Tom Whipple and Steve Andrews, Editors
Quotes of the Week
“…a looming transition that in the decades ahead will shift the world away from using oil, natural gas and coal…. Still, whatever the time frame, climate change and political pressures will move the world towards low-carbon energy sources, and it is not too early to see how this shift is likely to affect the global balance of power… China is poised to be the big winner, Russia and Middle East oil exporters the big losers. The U.S. is likely to fall somewhere in between.”
Daniel Yergin, VP of IHS Markit, and author of coming book, “The New Map: Energy, Climate and the Clash of Nations.”
“Raging fires. Fleeing residents. Exploding buildings… Any more development in high-risk fire zones has to be treated as a criminal act.”
Steve López, Los Ángeles Times columnist.
Graphic of the Week
1. Energy prices and production
2. Geopolitical instability
3. Climate change
4. The global economy and the coronavirus
5. Renewables and new technologies
1. Energy prices and production
Oil: Futures posted their first back-to-back weekly loss since April’s rout with the end of the summer driving season and concern about OPEC’s production compliance weighing on prices. New York futures fell 6.1 percent last week, coinciding with a fall in US equities. The market was under pressure all week, starting with Saudi Arabia’s surprise move to cut prices on oil it supplies to Asia by $1.00. The second wave of selling pressure was fueled by a surprise increase in US crude stockpiles as the pandemic continues to erode demand for fuels. West Texas Intermediate settled at $37.33 a barrel and Brent settled at $39.83 a barrel –down 6.6 percent for the week.
American commercial crude inventories grew by 2 million barrels in the week to September 4th, breaking a six-week series of drawdowns. The build-up came as gasoline demand dropped by almost 400,000 barrels, or 4 percent, suggesting the ongoing rise in coronavirus cases in recent weeks has put the brakes on fuel demand, which has wavered since its mid-August peak.
Over the weekend, Gulf of Mexico oil producers again evacuated offshore facilities as tropical storm Sally was forecast to strengthen into a hurricane, threatening the prime oil region, and striking the Louisiana coast near New Orleans. Chevron Corp and Murphy Oil started removing workers on Saturday from offshore platforms. Royal Dutch Shell, BHP, BP, and Hess said they were monitoring the storm. Gulf of Mexico offshore oil production accounts for about 17 percent of US crude production and 5 percent of total US natural gas output. As much as 1.5 million b/d of oil output was shut down last month as Hurricane Laura tore across the Gulf.
This year’s driving season was a disappointment for those who expected it to pull oil prices higher. Optimists reasoned that the pandemic would motivate people to rely more heavily on personal transportation than public transit. Yet prices have remained low throughout the summer despite a modest improvement.
A large increase in floating oil storage earlier this year became a significant cause for lower oil prices as the pandemic wiped out demand. Then, as OPEC+ started cutting production and countries began emerging from lockdowns, floating storage inventories began to decline, boosting prices. Now, they’re creeping up again. The world’s top oil traders have been chartering dozens of supertankers for storing oil at sea amid signs that demand recovery has stalled.
Natural Gas: Along with WTI and Brent oil prices, natural gas prices fell last week, but the regional differences in gas prices that developed during a previous couple of months are shrinking according to the EIA. The price differentials to the Henry Hub – known as the basis price – narrowed at major demand centers such as SoCal Citygate in Southern California, Algonquin Citygate near Boston, Massachusetts, and Transco Zone 5 in Virginia, thanks to warmer than usual temperatures in the 2019-2020 heating season.
The pandemic-related decline in economic activity and the measures to curb the spread of the coronavirus further narrowed the differentials between prices at all regional natural gas hubs and Henry Hub. In the Permian, EIA estimates show that natural gas production has declined by around 10 percent since the high of 10.3 billion cubic feet per day reached in January 2020. The Waha hub prices were supported by more pipelines coming online, which also helped narrow the differential to Henry Hub prices.
BP and Shell have urged Texas energy regulators to put a stop to routine gas flaring across the state’s oil fields, citing a joint letter by the supermajors. The move comes after another call to end flaring was made by investors managing more than $2 trillion in assets on the Texas Railroad Commission earlier this week. The investors urged the regulators to end flaring for good by 2025.
The world’s natural gas traders are hoping for a brutal winter to help sustain a price rally back from a record-setting slump. Fresh in their minds are memories of the previous two winters, when milder temperatures curbed consumption, leaving inventories brimming and spot prices lower. Suppliers and traders fear recent gains, which are expected for this time of year, could be erased if colder weather doesn’t materialize to help solidify demand. Benchmarks for liquefied natural gas in North Asia and Europe have only recently returned to pre-pandemic levels after trading near historic lows for most of the year.
OPEC: In 1973, a handful of oil-rich countries, led by Saudi Arabia, Iran, and Iraq, brought the US economy to its knees by putting an oil embargo on Washington and its allies. The suspension of oil shipments from the Middle East to the US and steep production cuts in retaliation for its support of Israel during the Yom Kippur War wreaked havoc on the American economy. OPEC, which until then had maintained a relatively low profile, mainly negotiating higher oil prices from major oil companies for its members, had emerged as a force to reckon with. Nearly five decades later, OPEC remains only a pale shadow of its past glory.
This week was meant to be one when OPEC nations gathered in Baghdad to celebrate the cartel’s six decades as a dominant force in global oil markets. Instead, the organization and its allies will convene online and reflect on whether the coronavirus has thwarted their best efforts to keep the market afloat. After reviving crude prices from an unprecedented collapse in the spring, OPEC+ is seeing the recovery stall and fuel demand falter as the pandemic surges once again. Brent prices slipped below $40 a barrel last week for the first time since June.
OPEC and its allies pumped more crude oil in August, led by surges from Saudi Arabia, Russia, and the UAE, according to the latest S&P Global Platts survey. The 13 members produced 24.37 million b/d, a 4 percent rise from July, while its nine partners, including Russia, added 12.67 million b/d, a 6 percent% increase, the survey found. The higher volumes were not unexpected as the OPEC+ coalition’s record 9.7 million b/d production cut accord, implemented during the depths of the coronavirus crisis in May, had been scheduled to ease to 7.7 million b/d for the rest of the year starting in August. As such, the group achieved 97 percent compliance with its new quotas in the month, according to Platts calculations.
On Thursday, Saudi Arabia and Russia — the leading members of the alliance — will chair a monitoring meeting to assess whether the production cuts, which started in August, are still staving off an oil glut. New signs of exporters reneging on the deal aren’t helping.
Shale Oil: Frackers are pumping less sand into shale wells for the first time in almost three years as drillers adjust to lower oil demand and prices. Well finishers are pumping an average of roughly 2.9 million pounds of sand a day during the current quarter, marking the first time since the final three months of 2017 that growth has subsided. Sand per well is an important measure of fracking efficiency because more sand typically means more of the rock fissures that allow crude to flow. According to Coras Research, “E&Ps are not getting the same bang for their frac buck this quarter if fracking efficiency continues to decline; it would put more pressure on US shale production going forward.”
The recovery of fracking operations in the US is happening primarily due to an unusually high inventory of drilled but uncompleted wells (DUCs). According to a Rystad Energy analysis, the DUC inventory is large enough to sustain the current level of fracking without the industry adding more rigs to expand drilling well into 2021. After the DUCs run out, however, rig activity in the five key oil regions needs to be in the 280-300 range to maintain balanced oil output. Actual rig activity today is almost 50 percent lower than that requirement.
Oil producers are stockpiling drilling permits on federal land ahead of the November presidential election, concerned that a win by Democratic candidate Joe Biden could lead to a clamp-down on oilfield activity. Federal permitting in the Permian Basin is up 80 percent in the last three months.
Enterprise Products Partners said it intends to cancel its 450,000 b/d Midland-to-ECHO 4 pipeline project. The cancellation of the oil pipeline from the Permian to Houston is further evidence of the latest glut in pipeline capacity out of the West Texas basin. Other pipeline companies with growth plans are in a similar position but so far have postponed projects rather than killing them. Permian oil infrastructure is already overbuilt. If the basin’s oil output recovers to pre-COVID records of 4.9 million b/d by the end of the next year, the pipeline industry still would have 2 million b/d of unutilized outbound capacity.
Prognosis: If Joe Biden wins the White House in November, the US could see the largest public and private allocation of capital to renewable energy resources ever along with numerous environmental regulatory rollback reversals. Biden also has proposed the most massive infrastructure package in modern history.
US tight oil accounted for 83 percent of the growth in world production over the decade 2009 to 2019. Deepwater and oil sands were the other growth area at 23 percent, while conventional production declined 9 percent over the same period.
However, world production fell 10.8 million b/d from April to June this year. About 30 percent of that decline was from US output, and a little more than half of the US decline was from shale oil where production had reached 7.28 million b/d when the rig count was 613. That was about 53 percent of the total 12.9 million b/d of US oil production. The EIA now forecasts nearly 11 million b/d of US output through 2021. Approximately 450 rigs are needed to maintain that level, but the July tight oil rig count was 147, about one-third of the number required to maintain 11 million b/d.
Therefore, depending on completion rates of DUCS, US production could fall during the next year or so. The lag time to get new wells drilled and into production means that production decline cannot be expected to reverse until well into 2021, assuming that large numbers of rigs are added immediately. That won’t happen because the markets will not finance such a surge at current oil prices. Based on rig count analysis, US oil production will probably be about 6 million b/d by mid-2021 or less than half of the peak level seen in November 2019.
OPEC and EIA forecasts indicate a V-shaped demand recovery in the third quarter of 2020 along with a slow recovery in supply. A supply surplus in the first half of 2021 is expected to give way to a smaller supply deficit in the second half of the year. If these projections turn out to be accurate, and that is a big “if,” it suggests that higher oil prices could be ahead by the end of next year.
2. Geopolitical instability
Iran: Sanctions relief under a change in US president would have a significant supply and price impact for global oil markets in the coming year. Analysts expect a Biden White House to return to the negotiating table with Tehran quickly. S&P Global Platts Analytics predicts 1.5 million b/d of Iranian exports could return to the market within a year of a new deal that removes the US sanctions.
Platts Analytics said Biden clearly wants to resurrect the Iran nuclear deal, and Tehran likely anticipates the same. “It is obvious watching the behaviors of the Iranians by the way they are showing great self-restraint right now given the attacks by the Israelis on their nuclear facilities. They’re waiting for this current administration to move out, and they believe there’s a much greater chance of resolution under Biden.”
Rapidan Energy Group sees 1.8 million b/d of Iranian production returning by the end of 2021 under a President Biden, a full year earlier than scenarios for any significant relief if President Trump wins a second term. “Biden is going to make a beeline back to the nuclear agreement or some version of it, and we’re pretty sure on that,” said Bob McNally, Rapidan president.
A company owned by Iran’s biggest state-controlled charity signed a contract to develop part of the country’s second-largest oil field. Sina Energy Development Co. will carry out drilling and repair work on 18 wells and build pipelines for the Marun oil field in southwestern Khuzestan province. Sina Energy was established in 2007 and is owned by a religious endowment for war veterans and the poor that is ultimately managed by Supreme Leader Ayatollah Ali Khamenei. It controls a large number of industrial and commercial assets, including factories, mines, and construction firms.
Iraq: Baghdad lowered its crude oil output in August to 3.578 million b/d but remained above the 3.404 million it had pledged to hold production under the OPEC+ supply accord. Iraq’s quota breach stems mainly from the Kurdistan Regional Government’s unwillingness to bring its production down in line with the deal after Baghdad and Erbil had agreed to share the OPEC+ production cuts proportionally. Baghdad has asked the Kurds to reduce oil production by 120,000 b/d. However, the Kurdish government said it could not comply with Baghdad’s request due to financing needs, though says it has cut production by 50,000 b/d to 410,000.
The Trump administration will cut the number of US troops in Iraq to about 3,000 this month, a reduction from about 5,200 there now. The move is part of President Trump’s effort to reduce the American military footprint in Iraq and Afghanistan before Election Day on Nov. 3rd.
Iraqi security forces moved to secure Basra province after months of violence, including assassinations of protesters, civil activists, and people involved in tribal and business disputes. The operation lasted for several days and was overseen by Iraq’s Joint Operations Command and Counter Terror Service.
Iraq is in talks with ENI to build a 300,000 b/d refinery at an estimated cost of $4 billion near the Zubair oil field operated by the Italian company in the southern part of the country. ENI currently operates the Zubair oil field with a 41.56 percent stake, alongside partners South Korea’s Kogas with 23.75 percent, state-owned Basra Oil Co. with 29.69 percent, and another state partner with 5 percent. According to its website. Zubair is scheduled to produce 700,000 b/d by 2027.
Libya: General Haftar has committed to ending a months-long blockade of oil facilities, the US embassy in Tripoli said in a statement on Saturday. Haftar gave his “personal commitment” to “allow the full reopening of the energy sector” by Sept. 12th. He made the pledge via an exchange of letters between his self-styled Libyan National Army and the embassy. By Sunday morning, however, Haftar and the LNA still hadn’t made any public statement about ending their blockade or allowing oil shipments to resume.
US oil company Hess may attempt to load a cargo of crude oil from Libya’s Es Sider port this week. If successful, the loading represents some hope for Libya which has had its oil production brought down to just 100,000 b/d from 1.2 million b/d at the start of the year due to port closures by General Haftar.
Two of Libya’s National Oil Company affiliates sent some oil workers home and halted some work due to the spread of Covid-19, according to a NOC statement. Libya’s Arabian Gulf Oil Company (AGOCO) has suspended all work for 30 days “to protect workers from the pandemic.” Libya’s largest refinery, Zawiya, is placing 10 percent of its staff on emergency leave. Zawiya processes 120,000 b/d and supplies western and southern Libya with fuel.
Turkey is in talks over oil and gas exploration in Libya, as President Recep Tayyip Erdogan’s administration seeks business opportunities in the conflict-ridden North African country.
Turkey-Greece: President Erdogan told European Council President Michel last week that the EU’s stance towards the East Mediterranean would be a test of Europe’s sincerity, calling on it to take an impartial stance in Turkey’s row with Greece.
Most of the attention has focused on the offshore natural gas deposits in the Eastern Mediterranean that prompted not just Turkey, but also Cyprus, Egypt, Greece, and Israel to claim rights to the discovery. However, the roots of the tensions run deeper. The significant growth of the Turkish Navy shows much about President Erdogan’s ambition to assert his nation’s interests as a Muslim regional power, able to go toe-to-toe with Europe, Russia, and the US. Not far below the surface is the idea that Turkey is the greatest power in the Eastern Mediterranean and should be treated as such. Many Turks remember that the Ottoman empire ruled the region from Istanbul for centuries. Ankara’s recent interest in supporting the government in Tripoli against General Haftar and Egypt is an example of Turkey’s newfound activism.
Venezuela: Caracas’s ability to produce much-needed gasoline and diesel now depends on a single oil field in the state of Monagas. To tap it, the government is starting to cannibalize the country’s crumbling energy infrastructure to pay contractors with scrap metal. Unlike the tar-like crude from Venezuela’s Orinoco region, the light oil from Monagas is easy to process in the country’s aging refineries. PDVSA is offering to pay for major repairs at pumping stations and compression plants in Monagas with scrap metal and parts from idled oil facilities.
3. Climate change
The world is losing its mammals, birds, amphibians, reptiles and fish, and with them, the ecosystems that have supported humanity since it first emerged. That’s the conclusion of the Living Planet Report 2020, by World Wildlife Fund and the Zoological Society of London, which chronicles the decline in vertebrate life. This year’s report shows that these animal communities shrunk on average 68 percent between 1970 and 2016. The report is compiled from 4,392 different vertebrate species across 20,811 populations.
The tropical Americas have seen animal populations decline 94 percent. The size of animal communities in or near freshwater globally have fallen by 84 percent. The report suggests that continued human abuse of the planet may lead to collapse of the natural systems and resources that allowed global civilization and modern societies to persist in the first place.
Advances in a relatively new field known as “event attribution science” are enabling researchers to assess how big a role climate change might have played in a specific weather event. The clearest examples are found in the growing frequency and intensity of heatwaves. Scientists needed only days to identify climate change as the key culprit in this year’s record temperatures in Siberia, with extreme heat drying out forests and peat across the Russian tundra, leading to massive wildfires. Climate change links have also been found in the simultaneous summer heat waves that hit Europe, Japan, and North America in 2018. Studies found that the chances of these events happening together would have been near zero without the industrial-era rise in planet-warming carbon emissions.
Carbon emissions are on the rise again after a short downturn when the pandemic brought industries and international travel to a halt. Emissions from burning fossil fuel dropped by an unprecedented 17 percent from the previous year during the peak of the lockdown in April. Still, by early June, they had returned to about 5 percent below 2019 levels, according to a report coordinated by the World Meteorological Organization.
The relevance of water risks for the sovereign ratings by Fitch is set to rise. As water is a vital raw material for manufacturing and agriculture, the water problems – either too much or too little — are set to hurt the economic growth of several countries. Some regions could see their growth rates decline by as much as 6 percent of gross domestic product.
The extreme weather that’s hammered California with runaway wildfires and hit Louisiana with its most powerful hurricane in 160 years may be about to get even worse. La Nina — a phenomenon that occurs when the surface of the Pacific Ocean cools — has officially formed, according to the US Climate Prediction Center. La Nina triggers an atmospheric chain reaction that stands to roil weather around the globe, often turning the western US into a tinder box, fueling more powerful hurricanes in the Atlantic and flooding parts of Australia and South America.
A report commissioned by federal regulators has concluded that climate change threatens US financial markets, as the costs of wildfires, storms, droughts, and floods spread through insurance and mortgage markets, pension funds, and other financial institutions. “A world wracked by frequent and devastating shocks from climate change cannot sustain the fundamental conditions supporting our financial system,” concluded the report,
Aviation accounts for 3.5 percent of the human-made climate impact, and two-thirds of this impact is caused by emissions other than CO2, according to a new study in the journal Atmospheric Environment. The study makes an essential contribution to the scientific understanding we have of the role of aviation on climate change—an understanding decision-makers and politicians may need on the way to achieving the goals of the Paris Agreement. Another new analysis of commercial aircraft fuel efficiency from the International Council on Clean Transportation finds that the UN’s aircraft CO2 standard lags current technology by more than a decade.
4. The global economy and the coronavirus
The global economy is bouncing back from the collapse it suffered in the spring, but new data suggest the early gains from the lifting of coronavirus lockdowns are already exhausted, adding to evidence that the world economy could take many months, if not years, to revive. An economic data set that has a good record of anticipating growth indicates that strong growth in the third quarter will likely be followed by more modest expansion as companies, workers and governments adjust to what could be an extended period of uncertainty over the evolution of the pandemic and the availability of a vaccine.
United States: Applications for state unemployment benefits held steady last week, a sign extensive job loss is persisting as the nation struggles to control the coronavirus. Initial jobless claims in regular state programs were unchanged at 884,000 in the week ended Sept. 5th. Continuing claims — the total number of Americans claiming ongoing unemployment assistance in those programs — rose 93,000 to 13.4 million in the week ended Aug. 29th.
Hopes for a new stimulus package to help ease the economic stress disappeared Thursday after Democrats blocked a significantly slimmed-down coronavirus relief bill put forward by GOP leaders. Many of the benefits created in the Cares Act passed by Congress in March have already expired, and about 29 million Americans drew jobless aid last week, according to Labor Department data.
Economists warn that further state spending reductions could prolong the downturn by shaking the confidence of residents, whose day-to-day lives depend heavily on state and local services. “People look to government as their backstop when things are completely falling apart,” said Mark Zandi, chief economist at Moody’s Analytics. “If they feel like there’s no support there, they lose faith, and they run for the bunker and pull back on everything.”
China: Export growth accelerated in August while imports edged lower as Beijing’s economy extended its recovery from the coronavirus pandemic. Exports rose 9.5 percent over a year earlier to $235.2 billion, up from July’s 7.2 percent growth. Imports declined 2.1 percent to $176.3 billion, compared with the previous month’s 1.4 percent contraction. Exports to the US rose 20 percent to $44.8 billion despite tariff hikes imposed by the Trump administration.
China’s next five-year plan beginning next year calls for increases to its state reserves of crude, strategic metals and farm goods, said officials familiar with the discussions. Beijing is keen to heed the lessons of the coronavirus crisis and deteriorating relations with the US and its allies. That means ensuring the nation’s stockpiles, almost certainly among the world’s largest, are plentiful enough to withstand supply disruptions that could cripple its economy.
Government officials and state-owned energy enterprises in China are currently debating another wave of coal power investment despite a severely diminished business case for the technology. Companies that own and operate China’s coal fleet are already facing financial losses, thanks to increasing competition from renewables plus overcapacity in the sector. Some recent estimates find that the cost of building new solar generation in China is approaching the operating cost of coal generation.
The Mekong is one of Asia’s most important rivers, supporting 60 million people in Southeast Asia. But for the second consecutive year, the lower Mekong basin has hit a record low water flow, affecting irrigation, rice production, and fisheries, all vital to the region’s food security. A reduction in rainfall has caused some of the water loss, according to the Mekong River Commission. However, the Commission also points the finger at upstream hydropower dams—mostly in China—that have held back a large amount of water. The Mekong River originates in China’s Tibetan plateau. Critics say those dams will continue to be a source of conflict unless China moves to other ways of producing power and cooperation increases among the countries.
With the US election approaches, President Trump again raised the idea of separating the US and Chinese economies, also known as decoupling, suggesting the US would not lose money if the world’s two biggest economies no longer did business. Trump, who long touted friendly ties with Chinese President Xi Jinping as he sought to make good on promises to rebalance a massive trade deficit, has made getting tough on China a crucial part of his re-election campaign.
European Union: Fears of a no-deal Brexit have come back to haunt the UK’s financial markets. With the relationship between the European Union and Britain reaching a new level of discord, investors hammered the UK currency with an intensity that hasn’t been seen since the height of the coronavirus pandemic in March. And that’s not the only thing worrying investors. The coronavirus is spreading rapidly once again in the UK and there is concern companies will slash hiring if the government’s wage support program expires at the end of next month.
German manufacturers ramped increased production for the third straight month, though the pace of growth slowed considerably in July. Industrial output rose 1.2 percent—less than forecast by economists. The Economy Ministry said Germany’s industry is back at nearly 90 percent of pre-crisis levels and predicts that improved sentiment and declining short-time work will continue to drive the recovery, although it will take some time. A separate report on Friday showed factory demand slowed.
Some recent indicators suggest momentum has also started to slow in some parts of the euro area amid resurgent infections and concerns about potential restrictions. Several governments have imposed new travel curbs and ordered citizens to wear masks. The uncertain outlook is set to feature prominently in discussions when European Central Bank officials meet this week. Most economists predict the Governing Council will keep policy unchanged.
Foreign Minister Maas has questioned the Nordstream 2 pipeline project following the suspected poisoning of Kremlin critic Alexei Navalny. Chancellor Angela Merkel’s spokesman reinforced the shift in tone on Monday, saying she shared the view of Maas. Abandoning the nearly complete gas pipeline from Russia to Germany could create a legal mess and nudge up energy costs for European households. However, Germany would cope with any disruption to supplies, economists say.
Russia: The OPEC+ deal, concluded in April amid falling global demand and weak prices, may lead to a double-digit decline in Russian crude oil production for the first time in more than 25 years. Having increased in 2018 by 1.7 percent, and in 2019 by 0.9 percent, the production of oil and gas condensate in the first seven months of 2020 decreased by 6.4 percent in the annual term. Moreover, in the second quarter, production fell by 10.3 percent compared to the same period last year, and in July by 15.9 percent.
Saudi Arabia: Riyadh’s economic outlook for this year remains uncertain amid the pandemic-driven economic slowdown and the collapse in oil prices. Saudi Arabia plans to keep oil production steady despite the slump in prices, fearing any more significant output cuts would lead rivals in OPEC to increase supply. People briefed on Saudi Arabia’s thinking said Brent crude’s more than 10 percent slide in the past week, dipping below $40 a barrel, was causing concern but not yet panic in Riyadh.
A $500-billion smart city. A $200-billion solar farm. Billions of dollars in investments in gas and petrochemicals. These were all facets of Saudi Arabia’s Vision 2030—perhaps the most ambitious economic diversification in the world. Now, that ambition is in tatters. Last week, Saudi Arabia’s Aramco said it would shelve an investment of several billion dollars in Sempra Energy’s Port Arthur LNG terminal. It also said it would delay investments in a $20-billion refining and petrochemical project at its Yanbu hub. Earlier this year, Riyadh government sources told the Wall Street Journal that Saudi Arabia was not pursuing its $200-billion solar farm project it had conceived in partnership with Japan’s SoftBank.
Saudi Arabia has gained the support of the International Atomic Energy Agency in its effort to adopt nuclear energy. Riyadh has been actively seeking help with expertise in atomic energy to develop its generation capacity. The US was an obvious first choice among potential partners. Washington, however, has taken a cautious approach, making it clear it would only help Riyadh develop nuclear generation capabilities if it agrees to US oversight to prevent the development of atomic weapons. Israel has been concerned as well and has made this concern known to the United States. Meanwhile, Saudi Arabia reached out to China for help with nuclear reactor construction.
India: India displaced Brazil last week to take second place after the US in terms of coronavirus infections, with nearly 100,000 new cases a day, while some cities re-opened underground train services shuttered for months. With its nationwide tally of 4.2 million cases exceeded only by the US figure of 6.2 million, India is adding more cases each day than any other country. Experts say there is no sign of a peak as cases surge in the nation of 1.3 billion people, in major cities, such as New Delhi and the financial hub of Mumbai, plus rural areas that have limited access to health services.
Given the widespread under-reporting of infections and deaths in India, it would not be surprising to hear in the near future the nation with a population four times larger than that of the US was the world leader in coronavirus infections and deaths. The US is currently reporting about 40,000 infections a day, so India is closing in on the US total infection count at the rate of at least 60,000 new cases per day. At this pace India will have the “official” highest number of coronavirus infections on earth in about 30 days.
5. Renewables and new technologies
China is already on track to outpace the US in adding the newest generation of nuclear power technology to its power grid. The China National Nuclear Power company, a unit of the country’s state-controlled nuclear authority, said that fuel loading started at the Fuqing No. 5 reactor, the first to use the new technology, on Sept. 4th. Bloomberg says that China is on track to develop the new nuclear technology without any help from the US, and Beijing has abruptly ended a three-year freeze to finish this $10 billion project to build more of these reactors across China.
The Swiss company Climeworks is building the world’s largest direct air capture and storage facility for converting atmospheric CO2 to underground rock in Iceland. Audi is partnering with the Zurich-based environmental startup and promoting future technology with the project. The facility will filter 4,000 metric tons of carbon dioxide from the air and mineralize it underground.
6. The Briefs (date of the article in the Daily Energy Bulletin is in parentheses)
Jet fuel in the “low-fly zone”: US and European airlines warned on Wednesday of grim outlooks for the coming months, cutting schedules as passengers continue to avoid air travel during the pandemic. Finnair, Finland’s flagship airline, said it would operate no more than 80 flights daily in October compared with the 200 previously planned. In the US United Airlines said its capacity would fall 70 percent compared with the third quarter of 2019. (9/10)
Total’s peak oil forecast: Speaking at the ONS Digital Conference, Patrick Pouyanne, the CEO of Total, said he now expects oil production to peak between 2030 and 2040, although he added that oil would continue to be needed. Pouyanne expects greater generation from wind, solar, and other renewables, as well as better use of storage solutions, to reduce the need for oil. (9/8)
The Russia-China gas link: Russia’s natural gas monopoly Gazprom has increased its natural gas supply to China by 20 percent via the new pipeline Power of Siberia in July and August, compared to June. Annual supplies to China are expected to rise from 21 billion cubic meters in 2019 to 24-25 billion cubic meters at the end of this year. (9/10)
Poland is ready to offer Germany access to the 10 billion cm a year Baltic Pipe that will deliver gas from Norway if Berlin halts construction of the controversial Nord Stream 2 gas pipeline. Poland has been a long-term opponent of the 55 Bcm/year Nord Stream 2 project. (9/10)
Russian “blue hydrogen”? Russian gas producer and LNG exporter Novatek is looking into the viability of commercial hydrogen production from methane. Its CFO Mark Gyetvay said the company had sufficient gas resources to explore the possibility of a large-scale hydrogen project. Novatek to date has been focused on conventional gas production and LNG exports but is now looking at hydrogen too. (9/10)
In Kazakhstan, crude production from Tengiz, the nation’s highest-producing oil field, dropped 12 percent on the year in the second quarter to 570,000 b/d, reflecting the country’s adherence to OPEC+ production cuts. In production since 1993, Tengiz produced almost 100,000 b/d less in Q2 than it did in Q1, the update statement showed, as OPEC+ production cuts kicked in in May, with Kazakhstan tightening its adherence in June. (9/10)
UAE’s nukes: The United Arab Emirates has just become the first Arab nation to operate a nuclear plant as its 5.6GW Barakah nuclear plant achieved criticality on its Unit 1 in the first week of August. Unit 2 is expected to be fully ready by the winter season of 2020/2021, while Units 3 and 4 are nearing completion The underlying question, however, is the $24 billion cost of the four units; was nuclear power–$4 billion over the initial estimate plus three years late—a necessity for the Emirati economy? Would plentiful solar energy have been cheaper? (9/11)
Nigeria asked a court in Milan, Italy, to order Royal Dutch Shell and Eni to pay the sum of $1.092 billion as an immediate advance payment for damages in the Malabu oil scandal, one of the oil industry’s biggest-ever corruption scandals. During the hearing of the corruption allegation linked to the acquisition of the OPL 245 offshore field by Eni and Shell, a government attorney asked for advance payment ahead of a more comprehensive damages package to be decided by the court at a later date. (9/10)
Another Guyana discovery: ExxonMobil said on Tuesday it had made its 18th oil discovery offshore Guyana, which adds to its previous estimate of more than 8 billion barrels of discovered recoverable resources in the area. Guyana became the newest oil-producing nation in December 2019. (9/9)
Colombia’s oil sector is slowly recovering. Seven active rigs are drilling for oil in the strife-torn Latin American country. This is the third straight month where the rig count has increased, although it is still less than a third of what it was for the same month in 2019. That can be attributed to President Duque’s reactivation of Colombia’s economy after a more than five-month lockdown, one of the world’s longest, to contain the coronavirus. (9/8)
Mexico has revised down energy giant Pemex’s oil production target for next year by more than 8 percent in what was a no-surprise move to those familiar with the company’s massive debt burden, which significantly limits its ability to boost production despite generous state help. The Mexican Ministry of Finance said it now expected Pemex to produce 1.857 million bpd in 2021, down from a projection of 2.027 million bpd made in April this year. (9/10)
The US oil rig count declined by 1 to 180 while the gas rig count also dropped by 1, Baker Hughes reported last Friday. Total US oil and gas rigs are now down by 632 year over year. (9/12)
The recovery in US gasoline consumption has plateaued and dipped as the summer driving season comes to an end and the school year begins for wide swaths of the country. The four-week rolling average for the period ending Aug 29 now shows demand resting at 18.2 percent below prior-year levels. (9/11)
Gasoline imports into the US Atlantic Coast January through August plummeted 39.3 percent as most open arbitrage plays could not overcome coronavirus pandemic-dampened demand. (9/9)
Offshore about-face: President Trump on Tuesday signed a memorandum instructing his interior secretary to prohibit drilling in the waters off both Florida coasts, and off the shores of Georgia and South Carolina, for ten years. For Trump, it was a dramatic about-face on a major policy decision, but one that could yield election-year dividends in key coastal states like Florida. It also provided relief to Sens. Lindsey Graham of South Carolina and Kelly Loeffler and David Perdue of Georgia, all Democratic targets. (9/11)
The oil industry was shocked! President Donald Trump shocked the oil industry with a surprise announcement that he would extend the existing moratorium on oil drilling off parts of Florida’s, South Carolina’s, and Georgia’s coastlines. The announcement was a complete surprise, according to Politico, even to congressional aides, lobbyists, and industry officials who have been working on this very issue. (9/9)
In Colorado, the state’s Oil and Gas Conservation Commission (COGCC) supported four-to-one a proposal to extend the setback for oil wells from homes and schools to 2,000 feet—four times the current buffer. The COGCC is considering changes in the state regulations about oil and gas drilling in Colorado after the state passed in 2019 Senate Bill 181, which says that public health and welfare should be prioritized in the regulation of oil and gas drilling. (9/11)
SPR damaged: Hurricane Laura caused significant damage at the Strategic Petroleum Reserve site in West Hackberry (LA), which holds about 30% of the nation’s store of emergency crude oil, but three other SPR sites still have plenty of petroleum. (9/10)
Total US coal output, year to date, is down 23.7 percent vs. 2019 year-to-date. All four major basins were down evenly across the board. (9/11)
The UK nixes coal mine: The British government has refused to allow an open cast coal mine to be built in northeastern England, the Minister for Housing, Communities and Local Government Robert Jenrick said. Northumberland County Council agreed in 2016 that developer The Banks Group could extract 3 million tons of coal by cutting an open cast, or surface mine, near Druridge Bay, Highthorn. (9/9)
BP entered the offshore wind market with a $1.1 billion deal to buy 50 percent stakes in two US developments—off Long Island and off Massachusetts—from Norway’s Equinor, a significant step by the oil firm towards its energy transition goals. The British oil and gas company has set itself a target of increasing its renewable power generation capacity 20-fold over the coming decade to 50 gigawatts. (9/10)
Laura’s power shutdown: Parts of Louisiana will be without power for weeks after Hurricane Laura caused “catastrophic” damage to the region’s grid, mangling steel transmission towers, and snapping utility poles as if they were twigs. More than 300,000 homes and businesses remain in the dark Monday of last week, including 150,000 Entergy Corp. customers, four days after the Category 4 storm came ashore near Lake Charles in southwest Louisiana. (9/8)
The race for better EV batteries: Advancements in battery technology are not just likely but virtually a certainty. The only question is how many of them would be able to go from the lab to the market quickly enough to make a difference. A recent report confirms the Piech EV battery can charge super-quickly, at 4 minutes and 40 seconds for an 80 percent charge, and a charge can last for 500 km. (9/10)
General Motors and electric truck startup Nikola will join forces to build electric pickup trucks and fuel cell commercial trucks to take on Tesla Inc. As part of a multi-part, multibillion-dollar deal, GM received an 11 percent stake in Nikola, valued at about $2 billion. In return for the Nikola shares, GM will supply Nikola with batteries, chassis architecture, fuel cell systems, and a factory to build the startup’s proposed Nikola Badger pickup. (9/9)
Asphalt contributes to pollution: A new study now finds that asphalt is a significant source of air pollutants in urban areas, especially on hot and sunny days. Yale researchers found that common road and roofing asphalts produced complex mixtures of organic compounds, including hazardous pollutants, in a range of typical temperature and solar conditions. (9/8)
EU air pollution morbidity: One in every eight deaths in Europe can be linked to pollution, according to a new report by the EU’s environment agency. It said factors such as air and noise pollution, as well as low water quality and exposure to chemicals, contributed to 13 percent of all deaths. The report also noted that more impoverished communities and vulnerable people were the hardest hit by pollution. (9/9)
French nuclear generation hit its lowest level in nine weeks, in part thanks to low river levels plus some units off-line for maintenance having delayed returns. This made France a net importer of electricity, pushing up power prices to 7-month highs. (9/8)