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RIYADH: The crisis between Ukraine and Russia, which has destabilized the energy market, mainly in Europe, could be a boon for oil companies and hydrocarbon-producing countries, given that rising oil prices are expected to support their revenues as concerns about about a protracted war escalates.

Oil prices, already high, hit nearly $140 ($1 = €0.91) a barrel on March 7, after the US announced a ban on Russian oil and gas imports, while the European Union (EU) and the UK have imposed draconian restrictions on hydrocarbon imports.

Although oil prices fell below the $100 mark, hitting $89.13/bbl Brent (European benchmark) and $84.90/bbl WTI (West Texas Intermediate, US benchmark), there was a price spike at 3:30 p.m. KST on March 15 not expected. impossible.

“Prices could reach unprecedented levels if the situation continues to deteriorate,” Youssef al-Chammari, senior fellow at Imperial College London and CEO of CMarkits, said in an interview with the publication. arabic news.

He warns that the situation could worsen further if Russia decides to cut off gas supplies as there will be coal and oil carry over, causing prices to spike.

It’s hard to predict what prices will be, says Qamar Energy CEO Robin Mills, adding that it will depend on the scenario.

“The recent drop is based on the idea of ​​an increase in production by the Organization of the Petroleum Exporting Countries (OPEC). But if Russian exports are significantly disrupted, we can expect prices to rise above $150 per barrel,” he warned in an interview with the publication. arabic news.

Disruption of Russian exports

However, market disruptions lead to higher prices.

Mr. Mills notes that the fear of sanctions has already undermined Russian exports, even if they do not directly target oil.

“It is true that the UK and the US have banned the import of Russian oil, but they do not import it in large quantities.”

In addition, Robin Mills warns that sanctions financing, self-sanctions and the risk of war in the Black Sea could affect Russian exports.

This could lead to higher oil prices, meaning oil companies will have big surpluses this year as a result of the pandemic, Al-Shammari said, adding that it could also lead to new investments in oil and gas, conventional and new sources. energy.

However, the crisis had a negative impact on some oil companies, as they had large operations in Russia.

BP announced the sale of its 20% stake in Rosneft, Russia’s national oil company, at the end of February. The announcement follows Shell’s decision to end its operations in Russia and close its joint ventures in the country. The company also said it would stop buying Russian oil. At the same time, Exxon Mobil announced the termination of its activities in Russia.

All three companies continued to operate in Russia despite US sanctions after Moscow annexed Crimea in 2014.

“The biggest oil companies that left Russia suffered losses, including BP, as well as Shell, ExxonMobil and, to a lesser extent, Equinor and Wintershall. But they are all likely to benefit from higher prices,” notes Mills.

Benefits for GCC Companies

Other companies in the Gulf Cooperation Council (GCC) region are well positioned to profit from this crisis.

“Gulf oil companies will benefit from much higher prices. Aramco and Adnoc will at least benefit from the political and fiscal stimulus to increase production (which they have already been working on),” Mr. Mills emphasizes.

However, the CEO of Qamar Energy noted that so far no one has made any real profit in terms of market share. OPEC countries, he explains, will gain market share if they decide to increase production (significantly). As for US shale, they will gain strength when they start investing more in drilling.

Indeed, high oil prices allow oil shale mining to become more profitable, as it tends to be more expensive to exploit.

“All major oil companies outside of Russia are seeing significant revenue growth,” Mills said.

It should be borne in mind that Europe is highly dependent on Russian energy resources. In 2021, 38% of the natural gas used by the European Union (EU) came from Russia, according to Brussels-based think tank Bruegel.

Because of the sanctions imposed on Russia, importing countries will have to look for other sources of energy, mainly within the GCC.

In addition to oil, it is liquefied natural gas that can be transported by sea. In January, the EU began negotiations with Qatar on natural gas supplies.

Separately, the EU announced in March that it would cut Russian gas imports by two-thirds by 2023.

Investments in sustainable energy

Does this oil wealth mean less investment in sustainable energy solutions in the GCC?

Not necessarily, according to experts.

In recent years, the GCC countries have stepped up their sustainable energy projects. For example, Saudi Arabia has established its National Renewable Energy Program as part of the Vision 2030 plan. The goal is to increase the kingdom’s share of renewable energy production and reduce carbon emissions.

As part of the program, as outlined in the Vision 2030 plan, the Department of Energy is working to minimize the use of liquid fuels and diversify the national energy mix dedicated to electricity generation. This program also aims to increase the share of natural gas and renewable energy to almost 50% by 2030.

Sheikh Mohammed bin Rashid Al Maktoum, Vice President, Prime Minister of the United Arab Emirates (UAE) and Ruler of Dubai, announced last October that his country aims to achieve “net zero emissions” by 2050.

Al-Shammari said high oil prices would help drive diversification plans.

“The Saudi government has already made important announcements about alternative energy despite high oil prices, including blue and green hydrogen, as well as tourism, entertainment and minerals,” he continues.

In addition, the kingdom is emphasizing the localization of technology, which means creating centers for the production of products that are currently imported, Yousef al-Shammari said.

For Mills, investments in sustainable development will vary from country to country in the GCC.

“At least in the case of Saudi Arabia and the UAE, this will strengthen investment in diversification. None of the Gulf countries has so far made major changes to their oil and gas investment plans,” he concludes.

This text is a translation of an article published on Arabnews.com.

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