The Energy Bulletin Weekly August 24, 2020

August 24, 2020

Tom Whipple and Steve Andrews, Editors

Quote of the Week

“Offshore drilling is structurally damaged, and recovery is not imminent.- Sanford C. Bernstein & Co in a note to investors 

Graphic of the Week

1. Energy prices and production 

Oil: The oil futures market has been trading in a narrow range for weeks with crude propped up by inventory drawdowns and high OPEC compliance with its production cut. Price gains have been limited by demand concerns prompted by the continuing spread of the coronavirus. The markets closed slightly lower last week with New York futures at $42.34 and London at $44.35.

The IEA estimates that the global oil supply rose by 2.5 million b/d to 90 million b/d in July after Saudi Arabia ended the voluntary 1 million b/d part of its overall 3.5 million b/d cut. The UAE exceeded its OPEC+ target, and US production started to recover. While OPEC+ cuts ease by nearly 2 million b/d in August and other producers restore shut-in volume, compensation for earlier OPEC+ over-production could keep world supply steady in August. Global supply looks set to fall by 7.1 million b/d in 2020.

Global oil demand is expected to be 91.9 million b/d in 2020, down 8.1 million y-o-y. In its monthly report for August, the IEA reduces its 2020 demand forecast by 140,000 b/d, the first downgrade in several months, reflecting Covid-19 cases that continue to grow and substantial weakness in the aviation demand for fuel. China’s oil demand is recovering strongly, up 750,000 b/d y-o-y in June. The Agency revised down its 2021 global demand estimate by 240,000 b/d to 97.1 million, mainly due to a slower recovery in aviation.

Natural Gas: Henry Hub gas prices continue to test new 2020 highs last week as stalling US gas production and rising overseas LNG and industrial demand support prices. High temperatures are increasing power plant fuel demand in California and other western states.

Markets are becoming increasingly bullish on the coming winter’s natural gas prices as the large drop in Permian Basin drilling activity begins taking its toll on natural gas production. Last week natural gas futures at the Permian Basin hub approached $3 per million BTUs, their highest settlement prices in nearly 40 months. Permian gas production has fallen in August, Permian output is averaging 11.2 billion cf/d, down about 300 million compared with its July average.

Earlier this year, the coronavirus shutdown prompted overseas buyers to cancel shipments of LNG. Domestic stockpiles swelled. Prices tumbled even after producers like EQT Corp., the country’s largest, and CNX Resources choked back wells to take significant volumes of gas off the market. However, last week gas deliveries to US liquefaction terminals rose to the highest level in two and a half months at almost 5 billion cf/d. The activity reflects a rebound expected to head into the fall and winter following significant market weakness exacerbated by the coronavirus pandemic.

Analysts still expect global LNG demand will grow and lift US gas prices from their depressed levels, but probably not this year. Some exporters are having trouble signing up long-term buyers of LNG, which are usually necessary before construction financing can be obtained.

OPEC: The OPEC+ monitoring committee gave the rest of the non-compliant members until Aug. 28 to submit plans to make their surplus production whole. Data compiled for the committee show the 23-country OPEC+ coalition exceeded its quotas by 357,000 b/d from May to July. However, that was helped by significant over-compliance by Saudi Arabia, which had said it intended to lead by example with a voluntary extra 1 million b/d cut in June.

The Saudi prince running the kingdom’s oil policy achieved something his predecessor never did, bringing the quota cheats of OPEC+ to heel. Prince bin Salman has done this through an unusual method. The cartel has instructed members who failed to deliver their agreed share of oil-production cuts — like Iraq and Nigeria — to promise extra compensation reductions. The strategy is paying off for the Saudis. In July, Iraq and Nigeria both achieved 85 percent of their targeted cuts, according to OPEC+ data, levels of compliance they’ve seldom displayed before.

Russia is complying with the OPEC+ production cut quota, according to Alexander Novak. “We are at a high level. In July, we fulfilled 97 percent of our level. This is a high figure for us. We have attained 100 percent in August. Today, we are fulfilling 100 percent of the obligations we assumed in August,” Novak claimed. Novak also claimed that the oil market is close to balancing itself.

Shale Oil: Activity in the world’s biggest shale basin picked up last week, with ten additional rigs activated — the most significant jump in activity since the price crash triggered a collapse last winter. Drillers in the Permian Basin led the rest of the nation in expanding the rig count. With crude stabilizing above $40 a barrel, the total number of active US oil rigs rose by 11 to 183 last week. The increase in the Permian was the biggest since December. But despite the jump, overall drilling is still mired at levels not seen since the early days of the shale boom more than a decade ago.

Halliburton, the world’s biggest fracking provider, expects the worst-ever slump in oil exploration to end soon. Almost three-fourths of the nation’s active oil rigs have been sidelined this year. “We do see some recovery in the back half” of this year, Halliburton Chief Executive Officer Jeff Miller said during a recent interview. “Fracking activity reached a bottom in the second quarter. I think we’ll see drilling activity reach a bottom in the third quarter and then some modest recovery.”

With an insufficient number of rigs drilling new shale oil wells to maintain production, the EIA is forecasting in its August Drilling Productivity Report that US shale oil production will fall another 19,000 b/d between August and September.

Prognosis: The next six months should see developments that will significantly impact the future of the fossil fuel industries. The EU is already committed to eliminating carbon-emitting fuels from its energy balance in the next few decades. Depending on what happens in the US presidential election, the US could soon be on the same path.

Before the coronavirus struck last winter, the US shale oil industry, which has been the mainstay of maintaining global oil production at around 100 million b/d, was already in trouble. Much of the oil was costing more to produce (all-in costs) than the price it was sold, and Wall Street had already seen too much red ink. Unless shale oil drillers can afford to get 400-500 rigs back into production, shale oil production is likely to be down dramatically in five years. Offshore oil production, which, along with shale, is the only hope for maintaining oil production is starting to contract.

The course of the coronavirus, which already has cut some 8 million b/d from global oil demand, is a great unknown. As of today, there is no vaccine or reliable treatment, and it may be months or even years before it ceases to cause significant damage to the global economy and oil demand.

The damage from climate change, which is rooted in carbon emissions, continues to worsen with every passing day. Ice melts and storms grow in frequency and intensity, and flooding in some regions is becoming incessant. Someday, the effects of climate change will reach the point that significant changes in energy policy among the industrialized nations – the US, China, Russia, Japan, Korea – will have to change, and climate treaties will have to be taken seriously.

2. Geopolitical instability 

Iran: Last week, the US moved to restore all UN sanctions on Iran, arguing Tehran violated the nuclear deal it struck with world powers in 2015 even though Washington itself abandoned that agreement two years ago. The US submitted a letter to the 15-member UN Security Council accusing Tehran of non-compliance, in theory starting a 30-day process that could lead to the “snapback” of UN sanctions. Major powers such as Russia and the EU members rejected the US position and said they would not restore the UN measures.

At nearly every step President Trump has taken to demolish the 2015 nuclear accord, he has run into opposition, including from America’s strongest allies in Europe. On Thursday, the opposition turned into open defiance when the Security Council rejected the US proposal. The US was further isolated on Friday when 13 countries on the 15-member UN Security Council expressed their opposition. In the 24 hours since US Secretary of State Pompeo said he triggered a 30-day countdown to a return of UN sanctions on Iran, long-time allies Britain, France, Germany, and Belgium as well as China, Russia, Vietnam, Niger, Saint Vincent, and the Grenadines, South Africa, Indonesia, Estonia and Tunisia wrote letters in opposition.

The fate of a fragile 2015 nuclear deal between Iran and world powers now hinges on the result of the US presidential election in November. When Iran agreed to sanctions relief in return for curbs on its nuclear program, Tehran warned that it would not stick to the deal if any of the parties sparked a so-called snapback of sanctions at the UN Security Council. However, despite Tehran’s declaration five years ago, Iran’s leadership appears determined to remain committed to the nuclear deal, hoping that a victory by Trump’s political rival Joe Biden in the presidential election will salvage the pact.

Iraq: Monthly oil production fell in July by nearly 200,000 b/d as the country continues to pursue compliance with an OPEC-plus agreement. Nationwide output at fields controlled by the federal government and semi-autonomous Kurdistan Regional Government (KRG) averaged a combined 3.73 million b/d, down from 3.91 million b/d in June. Iraq’s federal government and the KRG have agreed on a revenue-sharing deal, ending more than three months of deadlock. The agreement opens the way for Baghdad to restart monthly financial transfers to the KRG in exchange for a share of customs revenue from border crossings in territory under the KRG’s control.

According to a person familiar with the matter, Iraq plans to sign a memorandum of understanding with Chevron to explore for oil in the southern province of Dhi Qar. The exploration will be only in areas of the province that are not already producing oil or leased for exploration. Chevron began talks with OPEC’s second-biggest producer two years ago and recently resumed meetings with oil ministry officials. While any production would likely be years away, Chevron is looking to use this year’s crude price crash to gain access to quality reserves cheaply. Its European rivals are focusing on a transition to low-carbon energy sources, and Exxon Mobil is reining in spending.

President Trump redoubled his promise to withdraw the few US troops still in Iraq but said Washington would remain ready to help if neighboring Iran took any hostile action. During his first meeting with Iraqi Prime Minister al-Kadhimi, Trump said he looked forward to the day when US troops could exit the country but said US businesses were already making “very big oil deals” there. “We’ll be leaving shortly,” Trump told reporters. “We have very few soldiers in Iraq … but we’re there to help.

An attempt by the Basra Oil Company (BOC) to take over operation of Iraq’s offshore oil facilities in the Basra Gulf has led to a rift with Iraq’s ports company. The dispute between the Oil Ministry’s BOC and the Transportation Ministry’s General Company for Ports of Iraq has gone beyond the respective ministries to the cabinet.

Libya: The two rival governments separately announced a cease-fire Friday and called for a demilitarized zone in the strategic city of Sirte, a decision welcomed by regional neighbors and Western powers as a potential step toward peace. However, plenty of skepticism remained. Fayez Serraj, head of the UN-backed government in Tripoli, and Aguila Saleh, of a rival eastern-based government, made their apparently coordinated announcements, which also urged the resumption of Libya’s oil production and a political process paving the way for elections.

The US welcomed the cease-fire agreement, calling it “an important step to all Libyans,” as did European powers such as Germany and Italy. More significantly, Egypt and Turkey welcomed the decision. These countries have militarily supported the rival sides in Libya, raising concerns in recent weeks that two US allies could end up fighting each other.

Eastern Libya has been hit hard by the blockade of oil ports that started in January. These facilities also contain storage tanks for crude and fuels—thus depriving the region of feedstock for its power plants. Power outages in the East are now frequent, with some lasting for up to 12 hours. Releasing some fuel from the tanks at the oil ports could go towards solving another problem, too. The tanks overflowing with crude and fuels pose a disaster risk, the National Oil Corporation’s chairman Mustafa Sanalla said last week.

Eastern commander Khalifa Haftar will allow ports to restart operations to dispose of stored fuel and gas, the head of an oil-facilities guard linked to Haftar’s Libyan National Army, said late Tuesday. He said this would help to alleviate electricity shortages in the country’s eastern sector by freeing up fuel for the plants. “The instructions were to allow for the emptying of tanks holding crude and condensate stored at the oil ports to be loaded and exported,” Haftar’s Libyan National Army spokesman on Wednesday. “The decision taken yesterday doesn’t mean the reopening of fields or the resumption of exports.”

Venezuela: The country could soon be producing close to zero barrels of oil, according to a new analysis by IHS Markit. The country’s crude oil production is currently between around 100,000 to 200,000 b/d and falling. Venezuela’s output was about 650,000 b/d a year ago and had been as high as two million b/d back in 2017. The fall in production is the product of decades of decline and decay. It has been exacerbated more recently by the Covid-19 induced oil price collapse of 2020, US sanctions, and limited domestic oil storage.

To make matters worse, the Maduro government is now cracking down on people infected with the coronavirus. Security forces are intimidating doctors, marking the homes of people suspected of having the virus and detaining those who are returning to the country. Officials denounce people who may have come into contact with the coronavirus as “bioterrorists” and urge their neighbors to report them. It is corralling thousands of Venezuelans streaming home after losing jobs abroad, holding them in makeshift containment centers out of fear that they may be infected.

The Trump administration is considering additional sanctions on Caracas aimed at halting the remaining fuel transactions still permitted. The measures could target crude swaps with companies in Asia and Europe.

The US government also is tapping into more than $300 million in frozen Venezuelan government funds to give new momentum to its goal of ousting President Maduro. About $20 million will be used to send pandemic relief supplies to Venezuela via international health organizations, as fear of the coronavirus and the rigors of everyday survival diminish already lagging enthusiasm for public activism against Maduro.

Cyprus: EU leaders reaffirmed their opposition to Turkey’s “illegal” drilling activities offshore Cyprus and agreed that “all options will be on the table” at the next European Council summit in September. Tensions in the East Mediterranean have increased in recent weeks, with Turkey extending the drilling schedule for its drillship Yavuz offshore Cyprus and saying it was resuming surveying activities in disputed maritime areas.

“We are increasingly concerned about the growing tensions and stressed the urgent need to de-escalate,” the Council said in its conclusions following the EU leaders’ meeting. “We expressed our full solidarity with Greece and Cyprus and recalled and reaffirmed our previous conclusions on the illegal drilling activities.”

3. Climate change

Democratic Presidential nominee Joe Biden’s stance on the issue of hydraulic fracturing has been unclear. During a March 15th debate with then-rival US Sen. Sanders of Vermont, Biden said that there would be “no new fracking” in his administration. In an interview with a Pittsburgh TV station the following month, however, Biden pledged not to “shut down the natural gas industry.” His campaign website also states that a Biden administration would ban “new oil and gas permitting on public lands and waters.”

An experiment that heated soil underneath a tropical rainforest to mimic temperatures expected in the coming decades found that hotter soils released 55 percent more planet-warming carbon dioxide than nearby unwarmed areas. If the results apply throughout the tropics, much of the carbon stored underground could be released as the planet heats up.

In recent years, a group of economists, ecologists, and anthropologists have converged on how to address both climate and ecological crises that will make the world happier, healthier, and more equal. The gist: “less is more.” Known as the “degrowth” movement, these scholars first want the world to reconsider the gross domestic product’s value as a metric for progress, as GDP may still be rising even as inequality worsens and overall well-being falls.

Second, they contend that a sustainable planet must find a way to live within certain limits for things like climate change, ocean acidification, and biodiversity loss. These are called “planetary boundaries”—and that rich countries are abusing these boundaries by consuming too many resources.

And third, they question the wisdom of most climate models looking to keep temperature increases below 1.5°C, which require the use of negative-emissions technologies that draw down carbon dioxide from the air and are still in early stages of development.

Greenland broke its 2012 record for ice loss last year by 15 percent, a sign that a significant contributor to global sea-level rise may be accelerating. On its own, ice loss from the world’s biggest island is responsible for more than 20 percent of sea-level increase since 2005, according to new data published last week. That includes ice breaking off from the land and floating off and ice melted directly into the water. It’s also about the same contribution as all the world’s other glaciers combined.

4. The global economy and the coronavirus

Last winter, officials in Beijing were kept in the dark for weeks about the coronavirus’s devastation by local officials in central China. According to American officials familiar with a new report by US intelligence agencies, officials in the city of Wuhan and in Hubei Province, where the outbreak began late last year, tried to hide information from China’s central leadership. The finding is consistent with reporting by news organizations and with assessments by China experts.

Local officials often withhold information from Beijing for fear of reprisal. The new assessment does not contradict the Trump administration’s efforts to blame the pandemic on China rather than Washington; however, it adds perspective and context to actions — and inactions — that created the global crisis. Suppose Mr. Xi was not the main person at fault. In that case, it suggests that top Chinese officials had not engaged in total deceit on the coronavirus, and American officials had some basis for still trying to engage in good-faith negotiations with Beijing on issues of mutual interest.

A recent interview that Dr. George Gao, the head of the Chinese Center for Disease Control and Prevention, had with the Wall Street Journal and authorized by the government, corroborated the intelligence report’s conclusions. As the chief official charged with controlling epidemics in China, Gao says he only learned about the outbreak on Dec. 30th when local-government notices were leaked to the press. China’s leadership is unhappy with the constant refrain from the Trump administration that they are solely responsible for the worldwide devastation caused by the virus when local officials are more responsible than those in Beijing.

The World Health Organization said last week it was concerned that the coronavirus spread was being driven by people in their 20s, 30s, and 40s, many of which were unaware they were infected, posing a danger to vulnerable groups. WHO officials said the proportion of younger people among those infected had risen globally, putting at risk vulnerable sectors worldwide, including the elderly and sick people in densely populated areas with weak health services.

French officials, faced with a recent resurgence of coronavirus cases, have made mask-wearing mandatory in areas of Paris and other cities across the country. They are pleading with the French people not to let down their guard and jeopardize the hard-won gains made against the virus during a two-month lockdown this spring. The signs of a new wave of infection emerged over the summer as people resumed much of their pre-coronavirus lives, traveling across France and socializing in cafes, restaurants, and parks. Many, especially the young, have visibly relaxed their vigilance and have not followed the rules on mask-wearing or social distancing.

South Korea warned on Monday of a looming novel coronavirus crisis as new outbreaks flared, including one linked to a church where more than 300 members of the congregation have been infected. Still, hundreds more are reluctant to get tested. South Korea has been one of the world’s coronavirus mitigation success stories, but it has battled persistent spikes in infections. The latest cases brought its total infections to 15,515, including 305 deaths.

United States: Applications for unemployment benefits unexpectedly increased last week. Initial jobless claims in regular state programs rose by 135,000 to more than 1.1 million in the week ended Aug. 15th. Continuing claims — the total number of Americans claiming ongoing unemployment assistance in those programs — decreased to 14.8 million in the week ended Aug. 8th, the lowest since early April.

The downward trend in continuing claims is favorable news for the recovery, though headwinds persist. Companies are going bankrupt, and small businesses are disappearing when the economy has only recovered about half of the jobs it lost in March and April. The unemployment rate is still nearly three times its February level. Childcare restrictions and school closures bring unique risks. Bloomberg Economics estimates as many as 18 million parents could put job seeking on hold, creating a stumbling block for the US labor market recovery.

According to Census data, the number of Americans who say they can’t afford enough food for themselves or their children is growing, and it is likely to get larger now that some government benefits have expired. As of late last month, about 12.1 percent of adults lived in households that didn’t have enough to eat at some point in the previous week, up from 9.8 percent in early May, Census figures show. And almost 20 percent of Americans with kids at home couldn’t afford to give their children enough food, up from nearly 17 percent in early June.

China: President Trump said he called off trade talks with China, raising questions about the future of a deal. The phase-one trade deal, which came into force in February, called for discussions on the agreement’s implementation every six months. Addressing whether the US would pull out of the agreement, Trump said: “We’ll see what happens.” Terminating the deal would require written notification and take effect 60 days later unless both parties agree on a different date.

Health authorities in China’s capital Beijing have removed a requirement for people to wear masks outdoors, further relaxing rules to prevent the spread of the novel coronavirus after the city reported 13 consecutive days without new cases. Despite the relaxed guidelines, a large proportion of people continued to wear masks in Beijing on Friday.

A senior ally of Chinese leader Xi Jinping called for a Mao-style purge of China’s domestic-security apparatus last month, saying it was time to “turn the blade inwards and scrape the poison off the bone.” The cleansing commenced swiftly. Within the first week after the call to action, Communist Party enforcers had launched investigations into at least 21 police and judicial officials, according to a media tally cited by the party’s top law-enforcement commission.

As China enters the third month of devastating flooding, it grapples with catastrophic damage that has spread from the central provinces to the upper Yangtze. This region includes Chongqing, a city of 30 million in Sichuan province. So far, 63 million people have been affected, and 15 million acres of farmland have been destroyed — an area the size of West Virginia. In official statements, the government has placed the floods on the same level as the coronavirus pandemic when describing shocks to China this year.

The Three Gorges Project, a massive hydroelectric facility designed to tame floods on the Yangtze, is expected to see water inflows rise to 74,000 cubic meters per second, the highest since it was built. The project restricts the amount of water flowing downstream by storing it in its reservoir, which has been over 10 meters higher than its official warning level for more than a month. Authorities have been at pains to show that the cascade of giant dams and reservoirs built along the Yangtze’s upper reaches have shielded the region from the worst of the floods this year, though critics say they might be making things worse.

Climate experts warn that China will face more frequent severe floods as the global temperature rises, driving up the number of intense rainstorms in the country. China shares this fate with many nations: 70 percent of the world’s population is expected to experience significantly increased river flooding if global warming goes unchecked. India will have a higher mortality rate from flooding compared to China, according to a 2018 study, but China will also be significantly impacted.

China’s share of global exports has been hit by its trade dispute with the US, which – together with the pandemic, corporate governance demands, and the rise of artificial intelligence – is pushing multinational companies to reduce their dependency on Beijing. Last year Chinese exports of 1,200 products accounted for 22 percent of the world’s shipping, three percentage points down on the previous year. For consumer goods, the country’s global market share fell by four percentage points to 42 percent.

The findings come as Washington targets China with wide-ranging measures aimed at weaning itself off China-based supply chains and hobbling Beijing’s ambitions to become a global tech power. Last week Washington broadened restrictions on semiconductor supplies to Huawei imposed earlier this year to cut off virtually all chip shipments to the Chinese technology group.

China’s imports of US LNG totaled about $300 million during the first half of the year, and together with purchases of the remainder of US energy products, fell short of Phase 1 trade targets, according to recent data from Panjiva. China has fallen almost $40 billion behind its commitments to buy US goods under the agreement amid coronavirus-linked supply chain disruptions and demand shocks. Meanwhile, a review of Phase 1 targets due on Aug. 15th was postponed amid reports of Chinese efforts to boost purchases.

Beijing’s record-breaking crude oil imports supported oil prices through the late spring and summer when oil demand recovery in the rest of the world had just started and then wobbled amid concerns of a second COVID-19 wave. China imported record volumes of crude oil in May and June, as the oil-hungry nation attempted to benefit from the low oil prices in April. Imports during July, however, were lower than in June. Still, they were 25 percent higher than in July last year.

However, according to data from the Census Bureau, China has chartered tankers that could deliver as much as 37 million barrels of crude oil from the U.S. next month. This would be a record-high for China, per its obligations under the trade deal closed last year. Beijing committed to buying some $18.5 billion in additional energy supplies from the US this year and another $33.9 billion next year.

European Union: The EU’s economy, which had rebounded from the coronavirus recession, slowed in August as a pick-up in new confirmed cases appeared to hobble the reopening of some businesses and travel from their near-complete shutdown in the spring. An indicator of business activity by research firm IHS Markit fell back to a level that suggests the economy is barely growing after a relatively intense burst in July. But as infection rates have risen again in parts of the region, some earlier curbs have been reinstated. IHS Markit’s Flash Composite Purchasing Managers’ Index sank to 51.6 in August from July’s final reading of 54.9.

Britain’s economic recovery from the pandemic shock has gathered pace, but government borrowing rose past the $2.64 trillion mark, and fears of future job losses are mounting. In August, German industrial growth slowed while growth in services came to a halt, highlighting the fragile state of the economy. Manufacturing continued to improve, registering more robust sales from within the country and abroad. Several German manufacturers respondents to the survey by IHS Markit mentioned increasing orders from China and Turkey.

French manufacturing unexpectedly contracted in August after a two-month rebound, a setback that will raise questions about the actual state of the economy and the need for more stimulus. A Purchasing Managers’ Index dropped below the crucial mark of 50, weaker than every forecast in a Bloomberg survey, and a gauge for services indicated only modest growth.

Russia: Moscow’s seaborne crude oil exports are trending lower so far in August compared to July but ramping up production with the easing of the OPEC+ cut. This summer’s trend of small volumes of exports to Europe may not last long, IHS Markit said on Tuesday. Russia has already increased its crude oil production in early August to 9.8 million b/d up from below 9.4 million last month. As OPEC+ is easing the record collective cuts of 9.7 million bpd to 7.7 million b/d as of Aug. 1st, Russia plans to raise its oil production by 400,000 b/d.

Saudi Arabia:  Saudi Arabia’s crude oil exports plunged to the lowest on record in June, and production fell to the lowest in 17 years as OPEC and its allies continued their campaign to tighten the market. Shipments dropped to 4.98 million b/d, the lowest since data started in January 2002, from 6.02 million b/d in May, according to data released Aug. 20th by the Joint Organizations Data Initiative. The country pumped 7.484 million b/d in June, the lowest since December 2002, and down from 8.486 million b/d in May.

Saudi Arabia’s inflation quickened at the fastest pace since 2012 after the kingdom tripled its value-added tax. Consumer prices rose an annual 6.1 percent in July from 0.5 percent in June, data released by the General Authority for Statistics showed on Sunday. The increase was driven mainly by an acceleration in the cost of food and beverages — which rose more than 14 percent compared with last year — and transport, which rose 7.3%.

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5. The Briefs (selections from the press – date of article in the Energy Bulletin Weekly is in parentheses – see more here: )

Global oil demand is set to recover to near pre-COVID-19 levels by the end of this year, Saudi Arabia’s energy minister Prince Abdulaziz said today before the OPEC+ Joint Ministerial Monitoring Committee meeting. (8/20)

Offshore rig providers are going bankrupt at the fastest pace in years. Valaris filed for bankruptcy this week, seeking to restructure $7 billion in debt. Valaris has a fleet of 55 rigs, but the company’s CEO Tom Burke said that the offshore rig market would suffer from a prolonged contraction. (8/22)

Refiners were among the worst-hit oil and gas industry segments in this crisis. Usually, making their money from the price difference between crude oil and oil derivatives, refiners could rely on the usual stable demand for oil derivatives. The coronavirus pandemic slashed oil product demand and, consequently, refiners’ margins. Now, more than ever, refiners need to change to survive. (8/17)

Russia produced more crude oil (8.8 million b/d) than Saudi Arabia (7.5 million) in June, beating it to the second place of the largest oil producers in the world, behind the number-one producer, the US down to 10.9 million b/d. Saudi Arabia has slashed production by a total of 3.5 million b/d. (8/22)

Turkey has made a significant gas discovery in its sector of the Black Sea with the Tuna-1 well, which is estimated to hold 320 Bcm of gas. The discovery is a significant boost for Turkey, which has only had minimal gas production of its own and is dependent on imports to meet its gas demand, which last year totaled 45 Bcm. President Erdogan said he was targeting 2023 to bring the gas to “the service of the people.” (8/22)

Kuwait is running out of money for the salaries of public servants and will have no money to cover them after November, the country’s finance minister told parliament. Unless oil prices rise, the money being used now, withdrawals from the General Reserve Fund, will be depleted. Kuwait’s budget deficit hit $18.44 billion in fiscal 2019-2020, which ended in March. The gap will widen this fiscal year on the back of the oil price collapse and the pandemic, potentially reaching $45.78 billion. (8/21)

First Arab nuke running: The United Arab Emirates connected the Arab world’s first nuclear power plant to the country’s grid and began providing electricity, crossing the final threshold to membership in the exclusive club of atomic nations. Built and run by a joint venture with Korea Electric Power Corp., the Barakah plant will increase production gradually until reaching full capacity within months. Barakah is the first of four civilian reactors that the government plans to fire up by 2023. (8/20)

Prelude’s predicament, offshore Australia: After years of delays, billions of dollars in cost overruns, technical problems, and safety concerns, Shell began exporting natural gas from the enormous vessel, known as Prelude, last year off Australia. But production was halted in February because of an electrical fault. Pandemic social-distancing requirements are now slowing efforts to restart the 1,600-foot-long ship, the company said. Work camps and oil-and-gas platforms in remote locations where staff live in close quarters are vulnerable to the spread of the virus. There have been outbreaks this year at facilities in Kazakhstan, Mozambique, and offshore in the Gulf of Mexico. (8/22)

Pulling back: The Falkland Islands were once at the forefront of a new era for the oil industry as companies scoured the planet for resources. A decade after discovering as much as 1.7 billion barrels of crude in surrounding waters, the British overseas territory is still known for sheep rearing rather than the next frontier. the project to extract energy risks being added to a list of what companies call “stranded assets” that could cost them huge sums to mothball. (8/17)

Peru, over the last two decades, has developed rapidly to become one of the leading mining jurisdictions in Latin America. In only 20 years, Peru’s vast mineral wealth, combined with its becoming an attractive jurisdiction for foreign investment, caused the gross domestic product to soar fourfold to $227 billion for 2019. There are growing signs that the Andean country is ready to realize its oil potential. (8/21)

In Guyana, the new government in the world’s newest oil producer looks to raise the requirement for local content in employment and procurement of goods and services in the offshore oil projects. This could increase those requirements for ExxonMobil, the most prominent foreign developer of Guyana’s substantial oil resources. (8/21)

The US oil rig count increased by 11 last week, the first double-digit increase since January, Baker Hughes reported. With oil rigs at 183, rigs drilling for gas decreased by one to settle at 69. (8/22)

Hurricane shut-ins: US Gulf of Mexico producers are in the initial stages of securing their operations in advance of two storms—Tropical Storm Laura and Tropical Depression 14—that are expected to move into that region next week. Both are projected to head towards offshore eastern Louisiana/Mississippi and areas further west. (8/22)

Drilling Alaska’s ANWR: The Trump administration finalized a plan to allow oil and gas drilling in Alaska’s Arctic National Wildlife Refuge, putting it on track to issue decades-long leases in the pristine wilderness area before a potential change in US leadership. Proponents said opening ANWR to drilling would create jobs and boost the state’s economy. Opponents criticized the move as a giveaway to Big Oil that would harm the Arctic’s unique ecosystem and native people. (8/18)

Climate change irony:  ConocoPhillips plans to produce 590 million barrels of oil from a massive drilling project in Alaska’s National Petroleum Reserve. But climate change is melting the ground in the reserve so fast that the company may be forced to use chilling devices to keep the ground beneath roads and drilling pads frozen. You read that right: An oil company is prepared to freeze melting permafrost to keep extracting oil. (8/20)

The Port of Corpus Christi surpassed Houston late last year as the nation’s top crude exporter, and now the rapidly growing petroleum hub aims to take the next step by shipping out grades of Canadian crude and Bakken Shale oil. Thanks to a wave of long-haul crude pipelines connecting the Permian Basin to Corpus Christi that came online in 2019 and 2020, the port is still shipping out an average of more than 1.5 million b/d in crude oil to the rest of the world in 2020. (8/20)

CARB defies Trump: The California Air Resources Board and major automakers on Monday confirmed they had finalized binding agreements to cut vehicle emissions in the state, challenging the Trump administration’s push for weaker curbs on tailpipe pollution. The deals with carmakers included Ford, Volkswagen, Honda, and BMW. (8/18)

US coal producers are already in a tight spot, but the hints power generators dropped on second-quarter earnings calls suggest they may soon be announcing plans to retire even more of the nation’s aging coal fleet. Demand for coal has been decimated by the COVID-19 pandemic, with production and employment in the sector falling to new lows. The lower demand weighs further on an industry already in secular decline. (8/19)

Poland’s fork in the road: For decades, Poland was among the world’s top coal producers, to the extent that up to today, no EU member burns more coal than Poland (75 percent of its electricity generation). Yet the intra-European pressure to canvass a greener and more sustainable future has brought Poland to the least probable candidates, nuclear energy. (8/21)

Growing risk to US nukes: Climate change—particularly intense heat—is advancing so rapidly that it poses physical and credit risks to America’s aging nuclear reactor fleet, according to a new report from Moody’s Investors Service. A 2019 Bloomberg review of correspondence between the commission and owners of 60 plants concerning those assessments found that 54 of their facilities weren’t designed to handle the flood risk they now face. (8/20)

UK wind deal: A giant wind farm being developed off the coast of the UK will sell some of its power to energy trader Danske Commodities. Under the 15-year agreement, the subsidiary of Equinor will trade and balance power from 480 megawatts of the Dogger Bank wind farm, about 13 percent of its capacity. It’s a crucial step as the developers of the massive wind park move toward a final investment decision. (8/18)

H2 in Germany: The Dillinger and Saarstahl steel group announced Aug. 21st the start of the first hydrogen-based steel production in Europe’s biggest steel market to help cut carbon emissions. The group’s Rogesa blast furnace operational unit in Dillingen, western Germany, started using hydrogen-rich gas from coke ovens with a $16.5 million investment in a new gas conversion plant. The plant may enable future use of pure hydrogen in both blast furnaces after the group gains experience in using the fuel. (8/22)

Capacitors that rapidly store and release electric energy are critical components in modern electronics and power systems. However, the most commonly used ones have low energy densities compared to other storage systems such as batteries or fuel cells, which cannot discharge and recharge rapidly without sustaining damage. A team led by researchers at the Lawrence Berkeley National Laboratory has demonstrated that by introducing isolated defects to a commercially available thin film in a straightforward post-processing step, a common material can be processed into a top-performing energy storage material. (8/21)

Covid-19 testing: London’s Heathrow Airport, the UK’s busiest, unveiled a new coronavirus testing facility Wednesday that it says could halve the length of time people have to stay at home after arriving from countries on the British government’s quarantine list. The government said it wasn’t ready to give its backing to the facility but insisted that it was working with airports on how a new testing regime can reduce the 14-day quarantine period that travelers face when arriving from more than 100 countries. (8/21)

Japan’s record temps: Temperatures soared into the triple digits and tied a national record in Japan last week, part of a sweltering heatwave that has swallowed the archipelago. Hamamatsu, a coastal city on the island of Honshu, hit 106 degrees (41.1 Celsius) on Monday. It tied a national record set in 2018 and occurred within a day of Death Valley in California, recording one of the hottest temperatures observed on Earth. (8/18)

The great heat: The US West Coast is set to have its hottest two weeks in 70 years, putting even more strain on power grids after California imposed rolling blackouts for the first time since 2001. Excessive heat warnings and watches stretch from the Pacific Coast inland to Montana, Utah, and Arizona. Last month was tied for the world’s second-hottest July on record and the hottest ever in the northern hemisphere.

More CA blackouts? Californians could lose power in the coming days, the state’s grid operator warned last week, as it continues to struggle with inadequate electricity supplies. Many people have been forced indoors to ride out a crippling heatwave during the coronavirus pandemic. The rolling blackouts across California serve as a cautionary tale as states across the country increase renewable energy and reduce their reliance on fossil fuels that can generate round-the-clock power but contribute to climate change. (8/18)

US regulators are investigating whether a massive methane release over Florida, that they say likely occurred during maintenance on a natural gas compressor station, violated the nation’s Clean Air Act. The mysterious plume of invisible gas, estimated to total 300 metric tons, was released north of Gainesville between May 2nd and May 3. (8/22)

Tom Whipple

Tom Whipple is one of the most highly respected analysts of peak oil issues in the United States. A retired 30-year CIA analyst who has been following the peak oil story since 1999, Tom is the editor of the long-running Energy Bulletin (formerly "Peak Oil News" and "Peak Oil Review"). Tom has degrees from Rice University and the London School of Economics.  

Tags: geopolitics, oil prices