Tom Whipple and Steve Andrews, Editors

Quote of the Week

“It will take years for [economic activity] to recover and the price for our products is tied to economic activity. We would need to see sustained economic recovery and much lower inventory levels before we would add capital back to the Permian or other basins. We’re in a lower-for-longer world where demand is down and there’s ample supply.”-Pierre Breber, Chevron Chief Financial Officer Pierre Breber

Graphic of the Week

1. Energy prices and production 

Oil posted a small gain in July, boosted by a steadily weakening dollar and OPEC’s restraint. Deep output curbs by OPEC+ have helped futures rebound from their plunge below zero in April, yet the unprecedented cuts will ease this month. US crude inventories have shown signs of shrinking and are currently sitting at their lowest since April.

Futures have remained in a tight trading range with rallies limited by the pandemic holding back demand. ExxonMobil said it only sees an oil consumption recovery well into 2021.

US crude oil inventories moved sharply lower during the week ended July 24th as exports and refinery demand climbed to multi-month highs. Commercial oil stocks fell 10.61 million barrels, the biggest draw since 2019. While the draw pushed stockpiles to 14-week lows, they remained more than 17 percent above the five-year average for this time of year. The inventory draw was concentrated on the US Gulf Coast, where stocks fell 10.46 million barrels, and on the US West Coast, where stocks fell 1.7 million barrels. Meanwhile, stockpiles at the NYMEX delivery point of Cushing, Oklahoma, climbed 1.31 million barrels.

US oil companies have increased production by 1.2 million b/d over the past six weeks as they restored wells shut earlier this year and start producing from others they had left unfinished as prices sank. Output bottomed at 9.7 million b/d in the second week of June but has since risen to 10.9 million b/d as activity starts to pick up in Texas.

Natural Gas: US electricity plants burned a record 43.7 Bcf/d, setting new single-day records twice last month at over 45 Bcf/d and subsequently at over 46 Bcf/d. Recent coal-fired power retirements, new combined-cycle gas capacity, and hot temperatures have bolstered gas demand from power generators this summer. Additionally, historically low gas prices at under $2 have also supported the economics behind fuel-switching from coal to gas. A recent uptick in US industrial activity, which has continued to recover from a second-quarter decline, has also supported total US gas demand.

Tightening supply-demand fundamentals have been supported by smaller injections into US gas storage, which have been on par with or below historical averages in the past month. Henry Hub gas prices were on the rise in late July, trading at more than $1.70 recently. In late June, Henry Hub prices tumbled to a 21-year low, settling at $1.40.

The pandemic has curtailed associated gas production in the Permian basin, temporarily relieving some gas flaring, but the basin could return to record gas production levels by the end of 2021.

State-owned China National Petroleum Corporation is in talks to buy a 10 percent stake from BP in a giant natural gas field in Oman in a deal that could be worth $1.5 billion. BP, which has had a presence in Oman since 2007, holds 60 percent in the Khazzan natural gas field, one of the Middle East’s most abundant gas resources. Production at the field began in 2017.

OPEC: The OPEC+ alliance — led by Saudi Arabia and Russia — took a record 9.7 million b/d of daily output, or roughly 10 percent of global supply, offline when demand plunged in the spring. They intend to restart about 1.5 million b/d this month. However, the recovery in global oil demand is faltering amid a resurgence of the virus. That poses a particularly delicate challenge for the OPEC+ collaborative.

While the alliance is eager to ramp up oil sales after successfully reviving prices, the world economy’s relapse means that extra supply is arriving at a fragile moment and could send the market lower again. “We’re in quite a finely balanced place in terms of the scope to increase production,” said Alex Booth, head of research at market intelligence firm Kpler SAS. “You have to have quite a bullish view on the demand recovery to justify any significant increase.”

In the long run, the coronavirus crisis may have triggered the long-anticipated tipping point in oil demand, raising concerns in OPEC. The pandemic drove down daily crude consumption by as much as a third earlier this year when the rise of electric vehicles and a shift to renewable energy sources were already prompting downward revisions in forecasts for long-term oil demand. These developments have led some OPEC officials to ask whether this year’s dramatic demand destruction heralds a permanent shift and how best to manage supplies if the age of oil is in gradual long-term decline.

Shale Oil: Forty publicly traded US oil producers wrote down a collective $48 billion worth of their assets in the first quarter of 2020, just after oil prices collapsed, the EIA said last week. According to an analysis of publicly filed financial statements, the 40 listed companies produced a total of 6.1 million b/d of crude oil and other liquids in the US or about 30 percent of all the US liquids production in Q1. The companies include Occidental, Apache Corporation, Concho Resources, ConocoPhillips, EOG Resources, Marathon Oil Corp, Noble Energy, Parsley Energy, Whiting Petroleum Corporation, and Extraction Oil & Gas, Inc, among others.

Meanwhile, US shale producers are signaling that supply will come roaring back over the next few months with futures around $40 a barrel. ConocoPhillips said last week that it would restart by September most wells that were shut earlier.

The uncertainty surrounding the future operations of Dakota Access, the critical pipeline carrying crude out of the Bakken, is stalling oil companies’ plans to invest in bringing production back online. A federal judge ruled on July 6th that the Dakota Access Pipeline, in operation since 2017, must be emptied and shut down by August 5th, until a new comprehensive environmental review is completed. A week later, a US Appeals Court ruled that Dakota Access can continue to operate while the court considers whether the pipeline should be shut down.

Prognosis:  Sluggish oil demand recovery with resurging coronavirus cases in many parts of the US and the world, plus the return of previously withheld production from OPEC+ and North America, have combined to flip the oil futures curve again towards a new glut looming this year. Over the past week Brent Crude futures for September 2020 have been trading lower than the futures contracts further out in time, which means the market is now back into contango—the state in which prices for delivery at later dates are higher than front-month prices.

Oil prices are unlikely to go much higher than current levels if global oil demand recovery doesn’t pick up in a meaningful way during the second half of the year, the monthly Reuters poll of analysts and economists showed on Friday. According to 43 experts surveyed, Brent Crude prices will average $41.50 per barrel in 2020, an upward revision of $1 a barrel compared to last month’s forecast of $40.41 per barrel. WTI Crude now is projected to average $37.51 a barrel in 2020. In last month’s Reuters poll, analysts said that oil prices were unlikely to jump in any significant way this year, despite the OPEC+ production cuts, as the economic and oil demand recovery are set to pick up steam only in the fourth quarter.

2. Geopolitical instability 

Iran: Suffering mightily under the impact of US sanctions, a collapse in oil prices and sales, and a severe epidemic, Iran is scrambling to buy food and medicine. Despite such essentials being exempt from US sanctions, banks and governments are reluctant to transfer or take Iranian money because they fear unwittingly breaching the complex US restrictions. An approved trade channel launched by the Swiss government and backed by Washington – the Swiss Humanitarian Trade Agreement – started in February after over a year of work to facilitate Iranian purchases from Swiss companies.

However, Iran’s central bank has been unable to transfer the billions of dollars worth of oil export cash it had built up between 2016 and 2018 to bank accounts working with the Swiss trade channel. That money was accumulated in bank accounts in countries that Iran sold oil to, especially in Asia, with its biggest customers, including South Korea and Japan, in the years after Iran signed the nuclear accord with world powers, but before the Trump administration withdrew from the accord and reimposed sanctions in 2018.

The funds were frozen when the sanctions were reintroduced. As a result, international banks and their governments are wary of allowing funds to be released without specific authorization from Washington for each transfer. This situation illustrates how the complexity of US sanctions has made many banks, companies, and countries wary of doing any business with Iran because breaches can involve substantial financial penalties and being effectively shut out of the crucial US financial system.

In a Friday speech for the Eid al-Adha holiday, Ayatollah Ali Khamenei said that Iran will expand its nuclear program and not negotiate with the US.  Khamenei noted that entering talks with Washington over Iran’s nuclear program would only improve Trump’s chances of being re-elected.

The announcement by Iran’s Petroleum Ministry that it has awarded a $1.3 billion development deal to more than double oil production at the supergiant South Azadegan oilfield is the second such oil project signed this month. The other is a $300 million development contract for Yaran.

While the contracts were awarded to Iranian firms, these firms will likely subcontract the work to small unknown startups controlled by giant Chinese state-run oil companies. In this way, China can aid Iran in developing its oil without garnering much attention from Washington.

Iraq: Prime Minister al-Kadhimi has redeployed security forces and replaced senior officials at crucial border points to rein in paramilitary groups. Of particular concern is Basra’s Um Qasr Port, a key chokepoint for the oil industry. Framing the initiative as “an anti-corruption campaign,” Kadhimi visited Um Qasr and a land crossing with Iran in Diyala province and also ordered the elite Counter-Terrorism Service to deploy to the al-Qaim border crossing with Syria in Anbar.

Iraq’s financial crisis has left the state unable to hire tens of thousands of newly trained medical personnel. Staff shortages, as well as scarce oxygen and equipment supplies, are severely hampering COVID-19 containment measures, according to doctors, medical graduates, and researchers.

Iraq is increasing the pace of development on a number of its major oil fields. Last week the Oil Ministry announced that work has started at its Gharraf oilfield in preparation for restarting output. This announcement came quickly after the decision that a significant drilling program will soon begin on the Nasiriyah oil field. The 4.36 billion-barrel Nasiriyah oilfield in southern Iraq’s Dhi Qar province has been considered by each of the rapid succession of governments in Iraq since the Iraq National Oil Company discovered it in 1975.

These plans have variously been for the standalone development of the oil field or its development within the broader scope of the ‘Nasiriyah Integrated Project’ that includes the construction of a 300,000 b/d refinery. All significant plans stalled in one way or another, but last week’s signing of an 18-month contract with Weatherford International, a well-drilling company, signals that serious development has begun.

In addition, Iraq is putting the Ratawi oil field at the center of a proposed deal with Saudi Arabia. The Oil Ministry is negotiating with the Saudis and US firm Honeywell over a multi-faceted agreement that would involve the development of the Ratawi oil field, the construction of a gas processing hub, and new electricity generation, according to two officials familiar with the details. If the project goes forward, it will give Saudi Arabia its first significant investment in Iraq’s energy sector, and it would help Iraqi reduce its dependence on Iran.

Libya: Since June, mercenaries from the Wagner Group, a Russian firm with strong ties to the Russian government, have moved to secure Libya’s largest oil field and its most crucial oil-exporting port, Es Sider. This move has led Libyan warlord Haftar to maintain a blockade of the country’s petroleum exports in defiance of US pressure to restart them, according to Libyan and Western officials.

Libya has become a key front in a struggle between the US and Russia for influence in the Middle East and access to strategic assets. The two nations have also locked horns in Syria, where Russian and American troops patrolling near oil fields in eastern Deir Ezzor province have engaged in roadside confrontations.

3. Climate change

Record high temperatures have plagued the Middle East with new highs set in Iraq, Iran, Saudi Arabia, Lebanon, and Syria. Baghdad surged to its highest temperature ever recorded Tuesday with a preliminary high of 125.2 degrees (51.8 Celsius). On Wednesday, Baghdad followed up with a temperature of 124 degrees, its second-highest temperature on record. With the state electricity grid failing, many households rely on generators to power fridges, fans or air-conditioning units. Two protesters were shot dead by security forces Monday during demonstrations over a lack of electricity and essential services amid the heatwave.

In nearby Lebanon, a nationwide electricity crisis has left much of the country with less than three hours of state-provided power per day. A town about 30 miles east of Beirut registered Lebanon’s highest temperature on record Tuesday, 113.7 degrees, while additional locations in Iraq and Saudi Arabia also set records. Damascus, Syria’s capital city, tied its hottest temperature on record, hitting 114.8 degrees.

As much of the Middle East was experiencing record-high temperatures, flash floods were ravaging Yemen, leaving dozens dead and destroying thousands of homes. Yemen is already mired in fighting, widespread hunger and a significant coronavirus outbreak, so that the spate of torrential rains is exacerbating the world’s worst humanitarian disaster. In southern Yemen, 33,000 displaced people who were sheltering in camps lost their tents and belongings in the floods, the ICRC reported, adding that dozens have died across the country.

A new study published last week finds that much of the economic harm from sea-level rise is likely to come from an additional threat that will arrive even faster. As oceans rise, coastal storms, crashing waves, and extreme high tides will be able to reach farther inland, putting tens of millions more people and trillions of dollars in assets worldwide at risk of periodic flooding.

The study, published in the journal Scientific Reports, calculated that up to 171 million people living today face at least some coastal flooding from extreme high tides or storm surges. While many people are protected by sea walls or other defenses, such as those in the Netherlands, not everyone is.

It was 12 miles wide, invisible to the naked eye, and traveled across six counties to Florida’s Jacksonville. It is still unclear who or what was responsible. The mysterious plume of methane, estimated to total 300 metric tons, was released north of Gainesville between May 2 and May 3, when it reached Jacksonville, according to Bluefield Technologies Inc., which analyzed data from the European Space Agency’s Sentinel-5P satellite.

Methane, a global-warming gas that’s 80 times more potent than carbon dioxide, has become a significant concern for environmentalists who are stepping up pressure on energy companies to curb emissions of the gas from oil fields, pipelines, gas storage facilities, and power plants. In recent months, satellite observations are beginning to make large methane leaks more transparent.

Scientists are sure that the Arctic ice is disappearing, and the shrinking ice cap accelerates warming globally. As Greenland and other Arctic glaciers lose ice, they help raise sea levels, potentially exposing millions of people to flooding. Nearly every dramatic headline-grabbing effect of climate change, from alarming coastal erosion to intense and frequent fires, is already happening in the Arctic, at a fast pace and of large magnitude.

However, unlike other areas of the planet, the Arctic is so inaccessible that there’s very little data to predict with precision how the ice cap will change under rapid warming. Researchers on the icebreaker Polarstern’s Mosaic mission—the largest polar expedition in history and the first modern vessel to spend a full winter close to the North Pole—are aiming to fill in the gaps of knowledge.

As China struggles to recover from the pandemic’s impact, it is set to deal another blow to global efforts to fight climate change. The party has a history of sacrificing environmental regulations as soon as GDP targets and economic growth have been threatened.

In regular economic times, China’s soaring carbon dioxide emissions are the largest single part of the dire threat posed by climate change. While it’s often reported that China’s CO2 levels lead the world, few appreciate the scale: how disproportionate they are compared to other large emitters, the speed of their growth, and the impossibility of reining them in as long as the Communist Party remains in power. In 1990, China’s CO2 emissions were just half those of the United States. In the next 15 years, they more than doubled, overtaking the US.

While in recent years Beijing has moved to reduce air pollution in its major cities, dirty air is still visible and affects everybody, although it has the most significant impact on older people in poor health. Reducing air pollution to acceptable levels can be done rather quickly – in days when the government is willing to shut down smoke emitters and cut traffic. Targeting CO2 emissions is more subtle and will take decades to control. China is currently suffering from unprecedented flooding, which likely has been exacerbated by climate change, which in turn was exacerbated by carbon emissions.  At some point, the costs of climate change  could well force new policies in Beijing.

4. The global economy and the coronavirus

Details of the toll the coronavirus took on economies were issued in the US and Europe last week and they were abysmal. According to the respective government statistical agencies, the US, Germany, France, Spain, and Italy all registered the sharpest and largest declines in the gross domestic product on record. While economies have partially reopened from mandated lockdowns, the pandemic continues to hamper recovery.

New spikes of coronavirus infections in Asia have dispelled any notion the region may be over the worst, with Australia and India reporting record daily infections, Vietnam fretting over a new surge, and North Korea urging vigilance. Asian countries had largely prided themselves on rapidly containing initial outbreaks after the virus emerged in central China late last year. Still, flare-ups this month have shown the danger of complacency.

At its current pace of about 250,000 or so new cases a day, there could be over 50 million infections worldwide by the end of 2020. As for fatalities, “we’ll go well over a million,” Eric Topol, director of the Scripps Research Translational Institute, estimated in mid-June. There are currently about 680,000 coronavirus deaths globally, according to Johns Hopkins University.

United States: A record-setting drop in the US economy from April to June has given way to an increasingly tepid-looking rebound. Consumers appear to be pulling back, and businesses are slowing rehiring. The trend, seen since late June and highlighted by Federal Reserve Chair Jerome Powell in a Wednesday press conference, was given new weight by Thursday’s report of an increase in the number of people claiming unemployment benefits. The hope was for jobless benefits rolls to shrink steadily as the economy rebounded, but they rose by 867,000, to 17,018,000, during the week ended July 18th, the first increase since late May.

US consumer confidence declined in July by more than forecast as Americans became rattled by the recent increase in Covid-19 cases and its impact on the economy and the job market. The Conference Board’s index decreased to 92.6 from a revised 98.3, according to a report issued Tuesday.

Fitch, one of the world’s major credit-rating companies, warned of the US’s worsening public finances on Friday as lawmakers in Washington contemplate spending more to combat the economic fallout from the pandemic. The firm revised its outlook on the country’s credit score to negative from stable, citing a “deterioration in the US public finances and the absence of a credible fiscal consolidation plan.” The country’s ranking remains AAA.

“High fiscal deficits and debt were already on a rising medium-term path even before the onset of the huge economic shock precipitated by the coronavirus,” Fitch said. “They have started to erode the traditional credit strengths of the US.” General government debt is expected to exceed 130 percent of GDP by 2021, Fitch said, noting that the US had the highest government debt of any AAA-rated sovereign nation heading into the current crisis.

China: Crude stockpiles reached a record high in July as refiners struggled to process mass crude oil cargoes purchased during the second quarter, while domestic fuel consumption slowed amid widespread flooding across 23 provinces during the month. As a result, the high inventory has dampened China’s crude oil demand for delivery in the third quarter as it might take a while to destock.

The volume of crude currently bound for China has plunged to its lowest level since early May.  China’s demand for oil seems to be slowing, with physical prices slipping. The reduced number of tankers bound for the Asian country underscores that buying weakness and suggests a drop in imports by China is coming.

China’s manufacturing activity edged up in July and export orders strengthened despite the weak US and European demand, in new signs Beijing’s economy is gradually recovering from the coronavirus pandemic. The monthly purchasing managers’ index issued by the Chinese statistics bureau and an industry group rose to 51.1 from June’s 50.9 on a 100-point scale. China, where the pandemic began in December, was the first economy to shut down to fight the virus and the first to try to revive business.

With nearly seven months gone, the ambitious $36.5 billion target for Chinese imports of US farm goods this year may not be entirely out of reach, but it’s looking like a big, big stretch. By end-May, imports were running behind 2017 levels – rather than 50 percent ahead as needed – and while orders for China’s main farm import, soybeans, have started to pick up, very high levels of buying would be required to hit the mark.

China warned that the worst of the deluges that have led millions to be evacuated may be yet to come, after the third wave of floods formed in the upper reaches of the Yangtze River last week. “The flood control and flood fighting situation are difficult,” China’s water resources ministry said. “The new peak may appear later.” Authorities ordered the Three Gorges Reservoir to save its water-storing capacity in preparation for more flows and forecast another bout of torrential rain in the southern region.

A record number of coronavirus infections in Xinjiang, the Chinese region where authorities have been accused of widespread human rights abuses, has prompted concerns the country faces another wave of the pandemic. On Tuesday, the National Health Commission announced 64 locally transmitted Covid-19 cases, marking the country’s biggest one-day rise since March. Of those, 57 were found in Urumqi, Xinjiang’s capital. In the past two weeks, 280 cases have been confirmed nationwide.

European Union: The euro-area economy plunged into an unprecedented slump in the second quarter, putting it in a deep hole from which it may take years to recover fully. Spain took the biggest hit, shrinking 18.5 percent, while French and Italian output dropped by double digits. The 19-member region, as a whole, saw a 12.1 percent contraction. The declines in activity reflect the effect of strict quarantines measures on businesses and consumer spending and a slump in tourism in some countries.

Because different countries have used various methods to calculate coronavirus deaths, many scientists consider excess mortality a more reliable way to measure the impact of the virus and draw comparisons. Excess mortality would include not just fatalities directly related to COVID-19, the disease caused by the coronavirus, but also the deaths of people who were hesitant to seek care for severe conditions or who did not receive the usual level of care. At the same time, the health system was focused on the pandemic. Last week, Britain’s Office for National Statistics published a new analysis of more than 20 European countries — including the four nations of the United Kingdom.

According to the British assessment, Spain had Europe’s highest national excess mortality peak, with the number of deaths 138.5 percent higher at the beginning of April than in previous years. In mid-April, England had the second-highest peak: The number of excess deaths was 107.6 percent higher than the average. The number of coronavirus patients dying in British hospitals each day has fallen sharply since then.

In some countries, including Italy and Spain, the numbers were localized to specific regions, whereas the increase in Britain’s deaths was more geographically widespread.

A breakdown by city showed that at its worst, the death rate in Bergamo in northern Italy was 847.7 percent higher than usual; in Madrid, it was 432.7 percent higher than average. Some cities saw fewer deaths than usual during this period. When the pandemic was at its worst in Rome, it still reported 2.4 percent fewer deaths than its five-year average.

Russia:   The Health Ministry is preparing a mass vaccination campaign against the coronavirus for October, after a vaccine completes clinical trials. Health Minister Mikhail Murashko said the Gamaleya Institute, a state research facility in Moscow, had completed the vaccine’s clinical trials, and paperwork is being prepared to register it. The minister said doctors and teachers would be the first to be vaccinated. “We plan wider vaccinations for October,” Murashko was quoted as saying.

A source told Reuters this week that Russia’s first potential COVID-19 vaccine would secure local regulatory approval in August. The Gamaleya Institute has been working on an adenovirus-based vaccine. Russia’s speed in moving to roll it out has prompted some Western media to question whether Moscow is putting national prestige before science and safety.

The Crimea peninsula, which Russia annexed by force in 2014. has a semi-desert climate and has always relied on others for its fresh water.  Crimea also suffers from a cyclical drought pattern, which includes periods of reduced rainfall and snow. After the Russian invasion, Kyiv shut down the canal, thus depriving Crimea of some 85 percent of its freshwater.

In July, Russia built a pipeline to transport water from Crimea’s Bilohirsk region to Simferopol, which will only provide temporary relief. The cyclical droughts that have troubled Crimea have also affected the Bilohirsk reservoir, emphasizing the unsustainability of Moscow’s current efforts, which have so far centered on gathering the last of the peninsula’s remaining water reserves to postpone more costly permanent solutions.

Crimea’s two main reservoirs are now at the lowest in years. The immediate impact is on agriculture, though the worsening situation could eventually impact water availability for household consumption.

Other than negotiating a reopening of the Northern Crimea canal, Moscow has few inexpensive solutions. It could build desalinization plants or build a water pipeline to transport fresh water from Russia’s Kuban River across the Kerch Strait into Crimea. But the upfront investment and operating costs of such proposals are higher than what could feasibly be recovered through taxation or water prices.

Thousands of people marched in the far eastern city of Khabarovsk for the fourth weekend in a row, protesting President Putin’s handling of a local political crisis. Residents of Khabarovsk are unhappy about the July 9th detention of the region’s popular governor, who was arrested on murder charges he denies. His detention, which his supporters say was politically motivated, has triggered weeks of street protests, creating a headache for the Kremlin, which is dealing with a sharp COVID-19-induced drop in real incomes.

Saudi Arabia: The kingdom suffered a deficit of $29 billion for the second quarter of the year because of the continued slump in oil prices and oil demand, which affected revenues. Oil revenues for April to June were down 45 percent on the year, with total budget revenues down 49 percent from a year earlier. Saudi Arabia has already taken some austerity steps in an attempt to rein in public spending and mitigate the impact of the oil crisis on its economy, but it seems more will be needed.

Aramco is expected to cut the official selling price for its flagship Arab Light grade by 48 cents a barrel for September sales to Asia. It would be the first drop in four months after a series of hikes that came as OPEC+ cut output and consumption recovered as Asian economies emerged from lockdowns.

A reduction in Saudi prices could signal a pause or even a reversal in the recovery from the coronavirus across oil markets. While Asia led the world in the demand rebound, crude and product stockpiles remain stubbornly high, and the pandemic is still surging or staging a comeback in many countries. Floods and logistical bottlenecks in China in recent weeks have also contributed to a slump in imports, while Indian fuel sales are dropping again.

The kingdom’s 84-year-old ruler, Salman bin Abdulaziz left King Faisal hospital in Riyadh after recovery, the state news agency reported on Thursday. The Saudi king was admitted to the hospital on July 2nd to undergo some medical checks after suffering from inflammation of his gall bladder.

India: When Prime Minister Modi imposed a draconian country-wide lockdown of 1.4 billion people back in March, virtually all economic activity – including logistics, manufacturing, public transport, and most healthcare – came to a near-total standstill. Around 140 million vulnerable workers were thrust into crisis as their earnings collapsed. Yet for all the human suffering and economic damage it inflicted, India’s lockdown failed to flatten – or even slightly bend – the country’s coronavirus curve. With limited testing capacity and restrictive testing policies, authorities struggled to identify infected patients and trace their contacts. Fears of being hauled off to squalid public hospitals or quarantine centers meant that many who became infected were reluctant to come forward. New cases rose steadily.

A new study shows that, as could be expected, more than half of residents in several of Mumbai’s slums may have been infected with the coronavirus. Mumbai and the surrounding metropolitan region, home to about 20 million people, has been hardest hit with more than 100,000 recorded cases and 6,000 deaths. The study indicates that social distancing and sanitation measures have failed to control the virus in Mumbai’s cramped settlements.

India’s government maintains that community transmission of the disease is not happening, a claim widely disputed by public health experts. However, the official death rate has remained lower than in many other countries, including the UK.

5. Renewables and new technologies

A possible energy player of the future saw its status increase last month when the European Commission adopted two closely related strategies. Its new Hydrogen Strategy is part of its Strategy for Energy System. The new strategies presume that hydrogen will play an indispensable role in a future ultra-low carbon energy system. Hydrogen will function as an ‘integration’ technology with applications across sectors that raise the efficiency of the Continent’s entire energy system. It is a critical component of the EC’s Green Deal, aiming for a strict 2030 emission-reduction target and the elimination of net greenhouse gas emissions by 2050.

Japan is preparing to trial imports from Australia of super-chilled liquid hydrogen. German energy utility RWE is promoting hydrogen in a planned liquefied natural gas terminal, while Britain’s National Grid is exploring options for the fuel at its LNG port near London. Many LNG import terminals may allow for the import of both LNG and liquid hydrogen in the future.

For a hydrogen economy to be affordable, the existing energy facilities would have to be used. However, the transition likely wouldn’t be smooth as the smaller hydrogen molecules can pass through valves and seals designed for natural gas, and hydrogen is notoriously volatile. While hydrogen and natural gas can mix as a gas but not as a liquid, new storage facilities and tankers would have to be built because retrofitting LNG terminals would be too costly.

Europe is watching trials in Japan, where the world’s first liquefied hydrogen carrier was commissioned in December. The ship will have a storage capacity of less than 1 percent of current LNG carriers as hydrogen has a lower amount of energy by volume Liquid hydrogen is also much colder. LNG is chilled to minus 162 degrees Celsius (minus 260 Fahrenheit) for transportation by LNG carrier. Liquid hydrogen must be chilled to minus 253C, meaning it would require tankers with more insulation to keep liquified.

Like the first LNG plants decades ago, hydrogen production projects would likely start small and then be scaled up. Transport costs are such that the economics of hydrogen production currently favor on-site production, but an international market is expected to emerge. Traditional pipelines are still also the cheapest means to move hydrogen.

Ukraine’s gas pipeline network is already considering plans to move to hydrogen. And even the controversial Nord Stream 2 link from Russia to Germany could transport 80 percent hydrogen, according to the CEO of a German utility that helps finance the pipeline.

While shipping is generally the most expensive transport method due to high conversion and storage costs, it can compete with pipelines on distances above 3,000 miles if ammonia is used as a medium to store hydrogen. The ammonia would be converted to hydrogen and nitrogen at its destination.

The tokamak building at Iter will house a structure where fusion power is projected to be generated. The world’s biggest nuclear fusion project has entered a five-year assembly phase. After this is finished, and if it works, the facility should start generating the super-hot “plasma” required for fusion power.

The $23.5 billion facility has been under construction in southern France. Iter is a collaboration between China, the European Union, India, Japan, South Korea, Russia, and the US. All members share in the cost of construction.

The US Department of Energy announced $100 million in funding over five years for two new awards focused on advancing artificial photosynthesis to produce fuels from sunlight. The Liquid Sunlight Alliance, led by the California Institute of Technology in close partnership with Lawrence Berkeley National Laboratory, is pursuing a “co-design approach.” This is an effort to make the many complicated steps in converting sunlight to fuels work more efficiently both individually and in concert with each other.

6. The Briefs (selections from the press – date of article in the Energy Bulletin Weekly is in parentheses – see more here:  daily.energybulletin.org/ 

Big Oil burned: ExxonMobil booked a loss of $1.1 billion for the second quarter—the worst loss in its modern history—due to the global oversupply and COVID-related demand impacts. This compares with earnings of $3.1 billion for the same period last year. Chevron also reported on Friday a massive loss for the second quarter. All supermajors reported dismal results for the second quarter. Still, European majors, Shell and Total managed to avoid adjusted losses thanks to their strong oil trading businesses that cushioned the blow from the low oil prices. (8/1)

More hits: Chevron Corp on Friday reported an $8.3 billion quarterly loss, its largest in at least three decades, and joined rival oil producers in writing down billions of dollars in assets due to plunging demand for fuel. Chevron’s oil and gas production write-downs totaled $5.6 billion, mirroring those in recent days at Total, Royal Dutch Shell, and Eni, and an anticipated asset write-down of up to $17.5 billion from BP. (8/1)

Big $$$ hit: The Big Three in the oilfield services industry wrote down $45 billion in assets over the past year as their clients tightened their belts, according to Morgan Stanley. The three largest oilfield services providers in the world are Schlumberger ($27 billion), Halliburton ($13 billion), and Baker Hughes ($17 billion). (7/30)

A prolonged recovery in jet fuel demand will drag on global oil demand for at least another two years as overall passenger traffic numbers continue to be low and mandatory quarantines continue to stop people from traveling on international flights. Gasoline demand had picked up from the lows in April when most of the world was under lockdown, but demand for jet fuel continues to languish and is expected to grow only marginally next year from a very low base in 2020. (7/28)

Russia’s Lukoil said July 27 that it had reached an agreement with Cairn Energy to take a 40 percent stake in the Rufisque, Sangomar and Sangomar Deep project offshore Senegal for $300 million. Lukoil is expanding its presence in Africa when the Russian government has identified the continent as a priority for expanding overseas energy cooperation. In Africa, Lukoil already operates in Equatorial Guinea, Egypt, Ghana, Nigeria, and Cameroon. (7/28)

The autonomous government of northeast Syria has signed a deal for the marketing of crude oil with a US company. The report says the deal had the blessing of Washington. Most of Syria’s oil is in the northeast of the country, under the control of a Kurdish-led Syrian Democratic Council, the political wing of opposition Syrian Democratic Forces, which has enjoyed US support through the prolonged conflict. (8/1)

The UAE, OPEC’s third-largest oil producer, started producing nuclear energy from a 1.4 GW atomic reactor, becoming the first country in the Gulf to use such a source for power generation. Nawah Energy Co. started up Unit 1 of the Barakah nuclear energy plant in the oil-rich emirate of Abu Dhabi. Start-up had been delayed since 2017, following the start of building the reactor in 2012. Once all four reactors are up and running, the plants will supply up to 25 percent of the UAE’s electricity needs, freeing up gas currently burned to generate electricity for other sectors. (8/1)

In Pakistan, energy infrastructure investments by China are, without a doubt, essential. Few international companies and banks are willing to take similar risks as the Chinese do. Although the motives are partly political, the China-Pakistan Economic Corridor could eventually transform Pakistan’s backward economy. Nine completed projects are producing 5,320 MW of electricity worth $7.9 billion while another 4,470MW is being constructed. Recently announced hydro projects are meant to put pressure on New Delhi as they are located in Pakistan-administered Kashmir, which India claimed. The move will most likely anger India and add tension to already delicate relations with China. (7/28)

In Egypt, European majors Eni, BP, and Total have successfully tested a new natural gas discovery in shallow waters, a find that adds to Egypt’s already sizeable natural gas resources. The companies will be looking to develop the area with tie-ins to existing infrastructure. (7/29)

In Nigeria, the COVID-19 pandemic affected the completion of the Dangote Refinery and crippled a critical segment of the Ebute-Metta to the Apapa segment of the Lagos to Ibadan rail project. The two significant projects are seen as key to advancing Nigeria’s desire for self-sufficiency, industrialization, expanded exports, and ease of doing business. (7/28)

Mexico has asked top Wall Street banks to submit quotes for its giant oil hedging program, sources familiar with the matter said on Friday, and trading in crude oil options has increased this week ahead of the megadeal. Every year, Mexico buys as much as $1 billion in financial contracts, the world’s most extensive oil hedge program, to protect its oil revenues. Bankers and officials on both sides of the deal expect a smaller hedge this year. (7/27)

The US rig count may have bottomed out. According to Baker Hughes data, the number of oil rigs slipped for the week by one rig, bringing the total to 180 compared to 770 one year ago. The total number of active gas rigs rose this week by one rig, landing at 69 vs. 171 last year. Canada’s overall rig count rose this week by 3, reaching 45 active rigs vs. 137 last year. (8/1)

Record low energy use: At the peak of the lockdowns in April, the total energy consumption in the US slumped to 6.5 quadrillion British thermal units of energy, down by 14 percent compared to April 2019 and marking the most substantial year-over-year decrease in EIA’s monthly data series that dates back to 1973. (7/30)

Jobs hit: According to the Texas Independent Producers and Royalty Owners Association, Texas has lost over 39,000 direct oil and natural gas jobs in the first half (1H) of 2020. The report outlined that 321,455 Texans were directly employed by the oil and gas sector in 1H and revealed that this figure represented a decrease of approximately 39,514 net jobs over the previous year. (7/30)

Bankruptcy: Noble Corp., the offshore drilling contractor, filed for bankruptcy with a plan to cut more than $3.4 billion of debt after a crash in crude prices made undersea oil wells too expensive. One of the biggest owners of offshore rigs, Nobel failed to cope with a glut of floating drilling capacity that was a decade in the making, as exploration companies shifted focus to cheaper inland shale. The plunge in crude prices made any near-term recovery in offshore drilling even less probable. According to the statement, Noble expects to emerge from Chapter 11 before the end of the year and will continue operating while in bankruptcy. (8/1)

Big coal drubbed: Freshly publicized federal data shows that US coal production is down to its lowest level in four decades. It throws into stark relief the decline of American coal mining as it faces stiffer competition from cleaner and cheaper sources of power. That low point comes even as President Trump has tried to marshal the federal government’s ability to reverse the trend and rescue the industry. (7/30)

Nuke moonshot? While the nuclear energy sector is booming in countries like Russia and China, which are continually adding new plants to their fleets, atomic energy plants in the United States have been shutting down or relying on hefty government subsidies to stay afloat. But here’s a new wrinkle: this week, Time reported that the US wants to build nuclear power plants that will work on the moon and Mars, and Friday put out a request for ideas from the private sector on how to do that. (7/30)

Grid and EVs: A new study of the impact of high EV adoption on the Western US power grid by Pacific Northwest National Laboratory has found that 2028 grid resource adequacy—from generation through transmission—is likely to be sufficient for high EV penetration. (7/30)

Greening finance: Deutsche Bank said it would end business worldwide with the companies most exposed to coal mining by 2025 at the latest, as part of a revamp of its policies on financing the fossil fuel industry. The German lender’s policy will cover companies making more than half their revenues from coal mining. Effective immediately, Deutsche Bank said it would also cease financing new projects in the Arctic or oil sand projects. (7/28)

CCS mothballed: Low oil prices have made the only large-scale commercial project for carbon capture in the United States uneconomical, E&E News reported on Tuesday. The Petra Nova project for capturing carbon dioxide (CO2) from a coal-fired power plant southwest of Houston is currently in a “mothball status,” because it needs higher oil prices than the current $40 a barrel to make the carbon capture operations financially viable. (7/30)

China Southern Airlines on Tuesday rolled out an ‘all you can fly’ pass, becoming the latest in a fleet of cash-strapped carriers to join a promotional craze that analysts say has helped revive a coronavirus-ravaged air travel market. At least eight of China’s dozens of airlines have introduced similar deals since June, often priced around $500 for in some cases unlimited flights. (7/28)

Kuwait vs. foreign workers? The coronavirus outbreak has shone a spotlight on the treatment of millions of foreign workers across the oil-rich Gulf. Many have lost their jobs as businesses have closed, and thousands have left. Now there are questions about how many will return and whether Gulf governments will use the crisis to improve workers’ conditions. In Kuwait, where expatriate workers make up 70 percent of the population, resentment against foreigners is rising. (7/29)

South Africa’s pandemic: Lauded in the early stages for taking decisive steps to limit Covid-19 infections, South Africa is now battling one of the world’s fastest-growing coronavirus outbreaks overpowering hospitals and has caused a dramatic increase in deaths. Public schools, which partially reopened in early June, will close for four weeks starting Monday, as the country enters a peak-infection period that models suggest could stretch into September. (7/27)