outlook for the global economy and their own countries in 2022, despite concerns about risks from new Covid-19 variants and rising inflation, a survey by McKinsey & Company shows.

Echoing a similar sentiment to the executives' bullish outlook, the US investment bank JP Morgan said 2022 will be the year when the world registers a full global economic recovery.

Last year witnessed oil prices notch up their biggest annual gain in 12 years as the rebound in the global economy sparked a surge in fuel demand. Brent crude was trading above $78 as 2021 ended, some 51% higher than it started the year. That was the largest increase in the oil price since 2009 when it jumped 70% as the world recovered from the financial crisis.

Crude is more than four times higher than the low of $18 a barrel hit during the pandemic in April 2020 when lockdown and border closures hammered demand.

And here is where the predictions commence, Goldman Sachs predict oil could hit $100 per barrel by 2023 if supply fails to keep pace with growing demand. UBS expects oil to rise to $85 per barrel in 2022. JP Morgan go one further, predicting that oil will top $125 per barrel in 2022 and $150 the following year.

Set against this backdrop of rising oil process we are potentially headed for uncharted territory in 2022. OPEC+ (who co-incidentally will be meeting as a write this) is entering a new phase of supply recalibrations and the US and key oil-consuming countries are looking to play a more active role in the markets.

However, we are also arguably about to enter a ‘supply crunch’ where Global investment bank JP Morgan stated that underinvestment in the sector over the past 18 months caused by the pandemic has hit the output capacity of many producing countries and their ability to respond to recovering oil demand. Investment in the hydrocarbons sector dropped amid green transition efforts and changing government regulations, according to a report by the International Energy Forum and IHS Markit. Total investment in the upstream sector of the oil and gas sector fell 23% below pre-pandemic levels to $341bn in 2021 despite a rise in oil demand globally, the report said.

Put bluntly, accordingly to Dr Sultan Al Jaber, UAE Minister of Industry and Advanced Technology and Group Chief Executive of ADNOC, on the eve of last years ADIPEC; ’the global oil and gas industry requires more than $600bn of investment annually until 2030 to keep pace with the rising demand’. Echoing this view, Suhail Al Mazrouei, UAE Minister of Energy and Infrastructure, also said a lack of investment in securing future energy supplies could extend the cycle of higher oil prices.

From my perspective I feel that this year will witness an increasing trend in ‘asset decarbonisation’; the recently announced $3.6 billion consortium between ADNOC and Taqa to significantly decarbonise offshore production operations to help the UAE achieve its 2050 net-zero ambitions, is just one example of what I see as a growing trend.

The renewables market will also continue to be a key area of focus with many countries, including major oil-dependent nations, having pledged to reach net zero emissions by the middle of the century as they strive to reduce emissions and mitigate climate change. Testament to this was global renewable energy capacity increasing 4.7% in 2021, as countries focus on reducing emissions to protect the environment, making it a record-breaker for renewables worldwide. New offshore also wind installations doubled compared to 2020.

New renewable power capacity is projected to rise to 290GW this year, setting a “fresh all-time record for new installations”, according to a report by the International Energy Agency. This is expected to be driven primarily by solar and hydrogen expansion, the latter of which is so vast I will save this for a separate article in the coming weeks.

Thus, whilst not underplaying the impact of ongoing pandemic, I feel that we as an industry are becoming better quipped to manage the different variants and their related challenges. Hopefully a more stable backdrop to this year, increased investment, and continued growth across all forms of energy will see us not only ‘better yesterday’ but set the bar high for years to come.

Whatever your thoughts may I take the opportunity to wish you all a Happy New Year and a happy, healthy and prosperous 2022.