Chair's Corner - May 2022

Chair's Corner - May 2022

The past month has seen some of the most volatile trends in the price of oil. Variations of ±10% are becoming quite common, as the industry grapples with a highly fluctuating geopolitical risk premium. Daily updates on the Russia-Ukraine front quake the market, along with the news of government deliberations and actions in response.
We also saw the first confirmations of Russian war crimes in Ukraine. In response, the EU has begun an intense debate on how to proceed with bans on Russian products like wheat, precious metals, and of course, oil and gas.

While not much may be achieved in the short term in terms of banning Russian gas, the fact that the EU is having these conversations is notable. The potential economic costs would be astronomical and exacerbated by present inflation, and the issue seems to be expanding an existing fracture within the EU.

The announcement of Swedish and Finnish intentions to join NATO is another potential geopolitical grenade. Will Russia respond in a fashion similar to its actions in Ukraine? How much more can they really afford, in human and ruble terms? An attack on either of those countries would certainly imply World War III, or the closest we may ever see to it.

Here in the US, the military response has been brilliant; the weapons, money and solidarity in support of Ukraine have been admirable. However, the same cannot be said about the government’s energy industry response. Several moves have been made, and most have failed. The most notorious is the coordinated release of crude from strategic petroleum reserves (SPR). Saudi Arabia has reminded
the US government why economists always recommend minimal interference with markets: There are too many variables to attempt to control. There are so many sovereign states whose actions the US cannot legislate, and should the attempt be made to do so, more geopolitical alliances could be damaged. Saudi and UAE’s refusal to increase output is a testament to the need to make sacrifices to maintain alliances. Instead of heeding US requests, Saudi increases its oil price to Asia one week before each release from the SPR. In response, Asia absorbs every SPR release immediately, effectively making the release a momentary perturbation, and returning the market to the prior state. This is market forces 101, and a reminder of why the SPR was never meant to be used for such.

Another decision that seems counterintuitive under the current situation is the doubling of government royalties on new leases. One must ask if this is the same government that asked the industry to increase output one month ago, or a different one. Is this action supposed to encourage or discourage investment? This energy transition was always going to be very challenging given that, unlike previous transitions, it’s not driven purely by market forces.

However, with respect to energy sustainability, certain moves are putting more strain on an already fractured market. From now until Q4 2023, the industry will be influenced significantly by news from Europe, the Middle East and Asia. Once upon a time, Europe offered some geopolitical stability in that group. At this moment, the Middle East appears to offer more stability for the industry.

The communications team has been working on two main initiatives, including enhancing the current SPE-GCS website and leading the task to put together a volunteer editorial team to oversee the CONNECT newsletter magazine.

Let’s talk about the latest enhancements to the SPE-GCS website. If you visit the home page, you’ll notice that it’s less busy. A pop-up advertising the latest event is also on display, and we’ve moved the Scholarship Endowment Fund to the main menu. Exciting things are coming up! What do you want to see or have improved on the website? Email us at

All the best,
Nii Ahele Nunoo