2021 was a year of disruption and upheaval but with every crisis, there is a lesson. The events that happened below provide lessons on strategy, risk, and business sustainability. They reveal global issues such as climate change, cybersecurity, and supply chain resilience. This article continues from the post, Global Energy Highlights 2021 Part 1.
1. Shareholders oust members of Exxon’s Board- June 2021
Shareholders of Exxon Mobil voted to oust members of Exxon Mobil's board following an activist investor campaign. On May 26, shareholders voted to replace at least two members of Exxon Mobil’s board with people nominated by an activist investor group Engine No. 1 over concerns the company is not moving fast enough to address climate change. The group argued that Exxon did not provide a “coherent and value-enhancing long-term strategy.” Although small (.02% of Exxon's shares), Engine No. 1’s proposal to replace the board members was backed by the two largest U.S. public pension funds— the California Public Employees' Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) including the New York Common Retirement Fund, the Church of England. BlackRock, the world’s largest asset manager, and Exxon’s second-largest investor, also voted for three of the directors put forward by Engine No. 1.
Implications
This event sends a message that companies should take threats of votes against board members more seriously and move quickly to address climate change. Energy companies focused on hydrocarbon production should not disregard the possibility that investors will apply pressure tactics and vote against uncooperative board members with respect to climate change management. Far from being only an energy sector issue, companies from across the board should take notice and ensure that they have comprehensive plans to navigate the future.
2. Hurricane Ida – August 2021
Hurricane Ida made landfall near Port Fourchon, Louisiana, as a Category 4 hurricane on Sunday, August 29. It was described as the worst hurricane in 16 years. Ida's 150 mile-per-hour (240 kph) winds cut most offshore oil and gas production for more than a week leaving damaged platforms and onshore support facilities. Offshore U.S. Gulf of Mexico wells produces about 1.8 million barrels of oil per day, 16% of the daily U.S. total (reuters.com).
As a result of the hurricane, 96% of crude oil production and 94% of natural gas production in the U.S. federally administered areas of the Gulf of Mexico (GOM) were shut-in, according to estimates by the U.S. Department of Interior’s Bureau of Safety and Environmental Enforcement. 79 production platforms were unoccupied after the storm made landfall on Aug. 29 with at least nine refineries shut down or reduced production. Some analysts predicted that U.S. production could be reduced by as much as 30 million barrels. The event helped drive oil prices above US$70 a barrel, with Brent crude trading at US$73.39.
Implications
Ida was one of the most damaging hurricanes to hit the Gulf oil industry since Katrina and Rita in 2005. When energy systems are damaged, people are deprived of fuel needed for cooking, heating, and transportation. Energy costs also escalate. The aftereffects of Ida illustrate the likely devastation that climate change can bring.
3. US crude oil prices hit $80, the highest since 2014-September 2021
For years there were expectations that crude oil prices would continue to decline due to supply gluts, reduced demand especially given the energy transition. The industry catchphrase was “Lower for longer” signaling an expectation that oil prices would never cross US$80 per barrel much less return to the peaks of US$147.27 (2008). This appeared to be reinforced during the pandemic when West Texas Intermediate (WTI) prices dropped to negative US$37.63 per barrel on April 20, 2020. In September 2021, West Texas Intermediate crude futures topped $80 on Friday for the first time since November 2014. Oil prices rose more than 60% for 2021 as demand rebounded while supply remained tight (www.cnbc.com). Prices rose due to supplies being offline due to Hurricane Ida and storm Nicholas. There were also energy shortages facing Asia and Europe in a market where economies were rebounding from the pandemic.
4. High Europe Natural Gas Prices sweep through Europe -October 2021
In October 2021, Natural Gas prices skyrocketed in Europe and Asia by 400%, trading at more than $200 per barrel of oil equivalent. Surging demand together with reduced coal dependence contributed to the price spikes. There were also elements of geopolitical undertones with Russia and how supplies are distributed. Despite all the capacity additions in renewables generation, the amount of power generated by renewables was not enough to meet this increased demand,” According to Platts, the global supply of renewables will grow by 35 gigawatts from 2021 to 2022, but global power demand growth will go up by 100 gigawatts over the same period.
Implications 8 & 9
Energy markets are dynamic and there are various factors that are likely to influence demand and prices. It highlights the complexities of navigating away from fossil fuels when global demand outpaces alternative supply sources. The shortfall between renewable energy supply and power demand is likely to widen as economies reopen and travel resumes, with demand already spiking to pre-pandemic levels. There are also certain applications for crude where there is no direct replacement. Some alternative fuels are only in the emerging phase. One thing is clear, navigating energy markets is not clear cut.
10. Cop 26-November 2021
For nearly three decades, the UN has been at the centre of global climate summits – called COPs – which stands for ‘Conference of the Parties’. COP26 which was held in Glasgow was the 2021 edition of the United Nations Climate Change Conference where climate change was billed as a global priority. Decisions in Glasgow fell under three UN climate treaties: the United Nations Framework Convention on Climate Change (the COP), the Kyoto Protocol (the CMP), and the Paris Agreement (the CMA). The Glasgow Climate Pact was manifested across all three. The Glasgow Climate Pact reflects many Parties wishing to avoid dangerous climate change by limiting global warming. It aims to strengthen countries’ ability to deal with the impacts of climate change and support them in their efforts. It also encourages them to fully embed science in the decision-making process around climate mitigation and adaptation, knowledge transfer, and technical assistance. At the event, many declarations were made by world leaders, and negotiations were held to chart the way of the future.
Implications
This was one of the headline events of 2021 which captured the attention of the world and illustrate a committed effort to change the way energy is consumed. Some of the highlights described in this article highlight the crippling consequences of climate change. Decisions made at COP 26 and the actions taken thereafter will set a new course and determine the fate of the world’s future.
No part of this publication may be reproduced, translated, stored in a database or retrieval system.
Comments