Attendees during CERAWeek 2022 organized by S&P Global in Houston, Texas, US, on Wednesday, March 9, 2022.

F. Carter Smith | Bloomberg | Getty Images

The annual CERAWeek by S&P Global energy conference in Houston, which concluded Friday, could not have come at a better — or more difficult — time.

Energy managers, policymakers and thousands of others gathered in Texas this week as Russia’s invasion of Ukraine pushed energy — prices and security, the transition to renewables — into the headlines, along with tales of human suffering.

Energy Secretary Jennifer Granholm was the keynote speaker, and she surprised the audience with a strong call for an increase in the pace of oil production. Across hundreds of panels, and between each session in the conference halls, experts discussed what would happen next, and what the global energy complex should look like moving forward. Should the United States drill more oil and gas? Does energy security mean building renewable energy sources and moving away from reliance on hydrocarbons? Will natural gas be the bridge fuel? What role do investors play in production policies?

On the ground at the conference, there was a sense of optimism among attendees in the oil and gas industry about the vital services their companies provide. Through conversations with more than a dozen people, who were given anonymity in order to speak freely about the companies they represent, opinions differed on matters including whether rising oil and gas prices would fuel or calm the energy transition. But the common denominator was that so-called traditional energy companies should be part of the conversation.

One of the conference attendees said, “Indeed, I feel very proud to work for an oil and gas company…We provide energy to people.” Another said “there was some kind of attack on the oil and gas industry” before adding that the conflict highlighted energy integration. “There will be a mix of energy. We will need fossil fuels and then we also need to move to renewable energy, but it has to be a gradual process,” the person said.

“I am very happy to work in the oil and gas industry. It is a technology industry [and] Innovation,” one attendee said, “I think our industry is leading the way,” another echoed, adding that “natural gas infrastructure can contribute to ambitious environmental goals including decarbonization, and net zero.” “

The energy transition is coming

At this point, no one doubts, even in the oil and gas industry, that the energy transition is coming — it is, after all, unfolding before our eyes. But opinions differ widely on what the pace will look like. Predictions of when oil demand will peak are everywhere. Against this uncertain background, oil and gas companies have made some forays into decarbonization technologies such as carbon capture and hydrogen, which were on display at CERAWeek. Companies including Exxon, Oxy, Saudi Aramco and Petronas had elegant displays showing their efforts on these fronts.

“It’s very exciting,” one said. “There is a lot of change and growth in the industry far from what it used to be.”

But in the short term, oil demand is expected to reach a level above 100 million barrels per day this year. And with prices already rising, the question of when, or even if, producers will raise production is front and center.

“It will lead the industry to accelerate the energy transition, but in the near term I think we will see more oil and gas because the world needs them,” said one of the participants, a director at an independent oil and gas company.

Most important to mind, of course, was Russia’s ability to significantly influence the global energy trade by controlling much of oil and natural gas production, and because the market is “very intertwined and intertwined.”

Attendees during CERAWeek 2022 organized by S&P Global in Houston, Texas, US, on Wednesday, March 9, 2022.

F. Carter Smith | Bloomberg | Getty Images

Even before the Ukraine crisis, oil prices were slowly but surely rising from the never-before-seen lows hit during the pandemic. The US oil index briefly traded in negative territory as the virus drained demand for petroleum products.

Oil price hikes raise recession threat

Demand has since recovered, while supply remains constrained, driving prices higher. On the day Russia invaded Ukraine, global oil standards jumped to over $100, and just a week later they topped $130. The price of Brent crude, the global oil benchmark, approached $140. Russia produces about 10 million barrels of oil per day, about half of which is exported. The nation is a major supplier to Europe, and fears of losing production in an already tight market have driven prices up.

President Joe Biden has since banned energy imports from Russia, even though the United States doesn’t actually import all that much from Russia. It would be even more important if Europe imposed similar measures. However, even before the sanctions targeting the energy industry were announced, buyers were already avoiding Russian products for fear of conflict with the restrictions.

While US producers may have previously been eager to open the taps as prices soared from $50 to $60, $75, $90 and then crossed $100, companies have come out of the pandemic with a different mindset. It’s no longer about growth — a point that has been emphasized time and time again in Houston. Companies focus on capital discipline and shareholder returns in the form of buybacks and dividends. Once the loads of cash are returned to investors, it’s not easy to go back to those same investors — some of whom have gone through years of poor returns — and say it’s time to start digging again.

This does not mean that production is no longer at all. The number of oil and gas rigs for the week ending Friday rose for the ninth time in the past 10 weeks, according to data from oilfield services firm Baker Hughes. The oil rig count is now 527, the highest since April 2020. However, the number is still sharply lower than pre-pandemic levels, which were above 700 rigs.

While high fuel prices are undoubtedly an attraction to the oil industry, even oil companies at some point do not want such high prices. It diverts Washington’s attention squarely to the industry, while also risking tipping the economy into recession.

“I think if oil prices keep going up, we’re definitely going into a recession,” said an attendee in Houston who is deputy director of production at an integrated oil company. Estimates of where oil prices will go next vary widely, but some believe that $200 is imminent if the Russian war breaks out.

A conference attendee noted: “This is not good for the consumer. It is also not very good for the industry.” The national average gallon of gas topped $4 on Sunday, and prices jumped even more throughout the week.

Attendees before the CERAWeek 2022 conference organized by S&P Global in Houston, Texas, US, on Sunday, March 6, 2022.

F. Carter Smith | Bloomberg | Getty Images

Tackling climate change has been a core tenet of the Biden administration, and oil and gas companies say the policies have not been friendly to their industry. Delays in obtaining permits are often cited. White House officials refute the allegations, saying they have issued permits, but the industry is not acting.

A call for more digging

But the administration’s tone sounded much different in Houston on Wednesday, when Energy Secretary Jennifer Granholm addressed CERAWeek Week. She has appealed mainly to companies for exploration, in rhetoric that has often been at odds with the Biden administration’s decarbonization goals.

It even appealed to oil and gas shareholders directly. “I hope your investors will say these words to you, too: In this moment of crisis, we need more supplies,” she said in front of a room full of energy executives.

One person in the industry described the predicament in which oil and gas companies find themselves – indebted to shareholders even when officials ask companies to increase production – as “a wound on its own”.

The source added, “Investors wanted to capitalize from oil and gas companies in the United States. As a result, we returned money to shareholders a lot.” This reduces incentives for companies to increase oil production quickly.

All other things being equal, if oil and gas companies decide to ramp up production tomorrow, it will still be months before operations are up and running.

One person said, “It’s very hard to fix this stuff. Nobody has it…nothing is going to be instant.”