Tom Whipple and Steve Andrews, Editors
Quote of the Week
No one is going to have the staff or the rigs over the next year to increase production. We’ve never had this few rigs running. Ryan Sitton, commissioner with Texas’s oil and gas regulator.
Graphic of the Week
1. Energy prices and production
Oil edged higher last week with a weaker dollar overshadowing signs of a slowing global economic recovery. The dollar weakening to the lowest since January boosted the appeal of commodities priced in dollars. Fears over a demand slowdown in the wake of growing inventories and a rising coronavirus case count were put on the backburner. The market’s caught between two strong and opposing forces. On the one hand, you’ve got a storage overhang. On the other hand, you’ve got a weakening dollar, you’ve got negative real interest rates, and these factors tend to be bullish for commodities in general and crude in particular.
US crude’s recovery from the one-day dip into negative territory in mid-April has mostly stalled as futures trade range-bound this month amid signs the pandemic is flaring up again around the world. In the US, virus cases surpassed 4 million; in South Africa, infections doubled over the past 17 days, and the virus count in Brazil sits above the 2 million mark. West Texas Intermediate settled at $41.29 a barrel, and Brent ended the session Friday at $43.34 a barrel.
Natural Gas: The EIA reported that US LNG exports fell for the week ending July 15th, with just four vessels with a combined carrying capacity of 15 billion cf leaving the country that week. This is the lowest volume since the end of 2016—a time when the Sabine Pass LNG was the only LNG export facility in the US. Depressed global demand for LNG continues to drive US LNG buyers to cancel cargoes for loadings in September.
Earlier this year, when demand for natural gas across the world plunged due to the pandemic, buyers began to cut US LNG loadings, as gas in storage from Europe to Asia was abundant after a milder winter and the coronavirus that wiped out a lot of demand. However, the pace of the cargo cancelations for September seems to have slowed so that between 15 and 26 US cargoes of LNG may have been canceled. This is nearly half the expected 45 shipments canceled for August.
Shale Oil: US fracking is set for its first monthly rise this year, according to a new Rystad Energy analysis, The energy research company says that new fracking operations in the country are on track to grow above 400 wells in July, after dropping to a bottom of 325 wells in June. Satellite data shows 246 newly started frac jobs this month, with 96 jobs beginning just last week.
According to Rystad, the Permian’s fracking activity has grown from 15 to 20 wells per week in May and June to 40 to 45 wells per week in the last three weeks. In all other oil basins – including Bakken, Eagle Ford, Anadarko, and Niobrara – Rystad said its latest fracking activity estimates suggest fracking activity is around 35 to 40 wells per week since the beginning of July. The Rystad report noted that US land rig activity in oil basins seems to have hit rock bottom as the count of horizontal oil-focused rigs declined by one two weeks ago and gained by one last week.
US shale producers have restored about a quarter of the output they had curtailed after the price collapse; however, production is set for a new slump in the fall. New well drilling has slowed dramatically and won’t be able to sustain output levels. US oil firms are estimated to have curtailed around 2 million b/d of crude oil production in May after prices plunged.
The nature of shale wells, whose initial production rates drop by around half after the first year, means that production increases require constant drilling of new wells. However, drilling activity has plunged, and the number of active oil rigs for the week to July 24th was down to 181, compared to 776 active rigs this time last year, according to Baker Hughes data. Drastically reduced drilling activity likely means that US oil production could take over two years to return to the pre-crisis level.
Rystad anticipates that nationwide horizontal oil drilling will remain relatively flat in the next few weeks. Some operators continue to implement modest downward adjustments, while others have started restoring drilling operations with WTI holding around $40.
Chevron acquired Noble Energy in a $5 billion deal, expanding its footprint in US shale and in the Eastern Mediterranean. The acquisition is the first major M&A deal since the onset of the global pandemic. Noble Energy is active in the DJ Basin and the Permian. The deal – totaling $13 billion when including debt – will increase Chevron’s proven reserves by 18 percent from year-end 2019 levels.
The Dakota Access Pipeline (DAP) is currently mired in a legal battle with no definitive end in sight. As the industry waits to see the outcome of the appeal, oil transportation from the Bakken Basin has become a hot topic of conversation. If the DAP is shut down, experts project that the closing of this oil artery would eventually prompt oil companies to ship another 200,000 b/d of Bakken crude via rail, the equivalent of about three more oil trains leaving the region each day. “When oil train shipments soared in 2013 and 2014, they caused headaches for farmers and grain elevators seeking to ship crops via trains across the same tracks,” reported the Bismarck Tribune.
Prognosis: US demand for petroleum and liquid fuels is expected to remain below the 2019 average from before the COVID-crisis until August 2021, despite the uptick in consumption in recent weeks, the US EIA said last week.
The oil demand crash in April, when most of America was under stay-at-home orders, resulted in the most significant monthly inventory jump in US commercial crude oil inventories in data going back to 1920. In terms of volumes, nearly half of the plunge in fuel consumption in 2020 has come from low gasoline use. This year, gasoline demand is expected to average 8.3 million b/d, down by 1.0 million b/d – or 10 percent – from 2019. According to the ever-optimistic EIA, if employment recovers, gasoline consumption is set to increase to 9.1 million b/d, or to be some 2 percent less than its 2019 average.
However, Barclays says oil prices could be in for a correction in the near term if fuel demand recovery further stalls amid surging coronavirus cases in the US. “We are not there yet in terms of fundamentals for the next leg higher,” analysts at Barclays Commodities Research wrote in a note.
Last Tuesday, oil prices hit their highest levels in more than four months. This was thanks to promising results in a coronavirus vaccine trial and the European Union reaching a historic stimulus package deal after five days of marathon talks. While vaccine hopes offset fears of surging coronavirus cases in the US, the API and the EIA reported inventory builds in US commercial crude oil inventories on Tuesday and Wednesday, reigniting market concerns that the recovery in fuel demand in the US is slowing down.
“The demand recovery that we have seen in gasoline over the last couple of months appears to have stalled, with implied demand coming in at 8.55 million b/d, still below pre-COVID-19 levels.” ING strategists said on Thursday.
2. Geopolitical instability
Iran: The US sanctions on Iran’s oil and other industries are scaring foreign firms unwilling to sign any deals in any sector with Iran and are even rescinding existing contracts, Iran’s Oil Minister Bijan Zanganeh said last week. The US re-imposed sanctions on Iran’s oil exports in the spring of 2018 when President Trump pulled the US out of the Iranian nuclear agreement.
US sanctions and the risk of secondary sanctions if firms continue to do business with Iran had many companies withdraw from developing Iranian energy resources, including France’s supermajor Total, which helped develop the supergiant South Pars natural gas field. Iran now has “to rely on our own domestic capacities,” Zanganeh recently said. That is why this month Iran signed deals with local companies to boost capacity at two of its oilfields.
However, Tehran may see some of the sanctions eased should Biden win the presidential election in November. Biden has signaled that he would revisit and renegotiate the Iran nuclear deal, which could lead to lifting some sanctions in exchange for Tehran returning to compliance under some revised form of JCPOA. If Biden wins, Iranian exports could suddenly turn from a bullish factor for oil prices into a bearish one if it resumes up to 2 million b/d of oil exports.
Iran’s foreign ministry said last week that foreign governments might have been behind recent cyberattacks on Iranian facilities but played down the possibility of them having a role in a series of fires and explosions at military and other installations. Since late June, several fires or explosions have been reported at military, industrial, and nuclear sites in Iran and oil refineries, power plants, factories, and businesses. Some Iranian officials have said a fire at the underground Natanz nuclear facility this month may have been caused by cyber sabotage.
Iraq: Gharraf oil field re-started production last week after going offline in mid-March when the operator, Petronas, withdrew workers to Malaysia before its pandemic-related border closures. The shut-off helped Iraq cut output as part of the OPEC-plus agreement to reduce global oil production. Gharraf averaged more than 95,000 b/d in 2019 but dropped to 59,000 b/d in February 2020 before shutting the field and evacuating March 17.
Libya: The intractable civil war has become a multisided chess match between a variety of outside actors, from Turkey to the United Arab Emirates, France, and Egypt. On the ground, the battle involves thousands of Syrian militiamen, Sudanese mercenaries, and Russian contractors. In the air, countries are deploying a growing number of drones, fighter jets, and missiles. This month, UN Secretary-General António Guterres warned that “foreign interference” was “reaching unprecedented levels.”
The biggest victor this summer seems to have been Turkey, which came to the rescue of the UN-recognized government based in Tripoli and pushed back the months-long offensive waged by the forces of renegade Gen. Haftar. Now, the Turkish-backed Government of National Accord, or GNA, is firmly in command of Libya’s west and may hope to wrest control of the country’s strategic “oil crescent,” an arc of coastal towns and oil facilities in the interior in between Tripoli, the capital, and the eastern city of Benghazi.
Last week, Egypt’s parliament rubber-stamped a motion authorizing troops outside its borders, a move that could lead to Egyptian personnel entering eastern Libya to aid Hafter’s forces. The Libyan warlord is also backed by the Emiratis, the Russians, and, to a lesser extent, France. While some of these governments have grown frustrated with Hafter’s bloody-minded pursuit of a military victory, Egypt’s dictatorial President Abdel Fatah al-Sissi seems keen on entering the fray against Turkey’s allies.
There’s an element of a personal and ideological clash. Turkish President Erdogan has opposed Sissi ever since the latter came to power in a 2013 coup that brought down Egypt’s short-lived, democratically elected Islamist government. The conflict now is as much about a secularist general who locked up political Islamists, and a political Islamist who locked up secularist generals as about control of Libya’s oil.
Venezuela: Nearly 5 million Venezuelans have abandoned the collapsing country in recent years, mostly to scrape out meager livings elsewhere in Latin America. But as countries from Argentina to Peru to Colombia shut down to slow the spread of the coronavirus untold thousands of desperate Venezuelans, now jobless, hungry, and living without a safety net, are heading home.
Last week President Maduro was forced to send reinforcements to the Columbian border for control. Many are stealing in, entering the country through illegal crossings, without testing for the coronavirus. Maduro says they’re fueling a dangerous spike in cases. “Those who cross back home illegally, are killing your families,” Maduro said in a televised speech last week. “The Colombian virus has sneaked everywhere and is killing good people.”
Venezuela’s US-backed opposition says Maduro’s government is making a bad situation worse by penning new arrivals in ill-equipped quarantine centers, where opposition figures say the virus is spreading. The sides agree on at least one point: this South American nation, with its tattered health-care system, is now belatedly witnessing a long-feared coronavirus outbreak, with cases soaring and hospitals overwhelmed.
3. Climate change
A new study of the relationship between carbon dioxide and global warming lowers the odds-on worst-case climate change scenarios while also ruling out the most optimistic estimates nations have been counting on as they attempt to implement the Paris Agreement. The research, published Wednesday in the journal Reviews of Geophysics, narrows the answer to a question that’s as old as climate science itself: How much would the planet warm if humanity doubled the amount of CO₂ in the atmosphere?
That number, known as “equilibrium climate sensitivity,” is typically expressed as a range. The scientists behind this new study have narrowed the climate-sensitivity window to between 2.6° Celsius and 3.9°C. The authors’ confidence is that three independent lines of evidence—the modern temperature record, geological evidence, and the latest Earth systems models—all agreed on the same answer.
According to the letter sent by a group of large investors, climate change threatens to create turmoil in the financial markets. “The climate crisis poses a systemic threat to financial markets and the real economy, with significant disruptive consequences on asset valuations and our nation’s economic stability,” reads the letter, which was signed by more than three dozen pension plans, fund managers and other financial institutions that together manage almost $1 trillion in assets.
Investors worry that if regulators and elected officials do not act, climate change may cause the price of some companies to fall suddenly, the effects of which may ricochet through the economy. Providing more information about that risk — for example, by requiring companies to disclose more about their greenhouse gas emissions, or which of their facilities are at risk from rising seas — could help investors make better decisions.
Renewable energy has surged to capture a record share of global electricity generation during the coronavirus downturn. The steep drop in electricity demand, down by more than a fifth in some parts of the world, has hit energy producers everywhere. But because renewable energy has zero variable costs – the sun and wind are free once solar, and wind farms are constructed – coal and natural gas are often pushed out of the market first.
More than a tenth of gas flares in the Permian Basin tend to malfunction and release unlit methane into the atmosphere, according to the Environmental Defense Fund (EDF). The fund’s report is based on a new aerial survey. Malfunctioning and unlit flares are a longstanding problem for the industry, and one of the largest sources of methane emissions in the Permian says the EDF. “The fact that we have not seen any improvement in flare performance over three separate surveys tells us that industry and regulators need to get much more serious about it. The best solution is to eliminate routine flaring altogether.”
The East Antarctic ice sheet, which holds 80 percent of the world’s ice, may be even more vulnerable to warming than once believed. Scientists had determined that this ice sheet last retreated about three million years ago. But a new paper in the journal Nature suggests—based on a study of crystals collected from the region—that a large part of it collapsed only 400,000 years ago. Most startling of all, the team’s calculations suggest that the dramatic change happened during an extended but relatively mild warm spell.
4. The global economy and the coronavirus
Almost 40 countries reported record single-day increases in coronavirus infections over the past week, around double the number that did so the previous week. The rate of cases has been increasing in countries like the United States, Brazil, and India, which have dominated global headlines with large outbreaks but also in Australia, Japan, Hong Kong, Bolivia, Sudan, Ethiopia, Bulgaria, Belgium, Uzbekistan, and Israel, among others. Many countries, especially those where officials eased earlier social distancing lockdowns, are experiencing a second peak more than a month after recording their first.
Early data from trials of three potential coronavirus vaccines released on Monday, including a candidate from Oxford University, increased confidence that a vaccine can train the immune system to recognize and fight COVID-19 without serious side effects. Whether these efforts will result in a safe and effective vaccine capable of protecting billions of people and ending the global pandemic is still far from clear. All will require much more extensive studies to prove they can prevent infection with the virus.
According to a senior Singaporean official, emerging economies could see the gains they’ve made over recent decades unravel, with economic, social, and political consequences for the rest of the world. “When we think of the future of the world economy, it’s fundamentally about whether the emerging world will emerge or whether it’s going to submerge.”…“Everything from forced migration and the export of political extremism will become a reality if we see limited growth and large numbers of people become unemployed, either formally or informally.”
United States: It was a bad week for America with the coronavirus spreading rapidly across parts of the US and economic recovery showing little sign of continuing. Some states are re-imposing restrictions on commerce, particularly tighter rules around bar and restaurant openings. An additional 1.4 million people filed for unemployment insurance – the first time since March that new claims have risen from the prior week.
Official numbers have begun to confirm what many Americans feel in their bones: the economy is buckling once again. Despite assurances from the Trump administration that better times are at hand, the worsening pandemic is restraining or even snuffing out the economy’s nascent recovery. A growing body of evidence indicates America’s rebound from the epidemic is stalling just before hundreds of billions of dollars in federal aid is set to expire.
Congress and the White House may eventually iron out an agreement on a new stimulus package, but for now, they remain far apart on many of the critical details. Whether the talks are ultimately successful or not, one thing is now crystal clear: Until a vaccine or effective treatment for Covid-19 is available, the US will at best post tepid, uneven growth and, at worst, endure an extended period of malaise or even a depression.
China: With the closure of consulates in Houston and Chengdu, relations between Washington and Beijing have fallen to a recent low. The Trump administration’s broad assault on China has left its leadership with few options that would not threaten a complete breach in relations. If that happened, it would leave Beijing even more isolated at a time when China is also clashing with India, Britain, Canada, Australia, and many other countries. It could also hurt the Chinese economy when it is already suffering from the pandemic and its global fallout.
In recent weeks, Beijing has endured a campaign against its 5G wireless technology, sanctions on officials overseeing Hong Kong and the Muslim region of Xinjiang, and now accusations that China has dispatched scores of soldiers undercover to steal commercial, military and even medical secrets. So far, Beijing has been restrained in its response, while waiting to see how the US November elections turn out.
Although Beijing has done a remarkable job in getting the coronavirus under control and reviving parts of its economy, new problems arise. Heavy rain has battered central and southern China over the past two months, causing widespread flooding—the worst in decades. Since the beginning of June this year, the floods have impacted more than 45 million people in 27 of China’s provinces, exacting an economic cost of more than $16.5 billion. Concerns are rising about the Three Gorges Dam, the world’s largest hydroelectric facility. The water level at the dam has increased to its highest point since construction was completed in 2009.
China’s monthly wheat imports jumped to the highest in almost seven years in June, as the world’s largest consumer of the grain seeks to increase food supplies amid the floods, the pandemic, the hog virus, and to take advantage of low global prices.
Record Chinese crude oil imports over the past few months have supported still weak global oil demand and instilled confidence in the market that the demand recovery will continue. But the Chinese buying spree may be coming to an end, as oil is not as cheap as it was in April, and as China is estimated to have amassed extensive crude inventories in commercial and strategic storage. Potentially lower-than-record Chinese oil imports in the coming months, combined with growing fears of a second coronavirus wave, could be significant drags on oil prices, especially if demand recovery outside China stalls.
Congestion at China’s east coast oil ports is likely to run well into August, with crude shipments set to hit another record high this month. The massive inflows are straining offloading facilities, while refiners and port operators in Shandong province — home to a quarter of China’s refining capacity — are rushing to build new storage tanks. July seaborne arrivals into the world’s biggest oil importer are expected to surge to 14.4 million b/d.
China is set to boost its gasoline and gasoil exports from August as state-run refiners actively seek to clear the country’s oil product stockpiles with the heavy rains and floods significantly denting domestic consumer and industrial fuel demand.
European Union: Parts of the European economy hardest-hit by the pandemic are showing signs of recovery, but other areas of activity that began to bounce back earlier have leveled off, suggesting the damage will be longer-lasting than some economists hoped. Travel and tourism – an essential part of southern European countries’ economies – is picking up from very low levels. However, industry and trade indicators that improved in May and June are plateauing well below average activity levels, and there is no sign of any improvement in the labor market.
European Union leaders clinched a “historic” deal on a massive stimulus plan for their coronavirus-throttled economies in the early hours of Tuesday, after a fractious summit that lasted almost five days. The agreement paves the way for the European Commission, the EU’s executive, to raise billions of euros on capital markets on behalf of all 27 states, an unprecedented act of solidarity in almost seven decades of European integration. Many had warned that a failed summit amid the coronavirus pandemic would have put the bloc’s viability in serious doubt after years of economic crisis and Britain’s recent departure.
The EU set an overall climate target of 30 percent to apply to climate protection and investment in green policies. This means that as much as $572 billion could be spent on climate in the period through 2027, but this spending is far below what analysts see as an investment necessary to reach the EU climate goal to become carbon neutral by 2050. Investments “shall comply with the objective of EU climate neutrality by 2050 and contribute to achieving the Union’s new 2030 climate targets, which will be updated by the end of the year. As a general principle, all EU expenditures should be consistent with the Paris Agreement’s objectives,” the EU said.
Russia: The official Kremlin-approved COVID-19 statistics say Russia has had some 805,000 infections but only 13,000 deaths. Both of these numbers seem low for a country of 142 million people that has been open for business for the last few weeks. Based on the death rates seen in comparable European countries, the state of Russia’s health care, and the average age of Russia’s population, the actual number of deaths from the virus should be 2 or 3 times higher than Moscow’s official number.
According to the finance ministry’s recommendations for budget expenditures in the next three years, the government is mulling over cutting its military budget by 5 percent between 2021 and 2023. Russia is also considering cutting spending on the court system and wages for civil servants by 10 percent. Low oil prices, Western sanctions over the Crimea, and the coronavirus took a toll on Moscow’s economy.
India: India’s 1.3 billion people have access to only about 4 percent of the world’s water resources, and farmers consume almost 90 percent of the groundwater water available. As global temperatures rise and overuse of water depletes existing resources, the threat to lives and businesses in Asia’s third-largest economy is projected to grow.
Nearly half the country’s population faces high-to-extreme water stress, and about 200,000 die each year due to inadequate access to safe water. The water crisis has forced Prime Minister Modi’s government to try and turn around decades of established farming practices and convince the country’s most powerful voting bloc to change the crops they plant. Water-guzzlers like rice and wheat are out, corn and pulses are in.
Saudi Arabia-Kuwait: King Salman bin Abdulaziz was admitted to a hospital in Riyadh early Monday for medical tests, the second elderly ruler of an oil-rich Gulf Arab nation to be hospitalized in less than a week. The 84-year-old monarch was undergoing medical tests after being diagnosed with an inflamed gallbladder. On Sunday, Kuwait announced that its 91-year-old emir, Sheikh Sabah Al-Ahmed Al-Sabah, was admitted to hospital the previous day for checkups and underwent a “successful surgery.” Crown Prince Sheikh Nawaf Al-Ahmed Al-Sabah temporarily assumed some of his functions and duties. The hospitalizations of these elderly rulers add to the uncertainty that has beset these leading oil producers as they try to battle the twin crises of crude market turmoil and the coronavirus pandemic.
For Riyadh, oil revenues continued to slide in May after the Kingdom ended its oil price war with Russia with income from oil exports plunging by 65 percent year on year. The significantly lower value of oil exports was the main drag on revenue in May – the first month in which the OPEC+ group cut production by record levels.
Saudi Arabia burns crude oil for power generation. This summer, the Saudis could be on track to burn record volumes of crude to keep the air conditioning on while temperatures outside could reach 120 degrees Fahrenheit. The burning of more oil is a setback from earlier Saudi plans to reduce its reliance on crude for electricity generation. Saudi Arabia also has less natural gas to use for power generation this summer because the ongoing OPEC+ oil production cuts affect the associated natural gas production at its oil fields.
5. Renewables and new technologies
In a recent report, the IEA presented a “faster innovation case” on how net-zero emissions could be achieved globally in 2050. While numerous countries, states, and companies have set net-zero emissions goals for 2050, the question of just how to reach that goal within the next 30 years has come under increasing scrutiny. The IEA’s report on Clean Energy Innovation, released this month, says that in its faster innovation case, almost half of all the additional emissions reductions in 2050 “relative to current policy plans” would be from technologies that have not yet reached the market today.
To reach the 2050 goal, research and development of new technologies must be accelerated, with some new technologies entering the field test stage within the next six years. Given the amount of development work that will be required, and the relatively short amount of time available to reach the 2050 goals, “there can be no failures, no hiccups”.
Dozens of new electric-vehicle models are expected to arrive at dealerships in the next few years. The pressure is building on General Motors, Volkswagen, and other major automakers to deliver on their electric-vehicle plans, as investor enthusiasm for the technology has grown in recent months. Despite coronavirus-related setbacks, car companies in the coming months are expected to unleash a wave of new plug-in models to catch up with Tesla and meet governments’ tightening restrictions on how much vehicles can pollute.
Compared to Europe, where governments are preparing to spend billions to increase hydrogen as a fuel, there has been little interest in using hydrogen in the US. However, this may be changing. Cummins, Plug Power, Caterpillar, Nikola, 3M, and Hornblower Yachts are among the companies that will receive funding from the US Department of Energy for various hydrogen research projects.
Roughly $64 million will be passed out for 18 different projects that support the department’s [email protected] initiative, which targets research and development for affordable hydrogen production, storage, distribution, and use. “Hydrogen has the potential to integrate our nation’s domestic energy resources, add value in industrial and energy-intensive sectors, and broaden technology choices for medium- and heavy-duty transportation,” US Secretary of Energy Dan Brouillette said in the department’s announcement.
Wind power’s falling cost is shaping up to be a boon for another clean energy source: green hydrogen. Hydrogen — a fuel made by electrolyzing water — requires a tremendous amount of power to run the electrolysis process. But siting hydrogen facilities at wind farms, which typically generate more electricity than they need at night, could give the fuel an edge.
Producing hydrogen at wind sites in the US Midwest and Texas could make it competitive within two years, Morgan Stanley said in a research note. It would cut costs, creating an opportunity for wind-farm developers and companies that seek to generate and use green hydrogen “to form strategic alliances.”
NextEra Energy Resources plans to propose a roughly $65 million hydrogen pilot project at Florida Power & Light; it could to be in service in 2023, pending Florida Public Service Commission approval. The project will use solar energy that would otherwise have been wasted to produce 100 percent green hydrogen through a 20-MW electrolysis system. The hydrogen would be used to replace “a portion” of the natural gas consumed by one of the three gas-fired turbines at the Okeechobee Clean Energy Center, a 1,622-MW combined-cycle power plant located in central Florida.
A Korean research team has developed a technology that can be used to mass-produce aviation-grade fuels from wood wastes. This technology could help international aviation companies comply with new emissions regulations scheduled to go into effect in 2027.
Large volumes of lignin are generated as waste in the pulping processes that are used to produce paper. The pyrolysis of lignin produces an oil that has little industrial utility due to its high viscosity. For this reason, lignin waste is typically used by paper mills as a low-grade boiler fuel rather than a high-grade fuel or raw material for chemical products.
6. The Briefs (selections from the press – date of article in the Energy Bulletin Weekly is in parentheses – see more here: daily.energybulletin.org/ )
Oil exploration is an expensive and risky business that can take years and billions of dollars of investment. Environmentalists and some activist investors – especially in Europe – are pushing oil companies to shrink their legacy fossil fuel businesses, stop their search for new acreage, and focus on lower-carbon technologies and alternative sources of energy. (7/23)
Schlumberger, the world’s largest oil-field services company, is cutting about 21,000 jobs as oil producers slash spending in response to a historic drop in prices amid the coronavirus pandemic. Schlumberger said Friday that it recorded $3.7 billion in impairment charges in the second quarter, including about $1 billion related to the job cuts, representing roughly one-fifth of its workforce. (7/25)
In Italy, a prosecutor in Milan asked for eight years of jail time for Eni Chief Executive Officer Claudio Descalzi over an allegedly corrupt $1.1 billion Nigerian oil deal. The court should conclude later this year on the accusation that most of that payment was distributed as bribes. Several other former executives of Eni and Royal Dutch Shell Plc are also on trial in the same case. (7/22)
On the Azerbaijan/Armenian border, a decades-long military conflict reignited last week. The conflict poses a threat to energy markets. The Caucasus is a major oil and gas transfer chokepoint that involves Russia, Turkey, Iran, Azerbaijan, Armenia, and Central Asian countries. Energy market observers should be concerned about the proximity of the current military clashes to the Baku-Turkey oil and gas pipeline systems. (7/20)
Israel has approved a multinational accord to lay a pipeline that will facilitate the export to Europe of natural gas found in Israeli and Cypriot waters. The $6 billion plan, formulated by the energy ministers of Israel, Cyprus, Greece, and Italy, is for a 1,181-mile corridor that will link known and yet-to-be-discovered gas fields in the eastern Mediterranean basin with European markets. (7/20)
Qatari LNG: The current energy market crisis could benefit Qatar and fuel a second gas boom. The world’s top exporter of liquefied natural gas three years ago surprised markets by lifting a drilling moratorium from the offshore North Field, which it shares with Iran. In 2019, Qatar then said it would boost LNG production from 77 million tons currently to 126 million tons by 2027. Low prices for LNG sales are depressing the construction of LNG facilities elsewhere. Qatar should win more market share as the competition shrinks, as it remains the cheapest LNG producer. (7/21)
India’s oil-to-telecoms conglomerate Reliance Industries surpassed Exxon as the world’s second most valuable firm doing business in energy after Saudi Arabia’s oil giant Aramco. Reliance Industries is the most valuable company in India and has diversified operations, including oil refining. (7/25)
Australia’s coal power plants, which make up more than half of the nation’s generation mix, are facing increased pressure as rooftop solar hollows out daytime demand. That could mean early closures among the country’s aging fleet, giving energy planners the tricky task of ensuring energy security while replacing the steady, predictable flow of power with more variable renewable generation. (7/23)
Colombia fracking stalled: Shifting regulations, an unclear legal environment, and community disapproval of fracking make unconventional oil operations in Colombia an unappealing and hazardous investment. This is magnified by elevated security risks (27 attacks on oil pipelines during January-May) and low oil prices, making it uneconomic and highly unattractive for oil companies to invest the considerable capital required. (7/24)
Mexico’s national oil company, Pemex, has been acting as if the price crash never happened, vowing to nearly double drilling activity and, ironically, needing the intervention of Donald Trump to meet its assigned production cut of 400,000 b/d required by OPEC+. But in a true testament of just how brutal the oil price crash has been, Pemex has finally bowed to the pressure by planning to trim their 2020 capex by 30 percent. (7/21)
The US oil rig count inched up by 1 to 181 last week, vs. 776 rigs one year ago, according to Baker Hughes data. The number of active gas rigs fell by three rigs, landing at 68 rigs compared to 169 rigs a year ago. Total active rigs are down 74 percent year-over-year. (7/25)
Orphaned and abandoned wells are those whose owners are unknown or insolvent. A federal program to plug nearly half a million orphaned and abandoned oil and gas wells could create as many as 120,000 energy-sector jobs while cutting methane emissions. (7/22)
Flaring and health risk: New research on gas flaring suggests that the practice poses a significant threat to expectant mothers. The study published this month in the journal Environmental Health Perspectives found that pregnant women who lived near areas where flaring is frequent had 50 percent greater odds of giving birth prematurely than those who did not. The lead author said living near flaring operations is on a par with the risk of smoking. (7/24)
Halliburton is scaling back shale: This week, Bloomberg reported that “Halliburton is looking away from its traditional North American heartland for sales growth as the fracking behemoth works its way through a historic oil bust.” The report suggests that Halliburton is pursuing a course going forward that may not include US shale, once a major cash cow for the company. (7/23)
Schlumberger reported on Friday a second straight quarterly loss on the back of a dramatic revenue slump in US shale and asset impairment charges. In what “has probably been the most challenging quarter in past decades,” as CEO Olivier Le Peuch said, Schlumberger’s total revenues slumped by 28 percent quarter on quarter and by 35 percent year on year. (7/25)
In Oklahoma, multiple issues could affect the future of natural gas and oil production, including a recent US Supreme Court ruling likely giving the state’s Native American tribes more control over drilling and other activities. (7/24)
Another pipeline hubbub: The high-profile case of the Dakota Access oil pipeline ordered shut earlier this month has overshadowed another legal dispute over a smaller pipeline carrying crude out of the Bakken shale basin. The Tesoro High Plains Pipeline was also ordered shut in early July, after 67 years of operations, by the US Interior Department’s Bureau of Indian Affairs for trespassing on land owned by Native Americans. (7/22)
Tesla to TX: Tesla will build its $1.1 billion Cybertruck factory near Austin, Texas, ending an intense competition with neighboring Oklahoma. The 2,000-acre site on the Colorado River is about 13 minutes from downtown Austin. (7/23)
EV euro charging boom: Volkswagen is rolling out its own charging service to coincide with the market launch of the ID family of electric cars. With We Charge, customers will be able to charge their electric vehicles at more than 150,000 public charging points all over Europe. (7/21)
Dem’s greening platform: A draft of the Democratic National Committee’s (DNC) climate platform calls for net-zero emissions by 2050. This is in line with the policy goals set forth by presumptive presidential nominee Joe Biden. (7/25)
Renewable power has taken up a record share of global electricity production since the onset of the coronavirus pandemic, according to a Reuters review of data, suggesting a transition away from polluting fossil fuels could be accelerated in the coming years. (7/22)
Swedish coal sink: Vattenfall AB took a massive hit on the value of a new German coal plant in yet another sign of how the fossil fuel is struggling in Europe. The Swedish utility wrote down the value of the Moorburg facility in Hamburg by $1 billion. The plant opened in 2015, and by then, Vattenfall had already taken impairment losses of $500 million for the project. (7/22)
Authorities in Australia, the driest inhabited continent, which last year had its lowest annual rainfall on record, are progressing with at least half a dozen new dams or dam upgrades, amid a continuing drought that contributed to last summer’s devastating wildfires. Some dams are being fast-tracked to counter the drought’s impact. Officials say the projects can create jobs in an economy reeling from the coronavirus pandemic. (7/20)
Ghana’s independent power producers, which produce almost half of the country’s electricity, say they could stop supply over government debt to them that amounted to $1.4 billion as of June 30. According to the IPPs, the unpaid bill continues to accumulate, compelling the IPPs to contract costly loans to sustain their generation. (7/22)
Ethiopia’s prime minister said recent negotiations with Egypt and Sudan had paved the way for an agreement over the country’s hydroelectric dam on one of the Nile River’s tributaries, in a sign of progress in efforts to end a decade-long dispute over management of the river’s waters. (7/22)
Offices and commuting shrinking: More than 25 large companies plan to reduce their office space in the year ahead, a move designed to reduce the second-largest expense after payrolls at corporations. Energy company Halliburton Co said it intends to close more than 100 facilities. (7/23)
The next breakthrough in aircraft design is likely to come from a “disruptor”—a Tesla-like player—rather than the two dominant plane makers Boeing and Airbus, according to one of the industry’s biggest customers. (7/23)
Mass transit blues: Riders are skittish. Cleaning costs are soaring. Some, like the Bay Area’s Caltrain system, face an existential crisis. Officials talked of shutting Caltrain after San Francisco supervisors last week declined to put a proposed tax increase on the November ballot. (7/23)
Hurricane update: Meteorologists have noted that the Atlantic may not be far from cranking out its seventh named storm of the 2020 season, a feat more typical of mid-September than late July. It comes as scientists note that toasty ocean temperatures could help breed multiple powerful storms in the coming weeks to months. (4/22)