Tom Whipple and Steve Andrews, Editors
Quotes of the Week
America’s oil production will never again reach the record 13 million barrels a day set earlier this year, just before the pandemic devastated global demand. “It’s just going to be too difficult to replace the 2 million barrels a day of production that we’ve lost, and then to further grow beyond that. Over the next three to four years there’s going to be the moderate restoration of production, but not at high growth.”-Vicky Hollub, CEO of Occidental Petroleum Corp. [cited in Bloomberg News]
“The economic downturn has temporarily suppressed emissions, but low economic growth is not a low-emissions strategy – it is a strategy that would only serve to further impoverish the world’s most vulnerable populations. Only faster structural changes to the way we produce and consume energy can break the emissions trend for good. Governments have the capacity and the responsibility to take decisive actions to accelerate clean energy transitions and put the world on a path to reaching our climate goals, including net-zero emissions.”-Dr. Fatih Birol, director of IEA, from the IEA’s World Energy Outlook 2020
Graphic of the Week
1. Energy prices and production
Oil: Futures posted a small weekly gain on signs that demand is picking up in China even as a new wave of coronavirus infections casts a shadow over the global market. Brent futures settled at $42.93 a barrel, up 0.2 percent for the week, and New York futures settled at $40.88 a barrel. A panel of officials from OPEC+ discussed their worst-case scenario during a virtual monthly meeting on Thursday. The cartel fears a prolonged second wave of the pandemic, and a jump in Libyan output could push the oil market into surplus for much of 2021, a gloomier outlook than just a month ago.
The International Energy Agency warned last week that the market has only limited capacity to handle extra supply in the coming months. Libya’s potential production increases, OPEC+ continuing to ease back its quotas, and the uncertainty over demand could contribute to oversupply. The agency kept its oil consumption outlook largely unchanged, predicting demand will fall 8.4 million b/d in 2020 but rise by 5.5 million b/d in 2021. However, the agency pointed out that “the trajectory for COVID-19 infections is strongly upwards,” which “surely raises doubts about the robustness of the anticipated economic recovery and thus the prospects for oil demand growth.”
The always optimistic OPEC raised its global oil demand forecast for 2020 by 60,000 b/d from last month to 90.29 million b/d as it sees an improvement in China’s demand for most oil products except for jet fuel. “China so far appears to be the only country globally moving steadily on the path to recovery based on gradually improving economic indicators, particularly in industrial production, which are rising from month to month” says OPEC.
More than 30 percent of Gulf of Mexico crude production was still offline as of midday Oct. 14th due to Hurricane Delta. Around 568,000 b/d of crude and 489 million cf/d of gas production remained shut-in, representing 30 percent and 18 percent of total Gulf of Mexico output, respectively. At the storm’s peak on Oct. 10th, it shut in 1.7 million b/d of crude and 1.7 million cf/d of gas production, respectively, representing 92 and 62 percent of Gulf output.
Delta was an intense Category 2 hurricane when it made landfall in the same region the more dangerous Hurricane Laura did in late August. However, Delta forged a more treacherous path through the deepwater oil and gas platforms. Delta surpassed Laura as the most significant storm of the season in terms of supply disruption and shut in the highest percentage of Gulf crude output since Hurricane Katrina in 2005.
Shale Oil: As the oil price dropped through the first and second quarters of this year, oil companies closed in wells and laid off drilling and fracking crews. Activity bottomed in late May but has mounted a slow and steady recovery in the months since. Rig count increases have been moderate, rising from a low of 251 in May to 269 as of Oct. 5th. What has been more spectacular is the increase in frac crews’ deployment, especially in the Permian as operators have chosen to bring Drilled but Uncompleted (DUCs) out of inventory and into production.
Chevron CEO Mike Wirth last week defended the company’s commitment to shale and said its upstream portfolio would remain weighted toward tight oil and gas, with fewer large, non-shale projects than in the past. However, he acknowledged a “less enthusiastic” outlook for the shale sector generally.
The EIA said last week in its latest Drilling Productivity Report that production from the seven largest shale formations is set to decline by 121,000 b/d next month. The most significant production decrease is expected to come from the Eagle Ford, which the EIA expects will fall from 1.048 million b/d to 1.014 million. The second-largest drop is expected to take place in the Niobrara. All in all, the EIA expects oil production will decline in November to 7.692 million b/d, from 7.813 million in October.
The world’s largest oilfield services provider, Schlumberger, reported its third consecutive quarterly loss this year as exploration and production companies drastically reduced demand for drilling in the US and elsewhere. Schlumberger booked a loss of $82 million for the third quarter – much less than the second-quarter loss of $3.4 billion.
Low oil prices, lower credit availability, and massive debt loads forced 44 oil and gas producers and oilfield services companies to file for bankruptcy protection in the third quarter. Those 44 bankruptcies could even be a low number compared to the wave of filings expected after the fall borrowing base redetermination. Banks are forecast to slash further the capital available to firms for borrowing against their reserves.
According to one of the sector’s top investors, Wil VanLoh, CEO of Quantum Energy Partners, the fracking binge in America’s shale industry has permanently damaged its oil and gas reserves, threatening hopes for a production recovery. “That’s the dirty secret about shale,” VanLoh said last week, noting wells had often been drilled too close to one another. “What we’ve done for the last five years is we’ve drilled the heart out of the watermelon.” In recent years, soaring shale production took the US crude output to 13 million barrels a day this year. It brought a rise in oil exports, allowing President Trump to proclaim an “American energy dominance” era.
Natural Gas: Despite some uptick in consumption in recent months, the world’s demand for natural gas is still set to see its most significant drop on record in 2020. According to the IEA’s new report, Global Gas Security Review 2020, global natural gas demand is set to decline by 3 percent, or by 120 billion cubic meters, this year.
A winter weather forecast says that the National Weather Service is calling for above-average temperatures across the US Northeast and much of the South and West from December to February. This signals lower-than-anticipated demand for gas-fired heating.
The IEA has cut its forecast for European gas demand for 2040 by 21 billion cm, the agency said in its latest World Energy Outlook, according to its central Stated Policies scenario that takes into account announced policies and targets. That is down from the 557 billion forecast in last year’s Outlook for 2040, which itself was down from a 2040 prediction of 592 billion in the 2018 edition.
Russia’s Gazprom doesn’t see the glut in Europe’s natural gas market going away soon, with oversupply extending well into 2021. “The majority of challenges and threats are still here. One of them is general oversupply, which we are likely to see in 2021 as well,” Elena Burmistrova, Director General of Gazprom Export, said last week. In the spring of 2020, Europe was so awash with natural gas amid weak demand and limited storage capacity that gas suppliers were facing the possibility of cutting flows to prevent natural gas prices from plunging further.
Coal: China has suspended purchases of Australian coal as Beijing continues to control imports of the fuel amid soured political relations with Canberra. Chinese power stations and steel mills have been told to stop using Australian coal immediately and ports have been told not to offload Australian coal.
The ban marks an escalation in the tensions that have already jolted agricultural exports from Australia, China’s biggest supplier of commodities. It isn’t clear when the halt might end or how it might affect long-term contracts that are already in place. China keeps a tight grip on coal imports to balance its miners and industrial users’ needs. The fuel still accounts for over half of its energy needs. Still, it is falling out of favor, albeit gradually, as China shifts to cleaner-burning energy to cut pollution and meet increasingly ambitious climate goals.
According to the IEA, renewables are set to overtake coal this decade as the world’s favorite fuel to generate electricity. Solar photovoltaics are now cheaper than plants fired by coal and natural gas in most nations, the IEA’s researchers conclude in its annual report on global energy trends. Those more affordable costs, along with government efforts to slash climate-damaging emissions, will increasingly push coal off the grid and give renewables 80 percent of the market for new power generation by 2030, the IEA says.
OPEC: There was little change in OPEC production in September. The cartel’s total production was down 47,000 b/d, but after August, production was revised upward by 109,000 b/d. Algeria was unchanged in September. Angolan crude production increased by 47,000 b/d. Iran is holding steady but said to be exporting more oil than OPEC says. There is not much change in Iraq for the last four months. Kuwait is also holding steady and appears to be producing close to flat out.
According to Russia’s Energy Minister Novak, the OPEC+ alliance is optimistic that it will continue to gradually ease production cuts from January as planned, despite surging coronavirus cases in many countries. OPEC and its partners agreed in April to reduce their combined oil production by 9.7 million b/d in response to the demand slump. The cuts were relaxed by 2 million b/d starting in August and are set to be eased by another 2 million from January 2021. “Currently, despite the second wave of the pandemic in several countries, my colleagues and I continue to be optimistic and expect we can gradually raise production as per the agreement without harming the market,” Novak said.
Speaking to the Energy Intelligence Forum, UAE’s Energy Minister al-Mazrouei said, “We in OPEC+ have set a plan and that plan… started with the almost 10 million or 9.7 million barrels per day reduction. That volume has been reduced, and it will be reduced again at the end of this year as we walk to 2021.”
Prognosis: The IEA released its flagship publication, the World Energy Outlook 2020, which provides a comprehensive view of how the global energy system could develop in coming decades. The Agency notes that this year requires an unusual approach. Still, the focus for the World Energy Outlook 2020 is firmly on the next ten years, exploring in detail the impacts of the Covid-19 pandemic on the energy sector and near-term actions that could accelerate clean energy transitions. Here are five significant conclusions from the report:
1. Pandemic effects to be felt for decades
Global energy demand is set to drop by 5 percent in 2020, with energy investment dropping a shocking 18 percent. In the EIA’s best-case-scenario, global energy demand will not fully recover to pre-Covid-19 levels until 2023. A slightly worst-case scenario delays energy demand recovery by another two years to 2025.
2. Oil becomes the next tobacco
Oil could soon face the same fate as the tobacco by entering a terminal decline. The agency has reiterated that renewable energy is likely to gain ascendancy in a not-so-distant universe while fossil fuels take a back seat. Even in the best-case scenarios, oil demand will continue to rise but hit a plateau in the 2030s.
3. No reprieve for coal
Coal is forever doomed, with the coronavirus precipitating a fall in global coal demand. Even in the best-case scenario, coal demand will never recover to pre-crisis levels and is likely to fall below 20 percent of our global energy mix by 2040 for the first time since the Industrial Revolution.
4. Natural gas fares better than other fossil fuels
Natural gas emits about 45 percent less CO2 than the cleanest coal and 28 percent less than heating oil. The IEA believes that natural gas might or might not face a similar fate to other fossil fuels depending on the policies governments adopt. In one scenario, natural gas could enjoy a 30 percent rise in demand by 2040, thanks mainly to demand growth in South and East Asia. At the same time, this is the first time that IEA foresees a decline in gas demand in advanced economies over a similar timeframe.
5. Solar becomes the new king of electricity
While wind energy, especially offshore wind, is likely to continue enjoying robust growth, solar energy is expected to come out on top. In one IEA scenario, renewables will meet 80 percent of global electricity increase over the next decade. The IEA forecasts that solar will be the primary driver of growth as it sets new records for deployment each year after 2022.
2. Geopolitical instability
(These are the situations that are reducing the world’s energy supplies or have the potential to do so.)
Iran: As the Covid-19 death toll continues to climb in the hardest-hit country in the Middle East, the US government voiced its opposition to Iran’s request, still unfulfilled, for a $5 billion loan from the IMF to help combat the coronavirus pandemic. As Iran surpasses at least half a million cases and more than 30,000 deaths, the administration is adding new sanctions on a country that was already struggling to buy essential medicines. The Trump administration has sanctioned 18 Iranian banks, which appear to have been the last financial institutions with international ties left untouched by US sanctions.
In response to the latest round of US sanctions, the New York Times editorialized that Washington has gone too far and that this broad application of sanctions amounts to collective punishment for tens of millions of innocent Iranians. The director of the Future of Iran Initiative at the Atlantic Council calls the American “maximum pressure” campaign against Iran “sadism masquerading as foreign policy.”
Iran and Iraq have agreed to settle Iraq’s energy debt to Iran through a barter deal, under which Baghdad would supply Tehran with needed medicine and staples. Iraqi payments for Iranian gas and electricity are paid into Iranian accounts in Iraqi banks. However, due to the sanctions, those funds are frozen, and Iran cannot access them. The settlement sidesteps US sanctions against financial payments to Iran.
Next June, Iranians will elect a new president, as the era of Hassan Rouhani, who staked his career on the nuclear deal in 2015, comes to an end. Presidential hopefuls will be vetted by the Guardian Council, whose members are appointed by Supreme Leader Ayatollah Ali Khamenei. But the field is set to be dominated by military men and stalwart conservatives whose influence had surged since 2018 when President Trump abandoned the nuclear accord.
Though Iran has rolled back compliance to crucial commitments, it has not officially repudiated the agreement. It has indicated its violations could be phased out if penalties are lifted. A hardliner will have little incentive to formally abandon an accord that could yet present a lifeline for Iran’s devastated economy. Tehran may not return to the table on the same terms as before or be willing to reactivate the pact. Presidential candidate Biden has indicated he would seek to revive the agreement if he wins.
Iraq: Baghdad cut its oil production by more than 200,000 b/d in September, moving closer to compliance with its promises to the OPEC+ coalition. Countrywide output averaged 3.68 million b/d, down from 3.89 million in August.
The government is beginning to grapple with the unprecedented magnitude of its financial crisis as it seeks $35 billion in new borrowing, proposes a total overhaul of the economy, and considers devaluing the currency for the first time in two decades. The measures are likely to be as unpopular as they are necessary, presenting a political challenge for Prime Minister al-Kadhimi, who inherited an economic disaster characterized by unsustainably high spending and over-reliance on oil revenue.
Iraq is forecasting that the average price of its crude oil at $50 in 2021 is 23.4 percent higher than that proposed in the 2020 budget. Iraq’s oil revenues are also forecast to rise 23 percent to $60 billion in 2021 from $449 billion in 2020. The country’s estimate for its oil price and revenue differ from that of the IMF, the white paper showed. The IMF forecasts Iraqi crude price at $39.50 per barrel in 2021 compared with $36.30 in 2020, based on the latest Iraqi discussions with the fund.
Iraq’s oil minister has proposed creating a company to manage upstream and export operations in the semi-autonomous Kurdish region. The proposed company would be administratively linked to the Kurdistan Regional Government and the federal oil ministry
Libya: The National Oil Corporation announced it had lifted the force majeure on the country’s largest oilfield, Sharara, after reaching an agreement with the Petroleum Facilities Guard. Libya is currently producing about 300,000 b/d, and Sharara could add up to 200,000 b/d more. Oil analysts say Libya’s output might recover to at least 500,000 b/d or even to over 1 million b/d, based on the continued absence of the blockade ordered on the 18th of September by Khalifa Haftar, the commander of the rebel Libyan National Army (LNA).
However, on the day that the agreement was signed, Haftar made it clear that the lifting of the blockade was only in place for one month – that is, until the 18th of October – unless a further agreement is reached laying out how oil revenues are to be divided. Whether that deal is done will determine whether Libya produces 100,000+ bpd or 1 million+ bpd in the coming months.
Greece-Turkey: Turkey resumed surveying for oil and gas in disputed waters in the eastern Mediterranean in a move reigniting the tension with its neighbors and EU members Greece and Cyprus. The Oruc Reis seismic survey vessel returned to the Mediterranean and started collecting data last week. Tensions between EU members Greece and Cyprus and Turkey flared up again in recent months after Turkey resumed drilling and exploration for oil and gas in the eastern Mediterranean in waters that Greece and Cyprus consider part of their territorial waters.
The heightened tension in the eastern Mediterranean and the growing rift between Greece and Turkey, who are also both part of the NATO alliance, has the EU considering possible sanctions on Turkey. Greece promptly accused Turkey of undermining efforts to ease a crisis.
Turkish Defense Minister Akar said the vessel was continuing with its “planned and scheduled activities” and said the Turkish navy would provide “support and protection” if necessary. Greek Prime Minister Kyriakos Mitsotakis discussed the development on the phone with European Council President Charles Michel, saying he would bring it up at the next council meeting. “This new unilateral act is a severe escalation on Turkey’s part,” a government statement quoted Mitsotakis as saying.
Nagorno-Karabakh: Armenia and Azerbaijan accused each other on Sunday of violating a new humanitarian ceasefire in fighting over the mountain enclave of Nagorno-Karabakh, hours after it took effect. The truce agreed on Saturday came into force at midnight after a week-old Russian-brokered ceasefire failed to halt the worst fighting in the South Caucasus since the 1990s.
Hundreds of fighters from Syrian militias allied with Turkey have joined the fighting between Azerbaijan and Armenia, and hundreds more are preparing to go, according to Syrians involved in the effort. Turkey quickly declared its support for Muslim-majority Azerbaijan, whose people speak a Turkic language. So far, at least 52 Syrians have been killed in the fighting.
Turkey and Russia are rivals with deep mutual animosities. When the fighting broke out, the Turkish government moved to carefully instigate a crisis with Russia by triggering a military escalation between Azerbaijan (a US, Israeli, and Turkish client state) and Armenia (a Russian and Iranian client state).
Nagorno-Karabakh’s proximity to critical Azeri oil and gas infrastructure means that there will be more at stake if the conflict escalates further and jeopardizes key export pipelines. A Rystad Energy analysis explains how disruptions could benefit Russian gas exports while reducing Turkey’s cheap gas imports and its role as a vital oil transport hub.
The Baku-Tbilisi-Ceyhan oil pipeline and the South Caucasus Pipeline gas conduit both run through Azerbaijan, with some sections lying as little as 25 miles from fighting. Any attack on or seizure of pipeline territory could have severe ramifications for upstream operations in Azerbaijan, whose fields, operated by BP, produce about 485,000 b/d of light oil.
Nigeria: The army signaled it was prepared to intervene in a standoff between a burgeoning protest movement against police brutality and the government of Africa’s biggest oil-producing nation. Nationwide protests have rocked the country for eight consecutive days as thousands of mostly young Nigerians have marched in the West African nation’s largest cities.
The demonstrations began with a call to ban a notorious police unit, the Special Anti-Robbery Squad, or SARS, accused of torture, extortion, and extrajudicial killings. The government agreed to disband the unit last week after the number of people killed in clashes with security forces rose to 10. But the demonstrations have since mushroomed into broader protests against alleged police brutality and corrupt government.
Egypt-Ethiopia: The Grand Ethiopian Renaissance Dam is set to become the largest hydropower plant in Africa. The dam is so large that it promises to put the country on a path to industrialization. Downstream in Egypt, however, the dam is a giant menacing barrier that could be used to hold back the source of nearly all the country’s water.
The two countries and Sudan, also heavily dependent on Nile water, have tried in vain for years to forge a deal on how quickly the dam’s reservoir should be filled. Egypt, anticipating droughts, has demanded that it be filled slowly, over more than a decade. Ethiopia wants the reservoir full and generating the maximum electricity as soon as the dam is complete — scheduled for 2023.
Even without the dam, many of Egypt’s irrigation canals are running dry. Many factors, including climate change, poor maintenance, mismanagement, and illegal water siphoning, have dehydrated the already thirsty country. The UN Food and Agriculture Organization says temperatures in some parts of Egypt are expected to rise between 1.8 and 3.6 degrees Celsius over the next century, requiring more water to grow crops as evaporation in the Nile and its canals increases. Further water shortages and their effect on agriculture could have dire consequences for Egypt’s 100 million people — a population that now grows by 2 million per year.
President Trump has taken the side of Egyptian President al-Sisi. A spokesman for the State Department said it had withheld $264 million in security and development assistance from Ethiopia — more than double what has been previously reported — “due to Ethiopia’s unilateral decision to fill the Grand Ethiopian Renaissance Dam without an agreement with Egypt and Sudan.”
This situation is fraught with trouble. If Ethiopia continues with its plans and the water going into Egypt runs short, Cairo will have no options other than military force to ensure that the Nile keeps flowing.
3. Climate change
The IEA noted in its annual flagship report that the world is headed toward global warming higher than the Paris Agreement’s most aggressive limit of 1.5°C. The agency lays out a path for countries to move toward using more renewable energy on an aggressive timeline. Getting fossil fuels substantially out of the energy system, it says, would cost 25 percent more than the $54 trillion the world is already expected to invest by 2040.
According to satellite imagery, the worldwide number of methane hot spots climbed 32 percent so far this year despite the economic slowdown. Methane, the main ingredient of natural gas, is a greenhouse gas more than 80 times as potent as carbon dioxide.
Comparing the first eight months of 2019 to 2020, methane leaks from oil and gas industry hot spots climbed even higher in Algeria, Russia, and Turkmenistan, growing by more than 40 percent. The largest contributors to rising methane releases were the US, Russia, Algeria, Turkmenistan, Iran, and Iraq. The most massive leak detected was in Iraq, releasing 400 tons an hour. The plume stretched 200 miles from northern Iraq to Saudi Arabia. In the US, the largest leak was from a pipeline emitting 150 tons of methane an hour, the greenhouse gas equivalent of more than ten coal-fired power plants “at full steam.”
Some of the leaks resulted from pipeline maintenance, which shuts down pipelines temporarily and forces natural gas flaring. But some leaks result from long-term faulty maintenance, such as one in Algeria that has been releasing methane since 2017.
The European Union said last week it would aim to clamp down on methane emissions from the oil and gas industry with legislation across the bloc. It is considering a ban on all routine venting and flaring of methane by 2025. And it is preparing to tax oil and gas imports based on their methane footprints, a challenge for big importers such as Germany, France, Italy, Ukraine, and Poland.
What happens to methane release in the US depends on the November election. In August, the Trump administration eased US methane restrictions. A Biden administration is likely to clamp down on emissions.
US government forecasters said last week that two-thirds of the nation should get a warmer-than-average winter this year. Only Washington, northern Idaho, Montana, the Dakotas, and northwestern Minnesota, will get colder than typical winter. NOAA sees the entire south from southern California to North Carolina getting a dry winter, while forecasters see wetter weather for the northernmost states.
Nearly half of the continental US currently is gripped by drought, and conditions are expected to worsen this winter across much of the Southwest and South. A lack of late-summer rain in the Southwest had expanded “extreme and exceptional” dry conditions from West Texas into Colorado and Utah, “with significant drought also prevailing westward through Nevada, Northern California, and the Pacific Northwest,”
4. The global economy and the coronavirus
The global economic collapse caused by the coronavirus won’t be as severe as estimated earlier, the International Monetary Fund predicted last week, thanks to decisive government intervention worldwide and swift recovery in China. The world’s gross domestic product is forecast to decline by 4.4 percent this year, not as sharp as the 5.2 percent drop the IMF projected in June. The Fund and World Bank called on the Group of 20 largest economies to extend a freeze in debt payments from the world’s poorest nations that are set to expire at year-end.
The pandemic has already upset domestic farm-to-fork supply chains that provided just enough inventory to meet demand. Agricultural prices have been on the rise as countries stepped up purchases, adding to China’s demand plus drought in the Black Sea region. “Covid-19 has forced consumers to shift from just-in-time inventory management to a more conservative approach which was labeled just-in-case,” said Bank of America. “The result is that consumers are holding more inventory as a precaution against future supply disruptions.”
United States: For the first time since late July, the tally of newly reported coronavirus cases in the US surpassed 70,000 last week. In 44 states and the District of Columbia, caseloads are higher than they were one month ago. Many of the new infections are being reported in rural areas with limited hospital capacity. More than 8,000,000 cases have been reported nationwide since February, and at least 216,000 people have died.
Applications for state unemployment benefits unexpectedly jumped last week to the highest since August, and Americans increasingly moved to longer-term jobless aid. Both are troubling signs for a labor market whose recovery from the pandemic was already slowing. Initial jobless claims in regular state programs totaled 898,000 in the week ended Oct. 10th, up 53,000 from the prior week. Continuing claims — or total Americans claiming ongoing unemployment assistance in those programs — fell 1.17 million to 10 million in the week ended Oct. 3rd.
More than 100,000 jobs were lost in the US oil exploration and production industry between March and August this year. Another 35,000 jobs were lost in the downstream sector. Most of these jobs are not coming back until next year, and some could be gone forever.
The chances of Congress passing a pre-election stimulus are all but gone, as Treasury Secretary Steven Mnuchin on Wednesday blamed politics for undermining the negotiations. With a deal out of reach, the two sides in the talks faulted each other for the breakdown.
The US budget deficit hit a record of $3.13 trillion during fiscal 2020, more than triple the 2019 shortfall due to massive coronavirus rescue spending. At the start of the 2020 fiscal year ended Sept. 30th, the government had been forecast to register a $1 trillion deficit before coronavirus lockdowns began in March.
The Federal Reserve on Friday said its index of industrial production —a measure of output at factories, mines, and utilities—fell a seasonally adjusted 0.6 percent in September, following an unrevised 0.4 percent rise in August. Output remains 7.1 percent below where it was in February before the pandemic hit.
China: Beijing, which has been on an oil-buying binge since the start of the pandemic, is now retreating as storage space fills up and demand for fuels in the regions it exports them to remains weak. In the final quarter of the year, Chinese crude oil imports could shed 14.5 percent from the third-quarter levels, equal to 1.7 million b/d. China began to stock up on cheap oil immediately after the prices crashed following Saudi Arabia’s declaration of what was effectively a price war against Russia that coincided with the initial spread of the coronavirus. Traders and refiners continued buying until reports emerged that China’s oil storage may be close to filling up. Despite these reports, however, strong buying continued until the end of the third quarter.
China imported about 11.29 million b/d during the first nine months of the year, up 12.7 percent on the year. However, lower than the average for January to September, last month’s standard was 11.52 million b/d or 2.26 million higher than a year earlier.
China’s coking and thermal coal markets are set to tighten over the remainder of 2020 as stringent import restrictions curb supply at a time of robust demand from heavy industry and with the winter heating season about to start. Beijing informed essential buyers to avoid Australian coal last week, part of a broader move to limit imports that also inflamed already-fraught trade ties between Beijing and Canberra. Australia supplied over 40 percent of China’s total coking coal imports in 2019 and about 57 percent of its thermal coal imports.
Chinese wind power equipment makers proposed an aggressive installation plan that would boost capacity 14-fold through 2060 to help the country reach its carbon-neutral goal by then. More than 400 wind firms signed a declaration asking the nation to add more than 50 gigawatts of wind capacity each year through 2025. The annual addition would rise to at least 60 gigawatts a year beyond 2025, with total installations reaching at least 800 gigawatts by 2030 and 3,000 by 2060.
China installed 26 gigawatts in 2019, giving it a total of 210 by the end of that year, the most in the world. The proposed 2060 target would be nearly triple the size of China’s coal-powered electric stations in 2019, at 1,059 gigawatts.
Chinese health authorities will test all 9 million people in the eastern city of Qingdao for the coronavirus this week after nine cases linked to a hospital were found. The announcement broke a two-month streak with no virus transmissions within China reported, though China has a practice of not reporting asymptomatic cases.
The ruling Communist Party has lifted most curbs on travel and business but still monitors travelers and visitors to public buildings for infection signs. Authorities investigated the source of the infections found in eight patients at Qingdao’s Municipal Chest Hospital and one family member. The whole city will be tested within five days, according to the National Health Commission. China, where the pandemic began in December, has reported only 4,634 deaths and 85,578 cases.
European Union: Europe’s fight to contain a second wave of the coronavirus has reached a tipping point. Months after authorities flattened the curve of infections across Europe by imposing some of the Western world’s most stringent restrictions on millions of people, the virus has crept back onto the Continent. Hospitals are filling up. Bars and cafes are closing down.
An abundance of fossil fuels combined with advances to harness wind and solar power has sent energy prices crashing. New coronavirus lockdown measures in Europe dragged the region’s stocks lower last week and threatened to hamper fuel demand, reigniting worries about slowing economic growth worldwide.
Negotiations between Britain and the European Union are set to continue next week even after Boris Johnson said he believes a trade deal is now unlikely. The prime minister insisted that the UK be ready to leave the bloc’s single market and customs union at the end of the year without a new agreement.
UK job cuts jumped the most on record in the three months through August even as lockdown eased, raising concern that the worst is yet to come. Employment fell by 153,000, almost five times the level estimated by economists, and the jobless rate rose to 4.5 percent, the highest since 2017.
Germany’s economy is losing steam but will do slightly better than government forecasts as fears grow over rising coronavirus infections. The gross domestic product will contract by 5.4 percent in 2020 and grow 4.7 percent next year, the experts predicted in their latest bi-annual outlook.
Saudi Arabia: Riyadh is looking at a financial crash if oil markets don’t recover soon. Oil prices are currently too low to sustain the government strategy. Based on a $50 per barrel scenario, the Saudi government budget is overly optimistic, as prices right now are in the low $40s.
Saudi Arabia, however, is looking at a situation in which a straightforward strategy does not seem to exist. Without higher crude oil prices, not only is the Kingdom’s flagship Saudi Aramco suffering but so too are most government projects. Aramco has already put several significant new projects on hold while at the same time reassessing the investment levels of others. High-profile offshore projects, such as the Red Sea or the new shipyard set up in Ras Al Khair, are not progressing as fast anymore, showing some internal constraints.
Aramco is also being squeezed by Riyadh for cash to fund the ongoing Saudi Vision 2030 projects. Diversification of the economy is needed, but projects are being delayed or put on ice without money. The Kingdom’s finances are struggling, already showing that international interest for Saudi government bonds is waning. US dollar-denominated government bonds to Russia and Saudi Arabia have fallen, mainly due to lower oil prices and US election issues. If capital markets are getting worried, then Riyadh and Moscow are in trouble.
Saudi Aramco is in early talks for a deal worth more than $10 billion to sell a part of its pipeline business to asset managers, including BlackRock. Through a sale of a stake in its pipeline infrastructure, Saudi Aramco could raise some much-needed cash. Aramco is now trying to contain the crisis’s damage while keeping the pledge to pay out annual dividends of $75 billion to shareholders. The Kingdom is the largest shareholder.
India: Already on track to overtake the U.S. with the world’s most novel coronavirus infections, India is bracing for a surge of cases in coming weeks as it heads into its primary holiday season with an economy freed of virus restrictions. The recent experience of Kerala, which was praised for its initial handling of the pandemic, indicates how rapidly the situation can worsen. Reported infections there have jumped by five times since it celebrated the 10-day harvest festival of Onam in late August, far outpacing the two-fold increase in cases nationally.
India’s growing appetite for oil and gas is increasingly a strain on the climate. Fortunately, New Delhi is very much committed to the Paris Climate Agreement, and the country’s ambitions and achievements eclipse even some developed countries. The per capita consumption of energy in India is one of the lowest in the world. Americans consume, on average, ten times more than Indians. However, the Asian country’s population of some 1.3 billion is the main reason for being the third-largest emitter of CO2 in the world after China and the US.
5. Renewables and new technologies
A Global Action Progress Report was released at last week’s online Hydrogen Energy Ministerial Meeting. The report, supported by the IEA and the International Partnership for Hydrogen and Fuel Cells in the Economy, says that the fuel is currently seeing “unprecedented momentum” as more and more countries have started announcing hydrogen strategies. It highlighted that hydrogen would play a key role in decarbonizing long-distance transport and heavy industry and producing hydrogen-derived fuels. In commenting on the report, IEA Executive Director Fatih Birol said, “we believe at the IEA the time for hydrogen may finally come.”
The director-general of the International Renewable Energy Agency (IRENA) noted that 95 percent of hydrogen production is currently fossil fuel-based, resulting in CO2 emissions equivalent to the UK and Indonesia combined. “Green hydrogen could become a game-changer in global efforts to decarbonize our economies,” he said, adding that falling renewable costs, clear policy direction, and greater private participation could pave the way for green hydrogen to change the scenario.
In a surprising change of course, the US Department of Energy unveiled a five-year $100 million plan to start phasing diesel out of the market for long-haul transportation, with a strategy based on hydrogen fuel cells. The Department has put together two different consortiums working to “significantly cut the cost and improve the performance of electrolyzers and heavy-duty fuel cells” to “accelerate large-scale deployments across the country.”
Members of the hydrogen and fuel cell industry announced the Western States Hydrogen Alliance’s formation to hasten the deployment of zero-emission hydrogen fuel cell electric trucks, buses, locomotives, vessels, aircraft, and off-road equipment throughout the Western United States.
6. The Briefs (date of the article in the Energy Bulletin Daily is in parentheses)
In Pakistan, months after severe country-wide oil shortages, the country’s oil refineries are raising red flags over lower uplifting of their refined products by oil marketing companies, resulting in curtailment of capacity utilization and crude production from oilfields. (10/12)
Diesel demand in India, which has been the key driver of the country’s economic growth in recent years, is struggling to catch up with gasoline in terms of fuels recovering from the pandemic-inflicted crisis. While diesel is still king in India — fuel sales are double that of gasoline — the uneven demand recovery has created a unique challenge for India’s refiners. (10/13)
At Japan’s Institute of Energy Economics, global oil demand is forecast to peak around 2040 because transport-fuel demand will decline steeply. Economic growth will slow in the post-coronavirus world, said in its annual IEEJ Outlook 2021. (10/16)
Argentina unveiled this week a new plan for natural gas development, looking to attract US$5 billion in company investments to revitalize gas production in the Vaca Muerta shale play and make Argentina independent from natural gas imports. (10/17)
The US oil rig count jumped by 12 to 205 while gas rigs inched up by 1 to 74, Baker Hughes reported on Friday. Oil and gas rigs in Canada are now at 80 active rigs, down 63 year on year. (10/17)
Three hundred ninety-six thousand marginal stripper oil wells produced 284 million barrels of oil in 2016 in the US. That was 700,000 barrels a day, 2 barrels per well per day, and roughly 9 percent of total US oil production at that time. Stripper well production in America is paid for, and profitable, even at $45. It’s reliable because its annual decline is typically less than 3%. (10/17)
The Trump administration on Thursday said it would offer all available areas in the Gulf of Mexico for auction to oil and gas drillers on Nov. 18. The sale is the federal government’s first offshore lease sale since March when the pandemic hit. (10/16)
Democrat members of the House Natural Resources Committee are pushing for a permanent ban on all offshore oil and gas leasing in Atlantic and Pacific federal waters as well as the eastern Gulf of Mexico. (10/16)
ConocoPhillips is nearing a deal to acquire Concho Resources, according to people familiar with the matter, in what could be the largest shale industry deal since the collapse in energy demand earlier this year. The companies are finalizing the terms of a transaction and could announce an agreement as soon as Monday. (10/17)
The US wind sector is now supporting 120,000 jobs, but there is a shortfall in the number of qualified technicians able to install and maintain turbines, according to a report released by Harvest Energy Services on Oct. 13 titled “Wind’s Talent Crunch.” (10/15)
Wind/storage combo: As Virginia’s largest utilities continue to grow their renewable portfolios, they have partnered with some nonprofits and government entities to expand renewable energy storage in Southwest Virginia. (10/15)
H2 power plant: Long Ridge Energy Terminal will transition its 485-MW combined-cycle power plant in Ohio to run on a blend of natural gas and hydrogen by November 2021 and burn 100 percent green hydrogen by 2030. The plant will be the first purpose-built hydrogen-burning power plant in the US and the first worldwide to blend hydrogen in a GE H-class gas turbine. (10/14)
EV aircraft: Wright Electric announced that the US Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E) had selected Wright for a contract to support the development of innovative, lightweight, and ultra-efficient electric propulsion motors, drives, and associated thermal management systems for commercial electric aircraft. (10/14)
IEA pushes batteries: More investment needs to be made in electric vehicle battery manufacturing for the world to meet net-zero ambitions, the International Energy Agency said in its latest World Energy Outlook on Oct. 13. (10/14)
EV buses: School bus manufacturer Blue Bird Corporation has seen a surge in demand for its 100 percent electric school buses since its introduction in 2018. While most of these buses have been sold in California, the interest in electricity is nation-wide, with buses being deployed all over the country. (10/12)
General Motors announced its Detroit-Hamtramck Assembly Center will be known as Factory ZERO, reconfigured to an all-electric vehicle assembly plant. The name Factory ZERO reflects this facility’s significance in advancing GM’s zero-crashes, zero-emissions, and zero-congestion future. Factory ZERO will be the launchpad for GM’s multi-brand EV strategy. (10/17)
The race for driverless autonomous vehicles is heating up. On Thursday, Cruise became the first to receive a permit to test cars without anyone in them on the streets of San Francisco from California’s Department of Motor Vehicles. Cruise, which is majority-owned by General Motors and counts Honda and SoftBank as investors, has tested 180 self-driving cars in San Francisco with a safety driver behind the wheel. (10/17)
Waymo just announced its plans to deploy vehicles without backup safety drivers, marking a significant milestone in a sector that has witnessed many ups and downs and stops and starts. The company, the self-driving unit of Google’s parent Alphabet, said it would soon expand its driverless ride-hailing service to include the general public in Phoenix, Arizona. (10/12)
Installed geothermal capacity is forecast to expand in the next five years as energy companies diversify into alternative markets, driven by the accelerating energy transition. Global geothermal production capacity will rise from 16 gigawatts (GW) at the end of 2020 to 24 GW in 2025, a Rystad Energy analysis shows, unlocking a total of $25 billion investments. (10/12)
Nuke’s downsides: For all of nuclear energy’s benefits, nuclear energy production has some serious drawbacks. Just last month, the World Nuclear Industry Status Report showed that nuclear is now the most expensive form of power generation globally, with the sole exception of gas peaking plants. Radioactive waste is piling up around the world, and managing it is a considerable expense, not to mention a public health risk of massive proportions if not handled appropriately. (10/16)
Fuku-nuke dilemma: Nearly a decade after the Fukushima nuclear disaster, Japan’s government has decided to release contaminated water from the destroyed plant into the sea. The decision is expected to rankle neighboring countries like South Korea, which has already stepped up radiation tests of food from Japan, and further devastate the fishing industry in Fukushima that has battled against such a move for years. (10/16)
Nukes vs. RE: In a study published in Nature, a team from the University of Sussex argues that renewables and nuclear are mutually exclusive, and nuclear needs to be shunned in favor of solar and wind to advance the world’s emissions-cutting agenda. The study used data from the World Bank and the IEA to suggest that renewables and nuclear “tend to exhibit lock-ins and path dependencies that crowd each other out.” (10/12)
Nuke R&D $$: The US DOE has awarded two companies proposing next-generation nuclear reactors $80 million each in an initial award as part of a $3.2 billion program to build two advanced reactors that can be operational in seven years. One award went to a group including TerraPower, a company co-founded by billionaire Bill Gates, working with a General Electric and Hitachi joint venture. Simultaneously, the other is X-energy, a start-up that is advancing a reactor design initially developed in Germany. (10/14)
UK-France power link: National Grid Plc has started the final testing phase for its second power link to France, adding flexibility to the grid that’ll be dealing with a surge of new wind farms in the years to come. Electricity on the $904 million IFA2 cables will flow in both directions and, once fully operational, is expected to supply 1.2 percent of Britain’s power demand. (10/17)
Record temps: The planet just recorded its hottest September since at least 1880, according to three of the world’s traditional temperature-tracking agencies. The data, most of which was released Wednesday, shows that 2020 is on track to be one of the hottest years on record, with the possibility of tying or breaking the milestone for the hottest year, set in 2016. (10/15)
Hurricanes can be monsters. But their drenching downpours can also translate to needed, life-giving rains; tropical systems make up a large portion of the South’s average annual precipitation. Numerous studies have found that between 10-20 percent of annual rainfall for regions that border the Gulf of Mexico comes from named tropical systems or their remnants. (10/13)
In North Korea, three destructive typhoons, US-backed sanctions, and the global pandemic are fueling concern that the country’s 26 million people could slip back into the devastating food shortages the country faced during the rule of Kim Jong Un’s father in the 1990s. (10/16)
EU efficiency push: The European Commission wants to see renovations cut EU buildings’ final energy use by 14 percent, reducing their heating and cooling energy use by 18 percent, both by 2030 and compared with 2015, it said in a recently published strategy. This would align with the EC’s proposed target to cut EU CO2 emissions by at least 55 percent from 1990 levels by 2030. (10/15)
Maui sues Big Oil: Maui filed a lawsuit this week against 20 fossil fuel companies, seeking compensation for the rising costs of climate change. Maui alleges Big Oil hid the risks of its products on the climate and should be held responsible for the costs of sea-level rise. (10/15)
Shipping emits a much greater share of greenhouse-gas emissions than you might think — more than a million tons annually, nearly 3 percent of the global total, and rising steadily. The problem is soluble — but work to solve it has been outrageously slow. Ships typically last 20 to 30 years, so it will take time to overturn the entire global fleet. (10/14)
Mediterranean Shipping Company, a global leader in transportation and logistics, said it is further exploring the viability of hydrogen and fuels derived from it as a possible fuel source for the future for container shipping and is using more biofuels within its existing fleet. (10/12)
Evaluating sea-level rise: A new payload that Elon Musk’s SpaceX will deliver into orbit next month will play a pivotal role in measuring sea level increases, potentially helping to spare economies from billions of euros in damages by the end of this century. Sentinel-6 will update maps of the oceans covering 70 percent of the planet every ten days, detecting millimeter-scale changes in elevation. (10/16)
Carbon capture is a controversial idea, attacked as a costly distraction from stopping emissions occurring in the first place. But last month, the IEA said it was a crucial part of the mix, warning that it would be “virtually impossible” for the world to hit climate targets without capturing and storing emissions generated from large sources. (10/12)
CO2 storage: A privately developed underground reservoir to permanently store carbon dioxide in southwest Louisiana is inching closer to reality and, with it, a new business model for carbon capture and storage. (10/16)
