Offshore Energies Magazine - Issue 55 Spring 2023

2022 Part 2: how the majors view the world of energy Last year's price shocks showed up the lag between the aspirations of governments in the West and the reality. Inadequate supply will not be cured only by building more renewables and some IOCs have decided to produce more of what sells.

W hile many OEUK members do most of their work and earnmost of their income on the UK continental shelf (UKCS), that region accounts for only a minor part of the international oil companies (IOC)s’ world. Conversely, the UK mainstream media, reflecting the interests of most of its readers, tends to skim over the often much larger-scale activities that the IOCs – many of them household names – carry out overseas, leaving the reader with a distorted view of the world. In fact, the IOCs' rising UK tax bills represent only a very small proportion of their global output. Their profits come instead from a whole host of activities, with many of their trading subsidiaries operating in far-away risdictions, often near major utilities and long-term industrial customers such as Asia, where they can arbitrage global crude, gas, power and other markets. They also have the strong balance sheets needed to take risks on capital-intensive projects, to deal with political risks, to take contrarian positions, to keep investing during downturns, to attract lenders to long term infrastructure and to sit out periods of adversity. On the downside, when not merely a project but an entire country goes sour, they also lose billions of dollars in foregone profits. This has been their "Governments never step in when oil and gas prices are low, while windfall taxes make it hard to make informed decisions." – Shell

experience in Russia, where sanctions have forced asset sales. But chiefly they are the big players in international LNG trade. Most LNG sales, perhaps as much as 70% in the last few years, have been indexed against oil, mostly in Asia. The other 30% is sold on spot markets. These are mostly in Europe, where prices are volatile and dependably high in winter. Until last year, Europe was the cheapest market. Heads I win, tails you lose Shell's new CEO Wael Sawan, announcing the company's 2022 full-year business results, pointed out the asymmetrical nature of the relationship between IOCs and host nations. Referring to the Energy Profits Levy, he said: "Governments never step in when oil and gas prices are low and windfall taxes make it hard to make informed decisions." Comparing the UK regime adversely with most other countries, he told The Times in an interview published in early March that the UK was lagging behind not only the European Union but also the US in terms of investment certainty. "When you have such volatility, it fundamentally saps your conviction around your ability to see the returns that are required on that investment, and therefore you move your capital to the areas where you see healthy returns at lower risk," he said. By contrast, the US Inflation Reduction Act (IRA), he said, has given a ten-year period of "tangible, fixed incentives that people know to bank on." These amount to $369bn for green investment. The UK by contrast is making it harder for Shell to achieve its goal of investing its planned $25bn in the UK this decade by imposing the heavy new tax. There has been pressure building in the European Union to introduce similarly attractive schemes to ensure investors stay ( see box ), but the UK is lagging behind both jurisdictions. TotalEnergies also did well from global trade in LNG. The value of its investment in Novatek and its LNG projects in Yamal have suffered, as did Shell with its stake in Sakhalin Energy; but like its peers, it has a long-term sales portfolio. This is backed by equity LNG and term purchases from US projects as well as

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