Oil and gas are two important things that support the global economy. Oil is commonly used to produce gasoline and other petrochemical products, while natural gas is used for heating homes, cooking, manufacturing, and even producing fertilizer.
One of the fertilizers produced from natural gas is urea or nitrogen-containing fertilizer. Natural gas is methane, while the process of making nitrogen fertilizer is by adding it to a process that combines it with nitrogen from the air to form the most easily absorbed nitrogen compound for plants.
Another product produced from oil and gas is plastic. Plastic is the most important material in manufacturing, from packaging to making casings for certain products such as electronics.
In addition, natural gas is also used as a source of energy to generate electricity. For example, the majority of Singapore's electricity supply is produced by burning natural gas. One of the advantages of natural gas is that it produces less pollution than other non-renewable energy sources, making it environmentally friendly.
However, the amount of fossil energy on earth is very limited and it will be expensive to produce it instead of harvesting it from nature. No one knows for sure how much fossil energy is available on earth, but making plans for exploration is wise to avoid fluctuating fossil energy prices.
Energy Commodities Booming
As we know, the amount of fossil energy on this earth is limited. Fossil energy is a natural resource obtained from fossils of living creatures that lived millions of years ago, which have transformed into simple forms such as hydrocarbon compounds.
The amount of fossil energy each year is getting lower as it is constantly harvested and used to support human civilization. Therefore, it is reasonable that the price of fossil energy increases every year, unless new locations are explored for drilling.
However, the price of oil is not only influenced by how many wells have been explored. Various factors such as market demand reduction or addition can cause price fluctuations.
For example, during the Covid-19 pandemic, the price of oil tended to fall freely. This is because the demand for energy decreased as people restricted their mobility and consumption.
Nevertheless, the price of oil has recently risen. Some factors include the war between Ukraine and Russia, which caused an energy supply crisis due to various energy embargoes imposed on Russia. In addition, war requires fossil energy to operate military vehicles such as tanks or missile launchers, as well as UAVs, causing oil demand to rise.
Market Cap of Energy Companies
Oil was first discovered in 1859 in Pennsylvania, United States. At that time, Edwin Drake sold it for $20 per barrel, which was expensive for the time. It wasn't until 1891 that crude oil was refined to be used as gasoline.
Meanwhile, natural gas was first discovered by Western civilization in 1626 by a Frenchman who saw Native Americans lighting fires from gas obtained from Lake Erie. Natural gas was only commercialized for use 100 years later in England, where it was used for lighting.
Since then, people have realized how valuable oil and natural gas are for human civilization. In 1970, John D. Rockefeller founded Standard Oil, a company that deals with oil and gas. At that time, the use of oil and gas was still limited due to incomplete discoveries and the uneven and non-modern economic development of the world.
The largest oil and gas company in the world today was established in 1933 in Saudi Arabia, in cooperation with the Standard Oil Company of California. It is known that there is a lot of oil and gas in the Middle East, so besides Aramco, other countries such as the United Arab Emirates and Qatar have also established businesses in the oil and gas industry.
The huge profits from the oil and gas industry began to be felt after derivative products such as fuel, plastics, and fertilizers emerged. However, the market capitalization of some major oil and gas companies has not always increased linearly, but has gone up and down in the last 20 years.
Investors Get Increase in Payment
Since the outbreak of war in Ukraine, the price of oil and gas has tended to be unstable and has been moving upwards on the graph. Suddenly, there were supply restrictions on oil and gas, and energy demand increased due to the economic recovery after COVID-19 and the need for war vehicles, especially air vehicles that consume more fuel than land vehicles.
Moreover, the situation where Western civilization failed to lobby oil and gas producers in the Middle East to increase production has made it difficult for oil and gas prices to fall, despite various efforts to lower them.
This has resulted in increased revenue for oil and gas producers. This is because fixed costs do not increase, while market prices are more expensive than in previous periods. Not to mention the transition to renewable energy, which still requires a lot of time to fully replace fossil energy.
One of the companies whose revenue has increased is BP or British Petroleum. BP has increased its dividend payout to shareholders by 10% from the previous period, indicating that the company is highly profitable. However, the company had initially planned to raise dividends by only 4%. Indeed, oil and gas stocks have been very attractive lately, especially if you bought them at a discount during the COVID period.
Energy Apocalypse Is Not Yet Come
Covid-19 does indeed have a big impact on the world economy. When Covid-19 hit, various activities were restricted, causing a decline in consumer spending. Even some companies reduced salaries, and some even reduced their workforce.
This certainly had a big impact on oil and gas companies. Oil and gas companies are highly dependent on public activities. When demand decreases, there are even some places that give away crude oil for free because it has been stored in the warehouse for too long.
Oil and gas companies at that time experienced financial difficulties. In addition to declining revenue, stock prices also plummeted, making it difficult to obtain liquidity.
For example, British Petroleum's stock price dropped nearly 60% in 2020 compared to 2019. Indeed, in moments like this, it is an opportunity for investors to gain high profits in the future by getting discounts, but if the financial strength is not too strong, it is better to use savings to survive for a few months ahead.
Not all clouds last forever, after the rain, there will always be a rainbow. That's the situation that happened to oil and gas companies that have reaped very high profits since the world energy crisis caused by the outbreak of war in Ukraine.
