Supply Shock - 2022

When Russia invaded Ukraine on February 24, 2022, the world markets for fossil fuels were severely disrupted, significantly changing Equinor’s business in Europe. Beginning in April, the EU embargoed Russian oil and natural gas, which previously had been the largest source of these fuels for the continent. To fill the gap, Equinor increased production in its North Sea fields and sent additional supplies to European countries. Equinor's ability to make a rapid change in the supply chain, along with additional supplies from the US and other locations, allowed the EU to maintain its energy security and earned Equinor record profits.

Russian Invasion of Ukraine

On February 24, 2022, Russia launched an unprovoked attack on multiple cities in Ukraine. Western analysts posited that the Russian strategy was to overcome Ukrainian opposition quickly and install a puppet government in Kyiv. However, Ukrainian opposition proved far stouter than the Kremlin had anticipated. Russian advances were stymied and Ukrainians managed to defend their key cities, despite heavy losses.

Policy analysts also presumed that the Russians had believed that European opposition to the invasion of Ukraine would be quiescent. In previous years, the NATO alliance had frayed, and consensus among EU nations seemed to be dissolving. Furthermore, European countries were dependent on Russian oil and gas to run their economies. Analysts argued that the Russians expected European reaction to their invasion would be muted and symbolic.

Instead, nearly all the countries in the EU along with the United States responded with forceful actions. Countries sent armaments to Ukraine as well as humanitarian aid. Numerous Western companies pulled all of their operations from Russia. The EU also curtailed their energy imports from Russia and imposed a cap on Russian oil prices. By early 2023, Russia had gone from supplying nearly 30% of Europe’s crude oil to about 3%. In terms of natural gas, Russia’s share had declined from 39% to 17%.

By the summer of 2023, the war in Ukraine had ground into a deadly stalemate. Even if hostilities were to cease, it was unclear if Russia would be reintegrated into Europe's energy supply. NATO membership had expanded, and European states remained hostile to the current Russian regime. For its part, Russia had redirected its fossil fuel operations toward China and India, albeit at much-reduced revenue.

Equinor Response

Within a week of the invasion, Equinor announced the company would stop its investments in Russia, pull out of its joint ventures, and exit the country. Equinor had been a partner of the Russian oil firm Rosneft since 2012 and operated joint ventures with the Russian company valued at $1.2 billion. Two weeks later, Equinor announced that it would suspend all trading and transport of Russian oil and gas.

To fill some of the gap left by Russia’s departure from the European market, Equinor increased its natural gas production by diverting natural gas meant to aid in drilling for oil to the consumer market and forgoing a planned shutdown of one of its fields.  Supported by increased production permits from the Government, Norway increased its supply of gas to Europe by eight percent, becoming the continent’s leading supplier.^[1]

During the crisis, Equinor was in close contact with both Norwegian politicians and authorities as well as European governments and the EU.  As Jannik Lindbæk, EVP for Communication, noted in 2023, "We previously had meetings with the government in Norway and the top level, the prime minister, on a regular basis, but maybe once a year. Now it's been almost weekly at times, to share our understanding and response to the demand development in the market, and how we worked to maneuver in the supply crisis."

Equinor also announced new finds in the Barents Sea, a portion of the Norwegian Continental Shelf above the Arctic Circle. While exploration for these sites had begun before the invasion, they provided some reassurance that natural gas supplies would continue, even if existing fields became depleted. Despite these efforts, Norway and Equinor faced a significant bottleneck – pipelines to ship natural gas to the continent were at capacity. Building new pipelines would require making an investment that could take up to 20 years to pay off.

The price cap on Russian oil and gas and the diversion of its supply led to large spikes in the price of crude oil and gas in the 4th quarter of 2022. Like other oil and gas companies, Equinor reported record profits for the year 2022, surpassing a successful 2021. The company’s net income increased from $8.6 billion in 2021 to $28.7 billion in 2022. Overall, Norway’s state revenues from oil and gas totaled $125 billion, up from $25 billion the previous year.  In February 2022, Equinor announced that it would increase the share buy-back program up to USD 5 billion, increase its 4th quarter cash dividend to 20 cents per share, and continue an extraordinary quarterly cash dividend of 20 cents per share for four quarters.^[2] These programs were prolonged and expanded a year later. However, the windfalls of 2022 appeared to be a one-time event. The price of oil and gas began declining and stabilizing at the end of 2022, falling back to levels prior to the invasion.

Environmental Concerns

Equinor’s increased profits and prominence in supplying fossil fuels had led to renewed attacks by environmental organizations both within Norway and abroad.  A Norwegian Greenpeace spokesman opined that the increased fossil fuel that his country was supplying the continent was “locking Europe into what is a problem for the climate.”^[3] In the UK, where Equinor was poised to develop a gas field named Rosebank to increase the energy security in Europe, one Greenpeace spokesperson noted:

Equinor is the latest fossil fuel giant to post record profits looted from billpayers’ pockets while destroying the climate last year. Just 0.13% of its energy production came from renewables in 2022. Dependence on oil and gas is pushing our bills up. Giving Equinor’s climate-wrecking Rosebank oilfield the green light won’t bring them down but it will pour fuel on the climate emergency. It’s only cheap, home-grown renewables coupled with warmer, insulated homes that will help lower both bills and carbon emissions. Instead of giving out more tax breaks for oil and gas drilling, the government needs to claw back these massive profits and use them to insulate people’s homes and scale up renewable energy.  ^[4]

In Norway, members of the Green Party argued that the country should cease supplying fossil fuels by 2035. As for 2022 windfall profits, one parliament member said, “We consider that profit as war profits” and urged that the money be given to Ukraine and other countries affected by the war.^[4]

For its 2022 Annual Meeting in May, Equinor had presented its Energy Transition Plan, detailing its commitment to oil and gas, renewables, and low-carbon solutions. Equinor argued that its plans were sufficiently aggressive: (1) by 2030 reducing groupwide Scope 1 and Scope 2 emissions from its own operations or purchased energy by 50% compared to 2015 levels, as well as (2) its goal of reaching net zero emissions by 2050. The company also noted that the natural gas it supplied Europe was occasionally supplanting coal, a much more potent source of greenhouse gas. The Energy Transition Plan was supported by 97.5% of the shareholder vote at the Annual General Meeting (AGM).

At the same meeting, climate activists from the Dutch NGO ‘Follow This’ introduced shareholder resolutions to speed Equinor’s plans to get to net-zero by 2050. While the "Follow This" resolution was supported by only 2.5% of the shares voted, activists pointed out that they had secured nearly 40% of the shares not controlled by the Norwegian government or pension fund.^[3] 

Equinor’s sudden increase in fossil fuel production and subsequent windfall profits had raised concerns among some environmentalists. There was fairly broad support for Equinor's actions, but some organizations like Greenpeace and the World Wildlife Fund continued to question Equinor’s commitment to renewable energy, given the company’s continued activity in the oil markets. In 2023, these organizations again argued that Equinor’s previous pledges were meaningless in light of their continued and expanding activity in gas and oil. Equinor continued to assure skeptics that the company was maintaining its long-term goals to become net-zero by 2050 and build a significant renewables business, but some critics remained doubtful.

How could Equinor’s management continue to make its hybrid strategy credible to stakeholders in this new environment? How could Equinor continue to balance the sometimes conflicting interests of its wide range of stakeholders as global circumstances change?