Tom Whipple and Steve Andrews, Editors
Quote of the Week
“Hotter temperatures by 2100 could slash global economic output by more than 20%, according to Oxford Economics, and the way the impact will be distributed threatens to turn climate change into an enormous driver of worldwide inequality.”
Vanand Meliksetian for Oilprice.com
Graphic of the Week
1. Energy prices and production
2. Geopolitical instability
3. Climate change
4. The global economy and the coronavirus
5. Renewables and new technologies
1. Energy prices and production
The resurgence of coronavirus cases in parts of the world is “casting a shadow” over the oil market’s nascent recovery, the International Energy Agency warned last week. “In some countries, the accelerating number of Covid-19 cases is a disturbing reminder that the pandemic is not under control. The risk to our market outlook is almost certainly to the downside.” Oil prices fell on Thursday on an unexpected increase in US stocks, but then rebounded on Friday as Gilead Sciences Inc. said its remdesivir treatment cut Covid-19 mortality risk by 62 percent. The markets closed down a bit on Friday with NY futures at $40.55 and London at $43.24.
The IEA warned that US supply could bottom out and resume growth, which would prevent prices from rising too much. However, a record low rig count and steep decline rates from shale wells seem likely to translate into a further drop in shale oil output later this year. Global oil supply fell by 2-4 million b/d in June to a nine-year low of 86.9 million. Production curbs from OPEC+ are taking place in conjunction with declines from other countries such as the US and Canada. Since April, output has fallen by 14 million b/d, the IEA said, but supply is expected to recover as the size of the OPEC+ cuts start to come down next month. The IEA says that world-wide average annual crude supply could decline—compared to 2019—by 7.1 million b/d in 2020 before rising in 2021.
There are signs that the production cutting pendulum could have swung a bit too far, with the markets beginning to experience shortages of key crude grades. There are signs that the markets are undersupplied with Urals and Arab Light crude thanks to the deep production cuts and a rebound in demand by key customers such as China and Northern Asia. The price of Urals, Russia’s flagship-grade, is trading at record premiums to the Brent crude benchmark, reflecting the undersupply.
The course of the coronavirus and governments’ response to it is still the key to the future. While China, parts of West Europe, and the Eastern US seem to have the virus under control for now, elsewhere, including Russia, the Middle East, and much of the underdeveloped world, it continues to spread rapidly. In the US, trillions of dollars in government spending which has kept parts of the economy running is due to run out soon.
Across the world, industrial exports are down, and it is likely to be years before massive industries such as air travel, hospitality, sports, shipping, and recreation recover. Much of the optimism concerning a partial recovery later this year is based on West Europe, and parts of the US and Asia, while the rest of the world, including Africa, Latin America, and the Middle East is facing worsening conditions including disrupted food chains.
Natural Gas: Natural-gas prices have bounced back from the 25-year low reached late last month, but analysts and traders don’t expect them to go much higher. There is simply too much of it. Stockpiles of the power-generation and heating fuel are bloated world-wide. The international trade in liquefied natural gas has collapsed, squeezing an important outlet for US shale gas. And with crude prices back up to around $40 a barrel, shale oil producers are reopening wells and, as a byproduct, putting a lot of cheap gas into the market.
Natural-gas futures for August delivery ended the week at $1.81 per million Btu. That is up 25 percent since June 25th, when futures closed at $1.482—their lowest since August 1995. Yet it is still 24 percent below the price this time last year and 35 percent less than the price two years ago.
The heights of mid-summer and mid-winter are when gas prices are typically at their highest, given the demand to power air conditioners and fuel furnaces. But the global gas glut and diminished demand due to the pandemic shutdowns have produced the lowest June prices ever in the US and the lowest price on record for any month in Europe. The collapse in European prices has been especially problematic for US producers.
Europe is described as the “dumping ground” for LNG. Buyers there are usually eager for shipments to augment local production and compete with Russian pipeline exports. But the continent’s storage facilities, already pretty full following a mild winter, rose as cargoes were diverted from Asia. Supplies were robust in Asia when the pandemic slowed industrial activity in China at the start of the year, sending local prices crashing to all-time lows.
The US Energy Information Administration lowered its estimates for natural gas market production for the rest of 2020, but it anticipates a pickup in production toward the second half of 2021.
Shale Oil: As US oil prices steady around $40 a barrel, more curtailed US oil production is coming back online. Noble Energy plans to bring back most of the oil production it had reduced in the second quarter in response to the plunge in oil prices, becoming the latest US producer to restart production it had shut in. In the second quarter, Noble Energy’s curtailments averaged around 11,000 b/d.
In an update on Q2, the company said that it expected to bring back the majority of curtailed volumes by the end of July 2020, thanks to higher oil prices and significant improvements to operating costs, which suggests that the oil service companies which do most of the work have been forced to cut prices significantly.
The number of oil and gas drilling permits issued in Texas fell by two thirds in June from a year earlier. The Texas Railroad Commission issued 312 drilling permits last month, compared to 1,001 permits issued in June of last year. Of those 312 permits, 262 were to drill new oil and gas wells. The rest of the 312 was for re-entering plugged well bores and re-completions of existing wells. While permits for new drilling were down significantly in June year on year, completions processed year to date in 2020 for new drills were 7,930—up from 5,050 during the same period last year.
According to a new report by Haynes and Boone, oil and gas bankruptcies in North America are set to continue for the remainder of 2020. There have been more than 18 producer bankruptcies in Q2 alone—the highest quarterly figure since 2016 during the previous oil price crash. So far this year, 41 oil producers and oilfield service firms have sought bankruptcy protection. This year has seen Chesapeake Energy, Diamond Offshore Drilling, and Whiting Petroleum go under. Haynes and Boone said the $40 per barrel oil price right now would not be sufficient to stave off bankruptcy for the debt-laden shale producers. Forty-dollar oil will not be enough for shale companies to make good on their massive debt obligations. Rystad Energy warned that as many as 530 US oil companies could file for bankruptcy protection if oil had stayed at $20 per barrel.
Last week, a federal judge denied Energy Transfer’s emergency request for a stay to avoid the ordered shutdown of the controversial Dakota Access Pipeline in August. The four-state pipeline originates in North Dakota and runs to a hub near Patoka, Illinois, where it connects with the Energy Transfer Crude Oil Pipeline to Nederland, Texas. The system provides an outlet for crude producers in the Bakken and Three Forks areas of the Williston Basin to ship their barrels south. The pipeline currently moves up to 570,000 b/d of crude from the Bakken Shale. Energy Transfer will have to wait longer for the appeals process to unfold before a three-judge panel.
The closing of the pipeline is expected to ripple throughout the Bakken oil sector, hurting crude producers and other midstream companies that move oil and NGLs. More crude volumes would move by rail, and the prices of Bakken crude and even Canadian sweet grades could head lower. North Dakota crude production fell below 1 million b/d in May from 1.4 million b/d in March as the coronavirus pandemic pushed oil demand and prices lower.
According to an analyst at research consultancy Bernstein, roughly 100,000 b/d of takeaway capacity from the Bakken will disappear throughout 2020, dropping flows to a maximum of 1.25 million b/d by year-end. Thus, if 570,000 b/d of Dakota Access Pipeline capacity vanishes, that will leave just around 700,000 b/d of refining and takeaway capacity for Bakken crude. A decline of this size could easily offset any production gains from reopening wells in the Permian Basin.
Prognosis: The US Energy Information Administration boosted its outlook for crude futures by about $4 a barrel in the second half of 2020 and by $2 for 2021 on OPEC+ supply cuts and rising demand as many regions lift pandemic-related lockdowns. EIA now sees Brent prices averaging $40.50 in 2020 and $49.70 in 2021, compared with the 2019 average of $64.37.
Although the US Department of Energy says all will be “back to normal” by the end of next year, other observers are not sure. Italy’s Eni lowered its long-term oil price assumptions on Tuesday, saying that the coronavirus pandemic would have “an enduring impact” on the global economy and energy industry.
Weeks after BP and Shell revised downwards their long-term price assumptions, Eni also cut its 2020-2024 and long-term oil and gas pricing scenario, warning of $4 billion (3.5 billion euro) in post-tax impairment charges against non-current assets for the second quarter, plus/minus 20 percent.
2. Geopolitical instability
Iran: Last week, the government instituted mandatory mask-wearing as fears mount over newly reported deaths from the coronavirus, even as its public increasingly shrugs off the danger of the illness it causes. Supreme Leader Ayatollah Ali Khamenei publicized an image of himself in a mask in recent days, urging public officials and the Islamic Republic’s 80 million people to wear them to stop the virus’s spread. But public opinion polling and a walk through any of the streets of Tehran show the widespread apathy felt over a pandemic that saw Iran in February among the first countries struck after China. Whether rooted in fatigue, dismissal, or fatalism, that indifference has scared Iranian public health officials into issuing increasingly dire warnings.
Iran is expanding its oil-production capacity in anticipation that an eventual end of sanctions would allow it to take back its share of the global crude market, according to Oil Minister Zanganeh. “It’s true that our output is low because of cruel and illegal sanctions, but things won’t stay the same. We need to increase our production capacity to return to the market in full force and restore our share whenever necessary.” Iran’s Persia Oil and Gas Industry Development Co. signed a $463 million agreement with state-run National Iranian Oil Co. to operate and further develop the Yaran oil field close to the border with Iraq in the southern Khuzestan Province. The deal is expected to raise the field’s output by about 40 million barrels over ten years.
Iran’s oil in storage peaked around the end of May and has declined since, with offshore floating storage sitting at roughly 58 million barrels, according to London-based oil analytics firm OilX. Market intelligence firm Kpler estimates that Iranian crude in onshore storage tanks reached 66 million barrels in June. This is a far cry from the 15 million barrels that Iran had in onshore storage in January.
An explosion rocked western Tehran early Friday, causing widespread power failures in two residential areas. The precise location of Friday’s blast was unclear, but analysts said there were several military and training facilities in the area that could be the target of sabotage. A cause was not immediately determined. While Iran described the new episode as a gas tank explosion, independent analysts said it was unclear whether the cause was an accident, sabotage, or something else. They noted that Iran had initially given a misleading location.
Iran has not publicly disclosed its investigation into explosion at the Natanz nuclear facility, citing national security concerns. However, a Middle Eastern intelligence official with knowledge of the episode said Israel was responsible for the attack using a powerful bomb. A member of the Islamic Revolutionary Guards Corps who was briefed on the matter also said that an explosive was used. New satellite photographs over the stricken facility at Natanz show far more extensive damage than was evident last week. Two intelligence officials, updated with the Natanz site’s damage assessment recently compiled by the United States and Israel, said it could take the Iranians up to two years to return their nuclear program to the place it was just before the explosion. An authoritative study estimates it will be a year or more until Iran’s centrifuge production capacity recovers. The first theory is that an explosive device was planted in the heavily guarded facility, perhaps near a gas line. But some experts have also floated the possibility that a cyberattack was used to trigger the gas supply.
Tehran has built underground “missile cities” along the Gulf coastline, Iran’s Revolutionary Guards Navy chief said last week, warning of a “nightmare for Iran’s enemies”. Iran has large stocks of Chinese made cruise missiles which could easily destroy tankers transiting the Straits of Hormuz. By burying these missiles in hills along the straits, they would be largely invulnerable to attack.
Last August, Iran’s Foreign Minister, Mohammad Zarif, paid a visit to China to present a roadmap for a comprehensive 25-year China-Iran strategic partnership built upon a previous agreement signed in 2016. Many of the key specifics of the updated agreement were not released to the public at the time. Still, last week former Iran President Mahmoud Ahmadinejad alluded to some of the secret parts of this deal in public for the first time
Iraq: A protest at the Halfaya oil field trapped up to 900 foreign and Iraqi staff inside the site, preventing the delivery of food and water and cutting the flow of gas feedstock to a nearby power plant. Oil officials, protesters, and security forces appeared to negotiate a temporary resolution, but the incident highlighted the destabilizing ripple effects of Iraq’s financial crisis. Cash shortages have caused the Oil Ministry to ask oil field operators to trim costs and accept payment delays, indirectly reducing the demand for local workers and sparking demonstrations at oil sites.
Libya: After six months of port blockades, Libya’s National Oil Corporation (NOC) restarted oil exports on Friday with the loading of the oil tanker Kriti Bastion at Es Sider. The next day Libya’s eastern commander Khalifa Haftar ordered a halt to exports. NOC said it had been told that the instructions to shut down production were given to Haftar’s forces by the UAE. Russian mercenaries with the Wagner Group along with Syrian mercenaries now occupy Es Sider oil port while Wagner and Sudanese mercenaries are camped within the vicinity of the Sharara oil field, the NOC said.
UN Secretary-General Antonio Guterres warned the Security Council on Wednesday that the conflict in Libya has entered a new phase with “unprecedented levels” of foreign interference and mercenaries. “The conflict has entered a new phase, including the delivery of sophisticated equipment and the number of mercenaries involved in the fighting,” Guterres said. Russian private military contractor Wagner Group has up to 1,200 people deployed in Libya, strengthening Haftar’s forces.
Repeated shutdowns of Libya’s oil facilities amid a civil war could leave the country producing at just half its total capacity in the coming years, the National Oil Corp. said. Libya is “on track for a precipitous decline over the next year and a half as a result of the illegal blockades,” the state oil firm said in a statement. “Continuing the blockade only makes our long-term problems worse. It is vital that we resume oil production as soon as possible.” Without rapid maintenance and repairs, the North African country may only be able to produce 650,000 b/d by 2022, the company said. That’s barely half the level Libya was pumping in January.
3. Climate change
June 2020 tied for the planet’s warmest on record, closely matching the temperatures observed globally during June last year. But one region, in particular, saw heat virtually off the charts — Siberia.
Hotter temperatures by 2100 could slash global GDP by more than 20 percent, according to new research, and the way the economic impact will be distributed threatens to turn climate change into an enormous driver of worldwide inequality. A new analysis of the relationship between heat and economic performance released this week by Oxford Economics identified a divide between nations with average annual temperatures on either side of 15° Celsius (59° Fahrenheit), the “global sweet spot” for economic activity. The paper assumes an emissions trajectory that could raise global average temperatures by 3°C before 2100 without more aggressive efforts to stop that trajectory.
India is singled out as having a massive problem, with GDP projected to fall 90 percent by 2100 if countries don’t improve current policies.
According to a new study by researchers at Norway’s CICERO Center for International Climate Research, it may be a long time before we can measure the effectiveness of any greenhouse gas reductions on global temperature evolution. CICERO researchers analyzed how global warming will evolve under different assumptions on future emissions reductions. Their results show that if we only use the Earth’s surface temperature to measure whether emissions cuts lead to a slow-down in global warming, we may need to wait for decades before we can establish with certainty the temperature effect of the reduced emissions.
This is partly because the Earth’s climate responds slowly to changes in emissions, and partly because of the substantial natural variability in annual mean temperatures. Over the past 50 years, the Earth’s surface temperature has, on average, increased by 0.2°C every decade, mainly due to human-induced emissions of greenhouse gases. But from one year to the next, there are also significant variations that are on a similar scale.
4. The global economy and the coronavirus
Half-way into a year dominated by the pandemic, governments are confronting a health crisis, an economic crisis, and a crisis of institutional legitimacy, all at a time of heightening geopolitical rivalry. How those shifts crystallize over the next six months will go a long way to determining the shape of the post-virus era. China is growing more assertive and jostling with countries from Canada to Australia. The US, the one superpower that has remained at the top table since Potsdam, is increasingly self-absorbed as the virus rips through its population and economy ahead of November’s presidential election.
Migrant workers—from Polish farmhands working the fields of southern France to Filipino cruise-ship workers in the Caribbean to the Middle East domestic workers—who lost their jobs because of the pandemic’s economic impact are running out of cash to send home. This situation is dealing a heavy blow to the fragile financial health of the developing world.
United States: The economy is stumbling as the viral outbreak intensifies, threatening to slow hiring and deepening the uncertainty for employees, consumers, and companies. Coronavirus case counts, now over 3.2 million, are rising in 38 states, and the nation as a whole has been shattering single-day records for new confirmed cases. In six states representing one-third of the economy — Arizona, California, Colorado, Florida, Michigan, and Texas — governors are reversing their reopening plans. Reopening efforts are on pause in 15 other states.
The number of Americans filing for jobless benefits dropped a touch to 1.3 million last week. Still, a record 32.9 million people were collecting unemployment checks in the third week of June, supporting expectations the labor market would take years to recover from the COVID-19 pandemic.
Federal Reserve officials are raising fresh doubts about the durability of the nascent US recovery, while new business surveys highlight developing risks from the pandemic. Richmond Fed President Thomas Barkin noted “air pockets” facing the US economy – businesses exhausting existing order books without refilling them. Households face the end of unemployment benefits and other support. “Businesses like construction had pretty good pipelines and kept going,” through the first phase of the pandemic. But “new orders are not coming online in the same way. We have fiscal payments that are coming to an end, and it is not clear what will replace them.”
China: President Trump dampened expectations for a promised phase-two trade pact with China on Friday, saying the coronavirus pandemic has too severely damaged the relationship between the countries. “I don’t think about it now,” Mr. Trump told reporters aboard Air Force One, where he criticized China’s response to the new coronavirus, which continues to spread rapidly throughout the US “They could have stopped the plague, they could have stopped it, they didn’t stop it.”
China pledged to retaliate after the US sanctioning of a top member of China’s ruling Communist Party and three other officials over human rights abuses in the far western region of Xinjiang. “We urge the US to withdraw this wrong decision, stop interfering in China’s domestic affairs and stop harming Chinese interests,” Chinese Foreign Ministry spokesman said on Friday. “If the US insists on going forward, China will take firm countermeasures.”
Before the pandemic upended all forecasts for global trade and energy demand, analysts had doubted that China would be able to fulfill its pledge in the phase-one trade deal with the US to buy as much as $26 billion worth of American energy products this year. COVID-19 and the resulting plunge in oil and natural gas demand and prices have made China’s target buy of US energy products even more unachievable–perhaps nearly impossible to achieve–according to estimates for the first five months of 2020.
China’s crude oil imports hit a record high of 11.93 million b/d in June—an increase of 820,000 b/d from May levels, which were also at record levels. This level of crude imports represents a 2.4 million b/d increase year over year, a 25.4 percent increase. China is still experiencing a nagging backlog of tankers piling up at its ports, with about 40 million barrels waiting in line in the Yellow Sea to be offloaded.
When the bottom fell out of international crude oil markets earlier this year, China busied itself stocking up on cheap oil, to the extent that it played a key role in the global oil market’s recovery. The surge in imports helped to buy off a significant portion of the worldwide oil glut.
China’s refiners then busied themselves turning record crude imports in oil products and boosted their run rates by 11 percent in April compared to March. During the peak of China’s lockdown in February, refinery processing rates slumped to their lowest level in six years. In the following months, refiners ramped up production and capacity utilization as demand began to recover. Now, higher oil prices and a fuel glut in Asia are depressing refining margins. This is likely to force China’s independent refiners to scale down crude oil processing rates in the third quarter, traders and analysts told Bloomberg.
There are mixed reports on China’s oil storage capacity. The Beijing-based media group Caixin reported that “China is almost out of space to hold the oil that domestic traders bought at bargain-basement prices earlier this year.” Caixin’s reporting is based on numbers provided by Oilchem China, which show that, as of Wednesday, Chinese crude oil storage was at 69 percent capacity “with the 33.4 million tons it had stockpiled, up by 24 percent from the previous year.” This is dangerously close to overflow. “That’s only one percentage point away from the 70 percent threshold that experts view as the country’s capacity limit.” If China can neither store all its imported crude nor sell oil products at a profit, oil imports are likely to decrease in the second half.
In June, following a rare increase the previous month, car sales in China retreated, signaling the world’s biggest auto market is facing a bumpy recovery from a two-year slump. Retail sales of sedans, SUVs, minivans, and multipurpose vehicles declined 6.5 percent to 1.68 million units in June from a year earlier. Sales had risen 1.9 percent in May, the first increase in a year.
European Union: The EU’s executive forecasts that the bloc’s economy will contract more than previously expected because of the pandemic. The 27-nation EU economy is predicted to contract by 8.3 percent this year, before growing 5.8 percent in 2021, according to the latest predictions released Tuesday.
German factory orders rose less than expected in May even after authorities loosened the coronavirus lockdown, highlighting how difficult it will be to repair the pandemic’s damage. Orders rose 10.4 percent in May, following a cumulative slump of more than 37 percent in the previous two months. The Economy Ministry said that while the data suggest Germany’s industrial recession has passed the trough, “the low level of orders also indicates that the catch-up process won’t be completed for a long time.”
German exports regained some ground in May, though the gain was far short of making up for significant losses at the height of the pandemic, official figures showed Thursday. Exports were up 9 percent compared with the previous month, the Federal Statistical Office said. That followed declines of 11.6 percent in March and 24 percent in April. The German economy, Europe’s biggest, went into a recession during the first quarter that is believed to have deepened in the just-concluded second quarter.
Russia: The country’s health authorities, which have been giving out daily figures since March, earlier said that 3,633 people died from the coronavirus in May. However, the state statistics agency, which publishes demographic data with a delay, gave vastly different numbers for that month. It said the coronavirus was either confirmed or assumed as the “main cause of death” for 7,444 people who died in May.
A further 5,008 people who had a coronavirus diagnosis died of other diseases, though the virus was the “catalyst” in the deaths of 1,530 in this group. The agency said the total number of fatalities this May was 172,914 across Russia, which was more than 18,000 greater than the same month last year. The 18,000 excess deaths a month figure may be more realistic than the 3,600-7,400 numbers that the government has reported. The country has been gradually lifting restrictions. Moscow will open its cinemas and theatres on August 1, Mayor Sergei Sobyanin said. Schools will reopen this week.
Interestingly, the combined population of the UK and France, two European nations that were about average in dealing with the coronavirus, are reporting about 75,000 deaths from the virus. With 10 million more population than the UK and France combined, Moscow is only reporting 11,000 official coronavirus deaths. Clearly the Russian government is under-reporting the damage that the pandemic is doing to its economy.
According to Reuters, the record stockpile of natural gas in northwest Europe and Italy is eating into the regions’ thirst for Gazprom’s gas. Russia’s gas giant has lost more ground in sales to the area than its competitors. Gazprom’s falling natural gas exports to the region have caused Gazprom’s share of the natural gas market to fall by four percentage points in the first half of 2020 —from 38 percent a year ago to 34 percent.
India: India has overtaken Russia with the world’s third-highest number of novel coronavirus cases, at over 820,000, as the outbreak shows no sign of slowing. The US and Brazil are still way ahead of India, with 3.2 million and 1.8 million, respectively. With a population of 1.3 billion, India has a population four times that of the US and seems likely to surpass the US total when all the cases are accounted for, or the nationwide monthly death count is published.
The nation’s gross domestic product will contract 6 percent in the fiscal year to March 2021, steeper than the previous estimate for a 3.5 percent decline. The revision is mainly due to a cut to the fiscal first-quarter forecast — with the economy seen slumping 21 percent during the period against 16 percent estimated earlier.
India imposed the world’s most extensive lockdown from the end of March to curb the Covid-19 pandemic and reopened some parts of the economy a month later to avoid losses to businesses and jobs. The number of infections has since increased rapidly.
5. Renewables and new technologies
From an environmental point of view, proponents say hydrogen is a suitable replacement for fossil fuels. It can be made from water or currently abundant natural gas. It can carry a large amount of energy in compressed or liquified form—though less than all other forms of liquid energy—and the only emission from using it is water. Hydrogen also burns very hot, making it useful for high-polluting heavy industries such as cement and steelmaking. These industries have long relied on coal, and established renewables such as wind and solar can’t deliver the necessary heat.
However, there are downsides in comparison with oil, coal, and natural gas, which has prevented its widespread adoption. It is expensive and difficult to store and transport. The cheapest way of producing it in large quantities is to reform it from natural gas, a process that produces large amounts of CO2 as a byproduct and that consumes additional energy during the transformation process. Creating “green” hydrogen, which is done using water electrolysis and emits no CO2, costs about three times as much as steam methane reforming.
As a country with abundant fossil fuels, the US has made minimal use of hydrogen as a fuel, with the bulk of the gas’s production going to produce fertilizer and consumed during refining. With current technology, it would be prohibitively expensive, compared with electricity, to distribute widely as an automobile fuel.
Europe, however, is pinning its green hopes on hydrogen in a plan that sees hundreds of billions of euros in investment flowing into the clean technology. The goal is to increase six-fold the capacity to produce renewable hydrogen by 2024, driving down the fuel’s costs. The market for hydrogen has the potential to create thousands of jobs. According to a roadmap adopted by the European Commission last week, it could all but eliminate emissions from industry and transport.
The Commission’s president, Ursula Von Der Leyen, wants the EU to build its economic rescue plan around the Green Deal strategy that aims for a stricter 2030 emission-reduction target and eliminating net greenhouse gas discharges by 2050. European heads of government hold the second round of talks on a jointly financed recovery package on July 17-18 in Brussels.
Currently, hydrogen accounts for less than 1 percent of Europe’s energy consumption and is mainly used as feedstock in the chemical sector. The viability of clean technology is improving. The cost of renewable energy keeps falling, the price of carbon is nearing record highs, and the sense of climate urgency is increasing. Two French industrial giants say they have found the right project to scale up hydrogen production rapidly. Engie and Air Liquide want to build solar farms big enough to power 450,000 homes in France’s Provence region, with enough electricity left to produce hydrogen by electrolyzing water. Some clean-burning gas would be sold to refineries and chemical makers in Fos-sur-Mer, curbing their carbon dioxide emissions.
Besides steam reformation of natural gas, the cheapest way to produce hydrogen is by electrolysis from water – provided one has enough inexpensive electricity generated by wind or solar. There are also some new technologies, one of which uses waste aluminum scrap and the other solar panels, to extract hydrogen from water. Technology is racing, so it is unclear which non-polluting technologies will win out during the next few decades.
The EU has already started pilot projects that use natural gas as the feedstock but then sequester the CO2 byproduct underground. An interesting sidelight to this story is that Russia and Germany are thinking about forming a partnership to produce non-polluting hydrogen from natural gas; Russia has gas and Germany the technology to sequester the carbon.
US investment in offshore wind power is predicted to rise from nothing ten years ago to a level that nearly matches spending on offshore oil drilling over the next ten years. According to energy consultancy Wood Mackenzie, offshore wind projects are on course for about $78 billion in capital spending this decade compared with the $82 billion planned for US offshore oil and gas development.
In the decade that began with the 2010 Deepwater Horizon drilling disaster, US offshore oil development received $154 billion of investment. The figure for commercial-scale offshore wind was zero. Offshore wind has benefited from targets set by east-coast states for clean electricity. About 22,000 megawatts of generating capacity is “reasonably foreseeable” in federal waters of the Atlantic, the Bureau of Ocean Energy Management said – enough to supply more than 10m homes.
6. The Briefs (date of the article in the Daily Energy Bulletin is in parentheses)
Oil refineries are struggling as the worst demand-crash in decades cascades through the industry, leaving plants around the world at risk of closure. Demand for fuel remains depressed, and stockpiles are bulging, while the crude refiners’ process has become more expensive following deep OPEC-led supply cuts. That is squeezing margins for the plants, which convert the crude into products such as diesel, jet fuel, and petrol. Analysts at UBS said almost 3 million b/d of refining capacity – roughly 3 percent of the global total – needs to be removed from the global market by the end of 2021 to restore the sector’s profitability. (7/7)
Ship crew rules changing: Several nations have agreed to ease border restrictions to allow for the repatriation of hundreds of thousands of sailors who have been stranded for months due to coronavirus-related lockdowns. The US, Denmark, France, Germany, Greece, Indonesia, the Netherlands, Norway, the Philippines, Saudi Arabia, Singapore, the United Arab Emirates, and the UK agreed to the change in rules for ship crews. (7/11)
In Norway, an innovation center aims to find alternative and cost-efficient solutions aimed at reducing the vast US$100 billion decommissioning cost that the North Sea operators and countries face. The SFI Swipa center and its researchers will look into innovative ways for well plugging and abandoning, which makes up much of the total decommissioning costs, more than 40 percent. (7/9)
Anglo-Dutch oil major Shell is not ruling out the possibility of moving its headquarters to the UK. The group’s chief executive Ben van Beurden told Dutch business newspaper Het Financieele Dagblad in an interview published over the weekend. The move could offer Shell relief from the Netherlands’ dividend tax, which has become taxing amid the low oil price environment and the pandemic. Shell is headquartered in The Hague in the Netherlands while it is incorporated in the United Kingdom. (7/7)
Russia’s oil spill: President Vladimir Putin declared a national state of emergency over 20,000 tons of spilled diesel fuel in Siberia. The Russian mining company that suffered the massive fuel leak at one of its Arctic installations in May refused to pay some $2 billion in damages sought by the Russian government to cover the cleanup and questioned how the figure was calculated. (7/9)
Second Russia-China pipeline? While China has become the world’s factory and a significant technological powerhouse, Russia is extremely wealthy in terms of energy and minerals. The distinct advantages have led to the landmark $400 billion ‘Power of Siberia pipeline’ agreement for the export of natural gas from Russia’s far east to northern China. On top of this success, Gazprom and Moscow have been pushing for the ‘Power of Siberia-2 pipeline’ from Western Siberia to China’s Xinjiang region. The pipeline could further solidify the political and economic integration of the world’s second-biggest economy with its most abundant energy producer. (7/9)
In northern Mozambique, the latest attacks by Islamist militants, which left eight contract workers dead, have raised further the risk associated with the country’s plans to become a significant LNG exporter amid a growing insurgency in the country. (7/8)
More Nigerian nightmare: BW Offshore has revealed that its FPSO Sendje Berge was attacked by pirates offshore Nigeria on July 2 at approximately 4:20 am local time. Nine Nigerian nationals were kidnapped during the attack. (9/7)
Offshore Guyana, Exxon Mobil Corp. resumed drilling last month, underscoring its dedication to the offshore hotspot despite the oil price crash and a messy turn in local politics. Two of Exxon’s four drillships went back to work. (7/11)
In Colombia, the latest oil price collapse coupled with the considerable economic fallout from the coronavirus pandemic, has battered the country’s fragile economy. As the strife-torn Latin American country emerged from decades of civil conflict and narrowly avoided becoming a failed state, it pegged future development and economic growth on oil. The oil price collapse will push the Andean nation into a deep fiscal crisis. (7/9)
The US oil rig count dropped by 4 to 181, down by 77% from 784 rigs last year at this time, according to Baker Hughes data. Offshore oil rigs remained at 12, down by 54% from 26 from last year. Active gas rigs declined by one to 75, down 57% from 172. Canada’s overall rig count rose this week by 8, settling at 26 active rigs. In Canada, oil and gas rigs are now down by 91 year on year—a decline of 78%. (7/11)
A US Supreme Court decision recognizing about half of Oklahoma as Native American reservation land has implications for oil and gas development in the state, raising complex regulatory and tax questions that could take years to settle. (7/11)
Pipeline shut-in: A judge on Monday ordered the Dakota Access pipeline shut down for additional environmental review more than three years after it began pumping oil — handing a victory to the Standing Rock Sioux Tribe and delivering a blow to President Donald Trump’s efforts to weaken public health and environmental protection it views as obstacles to businesses. (9/7)
Pipeline canceled: The builders of the Atlantic Coast Pipeline are pulling the plug on the project as companies continue to meet mounting environmental opposition to new fossil fuel conduits. Duke Energy Corp. and Dominion Energy Inc. said Sunday that they were abandoning the proposed $8 billion pipeline—which aimed to carry natural gas 600 miles through West Virginia, Virginia and North Carolina and underneath the Appalachian Trail—citing continued regulatory delays and uncertainty, even after a favorable Supreme Court ruling. (7/6)
Dominion Energy’s decision to sell its gas business to Berkshire Hathaway for $9.7 billion illustrates the enormous challenges US utilities face in meeting daunting state clean energy goals. Dominion is likely to be one utility among many taking extreme actions to prepare for and pay for the massive energy transition. Now Dominion said July 5 it will sell its natural gas transmission and storage business as it seeks to comply with the state of Virginia’s 2045 net-zero target for both carbon and methane emissions by investing up to $55 billion over the next 15 years in emissions reduction technologies. (7/6)
Shell is considering selling its 240,000-barrels-per-day refinery in Convent, Louisiana, as part of a broader strategy to reshape its refining portfolio. Shell is now implementing a new downstream strategy to reshape its refining business towards a smaller, smarter refining portfolio (7/9).
Exxon’s algae biofuel bust? In 2009, Exxon entered the algae biofuels race with a bang. Exxon had lofty ambitions to produce algae biofuel within a decade but later pushed back the ETA in 2018 by saying it planned to produce 10,000 barrels of algae biofuels per day by 2025. Exxon now stands as the only oil and gas supermajor that is still pursuing algae biofuels in a big way with the company claiming on its website to have invested ~$250 million in biofuels research over the past decade. However, it’s going to take some serious feats of financial engineering for Exxon’s algae biofuels to compete in this era of $30-$40 oil or for the company to convince its critics that this is not just another attempt at greenwashing. (7/9)
Coal numbers: The US is estimated to produce 501.3 million tons of coal in 2020, the US EIA said July 7. The 2020 production would be 28.9 percent lower than the 705.3 million tons produced in 2019 — 2020’s output would be the lowest since 1963. Since the beginning of the year, the EIA’s 2020 production estimate has dropped by 95.3 million tons due to the pandemic. (9/8)
Germany’s coal targets: Despite having the third-largest installed base of wind and solar power after China and the U.S., Germany still relied on coal for 45 percent of its needs as recently as 2015. Germany’s legislation on retiring its coal fleets will keep plants switched on as late as 2038, but the “as late as” allows for earlier shutdowns. And incentives and other factors could drive a coal shut down by the middle of this decade. (7/7)
Drilling for geothermal energy, which is presently is a niche industry, is drawing the attention of more petroleum industry players. It uses much of the same drilling technology and avoids the cyclical problems oil and gas involves. Until recently, geothermal has only made sense in the shallower “sweet spots;” expanded mapping of the resource could change that. (7/9)
New battery tech scaling up: Hideaki Horie, one of the people who helped commercialize lithium-ion batteries, says he has a way to cut mass production costs by 90 percent and significantly improve their safety. He founded Tokyo-based APB Corp. in 2018 to make “all-polymer batteries” — hence the company name. Horie’s innovation is to replace the battery’s essential components — metal-lined electrodes and liquid electrolytes — with a resin construction. In March, APB raised $74 million, which is tiny by the broader industry’s standards, but will be enough to fully equip one factory for mass production slated to start next year. (7/9)
French utility-scale batteries: The government last month awarded seven-year subsidies to a dozen companies to install 253 megawatts of batteries and 124 megawatts of so-called load-shedding systems. The project is part of France’s plans to ensure energy security as it shuts down coal-fired power stations and starts to retire aging nuclear plants to make room for renewables. (7/8)
Intense wildfires in the Arctic in June released more polluting gases into the Earth’s atmosphere than in any other month in 18 years of data collection, European scientists report. These fires offer a stark portrait of planetary warming trends. The Arctic is warming at least two and a half times faster than the global average rate—the primary underlying factor to the fires. (7/9)
The amount of ice in the Alps has shrunk 17 percent since the turn of the century, highlighting the severity of climate change as countries grapple with how to slow global warming while also tackling a virus epidemic. (7/9)
Megadrought? The US Southwest has been mired in drought for most of the past two decades. The heat and dryness, made worse by climate change, have been so persistent that some researchers say the region is now caught up in a megadrought, like those that scientists who study past climate say occurred here occasionally over the past 1,200 years and lasted 40 years or longer. (7/9)
Africa’s flash-point dam: Egypt, Ethiopia, and Sudan are engaged in last-ditch talks to resolve a dispute over Addis Ababa’s construction of a giant dam on the river Nile that Cairo fears could lead to damaging water shortages. This month, Ethiopia is set to start storing water in the vast reservoir of the $4.8 billion Grand Ethiopian Renaissance Dam. It is set to be Africa’s largest and seen as a pathway to widespread electrification and a prosperous future. (7/8)