The world needs higher oil prices

Germany wants energy seppuku and Eni underwhelms investors with earnings record

Good morning, this is the Oil Patch. We're the Mr. Miyagi of Oil and Gas.

Here's what the Oilman has for you today:

  • Germany's Habeck wants full on energy suicide

  • Oil Prices Set to Skyrocket This Summer

  • Eni's Record Profit Shocks Underwhelms Investors

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Germany's Habeck wants full on energy suicide

Germany has ditched nuclear.

It's burning massive amounts of coal.

And Germany's Economy Minister Robert Habeck has voiced support for a Europe-wide ban on Russian gas, stating that German companies have stopped using Russian gas altogether.

However, the feasibility of such a ban remains in question due to the heavy reliance of some EU member states on Russian energy.

Restrictions on Russian energy imports

The EU has implemented sanctions against Russia since its annexation of Crimea in 2014, including restrictions on Russian energy imports. Despite this, some EU countries, such as Germany, still import Russian gas. As the Oilman has previously discussed here and here, the Nord Stream 2 gas pipeline, which would increase Germany's dependence on Russian gas, has become a contentious issue.

Habeck's support for a ban comes amidst the war between Russia and Ukraine, raising concerns about the security of gas supplies to Europe. However, several EU member states, particularly those in Eastern Europe, are much more reliant on Russian energy and cannot afford to cut ties completely.

But is it even possible?

The feasibility of a Europe-wide ban remains questionable. Instead, efforts should be focused on securing reliable sources of energy. It is important for the EU to balance its energy needs with its political and security concerns and find a sustainable and secure solution for its energy supply. A Europe-wide ban would negatively impact their energy security and cause major disruptions.

Oil Prices set to skyrocket this summer

Pioneer Natural Resources CEO, Scott Sheffield, predicted that oil prices could skyrocket to $90 to $100 a barrel by summer (as has Morgan Stanley). Currently, Brent futures are hovering around $82 a barrel, while U.S. crude futures are trading around $75.63 a barrel.

Despite Sheffield's forecast

Shale companies have been pulling back on drilling due to plummeting prices. Natural gas-focused producer Chesapeake has already announced plans to drop three drilling rigs and reduce well completion activities this year.

Pioneer Natural Resources shares were up only slightly in the morning, trading around $205.90 each, indicating that investors may not be fully convinced of Sheffield's bullish outlook. Meanwhile, rival Coterra Energy is predicting that its oil volumes will grow by only about 2% this year, with gas output declining by 1% compared to last year.

Higher prices are needed

With combined chaos of regulatory uncertainty, the lack of reliable labor, and the outlandish rise in material costs, higher prices are not only needed – they're inevitable. E&P executives and energy investors will be closely watching oil prices in the coming months to see if they reach the anticipated $90 to $100 a barrel range.

And so will the Oilman.

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Eni's Record Profit Shocks Underwhelms Investors

Eni, the Italian energy group, reported a record adjusted net profit of 13.3 billion euros ($14.12 billion USD) for 2022. However, the market's reaction was muted, with Eni's shares falling due to weaker exploration and production figures in the final quarter.

Fall in oil and gas prices

Eni's record profit was driven by a heightened focus on energy security and the spike in energy prices caused by the conflict in Ukraine. However, a fall in oil and gas prices in the final quarter led to a slowdown in Eni's E&P activities, resulting in a 20% drop in adjusted operating profit. Overall, oil and gas production fell by 4% to 1.610 million barrels of oil equivalent per day for the year.

Despite the weaker Q4 performance, Eni's CEO, Claudio Descalzi, highlighted the company's strides in renewable energy and sustainable mobility. Eni's renewable and retail unit, Plenitude, now has an installed capacity of 2.2 gigawatts for green energy, and the newly-established Sustainable Mobility unit is also making progress. Eni was able to cut net debt to 7 billion euros and return 5.4 billion euros to its shareholders.

The coming years will be crucial

Eni's record profit for 2022 is impressive, but the market's lackluster response shows that there is room for improvement. The focus on renewable energy and sustainable mobility is an obvious let down. While capital managers, global elites, and politicians are calling for a "green" future, everyday investors and citizens are not.

Eni is gonna have to get smart to that fact.

Around the Digital Patch

🛢️Climate and human rights activists sued two of France's biggest corporations.🛢️China ordered to do safety checks on coal mines. 🛢️Exxon warns of Russian risks to its Central Asian operations.

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