OPINION: Fears about the Omicron variant of Covid-19 sent oil prices spiraling downwards again in the run-up to Christmas, highlighting how short-term energy demand will be dictated by perceptions about the pandemic.
The price of Brent blend fell 5% below $70 per barrel on 20 December — helped downwards by worsening prospects of Congress passing a US financial growth package.
The past 12 months had been positive overall for the value of Brent crude, which started January at $50 per barrel a relatively short time after US prices had slumped to zero, or even lower, at the height of the pandemic shutdown in 2020.
However, 2021 should be remembered by the industry not for Covid-19, but for dramatic warnings that fossil fuels must be phased out.
The most notable report came in May from the normally conservative International Energy Agency (IEA).
The report called for an end to all oil and gas exploration with immediate effect if the world is to reach the Paris climate agreement target of holding further global temperature rises to no more than 1.5 degrees Celsius above pre-industrial levels.
The IEA report was followed up in August with the latest from the United Nations' Intergovernmental Panel on Climate Change, dubbed “code red for humanity”.
The first major review of climate change science since 2013 argued that only deep cuts in carbon emissions could avert “climate catastrophe”.
That was the backcloth to last month’s COP26 international climate talks in Glasgow from which oil companies were effectively excluded.
The words “fossil fuels” appeared as a reason for global heating for the first time in a conference sign-off statement.
But the UN-dictated pace of change towards low-carbon energy remains steady, not steep: there was certainly no call for a halt to drilling.
COP26 has ratcheted up the pressure on companies to reduce carbon emissions faster, while public pressure for change has emboldened environmentalists, activist investors — and even juries.
Companies at the forefront of the decarbonisation debate, such as ExxonMobil and Shell, have been under attack not just from shareholders but also from law courts.
A Dutch judge demanded Shell set tougher emission targets, while in the UK, a public jury defied legal advice and found “not guilty” activists who had committed criminal damage to Shell’s London headquarters.
The company has since shelved plans to develop the Cambo oilfield off the Shetland Islands — a project targeted by environmentalists as a symbol of their aim to shut down the wider North Sea arena.
Amid all of this came the bounce back in oil and gas prices that bolstered industry coffers but also frightened consumers and policymakers.
The soaring price of gas to record levels in Europe has led to a heated debate about whether this is a result of the energy transition going too fast or too slow.
There has also been a backlash from countries in the Global South, some of whom feel angry about being told to curb fossil fuel production that would bring financial benefits.
So 2021 was a significant year for a number of reasons, but the big takeaway? There is no turning back on decarbonisation.
(This is an Upstream opinion article.)
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