Tom Whipple and Steve Andrews, Editors
Quote of the Week
“The scope of [petroleum] exploration will have to expand significantly. Unless we see a momentous transition in the global energy mix sooner than currently expected, or a much faster development pace than the current norm, upstream players may have to more than double their conventional exploration efforts in order to meet global oil demand through 2050.”-Palzor Shenga, senior upstream analyst at Rystad Energy
Graphic of the Week
1. Energy prices and production
Oil: Oil managed a small weekly gain last week as the impasse in Washington over pandemic relief dimmed chances of an imminent boost in demand. New York futures eased off a nine-month high alongside a broader market decline as bipartisan talks on another round of US fiscal stimulus stalled. West Texas Intermediate rose less than 1 percent for the week closing at $46.57. At week’s end, Bent closed at $49.97 after rallying above $50 earlier in the week for the first time since March. The futures market is primarily focused on the arrival of a vaccine for the coronavirus, which hopefully will open the way for demand to return to normal. Many, however, believe that “normal” demand still is months away and that there is much pain in the immediate future.
The recent rally in crude prices has been heavily dependent on optimism that rapid vaccine deployment would improve longer-term demand outlooks and potentially preempt a return to widespread lockdowns seen this past spring. But as case numbers rise, especially in the US, demand-destroying lockdowns appear increasingly likely.
OPEC: In November, the cartel and its allies pumped their most crude oil since implementing historic production cuts in May. The increase was driven mainly by Libya’s swift recovery and a rebound in the UAE’s output. OPEC’s 13 members produced 24.54 million b/d in November, up by 670,000 from October, while its nine partners, led by Russia, added 12.68 million b/d, a fall of 50,000 b/d. With Libya exempt from quotas due to its years of civil war and the UAE remaining well below its cap as it makes up for previous overproduction, overall OPEC+ compliance with its production cuts stayed stable at 100.2 percent.
OPEC+ finally managed to reach a production cut agreement after several days of internal dissent. In its statement, the group reiterated a continued commitment to a stable market, the mutual interest of producing nations, the efficient, economical, and secure supply to consumers, and a fair return on invested capital. Members have decided to voluntarily adjust January production by 0.5 million b/d from 7.7 million b/d to 7.2 million. At the same time, OPEC+ will be holding monthly OPEC and non-OPEC ministerial meetings starting in January 2021 to assess market conditions and decide on further changes.
Iraq is committed to all the OPEC+ production cut agreements that help contain the volatility in oil prices because the country seeks higher prices for its crude exports. An oil ministry statement says that oil prices are expected to rise in the first quarter of 2021 but cautioned about their current trajectory. Iraq has failed to stick to its oil production quota for most of this year but has vowed—as it has many times this year—to implement compensation cuts to make up for overproduction.
It appears that the Abu Dhabi National Oil Company (ADNOC) is now aggressively pursuing market share. The UAE was very vocal during the OPEC+ meeting about its resentment of having to carry the burden of COVID-19 demand destruction and the global energy transition. Crown Prince bin Zayed and ADNOC’s CEO Jaber have now decided that it is time to reap the rewards of their large-scale oil and gas investments. Last week an announcement was made by ADNOC that it has awarded US oil company Occidental an oil and gas exploration concession in its second competitive bidding round. This was a clear sign that the OPEC member is determined to increase production capacity to 5 million b/d by 2030.
Shale Oil: Some believe that all US shale needs are higher oil prices to return to growth. That’s what happened in previous downturns, after all, so it makes sense to expect the same pattern again. However, experts of all sorts have said that this crisis is like no other. The kind of demand destruction the pandemic wrought on oil and, to a lesser extent, gas has no precedent in history, so all bets are off. The green push fostered by the Biden administration will make some of that demand destruction permanent, forcing oil and gas producers to rethink their long-term strategies.
Drilling has been recovering during the past few months, although the number of active rigs is nowhere near this time last year. Shale oil production will likely continue to recover next year, but this recovery will be slow and cautious. Shale oil executives themselves see little chance for significant production growth in the patch in the next few years—if ever. “I see no more growth until 2022, 2023, and it will be very doubtful if the US shale industry ever grows again,” the chief executive of Pioneer Natural Resources, Scott Sheffield, told Bloomberg in an interview earlier this year.
Natural Gas: US industrial gas demand is trending above year-ago levels this month but widening coronavirus-related lockdowns and emerging demand weakness in major consumer sectors are putting the recovery at risk. In December, US industrial gas demand has averaged an estimated 24.6 billion cf/d, actually outpacing its 2019 month-to-date average at 24.4 billion. Over the past several weeks, officials in various states, including California, Oregon, Washington, Illinois, Ohio, Michigan, and Minnesota, have enacted stay-at-home orders or business closures. Numerous other states have passed at least partial restrictions on business activity. These measures could slow the US economy and potentially reduce industrial activity due to specific restrictions or reduced demand for industrial end-products.
Cash prices in the US Northeast fell in trading last week as weather forecasts called for milder temperatures over the next two weeks, extending an already bearish trend for regional gas demand and prices. Prices at Dominion South were down about 10 cents to $1.77 per million Btu. In the Northeast market-area, Algonquin city-gates was off 47 cents on the day to $2.23, while Transco Zone 6 New York fell 38 cents to $1.97. Gas prices across the Northeast are likely to come under additional pressure in the days ahead according to a forecast from the National Weather Service.
The shale revolution may have made the US the world’s largest natural gas producer, but it has failed to make the principal US shale gas drillers any richer. Frackers in the top shale gas basin, the Appalachia, continue to bleed cash, despite the deep cuts in capital expenditures this year due to the plunge in gas prices in the first half of 2020. Nine of the biggest shale gas producers in Appalachia cut their CAPEX in Q3 by over one-third compared to last year’s same period. Despite these deep cuts, six of those drillers booked negative free cash flows in the third quarter, while the combined free cash flow of the nine firms was a negative US$504 million.
Prognosis: Global oil demand will rise in 2021, but not enough to surpass 2019 levels as the coronavirus pandemic continues to weigh on transportation fuel demand, especially jet fuel. According to S&P Global Platts Analytics, “Oil demand will rebound by more than 6 million barrels b/d in 2021, but consumption is still expected to be more than 2 million b/d below that of 2019’s 101.9 million b/d. The global middle class – the real engine of oil demand – faces continued pressures from wealth inequality and the ongoing COVID-19 cloud,” says Chris Midgley, Global Head of S&P Global Platts Analytics.
It was only to be expected that many of the world’s refiners would be pinched between low demand for finished products and rising inventories as the pandemic lockdowns continue to stifle activity. But the warm December that is expected this year is also threatening finished products demand. And it’s possible that many of the older, small refiners won’t survive at all.
According to IHS Markit, eleven US refiners are scheduled to close. The largest refinery in the U.S., Shell’s Convent, Louisiana refinery has shut down after it was unable to find an interested buyer. According to Reuters, the Dutch oil major is closing six more refineries because it cannot sell those refineries either. The largest US refiner, Marathon Petroleum, is set to close several refineries, including its Gallup, New Mexico, refinery and its refinery in Martinez, California. Japan’s Eneos Corp has shut its Osaka refinery.
The world is on track to run out of sufficient oil supplies to meet its needs through 2050, despite lower future demand due to the Covid-19 pandemic and the accelerating energy transition, according to a report by Rystad Energy. They say shortages will develop unless exploration speeds up significantly and capital expenditure of at least $3 trillion is put to the task.
To meet global cumulative demand over the next 30 years, undeveloped and undiscovered resources totaling 313 billion barrels of oil need to be added to currently producing assets. Rystad Energy calculates that to match this requirement, exploration programs will have to discover a worthy-to-develop resource of 139 billion new barrels of liquids by 2050, an impossible task if this decade’s low exploration activity levels persist. The target is high because not all existing discovered volumes are profitable to develop.
Energy efficiency has become a victim of the coronavirus pandemic. This is the main takeaway from a new report by the International Energy Agency, Energy Efficiency 2020. In it, the authority lists the main challenges for energy efficiency in the context of the pandemic and warns that these need to be addressed. Otherwise, we could see a reversal in energy efficiency gains at the worst possible time —as governments strive to accomplish increasingly ambitious climate-related goals.
2. Geopolitical instability
(These are the situations that reduce the world’s energy supplies or have the potential to do so.)
Iran: Tehran is ramping up oil production capacity in a bid to raise crude sales after US President-elect Biden’s administration takes over from Donald Trump’s “maximum pressure” campaign to curb the country’s oil sales. Iranian President Rouhani, speaking to his cabinet, said the oil ministry had been instructed to “take all necessary measures” to prepare the oil industry’s resources and equipment to return to full capacity within three months.
According to Iran’s budget bill, Iranian authorities seem confident they could sell as much as 2.3 million b/d of oil in the next Iranian year that begins in March 2021. Iran last exported that much oil in the early spring of 2018, before President Trump pulled the US out of the nuclear deal and introduced sanctions on Iran’s oil, shipping, and banking industries.
Approximately 20 percent of the world’s oil travels through the narrow Strait of Hurmuz, separating mainland Iran from Oman and the UAE. Even a short disruption of supplies would have a devastating effect on prices. Circumventing the Strait, therefore, is essential to maintain exports to markets, and nearly every oil producer bordering the Gulf is working on alternative ways to get its oil to market.
Iran has been the most vocal when it comes to making threats to close the Strait, and it too is working on a contingency pipeline. The country is currently building a pipeline from Goreh near the border with Iraq and Kuwait, where most of the country’s oil is produced to Jask on the Gulf of Oman. The project is slated to be finished in March 2021 and will have a capacity of one million b/d.
Saudi Arabia, too, is exceptionally vulnerable to a closure of the Strait. To mitigate the effects, Riyadh has ordered the expansion of its East-West pipeline from the eastern oil fields to the Red Sea. After it is finished, this pipeline would have a capacity of 7 million b/d, which is approximately 60 percent of what the country produced on average in 2019.
The UAE has operated the Abu Dhabi Crude Oil Pipeline since 2014 that connects processing facilities at Habshan in its western region with Fujairah on the Gulf of Oman. The pipeline has a capacity of 1.5 million b/d. After the normalization of ties with Israel, the UAE is now working on alleviating alternative chokepoints using the Eilat-Ashkelon pipeline from the Red Sea to the Mediterranean.
The Kirkuk-Ceyhan pipeline in Northern Iraq has been crucial for the export of oil from inland fields near Kirkuk’s city to Turkish ports. Its significant capacity of 1.5 million b/d makes it an essential part of Iraq’s export capacity. The country could also use two defunct pipelines through Syria to the Mediterranean Sea. Unfortunately, the instability in Syria rule out any such activities any time soon. An alternative, however, is a pipeline through neighboring Jordan. Political relations between Bagdad and Amman are good, and the countries envisage a $5 billion project to move oil from southern Iraq to the port city of Aqaba.
Iraq: Baghdad is poised to sign a multibillion-dollar contract with China’s ZhenHua Oil Co. The deal is a bailout from Beijing for the cash-strapped Iraqi government, which will receive money upfront in exchange for long-term oil supplies. This year’s crash in oil prices has hammered Iraq’s budget, and the government has failed to pay teachers and civil servants on time.
Two wells at the Khabbaz oil field in Kirkuk province were bombed early Wednesday, highlighting the persistent security risks to oil infrastructure in northern Iraq. As authorities battle to put out fires, about 2,000 b/d of the field’s 26,000 b/d capacity has been taken offline.
The oil-producing subsidiary of Russia’s Gazprom announced that it plans to launch the fourth well at the Sarqala field in Iraq’s semi-autonomous Kurdistan region in the first half of 2021. Not only will this consolidate Gazprom’s foothold in the area, but it will also do the same for Russia, following the effective takeover of its oil and gas pipelines in November 2017. It will also further open the way for the exploitation of more significant synergies for Russia across the whole of Iraq. The fourth well is intended to increase crude oil production at the Sarqala field to at least 32,000 b/d, from the current 24,000.
Libya: Crude and condensate exports are poised to jump to a 13-month high of 1.24 million b/d this month, according to S&P Global Platts estimates. This comes as Libya’s oil production has undergone a rapid rebound of almost 1 million b/d in the past two months after the UN-backed Government of National Accord and the self-styled Libyan National Army agreed to a truce. Crude and condensate loadings from Libya in December are scheduled to average 1,237,419 b/d over 1,070,809 b/d last month. The last time the OPEC member exported a higher number was in October last year when loadings averaged 1.25 million b/d.
Eastern-based Libyan forces have intercepted a Turkish ship under a Jamaican flag heading to Misrata’s port in western Libya, their spokesman said on Monday, a possible new flashpoint in the conflict after weeks of truce. Turkey is the leading foreign backer of the internationally recognized Government of National Accord in the west, which has been fighting the eastern-based Libyan National Army for years.
3. Climate change
European Union leaders reached a hard-fought deal Friday to cut the bloc’s net greenhouse gas emissions by at least 55 percent by the end of the decade compared with 1990 levels. This agreement avoids an embarrassing deadlock ahead of a UN climate meeting. Following night-long discussions at their two-day summit in Brussels, the 27 member states approved the EU executive commission’s proposal to toughen the bloc’s intermediate target, after a group of reluctant, coal-reliant countries finally agreed to support the improved goal.
According to new findings published by the UN Environment Program, the world’s wealthy will need to reduce their carbon footprints by a factor of 30 to help put the planet on a path to curb the ever-worsening impacts of climate change. Currently, the emissions attributable to the wealthiest 1 percent of the global population account for more than double those of the poorest 50 percent. Shifting that balance, researchers found, will require swift and substantial lifestyle changes, including decreases in air travel, a rapid embrace of renewable energy and electric vehicles, and better public planning.
The planet is getting sicker, according to a landmark report published in the medical journal The Lancet. It contains a stark warning: “A changing climate threatens to undermine the past 50 years of gains in public health.” An international team of experts drew on decades of work on climate and health to demonstrate that rising temperatures and other consequences of burning fossil fuels are inextricably linked to every facet of human health.
This year’s record-breaking Atlantic hurricane season officially ended Nov. 30th, but the procession of violent storms it unleashed foreshadows a dark future fueled by climate change. A combination of warmer oceans, weather patterns triggered by La Nina, and a hectic African monsoon season led to 30 tropical storms and hurricanes formed during 2020—more than double the long-term average. A record 12 hit the US, and 10 abruptly exploded in strength and became more deadly as they approached land, which could be a grim omen for what lies ahead.
The United Kingdom can raise its climate ambitions for 2035, a move that would put the country’s legally binding 2050 net-zero emissions target within reach, the independent Climate Change Committee said last week. According to the government’s independent climate change advisers, the cost of Britain’s efforts to reduce its greenhouse gases over the next three decades is lower than previously thought and could even be neutral. The panel found that Britain’s savings from ending the use of fossil fuels in transport and using more efficient energy technologies would cancel out the increased investments needed. That could counter-arguments that investing in green technologies will put an unnecessary burden on taxpayers and bill payers.
Several clean energy executives’ departures have hit Royal Dutch Shell amid a split over how far and fast the company should shift towards greener fuels. The wave of resignations comes just weeks before Shell is set to announce its energy transition strategy. According to four people familiar with the matter, some executives have pushed for a more aggressive shift from oil, but top management is more inclined to stick closer to the company’s current path.
Australian and Japanese companies are studying plans to capture carbon dioxide from industrial emitters in Asia and store it under the ocean floor off Australia’s coast. Perth-based Transborders Energy is working with partners including Tokyo Gas and Kyushu Electric Power on proposals to ship emissions from heavy industry and use a floating hub to inject the material under the seabed. Major energy producers have championed carbon capture and storage to curb their emissions footprint. Still, the method has been slow to gain traction as technical issues and frequent cost overruns have killed several carbon capture projects.
Acquiring home insurance has long been a mundane but necessary chore. However, in California, for hundreds of thousands of residents, it has turned into a labyrinthine quest that leaves people with expensive, bare-bones coverage. That’s because an increasing number of Californians have been dropped by their traditional insurers after years of devastating wildfires that cost billions of dollars and upended the market. The problem has been getting worse. In October, California’s insurance regulator reported that insurers refused to renew 235,250 home insurance policies in 2019, a 31 percent increase from the prior year.
4. The global economy and the coronavirus
United States: More than a third of Americans live in areas where hospitals are running critically short of intensive care beds revealing a newly detailed picture of the nation’s hospital crisis during the deadliest week of the Covid-19 epidemic. Hospitals serving more than 100 million Americans reported having fewer than 15 percent of intensive care beds still available last week. Many areas are even worse off. One in 10 Americans — across a large swath of the Midwest, South, and Southwest — lives in a place where intensive care beds are either full or fewer than 5 percent of beds are available. Experts say maintaining existing standards of care for the sickest patients may be difficult or impossible at these levels.
Applications for US unemployment benefits surged last week, topping estimates with the highest level since September, suggesting that widening business shutdowns to curb the pandemic are spurring fresh job losses. Initial jobless claims in regular state programs rose by 137,000 to 853,000 in the week ended Dec. 5th. On an unadjusted basis, the figure increased by almost 229,000. The prior week included Thanksgiving, and data tend to be volatile around holidays. Continuing claims, which reflect Americans on ongoing unemployment benefits, jumped by 230,000 to 5.76 million in the week ended Nov. 28th. It was the first increase since August.
The increase in new claims — which remain at more than triple pre-pandemic levels — implies that the labor market recovery will be held back in coming weeks by new restrictions on restaurants and other in-person businesses. The expected distribution of the first virus vaccines this month could help curb the spread and ease restrictions, but it will likely take months for the vaccines to reach a significant number of Americans.
China: Xi Jinping, long distrustful of the private sector, is moving assertively to bring it to heel. China’s most powerful leader in a generation wants even greater state control, with private firms of all sizes expected to fall in line. The government is installing more Communist Party officials inside private firms, starving some of the credit to them, and demanding executives tailor their businesses to achieve state goals.
It has not taken long for the wheels to come off the Belt and Road Initiative. As recently as May 2017, China’s leader Xi Jinping stood in Beijing before a hall of nearly 30 heads of state and delegates from over 130 countries and proclaimed, “a project of the century.” China promised to spend about $1 trillion on building infrastructure in mainly developing nations worldwide — and finance almost all of this through its financial institutions. Adjusted for inflation, this total was roughly seven times what the US spent through the Marshall Plan to rebuild Europe after the second world war.
However, according to data published last week, the reality is deviating sharply from Xi’s script. What was conceived as the world’s most potent development program is unraveling into what could become China’s first overseas debt crisis. Lending by the Chinese financial institutions that drive the Belt and Road, along with bilateral support to governments, has fallen off a cliff. Beijing finds itself mired in debt renegotiations with a host of countries.
China’s trade surplus soared to a record $75.4 billion in November as exports surged 21.1 percent over a year earlier, propelled by American consumer demand. Exports to the US rose 46 percent despite lingering tariff hikes in the trade war with Washington. Total exports rose to $268 billion, accelerating from October’s 11.4 percent growth. Imports gained 5 percent to $192.6 billion, up from the previous month’s 4.7 percent. Chinese exporters have benefited from the economy’s relatively early reopening after the Communist Party declared the coronavirus pandemic under control in March while foreign competitors still are hampered by anti-disease controls.
China’s record-high oil imports earlier this year continued to slow down last month along with other commodity imports, as demand growth slackens. The average amount of oil China imported in November stood at 11.04 million b/d, more than a million b/d higher than the October average but slightly lower than the average for November 2019. One reason for the November increase was a result of delayed shipments. China’s crude oil buying binge earlier this year resulted in record-high crude imports and weeks of delays at Chinese ports.
China’s export companies plan to increase gasoline exports in December by 30.7 percent from November to 2 million mt while reducing gasoil exports by 28.5 percent to 1.3 million tons as domestic demand absorbs this output. The potential increase in gasoline exports was mainly attributed to Zhejiang Petroleum & Chemical, which plans to ship at least 500,000 tons of gasoline overseas in December.
The Regional Comprehensive Economic Partnership that 15 Asian nations signed last month will place South Korea and Japan in a more favorable position as oil product suppliers to China due to a gradual reduction in import tariffs between signatories. Thanks to their proximity to the world’s largest importer of oil, Japan and South Korea are likely to gain market share at the expense of Singapore and Malaysia, further from China. China imported some $12 billion worth of oil products, including light-cycle oil, bitumen, base oil, aromatics, and feedstock for petrochemicals production during the first ten months of this year.
The US is preparing to impose sanctions on at least a dozen Chinese officials over their alleged role in Beijing’s disqualification of elected opposition legislators in Hong Kong. The move, which could come as soon as Monday, will target officials from the Chinese Communist Party as President Trump’s administration keeps up pressure on Beijing in his final weeks in office.
China must shut down by 2045 at the latest all coal power plants operating without carbon capture if Beijing is to meet its goal to become “carbon neutral” by 2060. A new report published by Energy Foundation China was coordinated with the Center for Global Sustainability at the University of Maryland. “Through an immediate halt of new construction of coal-fired power plants, rapid retirements of old, dirty, inefficient coal plants, China can phase out coal power generation without carbon sequestration by around 2040-2045.”
European Union: London and Brussels agreed on Sunday to “go the extra mile” to try to reach an elusive trade agreement despite missing their latest deadline to avert a turbulent exit from the EU for Britain at the end of the month. However, Britain is likely to leave the Union in three weeks without a trade deal according to Prime Minister Johnson and European Commission chief Ursula von der Leyen. Britain quit the EU in January but remains an informal member until Dec. 31st – the end of a transition period during which it has remained in the EU customs union. Both sides say they want to agree on arrangements to cover nearly $1 trillion in annual trade. Still, negotiations are at an impasse, with Britain standing to lose zero-tariff and zero-quota access to the vast European single market.
With just days until Britain’s exit from the Union begins, the country got a taste of the havoc that trade disruption could bring. Honda shut down production on Wednesday at its biggest plant in Europe. More than 3,000 people assemble Civics, showcasing the severity of the congestion and delays that have gripped Britain’s ports. Production was halted “due to transport-related parts delays,” the Japanese automaker said Wednesday, and would resume “as soon as possible.” On Thursday, it said the plant would remain closed for the rest of the week.
One EU diplomat said the bloc had mentally moved on. It is possible that the two sides could agree on a “friendly no-deal,” allowing trade talks to resume later in 2021, another EU official said. Indeed, the bloc unveiled its contingency plans that show there is very much a Plan B in place. They include keeping flights in the air and trucks on the road. The negotiations have long been dogged by the disagreements over the EU’s right to fish in British waters and the so-called level playing field rules for business fair competition. There is still no sign of how the differences over the fair competition issue can be bridged, an EU official said earlier in the day.
Germany will have to shut down more parts of society before Christmas to try and get the coronavirus pandemic under control, ministers said on Friday, as Europe’s largest economy reported a record number of daily infections and deaths. The government of the southwestern state of Baden-Wuerttemberg said German Chancellor Angela Merkel and the premiers of the 16 federal states would meet on Sunday to discuss new measures to slow the spread of the virus. Germany registered a record number of nearly 30,000 daily new coronavirus infections and almost 600 deaths, data from the Robert Koch Institute for infectious diseases showed on Friday.
Russia: With Moscow’s coronavirus cases rising sharply, authorities are banking on the country’s Sputnik V vaccine as the answer to the crisis — and opened the vaccine to the public even before it finishes Phase III trials. In the first group, health workers and teachers can start the two-dose treatment. But there seemed to be more vaccine skeptics than takers in the first week across Russia, struggling with the fourth-highest number of cases at more than 2.5 million. Most observers agree that Russia has suffered far more coronavirus infections and deaths than the government is willing to admit.
The reasons tap into both Russia’s history of wariness about authority and Internet-driven conspiracy theories and pandemic deniers — reflecting similar anti-vaccine rallying cries in the US, Germany, and elsewhere. Russian authorities also did not help their cause by issuing muddled messages about whether vaccine-takers need to avoid alcohol for weeks. “I don’t trust it,” said mechanical engineering student Lia Shulman, “because they always lie. If the government tells you to do something, you should do the opposite.”
The days of peak oil consumption for the global economy may be over, and the trend could affect Russia’s budget revenue, the country’s deputy finance minister, Vladimir Kolychev, warned. The official said there is a long-term risk that hydrocarbon revenue may go below previous forecasts. According to Kolychev, the Finance Ministry is currently looking at different levels of demand. In an earlier report, Russia’s principal financial regulator, the Central Bank of Russia, outlined four basic scenarios for Russia’s economic development. Although the forecast covered the state of the national economy over the next three years, it said that in the worst-case scenario (if Covid-19 wreaks havoc worldwide), the price for Russia’s Ursa oil brand could be $25 per barrel in 2021, about 50 percent less than its current price.
Russia has signaled it may be starting to prepare for a permanent decline in crude oil demand over the long term, even after the devastating effects of the coronavirus pandemic are over. “The peak of consumption may have already passed,” Kolychev told Bloomberg in an interview. “The risk is rising in the longer term.” In that assessment, Kolychev is far from alone. The view that oil consumption has already peaked or will peak much sooner than previously expected is fast approaching a new industry consensus that will drive long-term investment decisions. In Russia’s case, these decisions are critical because oil revenues still make up a sizeable portion of GDP.
The Nord Stream2 gas pipeline developer has resumed work to lay a 2.6 km stretch of the link in German waters using the Fortuna pipelaying vessel. The political row over the pipeline continues with the US and Russia trading blows in recent days. The US voted last week on new sanctions measures against the project that have been included in the country’s latest defense spending bill. The German state where the controversial Russia-led natural gas pipeline Nord Stream 2 will land has proposed creating a state-protected foundation that would hold the assets of Nord Stream in a bid to protect the project from US sanctions.
Russian state-owned oil and gas producer Rosneft said it had discovered a large new gas field in the Arctic Kara Sea. Rosneft plays a crucial role in Russia’s Arctic strategy, aiming to capitalize on warming temperatures to transport the remote region’s massive oil and gas resources. Development plans continue despite concerns over the climate impact, high costs, and sanctions on some region’s oil production. The new gas field is named after Marshal Georgy Zhukov and contains an estimated 800 billion cu m.
Saudi Arabia: The Kingdom is looking to plug budget gaps by having Saudi Aramco sell stakes in its subsidiaries. The company has hired a consultant to come up with a plan to sell stakes In Aramco’s pipelines in hopes of raising nearly $10 billion. The move comes after Saudi Arabia’s neighbor, Abu Dhabi, engaged in a similar cash-raising activity as it looks to bring in billions to prop itself up during the low oil prices due to the pandemic. Saudi Arabia’s budget has been struggling with low oil prices and its burden of oil production cuts due to its OPEC agreement. Aramco reported a 44.6 percent decrease in its profits for the third quarter this year, to $11.9 billion, from $21.29 billion in the third quarter last year.
5. Renewables and new technologies
European energy groups Iberdrola from Spain, Orsted from Denmark, and Snam from Italy have joined a green hydrogen project that aims to develop up to 25 GW of worldwide renewables-based hydrogen production and halve the current production costs to below $2/kg by 2026. The seven founding partners of the Green Hydrogen Catapult initiative also include Saudi Arabia’s ACWA Power, CWP Renewables, and Yara. They together intend to target acceleration in green hydrogen’s scale and production to help transform the world’s most carbon-intensive industries.
Equinor and RWE have joined the NortH2 project, which aims to produce green hydrogen using renewable electricity from the offshore wind off the Netherlands’ coast of about 4 gigawatts by 2030, and 10+ gigawatts by 2040. The project will have a capacity of 1 GW in 2027, 4 GW by 2030, and 10+ GW by 2040 for electrolysis. This equates to 0.4 million tons of green hydrogen production in 2030 and 1 million tons of green hydrogen production by 2040.
Japan said it would introduce ammonia into the fuel mix for thermal power generation and shipping from the late 2020s as part of its efforts to achieve carbon neutrality in 2050. The country would aim for carbon neutrality by 2050, bringing forward the previous target of early in the second half of the century. Ammonia is expected to increase its importance because it does not emit CO2 when it is burned.
Small modular reactors (SMR) are drawing policymakers’ attention across the US and Europe because of their versatility. They can deliver a steady flow of energy in the form of heat and electricity. The power helps balance intermittent supplies coming from wind and solar farms. The heat can help decarbonize some of the world’s dirtiest industries. Some of the most prominent investors and industrial companies have gotten behind the technology, with nuclear reactor designs emerging from Rolls-Royce, Fluor-backed NuScale Power, Terrestrial Energy USA, and TerraPower. According to the IEA, there are currently 67 unique SMR technologies in various stages of development worldwide.
Beijing has successfully installed an “artificial sun” device designed to test nuclear fusion processes, Chinese state media reported on Friday. The HL-2M Tokamak was installed in Chengdu of the Sichuan province in southwest China and is considered the most advanced tokamak device in China. “This breakthrough has laid a solid foundation for China’s independent design and construction of nuclear fusion reactors.” Last year, a senior Chinese scientist involved in such projects told Reuters that China was looking to complete and generate power from an experimental reactor working with nuclear fusion by around 2040.
E-fuels are synthetic fuels made from carbon dioxide and hydrogen, used in internal combustion engines and displacing oil-derived fuels. E-fuels are called e-fuels because they are made using electricity to produce hydrogen that is then mixed with carbon dioxide to make the fuel. Such electricity needs to be green, generated by wind, solar, or hydro. Ricardo’s new report finds that the use of synthesized e-fuels should be prioritized for shipping and aviation ahead of road transport, where other forms of electrification are more effective.
The report, Renewable electricity requirements to decarbonize transport in Europe with electric vehicles, hydrogen, and electrofuels, investigates whether several potential decarbonization pathways are achievable within the limits of supply-side constraints such as the renewable energy generation potential of the European Union. A key message of the report is that direct electrification should focus on road transport, wherever possible, as it is the most efficient path to decarbonization. Road transport will decarbonize more rapidly than shipping and aviation by 2030. Decarbonizing shipping and aviation will require significantly more renewable electricity to produce the necessary levels of e-fuels by 2050.
6. The Briefs (date of the article in the Daily Energy Bulletin is in parentheses)
Future shipping fuel: Natural gas and propane are emerging as the leading choices for fuel sources to power vessels for shipping companies moving to slash carbon emissions in their operations. More than a quarter of the ships on order in terms of tonnage will run on propane, a clear signal of how operators plan to meet mandates to meet clean-air standards. Oceangoing vessels pump out around 2.5 percent of total carbon emissions. Big shipping customers, such as Amazon and Walmart, are asking for proof that their cargoes are moving on cleaner ships as those companies are looking to reduce their supply chains’ carbon footprint. (12/10)
Offshore Suriname, ExxonMobil and its partner Petronas have discovered oil and gas, adding to Exxon’s numerous discoveries offshore Guyana in the same Guyana-Suriname basin. (12/12)
The Turkey standoff: European Union leaders early Friday gave the green light for the expansion of sanctions against Turkey over its exploration of gas reserves in Mediterranean waters claimed by EU members Greece and Cyprus. (12/11)
Mexico is mulling over additional tax relief measures for state energy giant Pemex. It reduces the most significant debt load in the global oil industry. The goal was to make Pemex start paying taxes like other companies in Mexico. The transformation will take three years. Pemex has a debt burden of about $100 billion. (12/11)
The US oil rig count increased by 12 to 338 while the gas rig count climbed by 4, Baker Hughes reported on Friday. Canada’s overall rig count increased by 9 to 111. (12/12)
LNG export terms extended: The US Department of Energy has extended the export terms for seven LNG licenses until 2050 for projects currently under construction or pending the start of construction. (12/12)
TRRC slapped down: The Texas Railroad Commission has been banned from enforcing a string of environmental rule waivers after a judge ruled the agency had failed to provide the public with adequate advance notice of such moves, first proposed in the spring. The TRRC-approved measures, including fee waivers and cleanup deadline extensions, to help troubled oil and gas companies in the state cope more easily with the fallout from the pandemic. (12/12)
CA leasing bust: US taxpayers netted less than $50,000 on Thursday in bids for oil and gas leases in California. The Trump administration held the first federal drilling auction since 2012 in the Democratic and environmentally minded state. The average price per acre was $11, far below the nearly $330-an-acre average price federal lease sales have generated throughout the Trump administration. Leasing is a vital part of President Trump’s plan to increase fossil fuel development. (12/11)
Exxon Mobil: survivor or on the ropes? Over the last 135 years, Exxon Mobil has survived hostile governments, ill-fated investments, and the catastrophic Exxon Valdez oil spill. Through it all, the oil company made bundles of money. But suddenly, Exxon is slipping badly, its long latent vulnerabilities exposed by the coronavirus pandemic and technological shifts that promise to transform the energy world because of growing concerns about climate change. The company, for decades one of the most profitable and valuable American businesses, lost $2.4 billion in the first nine months of the year. (12/11)
Travel volumes slowing again: Fewer New York City drivers passed over toll bridges this month as the pandemic worsened, a signal that fuel demand will further weaken as the city faces tighter restrictions in the month ahead. Top of FormTraffic on the Robert F. Kennedy Bridge, linking Manhattan, Queens, and the Bronx, was down a combined 4.6 percent during the first work week after the US Thanksgiving holiday. (12/9)
US motorists stayed off the road during the Thanksgiving holiday in overwhelming numbers as the coronavirus surged across the country. Gasoline sales fell 8.4 percent (nearly 185 million fewer gallons) from the previous week for the seven days ending Nov. 28, bringing consumption to the lowest level for a Thanksgiving Week in 23 years. (12/8)
Car shortage: Ally Financial Inc., the largest US auto lender, said carmakers should get busy. There’s enough consumer demand for manufacturers to ramp-up the output of new models but not enough supply. (12/9)
Hybrid cars are seeing a quiet resurgence as the boom in electric vehicles spurs automakers to give the older, cheaper technology a second look. Depending on the market, hybrid sales were up 17 percent to 30 percent during 2019 vs. 6 percent increases for electric-only vehicles. A holdover rationale: hybrids offer savings at the pump without range anxiety. (12/9)
Much more EV charging needed: Electric vehicles are projected to comprise 40 percent of new car purchases by 2030 in the US, up from 2 percent currently, and require “substantial” power sector infrastructure investments if EV’s are expected to contribute to economy-wide decarbonization, speakers said during a US DOE and Electric Power Research Institute webcast. (12/8)
The UK’s first all-electric auto service station opens on Monday. It’s another sign the energy and transport industries are gearing up to deal with as many as 30 million electric vehicles on the road by 2040. The station in Essex, southeast England, is the first of 100 electric facilities that Gridserve and Hitachi Capital UK are planning. It includes 36 rapid chargers powered only by renewable energy; each can top up a battery with 200 miles of capacity in 20 minutes. (12/8)
China’s domestic electric vehicle output totaled 914,000 from January-October, down by 9.2 percent from a year earlier. The Covid-19 outbreak hit China’s EV industry’s first quarter. The market began to recover in the second quarter, supported by government stimulus measures to encourage such vehicles’ use and purchases. (12/7)
General Motors’ self-driving car company Cruise is sending vehicles without anybody behind the wheel in San Francisco. It moves toward launching a robotic taxi service that would compete against Uber and Lyft in the leading ride-hailing services’ hometown. (12/10)
Mass transit’s existential crisis: Across the US, public transportation systems face a great financial problem set off by the pandemic, which has starved transit agencies of vast amounts of revenue and threatens to cripple service for years. The deep cuts agencies are contemplating could hobble major cities’ recoveries from New York to Los Angeles and San Francisco. (12/7)
The US energy transition is well underway. Electricity from solar and wind is increasingly competitive with natural gas power, and the grid is hemorrhaging coal plants that no longer make economic sense. But without any real national climate policy managing the decline of fossil fuels, the transition is scattershot, messy, and full of carnage. (12/10)
New storage company: Hydro-Québec has launched EVLO Energy Storage Inc., a subsidiary that designs, sells, and operates energy storage systems. These storage systems are intended mainly for power producers, transmission providers, distributors, and the commercial and industrial markets for medium- and large-scale storage. (12/10)
Norway-German power link: The start of commercial operations on the new 1.4-GW NordLink cable linking Norway and Germany on Dec. 9 boosted hourly power prices in Norway’s NO2 zone to almost $121/MWh, grid operator data show. (12/9)
Finnish nuke’s “abnormal event:” A nuclear reactor was shut down after a severe abnormal event at the Olkiluoto nuclear power plant. The plant has elevated radiation levels inside the unit, but no radioactive release in the environment, the Finnish Radiation and Nuclear Safety Authority (STUK) said on Thursday. A fault possibly caused the abnormal event in the purification system for the reactor water. STUK said there is no danger outside the unit, and no radioactive release is expected. (12/11)
Nuke fuel reserve: The US Senate Committee on Environment and Public Works has approved a bipartisan bill that, among other provisions, advances the federal initiative to establish a US national strategic uranium reserve. Under the American Nuclear Infrastructure Act, the DOE will be restricted to only buy uranium recovered from facilities licensed by the Nuclear Regulatory Commission or equivalent agreement state agencies as of the date of enactment. (12/7)
“Green energy majors”: A decade ago, NextEra, Iberdrola, and Enel were sleepy regional utilities with little name recognition. Now they are fast-growing giants with market values rivaling the likes of oil majors Exxon Mobil Corp. and BP PLC, thanks to their early all-in bets on wind and solar farms. Their early lead in the global transition away from oil has put these companies on track to become the major energy companies of the coming decades—the “green energy majors.”
Divesting from Big Oil: New York State announced that the state would begin divesting its $226 billion employee pension fund from gas and oil companies if they can’t come up with a legitimate business plan within four years aligned with the goals of the Paris climate accord. Those investments have historically added up to roughly $12 billion.
Big banks still lending to Big Oil: Almost five years after countries signed the landmark Paris Agreement on climate change, financial institutions are still providing billions of dollars to companies extracting and burning the earth’s most-polluting resources. Since the start of 2016, banks extended more than $1.6 trillion of loans and underwriting services to fossil-fuel companies planning and developing oil, gas, and coal projects. (12/10)
CO2 emissions down 7%: A locked-down pandemic-struck world cut its carbon dioxide emissions this year by 7%, the most significant drop ever, new preliminary figures show. The Global Carbon Project calculated that the world will have put 37 billion tons of carbon dioxide in the air in 2020, down from 40.1 billion tons in 2019. (12/12)
UK ups emissions goal: The UK Prime Minister has announced a new target to reduce the UK’s emissions by at least 68 percent by 2030, compared to 1990 levels. The new target is among the highest globally and commits the UK to cut emissions at the fastest rate of any significant economy so far. (12/8)
Japan’s 2050 target: Japan’s Ministry of Economy, Trade, and Industry on Dec. 8 launched a series of oil and gas policy reviews to help meet its 2050 carbon-neutral target while ensuring a stable energy supply for its oil and gas sectors. (12/8)
Hiding the carbon ball: A giant oil company like Exxon Mobil will publicly disclose forward-looking numbers on production forecasts, earnings potential, and capital expenditures. But the biggest fossil-fuel producers don’t provide short-term guidance to investors on the metric that’s become existentially important: carbon-dioxide emissions. Evidence indicates oil majors assess the climate consequences of their plans; they just don’t make them public. (12/8)
Health foot-dragging? On Monday, the Trump administration declined to tighten controls on industrial soot emissions, disregarding an emerging scientific link between dirty air and Covid-19 death rates. (12/8)
The US air pollution monitoring network has fallen into disrepair after years of budget cuts and neglect, leaving tens of millions of Americans vulnerable to undetected lousy air quality from events like wildfires to industrial pollution, according to a report by the investigative arm of Congress. (12/8)