Good morning, this is the Oil Patch. We're like Wheaties. We're the breakfast of champions!

Here's what the Oilman has for you today:

• Putting the Petroleum Back in BP

• Gov. Newsome is Surprised by NatGas Prices

• The Energy Transition Mirage

• Tweet of the Day

Putting the Petroleum back in BP

BP is back in the petroleum business, or so it seems.

After CEO Bernard Looney took over in 2020, he promised to quickly decarbonize the company and cut oil and gas production by 40% by 2030, with a strong focus on wind and solar projects.

But on Tuesday, Looney changed course. He announced a 25% cut in oil and gas production by the end of the decade while adding heavy investment in oil and gas projects. He also had some fine words about green energy and investment.

The new strategy is a balancing act between BP's commitment to the energy transition and the reality that the current energy system is predominantly oil and gas-based.

BP is not the only one facing an Identity crisis

Similar to other European oil majors like Shell and TotalEnergies, BP offers a mixed bag of the oil business and renewables units.

For BP, this crisis is reflected in its market cap, trading at a price-to-earnings ratio of about five times. This is lame when compared to Exxon and Chevron trading at eight to nine times earnings.

The promise to pump more oil and gas is likely to attract fossil fuel shareholders, and BP shares rose more than 7.5%, the largest one-day jump in more than two years.

So, BP is focused now...?

Yes. Well, uh, maybe. BP's revised strategy focuses on:

• Green investments in bioenergy & hydrogen

• Electric vehicle charging points

• Oil and gas production budget rising from ~$14 to ~$18 billion

This strategy will test investors, particularly when a chunk of the money will go into low-returning green projects. The plan for extra shareholder returns is based on high oil and gas prices.

So, BP has finally acknowledged the profitability of pumping fossil fuels and the strong demand for oil and gas, which will stay strong for longer. The company is not going in a straight line, but it hasn't pulled a U-turn either.

The revised strategy is a balancing act between the energy transition and the reality of the current energy system.

Gov. Newsom is Surprised by NatGas Prices

It's a tough world out there when you're a Californian and your gas bills are skyrocketing. The situation is so dire that Governor Gavin Newsom has called for a federal investigation into the soaring natural gas prices in California.

But is Newsom's call for an investigation really about protecting Californians, or is it just a case of playing politics?

High natural gas prices in CA are not entirely surprising

This is especially true when considering the state's recent history with energy policies.

California has been at the forefront of renewable energy and has implemented strict environmental policies that have made it difficult for traditional energy companies to operate in the state.

As a result, the state has become a regulatory nightmare for oil and gas producers. This has hindered additional sources of reliable production.

The high natural gas prices in California are a result of these policies, but Newsom's call for an investigation into the prices is hypocritical given that California's energy policies have contributed to the high prices in the first place.

Newsom's Letter to the Federal Energy Regulatory Commission (FERC)

Governor Newsom requested the agency to "immediately focus its investigatory resources on assessing whether market manipulation, anticompetitive behavior, or other anomalous activities are driving these ongoing elevated prices in the western gas markets."

According to the governor's office, the wholesale natural gas prices throughout the West have risen to alarming levels that greatly exceed prices in the rest of the country since late November 2022.

The wholesale prices of natural gas in southern California jumped in December to more than nine times the price of the U.S. benchmark futures for December.

Is Newsom planning to ask state regulators to ease up and allow more drilling and production? Nah. He's going to send Californians $90 and $120 credits for the gas bills.

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The Energy Transition Mirage

The world is facing an energy crisis, but the solution is not as simple as many would have us believe. In recent years, there has been a lot of talk about the transition to renewable energy and the decline of fossil fuels.

The data, however, tells a different story.

Despite the increase in wind power capacity and renewable energy generation, global consumption of oil, natural gas, and coal continues to rise.

The notion of a rapid transition to renewable energy is nothing more than smoke and mirrors. 

Let's look at some energy stats

In 2012, the installed wind power capacity was 267 GW. By 2021, it had grown to 825 GW.

The global renewable energy generation in 2012 was 1,067.8 Terawatt-hours.By 2021, it was 3,657.

The global oil consumption in 2012 was 89 million barrels of oil per day.By 2021, it was 94 million (which was slowed down due to Covid restrictions). By 2024, it's expected to be 102 million.

The global natural gas consumption in 2012 was 3,319 billion cubic metres (bcm).By 2021, it was 4,038. By 2024, it's expected to be 4,300.

The global coal consumption in 2012 was 159 exajoules.In 2021, it was 160 exajoules. The demand for coal is expected to rise through 2025, setting new all-time consumption records.

Hope versus reality

The energy crisis demands a practical and realistic approach.

Investing in reliable energy sources like oil, coal, natural gas, and nuclear power can provide the stability and reliability that the world needs while new technologies are being developed and implemented on a larger scale.

This balanced approach to energy production and consumption can help ensure that the lights stay on and the wheels of industry keep turning, while also working towards a more sustainable energy future.

It's time to prioritize practical solutions that benefit everyone and drive progress in the right direction.

Around the Digital Patch

🥷 If the Russian-Ukrainian War ended, how would that affect prices?📉 Demand to fall as NatGas prod reaches new highs🤑 BP posts serious earnings🇮🇳 India is an energy buyer at any price

Tweet of the Day

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