Welcome. I've got Brian Gilvary and Jim Ratcliffe with me today because we're going to be talking about energy, specifically about energy. And I'm going to start with something very topical because it's April the 15th. We are a month or so into the Iran war. So, maybe Brian, I'll start with you and ask you what is the impact for INEOS Energy and for the energy system generally of what's going on in Iran right now?
Well, I thought just the energy system, it's globally geopolitically, it's huge and for the world's economy. I think in 150 years of oil production, we have never had a situation where 20% of the world's oil and a series of other products, derivatives of that and other products, are being constrained and not being allowed to get onto the markets. And that's having profound effects across the whole system. From an energy perspective for INEOS Energy, of course, because we sell oil and we sell gas, we're seeing the benefits of those higher prices. But I think this will now start to knock on to world economies, inflation, potentially recession, all of those things. But we've never had a situation where that much oil was being constrained. Even during the time of the Iraq war, the other incursions we've had around the Middle East, we've never had a situation like this. It's quite unique. Qatar are the biggest gas supplier in the world and Saudi the biggest oil supplier in the world in terms of the international — I mean, Saudi's a little bit smaller than the US now, but it's the biggest exporter of oil in the world. So, you've got the biggest oil and the biggest gas exporters in the world both trapped.
In terms of INEOS Energy itself, the very simple answer to the question is as a consequence of the Iran war, the prices have gone up both in the energy sector and in the chemical sector. And the prices have gone up in the chemical sector because there's 20% of the world's chemicals are produced in the Middle East, so they're trapped. One shouldn't forget, it's not necessarily commonly known, but don't forget that the raw materials for our world of chemicals are either oil or gas. So, there's a lot of chemical producers around the world, particularly in China, that are unable to produce at full rates because they can't get hold of the raw materials. The actual raw materials, if you look at them, are gas or a derivative of oil, which is called naphtha. And 60% of China's naphtha is produced in the Middle East. So, and China are the ones that have been causing a lot of difficulties in our chemicals world. And of course, so it's hugely constrained Chinese production. So, all imports of Chinese products into Europe have slowed down enormously. So, basically prices have gone up in energy and prices have gone up in petrochemicals. So, good news for INEOS.
And just sort of building on that, we've got various questions in from people around the INEOS empire. And this one's from Jakob Svensson who heads up finance in INEOS Energy in Denmark. And he asked the question, given this current geopolitical environment, what's the view of the future for our footprint in Europe versus the US?
Well, we've been through a massive transformation the last five years of INEOS Energy and the work that we've been doing in terms of expanding the footprint. We did a big consolidation exercise in the first couple of years. What we've now got is a really strong footprint in the offshore United States in the Gulf of Mexico with two significant rigs and two significant positions of partners there. A strong onshore position in the United States. We've got Denmark, which is now a growth factor for us with the Hyrum project coming on off the back of Saltend, what we've done there. So, the team have got hot again. They're now out to drill. They're starting to work that muscle inside the business versus before where we were in terms of the potential decommissioning. The UK is still a huge opportunity. It's a huge opportunity for the country, but we continue to be constrained by the energy profits levy, the windfall tax. And that's continued to constrain investment. And I think we've been quite vocal about that. Jim's been vocal about this. Domestic energy security is a key component of domestic defense security and security of the nation. So, I think that's still an issue for us. But from an INEOS perspective, we're continuing to grow Gulf of Mexico. We're growing the onshore United States. We're growing Denmark. UK, we're consolidating. We're continuing to grow the gas positions we've got, but there is a much bigger opportunity set for us if that windfall levy was to go.
It's interesting. I've got a question from Martin Najib from INEOS Energy in London. If the UK were to remove the windfall tax tomorrow, would we be bullish about investing in the North Sea or have we lost all faith in regulators?
I've been around the North Sea for the best part of 40 years. It's the most unstable and has been the most unstable fiscal regime of any oil and gas zone in the world. Jim always makes the comment about the United States and the security of knowing what the fiscal regime looks like. You need to be able to see through the surety of a couple of governments that whatever gets put in place is still going to be in place because the nature of oil and gas is you invest over decades. But if the fiscal regime bounces about, which it's had a habit — strangely, actually in the UK up until the profits levy, it'd been relatively stable for a decade. And we've not seen that in the whole history of the North Sea. But that will still, I think, constrain people's confidence in being able to put in significant money. However, even in the short to medium term, there are significant reserves available to us that we could actually go after.
The US market is managed by politicians who have a rational view of the world because we all know that competitive energy is good for an economy. And also, given the instability of the world, energy independence has got huge national security benefits as well. As we saw in Europe when we became wholly dependent on Russia and the impact of those pipelines being shut down and what happened to the European economy and energy prices in Europe. So, I would have a lot more confidence in investments in America in the energy sector than I would in Europe because it's run by rational people. If you look at the UK with windfall tax and the cessation of new drilling licenses being issued, there's no rational argument that would ever get you close to making those decisions. If you look at the impact of that, shutting down a very profitable oil and gas basin, which the North Sea is, firstly, it kills industry because you're paying higher prices for energy. It jeopardizes national security because you're then wholly dependent on imports. And we haven't necessarily seen the full impact of the Iran crisis on the UK at the moment because we import all our oil and all our gas pretty much nowadays because we're shutting down the North Sea. And thirdly, it just impoverishes the population in the UK because it hits the economy, it hits jobs. It really is utter madness to shut down that and then just rely on imports from the rest of the world when we're in an unstable position. So, the US is a very rationally run economy. And Europe is all over the place. So, from an investment point of view, you always go to the stable rather than the unstable.
Brian, just a question here from Denmark, from Anders Vega Foldegaard in Denmark. Given the current energy price environment, what is the view of energy market development in the medium and longer term? How does it affect the view of organic versus non-organic growth for INEOS Energy?
A lot. We've got some pretty good — the team, the energy team, did a really good job of getting some inorganic acquisitions away at relatively good times in terms of where the price was. Now is probably not the time to be doing any organics, but frankly, where the markets are, there's always opportunities. And what we've tried to do with the business we've got is having now built a strong foundation across three basic strong locations, if you think about onshore, offshore, then Europe offshore. We'll continue to look for bolt-ons that we can do. And there'll be opportunities in Gulf of Mexico around the existing infrastructure we've got, infill drilling around there. There'll be opportunities on the onshore US. Hyrum will be a massive opportunity for us in terms of Denmark when we bring that on because the wells are all pre-drilled and we know what's in — or at least we think we know what's in terms of the reserves that we'll see when we go back in. So, the opportunity set's still there. And what's interesting is now we've got the scale, something close to 90,000 barrels of production. That's bringing people to us. So, in some respects, people are now seeing us as a very large independent, privately owned, which means we have more flexibility than some of the more public companies. And that's creating opportunities for us.
So, I think you'll continue to see us. We'll see where we end up with energy. I mean, it was a conversation we had five and a half years ago to say, you know, we'll see where this ends up, but who knows? It could end up being as big as chemicals one day.
We have created something out of nothing really in a way in energy, but the initial sort of inspiration for energy was just as a natural hedge against petrochemicals because oil and gas are the raw materials for petrochemicals. So, if oil and gas becomes more expensive, then petrochemicals is put under a bit of strain because your raw materials are more expensive, but the oil and gas business benefits from that. So, it's sort of a natural hedge against your raw material price fluctuations. So, that was the initial conversation. But it's now turned into a billion-plus dollar business, and that's it.
Well, the hedge has worked pretty well, as well, for us, given the current circumstance.
Well, actually, we get the benefits of both sides now.
You've got unique circumstances.
Yeah, we hadn't figured that one out actually.
I'm fairly sure that wasn't part of the initial conversation.
I've got a question here from Bjorn Preng le Hom in INEOS Energy. Are there potential synergies or correlations between INEOS Energy and the petrochemicals business which we should be looking to capitalize on going forward?
