Sector report: energy Q1 2022

Since the beginning of the pandemic, there has been significant turmoil in the oil and gas industry, or at least in the prices of the underlying commodities that dictate its development. In April 2020, when covid-19 reached the western world and stay-at-home orders were imposed, pressures on both the demand and supply side made the oil price go down to less than $20 per barrel, down from a range between $50-$60 in the preceding months. WTI futures even entered negative territory in April, which made for memorable headlines. Since then, oil prices have moved up considerably and appear likely to sustain their upward momentum in the short run, given the overall supply situation. By the end of the first quarter of 2022, WTI was trading at around $100 per barrel. Most recently, there has also been mounting pressure on the price of natural gas, particularly with respect to Europe, which relies heavily on natural gas not just for heating, but also for electricity generation. Coal power plants are being scrapped and replaced with alternative renewable sources. However, this process is not possible without using natural gas to supplement renewables when necessary. A significant part of the natural gas supplies for Europe come from Russia, which further complicates matters with the recent military conflict in Ukraine and the payments in rubbles to Gazprom. Hydrocarbons have long been one of Russia’s most important exports and the European Union has been among its largest customers. We are yet to see how geopolitical tensions will unravel. All of these developments, however, are very bullish indicators for oil and gas, along with the recent decision by the US government to release up to 180 million barrels of oil from strategic reserves in an attempt to drive down gasoline prices. Non-core focus Throughout these interesting times, oil and gas majors and their peers have remained active in the corporate venturing arena, irrespective of strong headwinds or tailwinds. Over the latter half of the past decade, we have seen a shift of focus among oil and gas corporates, still very much evident today and likely to continue to hold in the post-pandemic world. Namely, many of the disclosed deals by such corporate venturers have been going into emerging businesses from non-core areas, primarily into IT and cleantech, as well as transport and mobility. It is these non-core areas that are considered to have the most disruptive potential to the core business of oil and gas companies, as low-carbon…

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