Editors:  Tom Whipple, Steve Andrews

Quote of the Week

“We are sitting on the top of an unexploded bomb [corporate debt binge], and we really don’t know what will trigger the explosion.”- Emre Tiftik, debt specialist at the Institute of International Finance, an industry association.

Graphic of the Week

1. Energy prices and production

US crude futures fell 5.1 percent to $55.17 a barrel in New York last Friday, paring most of their November rebound and logging their biggest drop since mid-September.  Prices are 17 percent below their April peaks.  Brent dropped 2.3 percent to $63.43 a barrel on Friday after edging lower on Thursday when US markets were closed for Thanksgiving.

Analysts said President Trump’s signing of a bill supporting Hong Kong protesters added to lingering skepticism about the prospects for a US-China trade deal, hurting the already-fragile outlook for crude-demand growth.  At the same time, a report that Russia Energy Minister Novak said he favors the Organization of the Petroleum Exporting Countries and allies waiting until closer to April 2020 to decide whether to extend output cuts stoked fears of excess supply.

OPEC oil output fell in November as Angolan production has slipped due to maintenance and Saudi Arabia kept a lid on supply to support the market before the initial public offering of state-owned Saudi Aramco in December.  Renewal of the OPEC+ production cut is becoming controversial.  At a cartel meeting scheduled for this week, Saudi Arabia will likely tell fellow producers in the pact that the Kingdom would no longer tolerate and compensate for cheating on assigned production quotas according to people with knowledge of the current Saudi position.

While other members in the cartel, notably Iraq and Nigeria, have repeatedly exceeded their respective production caps by more than 100,000 b/d, Saudi Arabia has not only stuck with its share of the cuts, but has also over complied by more than 400,000 b/d—bringing the total reduction of the Kingdom to more than 700,000 b/d in recent months.  The Saudis are pressuring non-compliant cartel members to fall in line with their share of the cuts, instead of pushing aggressively for a deeper overall cut to rebalance the market.  Deeper cuts likely would mean the Saudis would have to take the lion’s share of cuts, again.

Moscow too has problems with extending the OPEC+ cut at this time.  Russian oil companies prefer to keep their production restriction quotas until March, when the current OPEC+ cuts expire, and discuss an extension then, signaling that Russian producers don’t want deeper cuts or any major changes to the pact at this week’s meeting.

Russian energy minister Novak said Thursday that Russia is preparing calculations to exclude condensate from its OPEC+ quota but has so far yet to take a decision.  He said Russian natural gas condensate output would increase as new gas production came on stream, and as it is not exported, it should not be included in the deal.  Under the current OPEC+ agreement, Russia committed to cut around 230,000 b/d from its October 2018 crude and condensate output of 11.42 million b/d.  Compliance has fluctuated significantly this year, with Russia over-complying for a few months in the summer due to the Druzhba pipeline contamination.  Since August it has failed to comply, however.  Novak said last week that producers are planning to comply in November.

The major forecasters see an oil supply surplus next year, but those bearish outlooks largely depend on the growth of US shale oil production in 2020.  Financial struggles in the US shale industry are well-known.  As Bloomberg reported, some drillers have recently seen their credit lines reduced, limiting their access to fresh capital.  Twice a year, in the spring and fall, banks reassess their credit lines to shale drillers and decide how much they will authorize companies to borrow.  This time around is expected to be the first time in roughly three years that lenders tighten up lending capacities.

In 2019 through the third quarter, 32 oil and gas drillers filed for bankruptcy, according to Haynes and Boone.  Since the end of September, several other drillers have filed too, including last Monday, natural gas producer Approach Resources.  This pushed the total number of bankruptcy filings of oil and gas drillers from the beginning of 2015 to over 200.

2.  Geopolitical instability 

A wave of fresh unrest swept across Iraq last Thursday as security forces clashed with demonstrators in Baghdad and cities in the south.  The latest surge of violence — which included an attack on the Iranian consulate in Najaf, a city sacred to Shiite Muslims, — underscored the challenges for authorities after nearly two months of anti-government protests over a high unemployment rate, corruption, and poor government services.  It also draws Iran, governed by a Shiite theocracy, deeper into the unrest.

Iraqi Prime Minister Mahdi announced his resignation on Friday after the country’s senior Shiite cleric urged lawmakers to reconsider their support for a government rocked by weeks of deadly anti-establishment unrest.  Violence in southern Iraq last week killed at least 45 people.  One protester was killed in central Baghdad as demonstrations continued, including a thousands-strong sit-in at Tahrir Square in the Iraqi capital.  The departure of Mahdi could be a blow for Iranian influence after Iran’s militia allies and its commanders intervened last month to keep the premier in place despite mass anti-government unrest.

Since the beginning of the protests in early October, more than 400 people have died.  The anti-government demonstrations continued in November, with protesters blocking roads leading to five oil fields in the southern Iraqi province of Basra, home to the most significant oil fields and the critical oil export terminal.  Protests have quickly spread from Baghdad to the southern city of Basra, where people are angry that the massive oil revenues the government is taking in don’t go towards improving essential services such as water and electricity.  Protesters are also upset with endemic corruption and want the leaders who do nothing for ordinary people to resign.

The last month or so has seen developments in two new massive corruption scandals: one in the Kurdistan region and the other in the south.  Ironically, both tangentially benefit the de facto ruler of Iraq, Moqtada al-Sadr.  The most recent development comes in the latest news on the $1.6 billion-plus lawsuit being brought by Iraqi firm Dynasty Company for Oil & Gas Trading.  The suit is against two defendants: firstly, the entire government of Iraq’s Kurdistan region, and secondly against the former Minister of Natural Resources, who was recently ‘redesignated’ as Assistant Prime Minister for Energy Affairs in Prime Minister Barzani’s government.

So far, there has been little indication that Iraqi oil exports have been affected by the violence. However, the dissent runs deep in Iraq, where you have the centuries-old Sunni-Shiite conflict and a long tradition of corruption.  It seems likely that the situation will get worse, threatening some 5 million b/d of Iraqi oil production.

The situation was quiet in Iran last week.  However, the government announced that 731 banks and 140 government buildings were torched in the disturbances last month.  The protests were the worst anti-government demonstrations in Iran since authorities put down the unrest against election fraud in 2009.  The troubles began on Nov. 15 after the announcement of gasoline price hikes but quickly turned political, with protesters demanding top leaders step down.  As usual, the government blamed “thugs” linked to exiles and the United States, Israel, and Saudi Arabia for stirring up the street unrest.

Iranian Oil Minister Zanganeh is facing impeachment over the controversial gasoline price hikes. Zanganeh was grilled on Tuesday by the Iranian parliament’s energy committee over the government’s surprise decision to raise gasoline prices by 50 percent last month.  Given the extent of the protests, Tehran had to find somebody to throw under the bus.  Gasoline consumption in Iran dropped to 79 million liters per day in the week following the fuel price hike, from an average of 98 million liters per day in the Iranian year so far.

A Reuters investigation has concluded that an Iranian coalition was behind the Sept. 14 attack on the oil facilities of Saudi Aramco, with Iran’s Supreme Leader Ayatollah Ali Khamenei giving his consent to the plan.  The attack came after several secret meetings, starting in May, involving the top echelon of the Revolutionary Guard Corps, according to three officials familiar with the meetings, and a fourth official close to Iran’s decision-makers.

Starting last April, President Trump caught many in his administration off guard when he unexpectedly thanked renegade General Khalifa Haftar for “securing Libya’s oil resources.” This came at a moment when the rebel leader assaulted the UN-backed Government of National Accord (GNA) in Tripoli.  The public praise and phone call between Trump and the former CIA-backed warlord was a shock at the time, given the US has maintained a policy of only recognizing the GNA in line with UN allies.

But now US support for Haftar appears to be shifting fast after this week Trump administration officials held multiple meetings with an official representing Haftar’s political team named Aref al-Nayed.  He is expected to hold a top leadership position once Tripoli is ‘liberated ‘by Haftar’s Libyan National Army (LNA).

The past few days have seen forces loyal to Libya’s Government of National Accord (GNA) seize and then lose a key oilfield in the south, suggesting that General Khalifa Haftar’s Libyan National Army (LNA) is still the most effective fighting force around.  On Wednesday, the GNA announced it had taken control of the El Feel oilfield, which produces about 70,000 b/d, pushing Haftar’s forces out.  Later that same day, Haftar’s LNA launched airstrikes at the gates of the facilities, retaking the oilfield without causing any damage.  On Thursday, forces loyal to Haftar said that the Chadian troops working for the GNA were preparing to attack the nearby Sharara oilfield, the country’s largest.  Production at El Feel had been suspended on Wednesday but was gradually restarting by Thursday, as confirmed by the Libyan National Oil Company (NOC).

3.  Climate change

The world has wasted so much time by not taking action necessary to combat climate change that rapid, unprecedented cuts in greenhouse gas emissions offer the only hope of averting an ever-intensifying cascade of consequences.  Tuesday’s UN report provides a grim assessment of how off-track the world remains.  “The summary findings are bleak,” it says.  “Countries collectively failed to stop the growth in global greenhouse gas emissions, meaning that deeper and faster cuts are now required.”  Global temperatures are on pace to rise as much as 3.9 degrees Celsius (7 degrees Fahrenheit) by the end of the century.  Countries will have to increase their carbon-cutting ambitions fivefold if the world is to avoid warming by more than 1.5C, the UN says.

Richer countries have failed to cut emissions quickly enough.  Fifteen of the 20 wealthiest nations are responsible for 78 percent of all emissions. But so far, only the EU, the UK, Italy, and France have committed to long-term net-zero targets. The rest have no timeline for a net-zero goal.

Higher natural gas consumption due to extreme summer and winter weather and increased petroleum demand for transportation resulted in the US reversing in 2018 several years of carbon dioxide emissions reductions, the EIA said on Tuesday.  Last year, US energy-related CO2 emissions increased by 2.7 percent compared to 2017, primarily due to the higher emissions from natural gas and petroleum.

“While the rest of the world has cut coal-based electricity over the past 18 months,” according to the BBC, “China has added enough to power 31 million homes.”  From 2006 to 2015, Beijing operated on a “one coal plant a week” building program.  However, in 2015, Beijing attempted to slow down the growth of the coal sector as this breakneck initiative had dire consequences.  Burning so much coal in the vicinity of cities was producing choking smogs, impacting both the environment and the population’s health.

The slowdown five years ago proved unsuccessful, however, in that it ultimately sped up the pace of new coal projects.  This is because Beijing continued to allow provincial governments the freedom to issue permits for new coal plants.  That move misfired severely, and “local authorities permitted up to five times more plants than in any comparable period,” according to reporting by the BBC.

Despite growing grassroots opposition, the US, China, and Russia are following policies intended to foster faster economic growth rather than cut back on climate-changing emissions.  Until the climate gets far worse, costing economies trillions to deal with the consequences, it seems unlikely there will be little change to the economic growth mantra.

4. The global economy and trade wars

There were few signs last week that China and the US are nearing a settlement in their trade war.  Beijing vowed harsh retaliation after President Trump signed new human rights legislation condemning China’s role in the Hong Kong demonstrations.  Although the threats sounded severe, Beijing is unable to strike back at the US in any meaningful way and is far more interested in ending the trade war, which is damaging its economy.  Both sides still are talking about their willingness to reach a deal.  However, they have yet to sign even an interim pact that would head off potentially damaging new tariffs less than three weeks from now.

The trade war has contributed to an economic slowdown that has sent Chinese growth to its slowest pace in nearly three decades.  Most economic indicators in recent weeks suggest the slowdown has continued, if not worsened. World trade contracted sharply in September with the volume of global trade dropping by 1.3 percent compared to the previous month, after a 0.5 percent expansion in August.

The US economic expansion remained on solid ground as it entered the fourth quarter, although some signs pointed to weaker consumer spending this holiday season.  The Commerce Department, in separate reports, said household spending picked up in October and orders for long-lasting factory goods rose—both positive signs for growth.

However, a decade of historically low-interest rates has allowed companies to sell record amounts of bonds to investors, sending total US corporate debt to nearly $10 trillion, or a record 47 percent of the overall economy.  In recent weeks, the Federal Reserve, the International Monetary Fund, and major institutional investors all have sounded the alarm about the mounting corporate obligations.  The danger isn’t immediate.  But some regulators and investors say the borrowing has gone on too long and could send financial markets plunging when the next recession hits.

In Germany, Daimler plans to cut thousands of jobs over the next three years and cut labor costs by $1.5 billion.  The latest round of cost cuts reflects the squeeze between massive investment in electric car technologies and falling demand for cars.  The announcement by the maker of Mercedes-Benz cars caps weeks of negotiations with labor representatives.  All major German automakers and their suppliers are now shedding staff in the face of dwindling demand as economies slow in China, the US and Europe after years of robust growth.

Saudi Aramco’s sale of 1.5 percent of the company attracted bids worth $44.3 billion as of Friday, about 1.7 times the amount the kingdom’s government plans to raise when it formally prices next week.  Subscriptions to the sale are overwhelmingly from Saudi investors and others in the region, according to the banks arranging the offering, indicating a lukewarm response from international institutions that have balked at the energy giant’s valuation of $1.6 to $1.7 trillion set by the Saudi government.

5. Renewables and new technologies

The search for a way to neutralize, capture, or store the carbon emissions from the combustion of fossil fuels goes on, while numerous researchers and organizations have announced new techniques to at least slow carbon emissions.  So far, however, none of these techniques have demonstrated the potential for large-scale adoption.  Last week the Weizmann Institute of Science in Israel announced they have managed to make E. coli consume CO2.  The researchers added genes to the E. coli genome for an enzyme that converts atmospheric CO2 to biomass and deleted genes needed for sugar metabolism.  After 200 days, they found that the microbes had successfully evolved to grow without needing sugar for food.

Given that there currently are some 1.5 billion devices – ranging from lawnmowers to giant electric power plants emitting some 36 billion tons of carbon dioxide into the air each year, carbon capture at a global scale seems hopeless.  However, people keep trying.  Scientists from the Massachusetts Institute of Technology have published a paper that details the mechanism of a battery device that can suck out the carbon dioxide from the air, store it, and then release it for sequestration or storage and subsequent sale.

The principle of the device is that as the battery charges, it sucks in carbon dioxide.  During discharge, the CO2 is released into the ground.  The battery itself is made up of arrays of electrodes with gaps between the arrays so the gas can enter the device.  Each electrode is coated with a carbon nanotube layer that enables an electrochemical reaction when carbon dioxide comes into contact with the surface of the electrodes.

If this device lives up to the promise, it will solve the biggest problem of carbon capture and storage: the prohibitively high costs.  The Carbon Capture and Storage Association estimates the cost of capturing carbon emissions from fossil fuel burning at about $70-102 per ton.  According to the authors of the MIT paper, the device utilizing it could be economically feasible at the cost of between $50 and $100 per ton of carbon dioxide.

Even if progress can be made in reducing the cost of carbon capture, it still seems as if a reduction in the use of fossil fuels would be far more cost-effective.

5.  The Briefs (selections from the press – date of article in Peak Oil News is in parentheses – see more here: news.peak-oil.org)  

Airlines’ carbon conundrum: Swedish climate activist Greta Thunberg’s warnings against air travel seem to be having an effect, particularly in Europe. In a recent survey by Swiss bank UBS, 21 percent of respondents in the US, the UK, Germany, and France said they had cut back on flying this year. Perhaps more importantly, lawmakers are listening: Starting next year, France will impose a tax on outbound flight tickets. (11/29)

Russia’s Gazprom is rushing to hire an engineering contractor to have an underwater natural gas pipeline, which has broken off the seabed in the Arctic, fixed. This is the second time a pipe on the route that crosses the Baydaratskaya Bay has come to the surface in the past two years. It was not clear if the resurfacing of the pipelines has created significant safety hazards or affected gas supply from the fields in the Yamal Peninsula. (11/26)

China’s gasoline exports, over the first ten months of the year, were up 16.7 percent year on year to 12.8 million mt, while total gasoil exports were 11.5 percent higher at 17.54 million mt, GAC data showed. (11/25)

In Algeria, the Parliament’s upper house passed a new energy law on Thursday, which lawmakers say will boost Algeria’s chances to compete for foreign investment in the oil and gas sector. The new bill—which has yet to be signed into law by interim president Abdelkader Bensalah—cuts red tape and includes tax incentives. The bill also introduces new types of contracts in the oil and gas sector, including production sharing, participation, and risk services contracts. (11/30)

In Brazil, the output from oil fields subsalt frontier covered by production-sharing agreements will surge over the next decade to 3.9 million b/d by 2031, surpassing the country’s current total output of about 2.9 million b/d, the head of government subsalt management company Pre-Sal Petroleo SA said Monday. (11/26)

Venezuela’s government and its oil company PDVSA have offered to pay suppliers and contractors into accounts in China using the yuan currency, five people familiar with the matter said. The move made in recent months is the latest example of how Caracas has sought new ways of making international payments since sweeping sanctions by Washington, intended to force out socialist President Nicolas Maduro, cut off the country’s access to the US financial system. (11/28)

Venezuela has spent $5 billion worth of oil to reduce its debt to Russia and China and to send oil to Cuba while leaving Venezuelans without basic food and medicines, US Special Representative for Venezuela, Elliott Abrams, said. The Maduro regime is not buying enough food and medication for the ordinary people, although food and medicines are exempted from sanctions, and Venezuela is allowed to purchase necessities even from America. (11/30)

Cyberattack on Pemex: The communications system of Mexico’s oil giant Pemex is still suffering the lingering effects of a cyberattack that occurred earlier this month, sources from the company told Bloomberg. A ransomware attack caused administrative operations at Pemex to grind to a halt on November 10, with the company announcing the resumption of work soon after, saying the actual attack had been prevented. (11/27)

The US oil rig count declined by three while the gas rig count added two, according to Baker Hughes Co. The nation’s active rig count now sits at 802, which is 274 fewer rigs than last year at this time. (11/28)

US oil exports: The US has cemented its status as a net exporter in world oil markets, a sharp reversal from past years that could affect its ties to foreign allies. The top oil producer and consumer exported 89,000 more barrels of crude oil and refined petroleum products a day than it imported in September, the first full month of a positive oil trade balance since the 1940s, the Energy Information Administration said Friday. Imports exceeded exports by 12 million b/d a decade ago. (11/30)

Bunker fuel quality issues continue to persist in the industry, even as fuel management is set to become more critical, ahead of the International Maritime Organization’s January 2020 low sulfur global marine fuel mandate. According to Douglas Raitt, a bunker fuel analyst, when you start blending for sulfur, basically, the viscosity and a whole host of other parameters can vary dramatically, making the blend as “compliant fuel” useless for a particular ship’s engines. (11/29)

Chesapeake Energy—which helped propel the shale gas revolution in the late 2000s with leading positions in the Marcellus, Barnett, and Haynesville shale basins—is now facing tough times trying to heal its balance sheet, on which $9.7 billion in total debt weighs. The company is looking to improve its balance sheet and is evaluating multiple options to reduce debt and to become, finally, free cash flow positive next year. Chesapeake Energy’s troubles are indicative of the current woes of the whole US shale patch. (11/29)

An explosion at a chemical plant near Texas’ Gulf Coast injured three people early Wednesday and led to the shutdown of a waterway connecting oil refineries to the Gulf Coast. The blast involved a processing unit at TPC Group Inc.’s Port Neches facility. The Sabine-Neches channel, which connects refineries and terminals in Beaumont and Port Arthur with the Gulf of Mexico, has shut down. The plant is about 100 miles east of Houston. (11/28)

Pipeline terrorists? US law enforcement agencies have prepared plans to respond to any new protests against the controversial Keystone XL pipeline “by any means,” The Guardian reports, citing internal documents. Among these means was the designation of pipeline protesters as domestic terrorists. (11/27)

US coal continues to slide: Coal’s share of total US power generation was 23.9 percent in September, down 11.2percent year-on-year. Natural gas had a 42 percent share of generation during the month, up 5.6percent y-o-y. Renewables generated 14.9 percent of the power generation total, also up 14.9 percent y-o-y.

Korean coal slowdown: South Korea will shut up to 15 coal-fired power plants out of the total 60 for three months starting December 1 to help reduce air pollution. This move could give a potential boost to LNG demand, the energy ministry said Thursday. (11/28)

Green New Deal: A Washington Post/Kaiser survey showed that while Americans like many of the plan’s goals, they are less keen on increasing federal spending by trillions of dollars to achieve its vision of tackling climate change and economic inequality through government programs. (11/28)

Windier world: For three decades, from about 1980 until 2010, wind speeds around the globe were slowing down. Now, researchers say that the world is going to keep getting windier for the next ten years. According to a new study by Princeton University, this reversal has come about due to changing ocean-atmosphere dynamics–or shifting ocean circulation patterns–that have seen wind energy potential increase by approximately 17 percent between 2010 and 2017. (11/27)

Water problems in India: Throughout India, the number of days with very heavy rain has increased over the last century. At the same time, the dry spells between storms have gotten longer. Showers that reliably penetrate the soil are less frequent. For a country that relies on rain for the vast share of its water, that combination is potentially ruinous. Decades of short-sighted government policies are leaving millions defenseless in the age of climate disruptions – especially the country’s poor. (11/27)

Energy independence? In just a few months, the US will be fully energy independent. By 2030, the country’s total primary energy production will outpace primary energy demand by 30 percent, according to a forecast by Norwegian energy research firm Rystad Energy. (11/27) [Note: your editors aren’t quite this optimistic and note our continued net oil imports.] 

Pollution impact: Women in their 70s and 80s who were exposed to higher levels of air pollution experienced more significant declines in memory and more Alzheimer’s-like brain atrophy than their counterparts who breathed cleaner air, according to a new study by researchers at USC, Wake Forest School of Medicine, and their colleagues at other institutions. (11/26)

The US maritime industry fears a Trump administration proposal to modify decades of ship transportation rulings could weaken Jones Act enforcement, potentially altering a century of legal precedent governing the movement of crude oil, refined products, and other commodities between US ports. (11/26)