HOUSTON—With high oil and gas prices expected through at least the rest of the calendar year, energy affordability is on the minds of both consumers and governments around the globe. At the same time, energy executives are struggling with constraints in supply chains and limited spare capacity.
It all comes together to form a worrisome situation for the sector in the short term, but there’s light at the end of the tunnel, according to top executives from KPMG’s energy practice.
Regina Mayor, current global head of energy at KPMG, and Angie Gildea, the firm’s U.S. energy, natural resources and chemicals leader, met with members of the press at KPMG’s downtown Houston office on Aug. 1 and discussed a wide range of topics including prices, energy transition, production increases, the energy deal market, jobs and investment strategies.
Energy security and affordability need to be dealt with first and foremost, according to Mayor.
High oil prices dominate the energy sector headlines these days and those prices are affecting the outlook for energy affordability, particularly in Europe. Mayor said she expects some form of stimulus to be enacted, particularly in Europe, to help manage affordability. She also questioned whether governments will be able to go full throttle with renewable transition goals given the current state of affordability.
“It’s just a different version of the stimulus that we’ve gone through with COVID,” she said. “It also means, at least in the short term, that a lot of plans for EU ‘Fit for 55’ and the desires for policymakers in the EU to divert spending to renewable infrastructure comes into question. I question how much they are going to be able to push that forward, particular with the short-term challenge of and prospects of a really cold winter.”
Mayor doesn’t see such a stimulus happening in the U.S. where the strategic petroleum reserve (SPR) release was the effort to manage prices.
She added that some of KPMG’s clients in the U.S. viewed the SPR as a positive to managing prices, but now the SPR needs to be refilled. According to the Department of Energy on Aug. 1, crude held in the SPR fell by 4.6 million barrels last week to its lowest level since May 1985. “It’s going to cost a lot more money now to fill it,” she said, “so that’s another form of asking, ‘Where’s the money going to go?’”
Relief doesn’t seem to be in sight as Mayor doesn’t expect prices to come down anytime soon. “We’re probably in a high-price environment for fossil fuels until they become not relevant, and then the price plummets,” Mayor continued.