Crisis profiteer “Big Oil” – Why Exxon, Shell and Co. swimming in the money Salman Rushdie publishes a new novel six months after the knife attack

It is one of the greatest excitements of the energy crisis: while consumers groaned under the high prices for heating or fuel, the oil industry earned better than ever last year. Shell and BP in Britain, Exxon Mobil and Chevron in the US, Total in France – thanks to the sharp rise in oil and gas prices caused by the war in Ukraine, the industry heavyweights known as the “Big Five “, made high profits.

Why is the topic so controversial?

Many people are outraged that in times of high inflation and rising policy rates, but also of global warming and climate crises, the oil and commodities sector is swimming in money. Critics are demanding higher investment in development projects and renewable energy from the companies, which return huge amounts to their investors through share buybacks and dividends.

Who are the biggest beneficiaries?

The largest American oil company Exxon alone posted a net profit of nearly $56 billion in 2022 – about 140 percent more than the previous year and the highest result in the company’s more than 140-year history. At BP, the picture is mixed, with operating profit doubling to just under $28 billion. The bottom line was a $2.5 billion loss as BP wrote off its stake in Russian oil company Rosneft. Experts estimate that Exxon, Chevron, BP, Shell and Total made a combined profit of about $190 billion last year.

Why did the oil multinationals earn so much?

The decisive factor was the rise in energy prices. The price shock of the Russian war against Ukraine has made crude oil more expensive in the spring than it has been in more than a decade. The barrel (159 liters) of the North Sea Brent sometimes cost almost 140 dollars. Since then it has dropped again. Most recently the barrel was around $80.

The higher prices are not the only reason for the mega profits. “Unlike profits, oil prices have not reached record highs,” University of Massachusetts economist Isabella Weber said at a congressional hearing in September. Low production costs are also an important factor. The industry has shut down expensive production facilities due to the slump in demand during the pandemic and has yet to make them fully operational – although the economic recovery from the Corona crisis has boosted global oil demand again and supply has been constrained by Ukraine’s war and sanctions against Russia.

According to information from the US government, global oil consumption in 2022 was slightly below the pre-corona level of 2019. There is simply little incentive for oil companies to expand production, says expert Weber. “Who wants to fund more to earn less?”

What do politicians do?

In October, US President Joe Biden described companies like Exxon as “winners of the war” that failed to meet their social responsibilities. The attack took place during the US election campaign, but it shows how the industry is heating up. Biden announced he would explore options to hold the oil industry accountable. Europe was already one step ahead: in September, the EU decided to levy a so-called excess profit tax on the spectacular profits of energy companies. The money should be used to finance emergency aid for citizens and businesses. Exxon has already announced that it will legally challenge the tax.

Could companies have avoided the price hikes?

Individual companies usually produce too little to have a major impact on the global oil supply. Above all, the oil alliance Opec+ has pricing power. The influence of the cartel, led by major producer Saudi Arabia, which expanded to include ten non-OPEC countries – including Russia – in 2016, is significant, with a global market share of around 40 percent.

The global demand for oil, which depends on the economy, is also a determining factor. During the economic downturn during the Corona crisis, companies sometimes had to sell well below their production costs. In 2020, Exxon lost $22.4 billion. The companies see themselves unjustly pilloried: “The demonization of the oil industry must stop,” the American trade association WSPA complained in October.

What exactly are the oil companies accused of?

A frequently heard reproach is that corporations do not spend more money to supply more energy in times of scarcity and high prices. Exxon CEO Darren Woods dismisses him: “While our results clearly benefited from the favorable market environment, the counter-cyclical investments we made before and during the pandemic provided people with the energy they needed as the economic recovery continued and supply was scarce. became. ». Exxon as a helper in need? In fact, according to its own statements, by 2022, the largest Western oil company will have spent about $22.7 billion on investments in equipment and exploration and production projects – with a turnover of $413.7 billion.

What do the companies do with the money?

Chevron recently announced a large-scale distribution of profits to its shareholders. From April, up to $75 billion in shares must be bought back. In addition, Chevron plans to pay shareholders a quarterly dividend of $1.51 per share – more than six percent more than in the previous three months. Chevron’s profit payouts caused a boom given the volume, but the rest of the industry isn’t ignoring its shareholders either. This increases the passion of critics who want more investment. Biden has already argued for a special tax on share repurchases.

How does the industry justify its profit distributions?

According to the lobbying group American Petroleum Institute, the oil and gas industry is a powerful driver of the US economy – benefiting millions of households through direct stock ownership, investment fund shares, pension plans or other financial products. According to economist Weber, the real winners of the oil bonanza are high net worth investors, Wall Street financiers and asset managers. Poor people, companies and governments burdened by high energy prices are the losers. Share buybacks and dividends also serve to maintain stock price and improve certain balance sheet ratios – this can also be a major benefit to management.

(aeg/sda/awp/dpa)