The global energy crisis and high inflation cause pain and uncertainty for consumers, but mean good business for the world’s largest oil companies.
On Tuesday, BP became the latest of the oil majors to announce a huge profit increase in the second half, with 8,500 million dollars (8,400 million euros), which is more than triple what was registered in the same prior year period and its highest quarterly profit in 14 years.
US energy giants ExxonMobil and Chevron also recently announced record quarterly profits. Exxon pocketed $17.9 billion, far surpassing its previous record by $2 billion.
The record profits are due to rising energy prices and turmoil in commodity markets caused by Russia’s war in Ukraine.
“Profits are largely driven by oil price cycles,” says Bob McNally, president of Rapidan Energy Group, a Washington, DC-based consultancy.
“The oil industry incurs most of its expenses early on, when it finds and develops producing assets,” he told DW. “Then the operating costs are quite low. So when prices go up, so do profits.”
The huge profits – coming at the same time as a huge spike in inflation around the world – have prompted calls for governments to impose higher taxes on oil companies.
In May, the UK announced a 25% tax on the profits of oil and gas producers. Italy has introduced a similar bill. In the United States, President Joe Biden has come under pressure from members of his own party to introduce a windfall tax law, though such a move would face significant hurdles.
In Germany, Finance Minister Christian Lindner has consistently rejected calls for such a tax, even though his coalition partners in the tripartite government are in favour. Lindner is a member of the pro-business Liberal Democratic Party (FDP), which shares power with the Greens and the Social Democrats (SPD).
Oil companies have come out strongly against windfall taxes, proposing instead to increase investment in greener energy as a way to decarbonise the sector.
BP’s earnings announcement came alongside promises to invest in wind power and electric vehicle charging. Shell CEO Ben van Beurden has spoken out in favor of green investing as an alternative to taxes.
“Making money comes with a responsibility and that responsibility is that we continue to invest in energy security … and in the energy transition,” he said. “Ultimately, that will make society less dependent on the volatility of oil and gas.”
“Companies are aware that they are entering an extremely difficult and uncertain period due to the extreme volatility of oil prices and profits, as well as political pressures to finance public spending while decarbonization accelerates” , it states.
However, it seems that prices are not going to come down any time soon. McNally says that as long as the price of oil remains as high as it is – mainly driven by the uncertainty caused by the war in Ukraine – energy companies will continue to record those profits.