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    Russia’s Moves in Ukraine Unsettle Energy Companies and Prices

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    Oil and gas prices are up, and Western energy giants with operations and investments in Russia could find it harder to keep doing business there.Russia’s recognition of two breakaway regions in eastern Ukraine could threaten important investments of Western oil giants and further drive up global energy prices in the next few weeks.Since the closing days of the Cold War, Russia’s energy-based economy has become entwined with Europe’s. European energy companies like BP, TotalEnergies and Shell have major operations and investments in Russia. Though expansion of those holdings was largely halted after Russia’s 2014 annexation of Crimea, they remain important profit centers and could now be at risk.Seeking to isolate President Vladimir V. Putin of Russia, President Biden and the European Union imposed new sanctions on the Russian government and the country’s political and business elite on Tuesday. The measures do not directly target the energy industry. That’s why oil and gas prices settled only modestly higher on Tuesday afternoon in New York.But analysts said the energy industry could still be hurt if the crisis dragged on, particularly if Mr. Putin decided to send troops into the rest of Ukraine or sought to take control of the capital, Kyiv. Such aggressive action would most likely force Mr. Biden and other Western leaders to ratchet up their response.European leaders are already taking aim at some Russian energy exports. Chancellor Olaf Scholz said on Tuesday that Germany would halt certification of the Nord Stream 2 pipeline, which is supposed to deliver Russian gas. The decision will not have an immediate impact on European energy supplies because the pipeline is not yet operating. But Russian gas shipments through Ukraine could be halted, especially if Mr. Putin’s troops push farther into Ukraine or if he cuts off gas to Europe in retaliation for Western sanctions.Russia supplies one out of every 10 barrels of oil used around the world. After Western officials said Russian troops had entered eastern Ukrainian regions held by separatists, oil prices quickly jumped early Tuesday to nearly $100 a barrel, their highest level in more than seven years, before moderating.Energy experts say oil prices could easily rise another $20 a barrel if Mr. Putin seeks to occupy more or all of Ukraine. Such an outcome would also cause huge problems for Western oil companies that do business in Russia.“In that environment, the legal and reputational risk faced by Western energy companies operating in Russia will rise sharply,” said Robert McNally, who was an energy adviser to President George W. Bush and is now president of the Rapidan Energy Group, a consulting firm. “For oil markets, this means slower supply growth and even tighter global balances and higher prices in the coming years.”TotalEnergies, which is based near Paris, owns nearly 20 percent of Novatek, Russia’s largest liquefied natural gas company, and Shell has a strategic alliance with Gazprom, Russia’s natural gas monopoly.The Salym oil field, which Shell operates jointly with Gazprom in western Siberia.Alexander Zemlianichenko Jr./BloombergThe Western oil company most involved in Russia is BP, which owns nearly 20 percent of Rosneft, the state-controlled energy company managed by Igor Sechin, who is widely considered a close Putin ally and adviser. BP’s chief executive, Bernard Looney, and its former chief executive Bob Dudley sit on Rosneft’s board with Mr. Sechin and Alexander Novak, Russia’s deputy prime minister.Rosneft contributed $2.4 billion in profits and $600 million in dividends to BP in 2021, and has a secondary listing on the London Stock Exchange. About a third of BP’s oil production, or 1.1 million barrels a day, came from Russia last year.BP executives have so far expressed calm. “We have been there over 30 years and our job is to focus on our business, and that is what we are doing,” Mr. Looney said in a recent conference call with analysts. “If something comes down the road, then obviously we will deal with it as it comes.”Most oil companies have been reporting bumper profits because of rising oil and gas prices. European firms are using some of their profits to invest more in wind, solar, hydrogen and other forms of cleaner energy. But the current crisis could be a major distraction, if not worse.Doing business in Russia has always been complicated, especially as Mr. Putin reasserted state control over energy, squeezing private investors.Shell was forced to give up control of its premier Russian liquefied natural gas project on Sakhalin Island, in eastern Russia, to Gazprom in 2006. Shell retains a modest stake in the facility, and it appears to want to keep the door open to more business in Russia. Along with four other European companies, it helped finance the estimated $11 billion Nord Stream 2 pipeline to Germany.TotalEnergies has continued investing in a $27 billion natural gas complex in the Yamal Peninsula, in the Arctic, that Novatek controls. The project sidestepped earlier Western sanctions by obtaining financing from Chinese banks. It began producing gas for European and Asian customers in 2017.Share prices of BP and Total closed on Tuesday down more than 2 percent, and Shell was down about 1 percent.Prospects for Western oil companies seeking to do business in Russia were once far brighter. Exxon Mobil, Italy’s ENI and other foreign oil companies teamed up with Rosneft in 2012 and 2013 to explore Arctic oil and gas fields.BP owns nearly 20 percent of Rosneft, which operates this refinery in Novokuibyshevsk, Russia.Andrey Rudakov/BloombergBut U.S. and European Union sanctions imposed after Russia’s seizure of Crimea forced many Western companies to stop expanding in Russia in part by limiting access to financing and technology for deepwater exploration.Exxon formally abandoned exploration ventures with Rosneft in 2018, and took a $200 million after-tax loss.Understand How the Ukraine Crisis DevelopedCard 1 of 7How it all began. More

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    Winter Heating Bills Loom as the Next Inflation Threat

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    With consumers already dealing with the fastest price increases in decades, another unwelcome uptick is on the horizon: a widely expected increase in winter heating bills.After plunging during the pandemic as the global economy slowed, energy prices have roared upward. Natural gas, used to heat almost half of U.S. households, has almost doubled in price since this time last year. The price of crude oil — which deeply affects the 10 percent of households that rely on heating oil and propane during the winter — has soared by similarly eye-popping levels.And those costs are being quickly passed through to consumers, who have become accustomed to cheaper energy prices in recent years and now find themselves with growing concerns about inflation this year. More

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    As Western Oil Giants Cut Production, State-Owned Companies Step Up

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    In the Middle East, Africa and Latin America, government-owned energy companies are increasing oil and natural gas production as U.S. and European companies pare supply because of climate concerns.HOUSTON — After years of pumping more oil and gas, Western energy giants like BP, Royal Dutch Shell, Exxon Mobil and Chevron are slowing down production as they switch to renewable energy or cut costs after being bruised by the pandemic.But that doesn’t mean the world will have less oil. That’s because state-owned oil companies in the Middle East, North Africa and Latin America are taking advantage of the cutbacks by investor-owned oil companies by cranking up their production.This massive shift could reverse a decade-long trend of rising domestic oil and gas production that turned the United States into a net exporter of oil, gasoline, natural gas and other petroleum products, and make America more dependent on the Organization of the Petroleum Exporting Countries, authoritarian leaders and politically unstable countries.The push by governments to increase oil and gas production means it could take decades for global fossil fuel supplies to decline unless there is a sharp drop in demand for such fuels. President Biden has effectively accepted the idea that the United States will rely more on foreign oil, at least for the next few years. His administration has been calling on OPEC and its allies to boost production to help bring down rising oil and gasoline prices, even as it seeks to limit the growth of oil and gas production on federal lands and waters.The administration’s approach is a function of two conflicting priorities: Mr. Biden wants to get the world to move away from fossil fuels while protecting Americans from a spike in energy prices. In the short run, it is hard to achieve both goals because most people cannot easily replace internal-combustion engine cars, gas furnaces and other fossil fuel-based products with versions that run on electricity generated from wind turbines, solar panels and other renewable sources of energy.Western oil companies are also under pressure from investors and environmental activists who are demanding a rapid transition to clean energy. Some U.S. producers have said they are reluctant to invest more because they fear oil prices will fall again or because banks and investors are less willing to finance their operations. As a result, some are selling off parts of their fossil fuel empires or are simply spending less on new oil and gas fields.That has created a big opportunity for state-owned oil companies that are not under as much pressure to reduce emissions, though some are also investing in renewable energy. In fact, their political masters often want these oil companies to increase production to help pay down debt, finance government programs and create jobs.Saudi Aramco, the world’s leading oil producer, has announced that it plans to increase oil production capacity by at least a million barrels a day, to 13 million, by the 2030s. Aramco increased its exploration and production investments by $8 billion this year, to $35 billion.“We are capitalizing on the opportunity,” Aramco’s chief executive, Amin H. Nasser, recently told financial analysts. “Of course we are trying to benefit from the lack of investments by major players in the market.”Aramco not only has vast reserves but it can also produce oil much more cheaply than Western companies because its crude is relatively easy to pump out of the ground. So even if demand declines because of a rapid shift to electric cars and trucks, Aramco will most likely be able to pump oil for years or decades longer than many Western energy companies.“The state companies are going their own way,” said René Ortiz, a former OPEC secretary general and a former energy minister in Ecuador. “They don’t care about the political pressure worldwide to control emissions.”State-owned oil companies in Kuwait, the United Arab Emirates, Iraq, Libya, Argentina, Colombia and Brazil are also planning to increase production. Should oil and natural gas prices stay high or rise further, energy experts say, more oil-producing nations will be tempted to crank up supply.The global oil market share of the 23 nations that belong to OPEC Plus, a group dominated by state oil companies in OPEC and allied countries like Russia and Mexico, will grow to 75 percent from 55 percent in 2040, according to Michael C. Lynch, president of Strategic Energy and Economic Research in Amherst, Mass., who is an occasional adviser to OPEC.If that forecast comes to pass, the United States and Europe could become more vulnerable to the political turmoil in those countries and to the whims of their rulers. Some European leaders and analysts have long argued that President Vladimir V. Putin of Russia uses his country’s vast natural gas reserves as a cudgel — a complaint that has been voiced again recently as European gas prices have surged to record highs.A pump jack in Stanton, Texas. American companies have been cautiously holding back exploration and production.Brandon Thibodeaux for The New York TimesOther oil and gas producers like Iraq, Libya and Nigeria are unstable, and their production can rise or fall rapidly depending on who is in power and who is trying to seize power.“By adopting a strategy of producing less oil, Western oil companies will be turning control of supply over to national oil companies in countries that could be less reliable trading partners and have weaker environmental regulations,” Mr. Lynch said.An overreliance on foreign oil can be problematic because it can limit the options American policymakers have when energy prices spike, forcing presidents to effectively beg OPEC to produce more oil. And it gives oil-producing countries greater leverage over the United States.“Today when U.S. shale companies are not going to respond to higher prices with investment for financial reasons, we are depending on OPEC, whether it is willing to release spare production or not,” said David Goldwyn, a senior energy official in the State Department in the Obama administration. He compared the current moment to one in 2000 when the energy secretary, Bill Richardson, “went around the world asking OPEC countries to release spare capacity to relieve price pressure.”This time, state-owned energy companies are not merely looking to produce more oil in their home countries. Many are expanding overseas.In recent months, Qatar Energy invested in several African offshore fields while the Romanian national gas company bought an offshore production block from Exxon Mobil. As Western companies divest polluting reserves such as Canadian oil sands, energy experts say state companies can be expected to step in.“There is a lot of low-hanging fruit state companies can pick up,” said Raoul LeBlanc, an oil analyst at IHS Markit, a consulting and research firm. “It is a huge opportunity for them to become international players.”Kuwait announced last month that it planned to invest more than $6 billion in exploration over the next five years to increase production to four million barrels a day, from 2.4 million now.This month, the United Arab Emirates, a major OPEC member that produces four million barrels of oil a day, became the first Persian Gulf state to pledge to a net zero carbon emissions target by 2050. But just last year ADNOC, the U.A.E.’s national oil company, announced it was investing $122 billion in new oil and gas projects.Iraq, OPEC’s second-largest producer after Saudi Arabia, has invested heavily in recent years to boost oil output, aiming to raise production to eight million barrels a day by 2027, from five million now. The country is suffering from political turmoil, power shortages and inadequate ports, but the government has made several major deals with foreign oil companies to help the state-owned energy company develop new fields and improve production from old ones.Even in Libya, where warring factions have hamstrung the oil industry for years, production is rising. In recent months, it has been churning out 1.3 million barrels a day, a nine-year high. The government aims to increase that total to 2.5 million within six years.National oil companies in Brazil, Colombia and Argentina are also working to produce more oil and gas to raise revenue for their governments before demand for oil falls as richer countries cut fossil fuel use.After years of frustrating disappointments, production in the Vaca Muerta, or Dead Cow, oil and gas field in Argentina has jumped this year. The field had never supplied more than 120,000 barrels of oil in a day but is now expected to end the year at 200,000 a day, according to Rystad Energy, a research and consulting firm. The government, which is considered a climate leader in Latin America, has proposed legislation that would encourage even more production.“Argentina is concerned about climate change, but they don’t see it primarily as their responsibility,” said Lisa Viscidi, an energy expert at the Inter-American Dialogue, a Washington research organization. Describing the Argentine view, she added, “The rest of the world globally needs to reduce oil production, but that doesn’t mean that we in particular need to change our behavior.” More

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    Are Tesla and Texas a Perfect Match? It’s Questionable.

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    While its C.E.O., Elon Musk, and the state’s conservative lawmakers share libertarian sensibilities, they differ greatly on climate change and renewable energy.Tesla’s move from Silicon Valley to Texas makes sense in many ways: The company’s chief executive, Elon Musk, and the conservative lawmakers who run the state share a libertarian philosophy, favoring few regulations and low taxes. Texas also has room for a company with grand ambitions to grow.“There’s a limit to how big you can scale in the Bay Area,” Mr. Musk said Thursday at Tesla’s annual meeting hosted at its new factory near the Texas capital. “Here in Austin, our factory’s like five minutes from the airport, 15 minutes from downtown.”But Texas may not be the natural choice that Mr. Musk makes it out to be.Tesla’s stated mission is to “accelerate the world’s transition to sustainable energy,” and its customers include many people who want sporty cars that don’t spew greenhouse gases from their tailpipes. Texas, however, is run by conservatives who are skeptical of or oppose efforts to address climate change. They are also fiercely protective of the state’s large oil and gas industry.And, despite the state’s business-friendly reputation, Tesla can’t sell vehicles directly to customers there because of a law that protects car dealerships, which Tesla does not use.Tesla’s move is not surprising: Mr. Musk threatened to leave California in May 2020 after local officials, citing the coronavirus, forced Tesla to shut down its car factory in the San Francisco Bay Area. But his decision to move to Texas highlights some gaping ideological contradictions. His company stands at the vanguard of the electric car and renewable energy movement, while Texas’ lawmakers, who have welcomed him enthusiastically, are among the biggest resisters to moving the economy away from oil and natural gas.“It’s always a feather in Texas’ hat when it takes a business away from California, but Tesla is as much unwelcome as it is welcome,” said Jim Krane, an energy expert at Rice University in Houston. “It’s an awkward juxtaposition. This is a state that gets a sizable chunk of its G.D.P. from oil and gas and here comes a virulent competitor to that industry.”In February, a rare winter storm caused the Texas electric grid to collapse, leaving millions of people without electricity and heat for days. Soon after, the state’s leaders sought — falsely, according to many energy experts — to blame the blackout on renewable energy.“This shows how the Green New Deal would be a deadly deal for the United States of America,” Gov. Greg Abbott said of the blackout on Fox News. “It just shows that fossil fuel is necessary for the state of Texas as well as other states to make sure we will be able to heat our homes in the wintertimes and cool our homes in the summertimes.”Mr. Musk, a Texas resident since last year, seemed to offer a very different take on Thursday, suggesting that renewable energy could in fact protect people from power outages.“I was actually in Austin for that snowstorm in a house with no electricity, no lights, no power, no heating, no internet,” he said. “This went on for several days. However, if we had the solar plus Powerwall, we would have had lights and electricity.”Tesla is a leading maker of solar panels and batteries — the company calls one of its products Powerwall — for homeowners and businesses to store renewable energy for use when the sun has gone down, when electricity rates are higher or during blackouts. The company reported $1.3 billion in revenue from the sale of solar panels and batteries in the first six months of the year.Mr. Musk’s announcement that Tesla would be moving its headquarters from Palo Alto, Calif., came with few details. It is not clear, for example, how many workers would move to Austin. It’s also unknown whether the company would maintain a research and development operation in California in addition to its factory in Fremont, which is a short drive from headquarters and which it said it would expand. The company has around 750 employees in Palo Alto and about 12,500 in total in the Bay Area, according to the Silicon Valley Institute for Regional Studies.It is also not clear how much money Tesla will save on taxes by moving. Texas has long used its relatively low taxes, which are less than California’s, to attract companies. County officials have already approved tax breaks for the company’s new factory, and the state might offer more.Over the years, California granted Tesla hundreds of millions of dollars in tax breaks, something that Gov. Gavin Newsom noted on Friday. But because Tesla will continue to have operations in California, it may still have to pay income tax on its sales in the state, said Kayla Kitson, a policy analyst at the California Budget & Policy Center.Whatever incentives they offer Tesla, Texas officials are not likely to change their support for the fossil fuel industries with which the company competes.In a letter to state regulators in July, Mr. Abbott directed the Public Utility Commission to incentivize the state’s energy market “to foster development and maintenance of adequate and reliable sources of power, like natural gas, coal and nuclear power.”A Tesla factory under construction in Austin in September.Joe White/ReutersThe governor also ordered regulators to charge suppliers of wind and solar energy “reliability” fees because, given the natural variability of the wind and the sun, suppliers could not guarantee that they would be able to provide power when it was needed.Mr. Abbott’s letter made no mention of battery storage, suggesting that he saw no role for a technology that many energy experts believe will become increasingly important in smoothing out wind and solar energy production. Tesla is a big player in such batteries. Its systems have helped electric grids in California, Australia and elsewhere, and the company is building a big battery in Texas, too, Bloomberg reported in March.Texas has no clean energy mandates, though it has become a national leader in the use of solar and wind power — driven largely by the low cost of renewable energy. The state produces more wind energy than any other.Another issue that divides Tesla and Texas is the state’s law about how cars can be sold there.As in some other states, Texas has long had laws to protect car dealers by barring automakers, including Tesla, from selling directly to consumers. California, the company’s biggest market by far, has long allowed the company to sell cars directly to buyers, which lets it earn more money than if it had to sell through dealers.Tesla has showrooms around Texas, but employees are not even allowed to discuss prices with prospective buyers and the showrooms cannot accept orders. Texans can buy Teslas online and pick the vehicles up at its service centers.Once the Austin factory starts producing vehicles, including a new pickup truck Tesla calls Cybertruck, those vehicles will have to leave the state before they can be delivered to customers in Texas.Efforts to change the law by Tesla and some state lawmakers have gone nowhere, including during the legislative session that concluded this year. That’s partly because car dealers have tremendous political influence in the state.Perhaps once Tesla has moved to Austin and started producing cars, Mr. Musk might have enough political clout to get the Legislature to act. Texas lawmakers typically meet only every two years, however, so it would most likely take at least until 2023 for the company’s customers to receive a car directly from its factory there.Michael Webber, professor of mechanical engineering at the University of Texas at Austin, said Mr. Musk’s decision to move to Texas might have been influenced in part by the ability to pressure the state to change its law.“The Texas car market is the second-largest car market in America after California, so if you are selling cars it kind of makes sense to get closer to your customers,” Mr. Webber said. “The Texas car market is particularly difficult outside of cities because of the legislative barriers.”There were already signs on Friday that some in Texas, including those involved in oil and gas and related industries, were happy to have Tesla because it could eventually employ thousands of people.“It can only be positive for Texas, because it brings more business to Texas,” said Linda Salinas, vice president for operations at Texmark Chemicals, which is near Houston. “Even though it’s not fossil business, it’s still business.”She said Texmark might even benefit from Tesla’s manufacturing operations in the state. “Texmark produces and sells mining chemicals to people who mine copper, and guess what batteries are made out of?”Peter Eavis More