Oil CEOs warn this winter’s energy crisis will be nothing compared to the next

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November 1, 2022
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PCK Schwedt oil refinery in Schwedt, Germany on Monday, May 9, 2022.

Krisztian Bocsi | Bloomberg | Getty Images

ABU DHABI, United Arab Emirates — Politicians and governments around the world are bracing for potential civil unrest as many countries grapple with mounting energy costs and rising inflation.

The global economy is facing an onslaught from multiple sides — a war in Europe, and shortages of oil, gas and food, and high inflation, each of which has worsened the next.

Concerns are centered on the coming winter, especially for Europe. Cold weather, combined with an oil and gas shortage stemming from Western sanctions on Russia for its invasion of Ukraine, threatens to upend lives and businesses.

But as much worry as there is ahead of this winter, it’s really the winter of 2023 that people should be worried about, major oil and gas executives have warned.

“We’ve got a difficult winter ahead, and subsequent to that we’ve got a more difficult winter in the year ahead of that, because the production that is available to Europe in the first half of 2023 is considerably less than the production we had available to us in the first half of 2022,” Russell Hardy, CEO of major oil trader Vitol, told CNBC’s Hadley Gamble during a panel at the Adipec conference in Abu Dhabi.

“So the consequences of energy shortage and therefore price escalation, all of the things that have been discussed here about the cost of living, the expectation of problems ahead, clearly need to be thought about in that context,” he said.

We are in good shape for this winter. But as we said, the issue is not this winter. It will be the next one, because we are not going to have Russian gas.

Claudio Descalzi

CEO of Eni

BP CEO Bernard Looney, speaking at the same panel, agreed. Energy prices “are approaching unaffordability,” with some people already “spending 50% of their disposable income on energy or higher,” he said.

But through a combination of high gas storage levels and government spending packages to subsidize people’s bills, Europe may be able to manage the crisis this year.

“I think it has been addressed for this winter,” Looney said. “It’s the next winter I think many of us worry, in Europe, could be even more challenging.”

The CEO of Italian oil and gas giant Eni expressed the same worry.

For this winter, Europe’s gas storage is around 90% full, according to the International Energy Agency, providing some assurance against a major shortage.

But a large proportion of that is made up of Russian gas imported in previous months, as well as gas from other sources that was easier than usual to buy since major importer China was buying less due to its slower economic activity.

“We are in good shape for this winter,” Eni chief Claudio Descalzi said. “But as we said, the issue is not this winter. It will be the next one, because we are not going to have Russian gas – 98% [less] next year, maybe nothing.”

Protests have already begun

This could lead to serious social unrest — already, small to medium-sized protests have cropped up around Europe.

Anti-government protests in Germany and Austria in September and in the Czech Republic last week — the latter of which has seen household energy bills surge tenfold — may be a small taste of what’s to come, analysts have warned. Some energy executives agreed.

Yes, there is a real risk that governments without a steady hand on policy shaping in Asia can deal with unrest.

Datuk Tengku Muhammad Taufik

CEO of Petronas

“We’ve seen that any shocks to the price at the pump, or something as simple as LPG [liquefied petroleum gas] for cooking, can cause unrest,” the CEO of Malaysian oil and gas company Petronas, Datuk Tengku Muhammad Taufik, said.

He described how a strengthening dollar and rising fuel prices pose a serious risk to many Asian economies – massive populations that are some of the biggest oil and gas importers in the world. And this is happening while subsidies are already in place to help ease prices for citizens.

Inflation in the euro zone remains extremely high. Protestors in Italy used empty shopping trolleys to demonstrate the cost-of-living crisis.

Stefano Montesi – Corbis | Corbis News | Getty Images

Many Asian economies were already reeling from the pandemic, which caused “vast swaths of [small and medium enterprises] in Asia to just collapse,” Taufik said. “So, yes, there is a real risk that governments without a steady hand on policy shaping in Asia can deal with unrest.”

Anger at oil companies’ massive profits

Much of the anger of protesters is also directed at the energy companies, which have been making record profits as bills get higher and higher.

Responding to this, many of the CEOs who spoke to CNBC said it’s an issue of market supply and demand, and that it’s up to governments to implement policies more conducive to energy investment. That investment, they stressed, has taken a hit in recent years as countries push for the transition to renewables.

The world has to face “the practicalities and realities of today and tomorrow,” BP’s Looney said, stressing the need to “invest in hydrocarbons today, because today’s energy system is a hydrocarbon system.”

Many policymakers and institutions still decry the use of fossil fuels, warning the far bigger crisis is that of climate change. In June, United Nations Secretary General Antonio Guterres called for abandoning fossil fuel finance, and called any new funding for exploration “delusional.”

The oil executives argued that this approach simply isn’t realistic, nor is it an option if countries want economic and political stability.