Tom Whipple and Steve Andrews, Editors
Quote of the Week
“We believe that ExxonMobil’s Board needs new members who have proven success positioning energy companies for today as well as tomorrow, and who are sufficiently independent from the current Board to ensure a clean break from a strategy and mindset that have led to years of value destruction and poorly positioned the Company for the future.”-Engine No. 1, activist investor firm, proposing four new board members more supportive of the need to address climate change
Graphic of the Week
1. Energy prices and production
Oil: Prices remained in a narrow range for the third week, around $52 in New York and $55 in London. As has become routine, much of the news impacting oil prices has to do with the coronavirus and vaccine programs’ pace. For the immediate future, lockdowns in many regions will limit demand. The more contagious coronavirus variant identified in South Africa has reached the US, raising worries that more outbreaks may be ahead.
US commercial crude oil inventories moved sharply lower the week before last as exports surged and imports tested multi-month lows. Stocks declined 9.91 million barrels during the week ended Jan. 22nd to a 10-month low of 476.6 m/b. It was the largest one-week draw since last July and left inventories just 6% above the five-year average, the narrowest supply overhang since early April. All regions outside the Rockies saw crude inventory draws last week, but the bulk of the decline was concentrated on the US Gulf Coast, where stocks fell 6.43 m/b.
The barrage of Presidential executive orders related to climate and the oil industry has sent oil producers’ stocks tumbling and raised blood pressure across the industry. “In the first couple of days of the new administration, they are taking actions that will harm the economy and cost Americans their jobs,” said the senior vice president of policy for the American Petroleum Institute. “We’re concerned, and everyone in the country should be concerned.”
President Biden’s new moratorium on oil and gas lease sales will indefinitely postpone all lease sales previously scheduled under the Trump administration for both onshore acreage and parcels in the deepwater Gulf of Mexico. The executive order postpones — and potentially cancels — a March lease sale for the deepwater Gulf and March sales in Colorado, Utah, Wyoming, and Montana. The charge also applies to an April lease sale in New Mexico, which is the state potentially most impacted by the moratorium.
The moratorium, which has no time limit, will continue during a new review of fossil fuel leasing and permitting. The ban on oil and gas drilling across federal lands and waters will exclude tribal lands. Republican senators from oil-producing states introduced legislation on Thursday to block the Biden administration’s order pausing new oil and gas leasing on federal lands.
The temporary halt leaves the vast majority of US crude production untouched. Should the halt announced Wednesday become permanent, the US would stand to lose as much as 200,000 b/d of production by the end of this decade, according to Rystad Energy. It’s a small fraction of America’s roughly 11 million b/d in output. “The region that would bear the brunt of this ban are the deep waters of the Gulf of Mexico since the government entirely owns it.” It would mean a 40% output drop for the Gulf by 2030.
Efforts to curtail financing of international fossil fuel infrastructure development received a substantial boost from the Biden administration’s broad climate executive order rolled out Jan. 28th. A provision in the order directed the US treasury and energy secretaries to work with two key financing entities to identify steps through which the US can “promote ending international financing of carbon-intensive fossil fuel-based energy” while pushing sustainable development.
S&P Global Ratings warned this week it could very soon downgrade the ratings on some of the world’s biggest oil firms, citing increased risks coming from energy transition, price volatility, and weaker profitability. The companies under CreditWatch negative include Exxon, Chevron, ConocoPhillips, Shell, Total, Canadian Natural Resources, and China Petroleum & Chemical Corp. S&P also revised its outlooks on BP and Suncor Energy to ‘negative’ from ‘stable’. The credit rating agency has changed its industry risk assessment to ‘moderately high risk’ from ‘intermediate risk’, due to the challenges the energy transition poses to those companies, the pressure on the firms’ return on capital, and the volatility in oil and gas prices.
OPEC: The cartel’s oil production has increased by 160,000 b/d in January as the OPEC+ alliance is easing the output cuts in the first month of 2021. OPEC’s output averaged 25.75 million b/d in January; it was the seventh month in a row in which the cartel boosted production. While most of the previous monthly gains in production were attributed to recovering output in Libya, which is exempted from the OPEC+ cuts, and poor compliance of some OPEC members, the January production increase is not surprising, considering that OPEC+ decided in December to add 500,000 b/d in January.
Shale Oil: President Biden’s plan to tackle climate change has raised concerns across New Mexico, where local officials and businesses are trying to size up the impact for an industry that made up roughly a third of the state’s revenue last year. A long-lasting freeze on new leasing would curb income and could move lawmakers to consider harsh options to address lost funding, such as large spending cuts or drawing from state reserves.
The number of drilled but uncompleted wells (DUCs) accumulated at the height of the pandemic has already subsided to pre-Covid-19 levels in the US, a Rystad Energy analysis shows. After swelling to a multi-year high of 6,548 wells in June 2020, the number of such wells in the country’s major oil regions slimmed down to around 5,700 wells by the end of December. Given the recent recovery in oil prices, the industry is enjoying the flexibility of further accelerating fracking activity beyond current levels in the first half of the year.
America’s central oil-export hub sees demand picking up from Beijing this year even as a resurgence in the coronavirus clouds the outlook for consumption in China. Texas’s Port of Corpus Christi, home to eight oil export facilities, is laying the groundwork by deepening part of its waterway as two of its customers add storage. With crude stored aboard tankers in Asia being drawn down, the port is pinning its hopes on US exports to make up the shortfall.
The combined debt of North American E&P and oilfield service companies which filed for Chapter 11 bankruptcy protection last year jumped to $102 billion, surpassing the $100 billion mark for the first time, a Rystad Energy analysis of Haynes and Boone data shows. While the number of filings was lower than in the 2016 downturn, the average debt of the 108 companies that filed for Chapter 11 was almost twice as high at a record $940 million. Last year was arguably the most devastating year in history for the North American oil and gas industry. Even so, Rystad Energy’s analysis concludes that 2020’s round of Chapter 11 filings fast-tracked an overdue reduction in the number of market participants by removing troubled companies and allowing their healthier competitors to remain in business.
Natural Gas: US natural gas stocks dipped less than the market expected last week, leading to a dip in Henry Hub prices, but a cold spell seizing most of the nation could cause the largest draw of the heating season thus far. Frigid temperatures settling across the western half of the US last week could prompt natural gas production freeze-offs, particularly in the Bakken Shale, and lower pipeline inflows at a time when large markets will be experiencing demand spikes.
If the recent moratorium on the issuance of federal drilling leases holds, most US production losses would occur in New Mexico, where up to 3 billion cf/d of new natural gas supply could be at risk over the next three years. Following the recent issuance of a 60-day moratorium on new drilling permits and land leases on federal land, President Biden signed an executive order to suspend all new federal oil and gas leases. At the same time, the Dept. of the Interior will review all existing leasing and permitting practices. The executive order avoids an outright ban on federal land drilling permits.
Global gas demand is expected to increase by 2.8% — or around 110 billion cm — this year, just above the extent of the decline witnessed last year and signaling a return to 2019 consumption levels. In its first-ever quarterly gas report, the IEA warned, however, that the rate of demand growth remained uncertain due to ongoing concerns over the pandemic. According to the IEA, gas demand in 2020 fell by 2.5% — the largest ever recorded drop. The spike in Asian LNG demand in January on the back of freezing regional temperatures is not an indicator of a “major” global demand rebound for the remainder of 2021, according to the IEA.
In a decade, the Eastern Mediterranean went from an ‘empty sea’ towards one of the most promising new frontiers of the global oil and gas industry. The Levant basin contains several impressive hydrocarbon reserves that have brought economic cooperation and peace between political rivals in an unstable region. In collaboration with Israeli partners, Chevron is about to invest another $235 million in pipelines to increase production and export to Egypt that will cement ties even further. Israel was a resource-poor country that didn’t have access to the oil and gas of its Arab neighbors. Therefore, hydrocarbons needed to be imported from afar. The discovery of Tamar and Leviathan has changed that.
Prognosis: The Wall Street Journal says that the oil industry is emerging as a primary target of President Biden’s climate policy. It sets the stage for a confrontation that could shape the future of the energy sector. The executive order that suspended new oil and gas leasing on federal land is widely seen as a first step toward fulfilling President Biden’s campaign pledge to stop drilling on federal lands and offshore. Federal land accounts for roughly 9% of US onshore production, but oil industry leaders see a curtailment of future development as a significant threat. Oil companies want to maximize their access to land and federal permits to help grow and sustain operations. They plan to resist Biden’s efforts through lawsuits and the Congress.
The idea that crude oil could ever again hit three-digit price levels may sound ridiculous at a time when slack demand amid a pandemic has oil stuck in the $50s. However, many expect vaccines to boost demand before year’s end, and some are warning about a looming oil deficit. Big Oil is slashing exploration activities and Rystad Energy says that new onshore and offshore lease acquisitions by the world’s top five oil companies fell to the lowest in at least five years in 2020. Much of this decline was caused by the pandemic, but it is also the pandemic spurring a potentially permanent change in Big Oil’s agenda.
Stability and sustainability are the two major themes in the oil and gas industry in the years ahead. More and more oil and gas firms will include sustainability, the energy transition, and Environmental, Social, and Corporate Governance (ESG) considerations in their strategic and investment plans. New business models are emerging from the wreckage of 2020. Companies will focus their investment on building a foundation that will be sustainable across a range of scenarios.
2. Geopolitical instability
(These are the situations that reduce the world’s energy supplies or have the potential to do so.)
Iran: Tehran had barely started to reap the economic benefits of its 2015 nuclear deal with world powers when President Trump withdrew and imposed sanctions so tight that they plunged the country into its worst financial crisis since the 1980s. The EU was Iran’s biggest trade partner before the bloc-imposed oil sanctions in 2012 over the country’s nuclear program. Since then, China has become Iran’s top destination for energy exports and the most significant source of imports. It has been the lone customer for Iranian crude since Trump’s sanctions came into force in 2018. While Europe tried to keep the nuclear deal alive, it struggled to maintain economic ties in the face of US penalties.
Israel’s top general said on Tuesday that its military was refreshing its operational plans against Iran and that any US return to a 2015 nuclear accord with Tehran would be “wrong.” The remarks are an apparent signal for President Biden to tread cautiously in any diplomatic engagement with Iran. Such comments by Israel’s military chief of staff on US policymaking are rare and likely would have been pre-approved by the Israeli government.
Indonesian authorities said they seized an Iranian tanker and Panamanian tanker suspected of carrying out the illegal transfer of oil in their country’s waters last week. The tankers — the Iranian-flagged MT Horse and the Panamanian-flagged MT Frea — were seized in waters off Indonesia. The tankers are suspected of various violations, including not displaying national flags, shutting off their identification systems, anchoring illegally, and the illegal transfer of fuel between ships and spilling oil.
Iraq: Baghdad will pump less oil this month and next to make up for excess production last year, according to the deputy chief of Iraq’s oil marketing. Exports will also fall to some 3 million b/d from 3.3 million b/d for December, as long as the Kurdistan Regional Government agrees to cut its oil output as well. The December export figure significantly exceeded Iraq’s forecast for the month, which saw exports at 2.8 million b/d. Separately, Iraq reportedly plans to cut exports of crude to India to stay within its OPEC+ production quota.
Exports, including those from the semi-autonomous northern region of Kurdistan, will be slightly more than 3 million b/d during the period. Baghdad’s ability to meet these targets depends on whether the Kurdistan Regional Government agrees to reduce supplies from fields under its control. The central government has complained in the past that it can’t control Kurdish production.
Libya: Production from Libya’s Waha oil fields “gradually resumed” after repairs were completed on a critical pipeline. Around 200,000 b/d of Libya crude output had been affected after the pipeline that connects the Samah and Dahra fields to the 350,000 b/d Es Sider terminal had been shut since Jan 23rd.
Guards protecting Libya’s oil installations gave the government a new deadline to pay overdue salaries at two of the nation’s main crude-export terminals, maintaining a lingering threat to oil shipments just months after they revived. The Petroleum Facilities Guard shut down the Hariga oil port in eastern Libya after the National Oil Corporation delayed salaries for its members. A few years ago, the Petroleum Facilities Guard blockaded all the Libyan oil ports. This action suspended exports until the Libyan National Army, a group affiliated with the eastern Libyan government, wrested control of the ports and handed it over to the National Oil Corporation.
Venezuela: Despite outside assistance from Russia, China, and Iran, President Maduro has proven incapable of rebuilding Venezuela’s petroleum industry. According to OPEC’s latest report, Venezuela’s December 2020 oil output averaged 431,000 barrels of oil equivalent daily. While that represents a 4% increase over a month earlier, it is still less than a quarter of Venezuela’s average daily production for 2017 when the US first placed sanctions on exports.
Chevron and Reliance Industries are meeting with US State Dept. officials to request a rollback of some of the previous administration’s restrictions against Venezuela’s oil industry. High on the agenda: reinstating transactions known as oil swaps that would allow companies to receive Venezuelan crude in exchange for supplying diesel. The US imposed sanctions on PDVSA in early 2019 to dislodge President Nicolas Maduro from power by depriving him of oil revenue.
3. Climate change
President Biden signed a series of executive actions to combat climate change, including pausing new oil and gas leases on federal land and cutting fossil fuel subsidies. The orders map out the direction for the Democratic president’s climate change and environmental plan and mark a reversal from policies under his Republican predecessor Donald Trump. The former President sought to maximize US oil, gas, and coal output by removing regulations and easing environmental reviews.
“In my view, we’ve already waited too long to deal with this climate crisis,” Biden told a White House ceremony. He noted the threats the nation faces from intensifying storms, wildfires, floods and droughts linked to climate change and air pollution from burning fossil fuels. “It’s time to act.” Biden unveiled a “whole-of-government approach” to put climate change concerns at the center of US national security and foreign policy as well as domestic planning. He said building a modern, resilient climate-related infrastructure and a clean energy future for America would create millions of good-paying union jobs.
At the heart of Biden’s executive action is an effort to improve conditions in Black, Latino, and Native American communities targeted for hazards that others did not want — power plants, landfills, trash incinerators, shipping ports, uranium mines, and factories. As a result, African Americans and Latinos, along with Native Americans, have suffered disproportionately.
Federal officials are showing how rapidly the Biden administration is overhauling climate policy after years of denial under former President Trump. They aim to free up as much as $10 billion at the Federal Emergency Management Agency to protect against climate disasters before they strike. “It would dwarf all previous grant programs of its kind,” said Daniel Kaniewski, a former deputy administrator at FEMA.
Among the many climate-related executive orders President Biden signed last Wednesday was one directing the federal government to make climate change an integral part of its foreign and national security policy. The order requires preparing a National Intelligence Estimate that assesses the threat to the US’s security from climate change. By linking national security to a previously considered problem for its environmental implications, the document could open the door to more comprehensive support for the resources and policies needed to fight climate change and reduce the use of fossil fuels.
Senate Majority Leader Chuck Schumer called for President Biden to declare a climate emergency, a controversial move that would give the new administration sweeping authority to circumvent Congress to combat global warming. Declaring a climate emergency could unlock new powers for Biden, including the ability to redirect funding for clean energy projects, shut down crude oil exports, suspend offshore drilling and curtail the movement of fossil fuels on pipelines, trains, and ships. Former President Trump used this tactic in February 2019 to divert billions of dollars to help build the border wall after Congress refused to appropriate funding.
John Kerry told the Davos Forum that China’s plans to achieve carbon neutrality by 2060 lack clarity and appear to be undermined by the country’s financing of coal-fired power station construction worldwide. According to the IEA’s Fatih Birol, massive investment in renewable energy in the developing economies will be necessary to achieve global climate goals. He said that if we aim to reach net-zero emissions, there is no way without accelerating the clean energy investment in emerging countries we can accomplish this goal.
The flurry of executive orders prompted swift backlash from GOP lawmakers ready to defend the fossil fuel sector and the jobs it sustains in many of their states. Republicans say the president’s initial calls for unity feel empty with what they consider an attack on the energy sector during an economic recession that already has the oil industry ailing. Confirmation hearings for even his uncontroversial Cabinet picks have become forums for Republican lawmakers to air their grievances with recent Biden decisions, including calls to calculate the cost of carbon emissions to society and pause oil and gas leasing on federal lands and waters.
However, Biden and his environmentalist allies say there is a high cost to waiting to stop the dangerous warming that climate scientists warn will happen if the world continues burning oil, gas, and coal at the current rate. “In my view, we’ve already waited too long to deal with this climate crisis,” Biden said in a speech at the White House. “We can’t wait any longer.”
Global ice loss has increased rapidly over the past two decades. According to new research published this month, scientists are still underestimating just how much sea levels could rise. From the thin ice shield covering most of the Arctic Ocean to the mile-thick mantle of the polar ice sheets, ice losses have soared from about 760 billion tons per year in the 1990s to more than 1.2 trillion tons per year in the 2010s. That is an increase of more than 60 percent, equating to 28 trillion tons of melted ice in total. It means that roughly 3 percent of all the extra energy trapped within Earth’s system by climate change was spent turning ice into water.
4. The global economy and the coronavirus
The announcement by Johnson & Johnson of a new Covid-19 vaccine offers a powerful tool to vaccinate people in the world’s poorer countries. Preliminary findings suggest the single-dose option may not be as strong as Pfizer’s or Moderna’s two-dose formula and it was markedly weaker against a worrisome, mutated version of the virus in South Africa. But amid a rocky start to vaccinations worldwide, that may be an acceptable trade-off to get more people inoculated faster with an easier-to-handle shot that, unlike rival vaccines that must be kept frozen, can last months in a refrigerator.United States: New coronavirus cases in the US have fallen 35 percent over the past three weeks. Hospitalizations have dropped as well. Deaths have not, but they have stabilized — and the death trend typically lags by a few weeks.
The number of Americans applying for unemployment benefits fell but remained at a historically high 847,000 last week, a sign that layoffs keep coming as the coronavirus pandemic continues to rage. The four-week moving average — which smooths out week to week gyrations — rose by more than 16,000 last week to 868,000, the highest since September.
The reaction from automakers and oil and gas companies to GM’s announcement that it will only build zero-emission cars and trucks after 2035 has so far been muted. But Washington is abuzz with corporate lobbyists complaining in private about what they saw as a calculated move to burnish GM’s reputation as the industry negotiates a new fuel-economy deal with the Biden administration. A senior GM executive argued that the decision was based on a dollars-and-cents analysis of where the auto industry is headed and the cars that it expects to become future best sellers. “We want to have a business in 15 years that’s a thriving business.”
GM has already committed to spending $27 billion to introduce 30 electric vehicle models by 2025 and is building a plant in Ohio to make batteries for those cars and trucks. On his first day in office, President Biden signed an executive order directing the EPA to immediately begin developing strict new tailpipe pollution regulations, designed to rein in the nation’s largest source of planet-warming pollution. GM’s announcement gives powerful political momentum to that plan, signaling that the nation’s biggest automaker supports the administration’s single most extensive policy to fight climate change.
China: Factory activity grew at the slowest pace in five months in January, hit by a wave of domestic coronavirus infections, but still in line with the ongoing recovery. The official manufacturing Purchasing Manager’s Index fell to 51.3 in January from 51.9 in December. In January, mainland China reported more than 2,000 local cases of the coronavirus. While the number was small compared with other countries, authorities were concerned about transmission risks during the Lunar New Year travel rush – the world’s most significant annual human migration spanning 40 days from January to February. During January, several large cities were locked down with tens of millions tested for COVID-19, interrupting factory activity and weighing on the services sector, including logistics and transportation.
China has had a relatively low incidence of Covid-19, but local governments have periodically implemented strict lockdowns to control small and recurrent outbreaks. Simultaneously, citizens have broadly accepted the government’s round of compulsory Covid-19 RNA testing. Shijiazhuang, the capital of Hebei province bordering Beijing, has its biggest outbreak with 746 confirmed cases.
Residents of a locked-down Chinese city have raised an outcry about food and medicine shortages, spurring a rare public debate about the country’s strict epidemic controls. In Tonghua, near China’s border with North Korea in northeastern Jilin province, citizens complained on a blogging platform, Weibo, that a sudden lockdown had left some trapped in their apartments without supplies for more than a week.
China’s crude throughput will likely remain at relatively high levels over January-February despite the slowdown in domestic fuel consumption for the Lunar New Year. Sufficient oil product storage space and hefty crude imports in January/February will force Chinese refineries to boost throughput before maintenance season in March-May.
Chinese oil majors will struggle to extend growth in shale gas production beyond 2025. Complex geology and failure to draw in more investors make it expensive to develop unconventional resources. That would be a blow to China’s efforts to cut its reliance on gas imports, presently 42% of total consumption. It would also mean Beijing will have to step up development of other costly gas resources in its remote northwest to meet demand, as the country steers away from coal to achieve climate goals. Beijing started producing shale gas in southwest Sichuan in 2012, inspired by a US shale push, and has doubled output in the past two years.
European Union: The EU’s Covid-19 vaccination plan is nearing a crisis point after several regions suspended inoculations due to vaccine shortages. Brussels moved to restrict exports of vaccines to conserve stocks. The independent commission advising the German government on vaccination policy has recommended that the Oxford/AstraZeneca vaccination not be used for people aged over 65.
Meanwhile, authorities in Paris have stopped administering the first injections of vaccines, while Lisbon said its vaccination rollout would be slower because of shortages. The Paris region and two other regions accounting for about a third of the French population have postponed new vaccinations for up to four weeks to conserve doses for those entitled to the BioNTech/Pfizer vaccine’s second and final injections.
Delays in Covid-19 vaccine deliveries and uncertainties about the prospects of yet-to-be-approved shots mean Europe is unlikely to have inoculated a substantial portion of its population by the summer, raising the specter of many more months of lockdowns and other restrictions. The fading hope for a swift return to normalcy than countries such as the US and the UK that are farther along in vaccination spells trouble for the region’s economy. Large parts of it depend on services, including travel and tourism, especially in the less-affluent south.
The European Commission, the EU’s executive body, which procures vaccines centrally for the bloc, has ordered 2.3 billion doses from six manufacturers. It says most of these are expected to be delivered in 2021 and that member states should be able to vaccinate 70% of adults among the bloc’s 448 million inhabitants by the summer.
Russia: President Biden believes the Nord Stream 2 gas pipeline is a “bad deal for Europe.” His administration will be reviewing restrictions on the project included in a bill that passed during the Trump administration. Sanctions in the measure apply to any companies helping Gazprom, the Russian state energy company leading the pipeline project. Like the Obama administration before it, the Trump administration opposed the project on the grounds it would strengthen Russian President Vladimir Putin’s economic and political influence over Europe.
Soaring natural gas prices in European markets could be seen as a boon for Russian giant Gazprom to increase its gas exports to the West. But instead, Gazprom is adopting the exact opposite strategy, drastically reducing its physical deliveries of natural gas to the EU. Since the end of December 2020, gas volumes transiting through Ukraine have fallen by a third to 130 million cubic meters per day. Spot prices at the Central European Gas Hub in Austria – where Russian gas is traded after flowing through Ukraine and Slovakia – have surged during the past weeks, hitting a record $6.8 / million Btu) on Jan. 20th.
Saudi Arabia: The Biden administration has imposed a temporary freeze on US arms sales to Saudi Arabia and is scrutinizing purchases by the United Arab Emirate. The new administration will review billions of dollars in weapons transactions approved by former President Trump. The review, the officials said, includes the sale of precision-guided munitions to Riyadh and top-line F-35 fighters to Abu Dhabi, a deal that Trump approved as part of the Abraham Accords, in which the Emirates established diplomatic relations with Israel.
“President Biden has made clear that we will end our support for the military campaign led by Saudi Arabia in Yemen, and I think we will work on that in very short order,” Secretary of State Antony Blinken said last week. However, Washington will continue to help defend the Saudis against Houthi attacks, Secretary Blinken said. A senior administration official said the weapons sales to Saudi Arabia were being frozen pending the review, but that sales to the Emirates were not frozen while they are being examined. The $23 billion arms package to the UAE includes long-lead items such as jet fighters and drones that wouldn’t be delivered for many years.
Earlier this month, Saudi Arabia served “a wonderful surprise” to the oil markets when the Kingdom said it would cut an additional 1 million b/d from its oil output to keep prices higher. As oil consumption is not expected to grow soon, the decision to further cut production was the right thing to do. However, lower production means lower exports, and lower exports represent lower oil revenues. The latest data, for November, shows that Saudi exports slumped more than 25 percent, to some $15.5 billion from $21.54 billion a year ago. Oil demand outlook has somewhat improved since November.
Saudi Arabia is working to replace petroleum liquids for power generation with solar energy and gas-fired capacity. The Saudi’s Energy Minister said the country will aim to replace petroleum—which it still burns for electricity—with solar power. “The program will rank among the most important initiatives, given its value added to the national economy and its ability to stop the country’s financial waste.”
India: New Delhi reported its lowest active number of coronavirus cases in seven months last week, a year after the virus was first confirmed in the country. Prime Minister Modi’s government imposed a nationwide lockdown in late March. The lockdown, in which domestic and international travel was banned, and factories, schools, offices, and all shops other than those supplying essential services were shut, crippled India’s economy. The ban was relaxed. Since then, there has not much news on what the government has been doing to contain the virus. Whether the government has good information on how many people in India are contracting the coronavirus is an open question. Two-thirds of the population of 1.3 billion live scattered in villages with limited medical facilities.
India’s economy contracted by 7.7% in the 2020-21 financial year, battered by the pandemic. A government survey estimates the economy, previously one of the fastest growing among major economies, will bounce back, growing 11% in the fiscal year that begins in April. It said the recovery would be seen in a resurgence in demand for power and steel, rail freight, and tax collections on goods and services “The economy would take two years to reach and go past the pre-pandemic level. These projections are in line with the International Monetary Fund estimate of real GDP growth of 11.5% in 2021-22 for India and 6.8% in 2022-23.”
5. Renewables and new technologies
Announcements of new hydrogen projects continue to be issued by companies around the industrialized world. Last week Norway’s Equinor and Germany’s steel producer ThyssenKrupp announced that they have concluded a feasibility study and will continue their cooperation. The study evaluated the possibility of supplying ThyssenKrupp Steel’s Duisburg facility with blue hydrogen made from natural gas to allow for significant CO2 reductions for climate-neutral steel production before green, zero-emission, hydrogen is available in sufficient quantities.
The study found that the decarbonized production and supply of “blue” hydrogen from natural gas to Germany’s largest steel plant is technically feasible. The partners are convinced that blue hydrogen, as a reliable and available technology, can ramp up the European hydrogen market. Given the recent decision by the EU to set more ambitious climate targets for 2030, blue hydrogen can play a significant role going forward as a viable and early source for nearly climate-neutral hydrogen in large quantities and, therefore, in achieving these goals.
Three million miles of natural gas pipelines crisscross the US, and the fight against climate change could render them all obsolete. However, pipeline owners are eyeing another, possibly future-proof fuel — hydrogen. By producing the gas using electrolyzers powered by solar plants or wind farms, hydrogen becomes a way to store massive amounts of renewable energy—far more than any of today’s batteries can hold. And the best part for pipeline companies is that getting the green hydrogen where it needs to be, in bulk, could require the same infrastructure that now carries natural gas.
Some pipeline companies are launching projects to blend small portions of hydrogen into their existing networks to see how the equipment behaves. They’re running experiments to strip hydrogen out of that blended gas for use at specific locations. And they’re exploring how they might eventually transition from one fuel to the other. Gas pipeline owners can’t simply switch from one gas to the other without cutting off existing customers, so any transition would start with blending hydrogen into the existing stream of fuel.
Boeing says that its commercial airplanes are capable and certified to fly on 100% sustainable aviation fuels (biofuel) by 2030. Boeing has previously conducted successful test flights replacing petroleum jet fuel with 100% sustainable fuels. Today, sustainable aviation fuels are mixed directly with conventional jet fuel up to a 50/50 blend—the maximum allowed under current fuel specifications. To meet aviation’s commitment to reducing carbon emissions by 50% by 2050, airplanes need the capability to fly on 100% sustainable fuels well before then.
According to the Air Transport Action Group, US Department of Energy, and several other scientific studies, sustainable aviation fuels reduce CO2 emissions by up to 80% over the fuel’s life cycle with the potential to reach 100% in the future. Boeing’s commitment is to determine what changes are required for its current and future commercial airplanes to fly on 100% sustainable fuels and work with regulatory authorities and the industry to raise the blending limit for expanded use.
6. The Briefs (date of the article in the Daily Energy Bulletin is in parentheses)
Only 36 percent of Russia’s recoverable crude oil reserves can profit in the current market, Deputy Energy Minister Pavel Sorokin said in an article for Energy Policy magazine. Russia’s recoverable oil reserves stand at some 30 billion tons or 219.9 billion barrels. This means that the profitable portion comes in at about 79.16 billion barrels. (1/28)
Kuwait, on Jan. 25th, unveiled a budget for its coming fiscal year with a breakeven crude price of $90/b and, thus, significant deficit spending, with higher expenditures eating up a substantial portion of its projected increases in revenues. The budget, released by the finance ministry, expects crude production to average 2.4 million b/d for the year starting Apr. 1st, earning an average of $45/b vs. $30/b last year. (1/26)
China’s shale gas: PetroChina officials said exploration and production costs for shale gas are 20-30% higher than conventional resources, state-run China Energy News has reported. Beijing has handed out over $2 billion in subsidies to the shale sector since 2016.
In Nigeria, Royal Dutch Shell’s subsidiary has been ordered by a Dutch court to pay compensation for oil spills in two villages, a ruling that some lawyers say could encourage other cases against multinationals for pollution abroad. The verdict is the latest step in a years-long legal tussle over a case first lodged in 2008 by four Nigerian farmers and Friends of the Earth Netherlands. (1/30)
Argentina’s national state oil company YPF is currently unable to function in a stable and foreseeable manner, a reality rekindled by Guillermo Nielsen stepping down from his post of company president merely a year after taking its helm. (1/29)
Pipeline canceled: A week ago, President Joe Biden did what many in Alberta feared: he revoked the Keystone XL pipeline’s permit—on his first day as President. The move angered many in Alberta. Alberta Premier Kenney called the revocation a gut punch and threatened to sue. Meanwhile, Federal PM Trudeau expressed mild disappointment. A few days later, Alberta’s Energy Regulator reported record-high oil sands production at year’s end. (1/28)
In Canada, the Trans Mountain expansion project has become the most important oil pipeline project in Canada after US President Joe Biden stopped the Keystone XL. (1/26)
The US oil rig count rose by 6 to 384 –the 10th straight weekly increase—while the gas rig count remained flat unchanged at 88, Baker Hughes reported on Friday. (1/30)
ExxonMobil is preparing to make changes to its board and adopt further measures to reduce its carbon footprint. The beleaguered energy giant faces pressure from a pair of activist investors. The company is discussing adding one or more new directors to the board and stepping up sustainability investments. (1/28)
Exxon’s investment in sustainable technologies is likely to focus on biofuels and carbon capture and storage (CCS), two areas of development the company has pursued for years. (1/28) (Ed. note: when it comes to climate change abatement, CCS has a history of high cost and under-performance.)
Chevron slumped to its third straight quarterly loss, disappointing Wall Street and underlining the industry’s biggest groups’ damage by the price crash. The company reported a loss of $665m in the final quarter of last year vs. $207m in the third quarter. (1/30)
Carbon-neutral oil: A unit of US Occidental said this week it had delivered the world’s first shipment of carbon-neutral oil or oil where emissions associated with the entire crude lifecycle—wellhead through the combustion of end products—have been offset. (1/30)
Customers of Duke Energy in the Carolinas could end up paying more than $4.8 billion for planned natural gas-fired capacity that could become stranded as part of the company’s pledge to achieve net-zero carbon emissions by 2050. (1/28)
Major natural gas pipeline operators commit to pare their carbon footprint and make their operations emissions-free by 2050, a pledge that could help ward off political attacks. The promise is the latest industry pivot as Democrats take over the White House and Congress with vows to phase out fossil fuels. (1/27)
The oldest LNG export facility in the US, started up in 1969 but dormant since 2015, is a step closer to being brought back online to handle several LNG shiploads per year to power a nearby refinery. (1/27)
General Motors said Thursday that it would phase out petroleum-powered cars and trucks and sell only vehicles with zero tailpipe emissions by 2035, a seismic shift by one of the world’s largest automakers that makes billions of dollars today from gas-guzzling vehicles. (1/29)
Electric motors in EVs only have a fifth of the parts of a traditional diesel engine, putting a question mark over maintenance labor plus auto- and parts-industry jobs.
EU batteries: The European Union has approved 2.9 billion euros in subsidies from 12 member countries for a second pan-European project to develop the electric battery industry and move away from its reliance on Asian imports. (1/27)
Oil buys EV: Royal Dutch Shell said it was acquiring the owner of the UK’s largest public electric vehicle charging network, Ubitricity, for an undisclosed amount. The deal for the company with over 2,700 on-street charge points in the country is expected to be completed late this year. (1/25)
The world’s biggest diesel engine factory in Tremery, eastern France, is switching to make just electric motors. From less than 10% of output in 2020, electric motor production at Tremery will double to around 180,000 in 2021 and is planned to reach 900,000 a year by 2025. (1/27)
Tesla will increase the capacity of its gigafactory in Shanghai to 450,000 cars this year from the current 250,000 as the vehicles produced there enjoy growing popularity. (1/30)
Nissan said Wednesday all its “new vehicle offerings” in key markets would be electrified by the early 2030s as part of its efforts to achieve carbon neutrality by 2050. The company said it would pursue battery innovations, including solid-state batteries, for electric vehicles (EVs).
After spending decades tackling electricity shortages, Pakistan now faces a new and unfamiliar problem: too much generation capacity.Top of Form The South Asian nation’s power supply flipped to a surplus last year after a flurry of coal- and natural gas-fired plants were built, mostly financed by the Belt and Road Initiative launched by Chinese President Xi Jinping in 2013. (1/27)
Hydrogen: Sumitomo Corporation of Americas (SCOA) has invested in OneH2, a hydrogen fuel company headquartered in Longview, North Carolina. SCOA’s investment will help the company deploy full turnkey hydrogen solutions, creating a national fuel production and distribution network to serve transportation markets. (1/28)
H2: The H24All project, a group of 15 corporate collaborators, aims to pave the way for a new and competitive hydrogen production industry by developing, building, operating, and demonstrating the sustainability of a 100 MW high-pressure alkaline electrolyzer. (1/28)
Hitting the pause button: The Office of the Comptroller of the Currency (OCC) is pausing the publication of a rule that would make large American banks unable to deny lending money to oil and gas companies until the Biden Administration’s pick for head of the watchdog reviews the final rule, and the public comments received. (1/29)
Divesting from fossil fuels: New York City Mayor Bill de Blasio and Comptroller Scott Stringer announced that two of the cities pension funds would divest completely from any securities “related to fossil fuel companies”. The city expects its total divestment to be around $4 billion—likely one of the world’s largest divestments. (1/27)
Bloomberg New Energy Finance reveals that during 2020 both public and private investments in renewable energy capacity came to $303.5 billion, up 2% on the year, thanks to the biggest-ever build-out of solar projects as well as a $50 billion surge for offshore wind. (1/25)
BP cutting exploration: Nothing escapes the winds of change now sweeping through BP, not even the exploration team that powered its profits for more than a century by discovering billions of barrels of oil. Its geologists, engineers, and scientists have been cut to less than 100 from a peak of more than 700 a few years ago. (1/25)
Total SE has had the fastest start in the race between oil supermajors to achieve net-zero carbon emissions. Europe’s three largest oil and gas companies — Total, BP Plc, and Royal Dutch Shell Plc — all announced plans last year to eliminate most greenhouse gas emissions from their operations and the fuels they sell in the coming decades. (1/26)
Methane, also known as CH4, is the second-most abundant anthropogenic greenhouse gas after carbon dioxide. But it’s 25 times more effective at trapping heat. Since leaks from municipal gas distribution systems are larger and more common than previously thought, methane is a prime target for emissions reduction. (1/29)
According to new research, airlines could “substantially” reduce their fuel consumption if planes become more efficient at riding the wind. Commercial flights between New York and London during the 2019-2020 winter could have used as much as 16% less fuel if pilots had taken full advantage of the jet stream. (1/29)
In the UAE, during the past two weeks, daily coronavirus cases have tripled, with diagnoses now exceeding 3,500 per day among a population of about 9 million. This surge is likely the result of lifting travel restrictions prematurely, with sun-seeking tourists from the UK flocking in. (1/27)
United Airlines said on Friday it has sent warnings of potential layoffs to some 14,000 employees whose jobs are at risk once the second round of payroll support for airlines expires on Apr. 1st. Demand for air travel has been hard hit by the coronavirus pandemic. (1/30)
World Health Organization officials said last week that the West African nation of Guinea is the only low-income country of 29 to begin vaccinating. And those efforts have been limited in scope — just 55 people out of the population of more than 12 million have received doses so far. (1/27)