Tom Whipple and Steve Andrews, Editors

Quotes of the Week

“He was at the very center of the creation of the modern age of oil.” Daniel Yergin,  on the death of Sheik Yamani, age 90

[Texas] “Generation owners and operators are not required to implement any minimum weatherization standard or perform an exhaustive review of cold weather vulnerability.  No entity, including the PUC or ERCOT, has rules to enforce compliance with weatherization plans or enforce minimum weatherization standards…While we request and review detailed plant records, the only entity that can confirm that a plant is “weatherized” to any particular standard is the entity that owns or operates the plant. Statement by Electric Reliability Council of Texas (ERCOT) last week

Graphic of the Week  [in Texas]

1. Energy prices and production 

Oil:  Crude oil futures finished the week sharply lower as a stronger dollar and expectations of rising global supply pulled prices off a 13-month high of over $67 a barrel, seen earlier last week. WTI settled Friday at $61.50 and London at $66.13. US crude futures were up nearly 22% in February with expectations of shrinking supplies and a further rebound in consumption as economies worldwide begin to reopen. However, the market is facing a possible supply increase in April from OPEC+ and variants of Covid-19 continue to spread.

Shale producers reported almost 6 million barrels of combined oil-output losses during the freeze the week before last. According to Bloomberg News calculations, Occidental Petroleum Corp. and Pioneer Natural Resources Co., two of the largest producers in the Permian Basin, alone had a combined loss of about 3.8 million barrels. Meanwhile, refineries along the Gulf Coast are in the process of restarting, though some plants are facing lengthy repairs to critical processing units. The majority of the plants along Texas’s refinery row are in the process of restarting, with most expected back online by mid-March.

Rumblings are starting to emerge that prices could once again top $100 a barrel by the end of next year. The Bank of America sees potential spikes above $100 over the next few years on improving fundamentals and global stimulus. Speculators are also getting in on the action, increasing bets in the options market that oil will reach the vaunted level by December 2022. These views are ultra-bullish, but they highlight increased confidence in the oil market after Brent rallied more than 200% after hitting an 18-year low during the pandemic. Demand has bounced back in key Asian markets, while OPEC+ is withholding barrels, and a lack of investment is keeping shale supplies at bay. Goldman Sachs this week lifted its third-quarter forecast by $10 to $75 a barrel.

The $100 mark occupies a special place in many traders’ minds, as oil hovered around that level for several years in the early part of the last decade. In those years, demand from emerging markets enticed drillers into ever more expensive locales, from deep ocean beds to Canada’s tar sands.

That era ended in 2014 when US shale firms proved they could pump massive amounts of oil at far lower costs. But while the vaunted price level has been out of the market’s reach since then, it hasn’t been out of traders’ minds. Forecasts for $100 are far from the current consensus. The median analyst forecast compiled by Bloomberg has Brent staying below $65 a barrel through 2025. And there are plenty of reasons to be skeptical of such a resurgence. For one, the OPEC cuts that have limited supply are artificial, and the cartel has enough spare capacity to meet any shortfall should demand rocket following a worldwide recovery from the pandemic, according to Bloomberg Intelligence.

A planned overhaul of how the world’s most crucial benchmark crude price is calculated has caused a surge in trading of swaps used to hedge North Sea oil prices. From July 2022, the benchmark Dated Brent price, a basis for two-thirds of all physical crude transactions worldwide, will no longer be based exclusively on the trading of barrels pumped from the North Sea. Instead, Texas supplies will also be eligible for inclusion to set the measure, publisher S&P Global Platts announced last week.

The shift, which alters the nature of what Brent crude will be, has triggered a surge in trading of derivatives called Dated-to-Frontline swaps for 2022 that producers can use to hedge physical cargo sales. Some participants are uncertain about how exchanges will accommodate the changes. London’s Intercontinental Exchange said Feb. 26th that crude futures and swaps contracts listed up to June 2022 would remain valid even after Platts switches to the new methodology in July 2022.

OPEC: The coalition saw its overall compliance with the original production adjustments at 101 percent, OPEC said at the end of the February meeting of the OPEC+ panels. This compliance level is “reinforcing the trend of high compliance by Participating Countries,” OPEC said. OPEC+ will discuss the possibility of increasing its oil production levels at the next meeting, sources told Reuters on Wednesday. The group is set to meet on Mar. 4th, when it will discuss raising output as much as a half a million b/d starting in April.

OPEC+ members are currently suppressing oil production by more than 7 million barrels per day. Still, with oil prices now on the rise and the markets getting the idea that the market could be tightening, OPEC+ may consider loosening the reins. The last Joint Ministerial Monitoring Committee Meeting of OPEC+ that met in the first week of February ended without any surprises. For February, another 75,000 b/d was added to the quotas—65,000 b/d to Russia and 10,000 b/d to Kazakhstan. For March, production quotas were eased again by another 75,000 b/d.

The leaders of the OPEC+ alliance, Saudi Arabia and Russia, are once again at odds ahead of another crucial meeting of the group next week. Saudi Arabia would likely prefer the March 3-4 meetings to decide that the OPEC+ coalition holds production flat in April, Bloomberg reports. However, Russia will probably be pushing for further easing of the production cuts, especially after Russian Deputy Prime Minister Novak said earlier this month that the global oil market was balanced. The current price of oil fully reflected this market situation.

Shale Oil: Producers in the southern US could take several weeks to restart crude output that shut down because of cold weather, as frozen pipes and power supply interruptions slow their recovery.  The winter storm that gripped Texas forced the biggest ever weather-related shutdown in the Permian Basin, cutting 2 to 4 million b/d from nationwide oil output and hitting the roughly 5 million b/d from top shale producing state Texas especially hard.

OPEC and its allies could find managing supply to the oil market easier this year, as US shale producers are still not rushing to accelerate output with prices above $60. Even before the Texas freeze, American shale drillers were not boosting production as most of the large firms continue to vow capital discipline and a measured increase in drilling activity, with an eye of returning more capital to investors rather than in drilling new wells. The EIA and OPEC see US oil production, including tight oil production, down this year compared to 2020. OPEC expects that US tight oil production would drop by 140,000 b/d during 2021. Much of this forecast is based on the much lower count of active rigs. However, industry sources claim that drillers have learned to keep increasing production with fewer drilling rigs.

Filings submitted in recent days to the Texas Commission on Environmental Quality already show significant emissions related to stopping and restarting fossil fuel infrastructure. It’s an indication of what’s to come in a state that’s home to a quarter of US natural gas production as well as half the oil production. This is the second time in less than six months the Texas oil industry has dealt with mass shutdowns due to extreme weather. The 12 hours after Hurricane Laura hit Port Arthur in August saw the release of more than 2,000 tons of emissions.

Natural Gas: Domestic production has staged a stunning recovery over the past ten days, climbing nearly 18 Bcf/d to its highest level since late March 2020, data compiled by S&P Global Platts Analytics showed. The rebound has come principally from Texas, thanks to the Permian and Texas’ portion of the Haynesville. Production from the greater Haynesville has more than doubled from its Feb. 18th low.

Texas’s gas production collapsed by 45 percent during the cold snap, primarily due to freeze-offs, the EIA said, citing estimates from IHS Markit. Total US dry natural gas production during the freeze declined by 21 percent. Texas’s temperatures averaged nearly 30 degrees Fahrenheit lower than usual during the week of Feb. 14th, which led to freeze-offs in the natural gas stream at the wellheads or gathering lines near production activities.

The US natural gas storage industry posted its second-largest draw on record the week before last. The pull proved more than 200 billion cf stronger than the five-year average. It was only the second weekly storage withdrawal to measure more than 300 billion cf. The largest weekly storage decline on record stands at 359 billion, set for the week ended Jan. 5th, 2018.

The “chicken-and-egg” problem of getting power to natural gas production and transportation facilities using electricity from generators that could not get sufficient natural gas was the “commonsense” issue that infuriated Texas electricity customers.  During a joint Energy Resources and State Affairs committee meeting, one representative called the Catch 22 situation “the commonsense component … that is infuriating to Texans.” Another compared the case that resulted in about 3 million Texas customers lacking power over three days to the old riddle of “Which came first, the chicken or the egg?”

Electricity:  Now that the lights are back on in Texas, the state has to figure out who’s going to pay for the energy crisis that plunged millions into darkness. It will likely be ordinary Texans. The total price tag so far is on order of $50.6 billion. This is the cost of electricity sold from early Monday, when the blackouts began, to Friday morning, according to BloombergNEF estimates. That compares with $4.2 billion for the prior week.

Some of those costs have already fallen onto consumers as electricity customers exposed to wholesale prices had power bills as high as $8,000 last week. Other customers won’t know what they’re in for until they receive their gas and power bills at the end of the month. Ultimately, the financial pain will probably be shared by ratepayers and taxpayers. If prior US power market failures are any guide, Texans could be on the hook for decades. Californians, for example, have spent about 20 years paying for the 2000-2001 Enron-era power crisis via surcharges on utility bills.

CPS Energy, which is owned and run by the city of San Antonio, said it was looking into ways to spread costs for the last week over the next ten years. That didn’t sit well with its customers, who railed against the company’s proposal during a board meeting. But companies that ran up huge losses as the cost of electricity skyrocketed last week will inevitably try to recoup those through their customers, taxpayers, or bonds. How quickly Texans pay depends on who their provider is.

Texas’s grid operator needs to come up with $1.3 billion to pay power plants for the energy they supplied during last week’s historic blackouts, raising the prospect it may require a state bailout. The Electric Reliability Council of Texas, which manages most of the state’s grid, said it’s still waiting on more than $2 billion in payments from retail power providers and others after a deep winter freeze caused energy prices to skyrocket. The grid operator managed to cover part of that debt by transferring $800 million in revenues from another market but remains $1.3 billion short. If the grid operator can’t come up with the rest, the debt could end up being shared by everyone in the market — even consumers. That may prompt lawmakers to step in and make up the difference.

Prognosis: Texas’s widespread power failures were only a warning of what can happen across the US if we fail to maintain and upgrade our infrastructure. The ERCOT section of the power grid, which covers roughly 90% of Texas, was within minutes of cascading uncontrollable failures, which would have left most of the state without power for many days or perhaps weeks. If the grid had gone offline, the physical damage to power infrastructure from overwhelming the grid could have taken months to repair, said Bernadette Johnson, senior vice president of power and renewables at Enverus, an oil and gas information company based in Austin.

America’s infrastructure is aging and crumbling.  Our power grids were never intended to support so many people, our water systems are vulnerable, and it has become utterly apparent that we would be lost entirely if a significant long-term national emergency ever struck.  According to Climate Central’s analysis, major outages (affecting more than 50,000 homes or businesses) grew ten times more common from the mid-1980s to 2012. From 2003 to 2012, weather-related outages doubled. There is no reason to believe that climate change-caused natural disasters will not continue to grow worse and worse in the foreseeable future.

2. Geopolitical instability 
(These are the situations that reduce the world’s energy supplies or have the potential to do so.)

Iran:   It took seven years to negotiate the 2015 Iran nuclear deal to keep Tehran from acquiring nuclear weapons.  No one expects it to take as long to establish whether they can resurrect the pact abandoned by former President Trump, but US and European officials say the journey will be lengthy and arduous, if they begin the trek.

Last week, a deal between Iran and the UN atomic watchdog over snap inspections opened a narrow diplomatic window to revive negotiations. The Islamic republic had planned to stop snap inspections of its nuclear sites from Tuesday, but a new agreement allows some time. As part of its bargaining posture, Tehran now demands a $1 trillion compensation payment for the Trump sanctions’ damage to its economy.

The US is counting on building a united front with the other powers involved to pressure Tehran. Last week, however, the US bombed an Iranian logistics base in Syria as a warning from the Biden administration that US personnel and allies’ attacks by Iranian-supported militias in Iraq and Syria are not acceptable. US officials said they were limited in scope to show Biden’s administration will act firmly while avoiding a significant regional escalation. US Defense Secretary Austin said he was confident the building targeted was used by the militia responsible for attacks against US personnel.

So far, Syria and Russia have condemned the attacks, but Iran has remained silent. Iran is in the midst of a Presidential election which clouds the issue of reinstating the agreement.

Iraq:  Southern crude exports have been averaging 2.7 million b/d in February, in line with the country’s OPEC+ quota. According to the head of state-owned Basra Oil Co., Iraq is committed to compliance with OPEC+ output cuts. The Basra Oil Co. manages oil production from the southern fields.

Iraq awarded seven projects to generate solar power as part of a long-range plan to produce 10 gigawatts of solar energy by the end of 2030, Oil Minister Jabbar said in a statement. The solar power projects are located across the country and will generate 750 megawatts. The biggest plant will be located in Karbala province, with a designed capacity of 300 megawatts. The other plants will be in the provinces of Babel, Muthanna, and Wasit. Iraq is seeking to generate 20% of its total power production capacity from renewable sources to help ease the pressure on the country’s hydrocarbon-powered electricity plants.

The first shipments of three different vaccines are expected to arrive in Iraq imminently, but limited supply and rising infection rates mean other new pandemic counter-measures are also needed.

Libya: Erik Prince, the private security executive and supporter of former US President Trump, “at the very least” helped evade an arms embargo on Libya, according to a UN report seen by Reuters.  Independent UN sanctions monitor accused Prince of proposing a private military operation – known as ‘Project Opus’ – to Libya’s eastern-based commander Khalifa Haftar during April 2019 and of helping procure three aircraft for Haftar. A spokesperson for Prince denied the report’s accusations.  The report was submitted on Thursday to the UN Security Council Libya sanctions committee and is due to be made public next month.

Venezuela: The European Union imposed sanctions on 19 more Venezuelan officials accused of undermining democracy or rights abuses. EU foreign ministers targeted the 19 with asset freezes and travel bans “in view of the deteriorating situation in Venezuela following the December 2020 elections.” The main opposition parties boycotted those polls. It means that a total of 55 Venezuelan officials are now subject to EU sanctions. “The individuals added to the list are responsible, notably, for undermining the oppositions’ electoral rights and the democratic functioning of the National Assembly, and for serious violations of human rights and restrictions of fundamental freedoms,” the ministers said.

Venezuela and Iran, both sanctioned by the US, have found a way to help each other as shipping companies stay away from dealings with the two out of fear of running afoul of the US. Venezuela is shipping jet fuel to Iran in the same tankers in which Iran delivers gasoline plus spare parts for the refineries in Venezuela.  Caracas, which has an excess of jet fuel with flights grounded due to the coronavirus, is sending aviation fuel to Iran, after having received gasoline from the Islamic Republic.

The dismantling of Venezuela’s environmental institutions and the collapse of its oil sector have generated a chain reaction of unsustainable natural resource extraction. Illegal land grabbing, deforestation, and an out-of-control gold rush in protected rainforest areas have created a perfect storm combining environmental degradation with a humanitarian crisis. Massive sediment loads from mining are decimating reservoirs and hydropower generation capacity, while mercury from gold extraction pollutes rivers and sickens people.

3. Climate change

Pledges made so far to cut greenhouse gas emissions fall strikingly short of the reductions necessary to avoid climate change’s most catastrophic impacts, the United Nations said last week. The UN analysis comes as presidents and prime ministers face pressure to ramp up their promises as part of the Paris climate accord in 2015. Through the end of last year, roughly 75 countries representing about 30 percent of global emissions had updated their initial plans ahead of the UN climate summit this fall in Scotland.

The millions of people who struggled to keep warm in Texas highlight US electricity grids’ desperate state. President Biden wants to overhaul the nation’s grids to fix nationwide vulnerabilities, so they derive all electricity from carbon-free sources by 2035. The existing network just isn’t sufficient to achieve the scale of wind and solar power that Biden needs, says Jesse Jenkins, of Princeton University. Getting to a fully green grid “would require a new nation-building mode like we hadn’t seen since the post-war period when we built the highways and did rural electrification.” He estimates that the US needs to expand its transmission grid by 60% for wind and solar to make up half of US electricity capacity by 2030.

Last week, much of Western Europe enjoyed temperatures some 25 degrees Fahrenheit or more above normal over most of the continent, with highs in the mid-60s in many areas. The jet stream pattern has also shuttled dust from the Sahara Desert to Scandinavia. Western Europe sits on the rising end of a meteorological seesaw that’s simultaneously sending temperatures across a broad swath of Russia plummeting to the level where they slow oil production.

Federal flood insurance costs will need to increase significantly in much of the US to meet the growing risks of climate change. The National Flood Insurance Program would have to quadruple premiums on high-risk homes inside floodplains to reflect the risks they already face, according to the First Street Foundation, a group of academics and experts that model flood risks.

According to Governor Andrew Cuomo’s office, the New York Climate Leadership and Community Protection Act’s renewable energy and other targets are among the most rigorous of any large economy in the world. Still, uncertainty remains regarding how those targets will be met.  With important milestones coming due, the state’s power system’s drastic redesign envisioned within the law will start taking shape over the coming months.

Two studies published last week reveal that the Gulf Stream system’s speed has slowed to its slowest pace in more than a thousand years. Using sediment data and temperature records to map historical trends, a study found the Gulf Stream system, also known as the Atlantic Meridional Overturning Circulation (Amoc) is traveling more slowly. “This is highly likely to be caused by our greenhouse gas emissions because there is no other plausible explanation for this slowdown,” said one of the authors. “It is what the climate models have been predicting for decades.”

The Amoc not only carries warm water to Europe — it is responsible for the mild winters in the UK — but it also influences storm development.  The Amoc system is slowing down due to melting ice in Greenland, where large volumes of cold freshwater are entering the ocean and altering the current’s natural sinking mechanism. Increasing rainfall in North America, causing more freshwater to enter rivers, streams, and the ocean, and warmer ocean temperatures that reduce the temperature gradient between the tropics and the pole also contribute to the slowdown.

4. The global economy and the coronavirus

According to the UN undersecretary-general, the world faces two possible futures. In the first scenario the wealthiest countries emerge from the pandemic but developing nations do not. In the second scenario, two classes appear — a vaccinated class and an unvaccinated class. The choices wealthy countries make now will determine which future takes hold.

United States: There was considerable good news last week. Vaccines for Covid-19 are becoming available in increasing quantities, and the number of new cases and hospitalizations is dropping. A third vaccine has been approved for distribution in the US. Despite the appearance of unique varieties of Covid-19 across the country, vaccine makers say they are already on top of the situation and should have no trouble in quickly developing, testing, and manufacturing a third shot for distribution later this year. Although masks and social separation will still be required in the foreseeable future, the pandemic situation should be much better by the end of the year.

US personal incomes soared in January as Americans received another round of pandemic-relief checks, helping to re-charge the economy with the most substantial spending advance in seven months. Several major financial firms have upped their forecasts for US economic growth based on expectations that President Biden’s proposed $1.9 trillion COVID-19 relief bill will bolster the recovery from pandemic-related shutdowns.

On top of a nearly $900 billion stimulus bill passed in December, Biden’s package is expected to encourage American consumers to loosen their purse strings and release a torrent of pent-up demand as coronavirus vaccines are deployed widely and are gradually restrictions lifted. The number of Americans seeking unemployment benefits fell sharply the week before in a sign that layoffs may have eased, though aid applications remain at a historically high level.

China: Senior Chinese diplomat Wang Yi said last week that the US and China could work together on climate change issues and the coronavirus pandemic if they repaired their damaged bilateral relationship. Wang, a Chinese state councilor and foreign minister, said Beijing stood ready to reopen constructive dialogue with Washington. Wang called on Washington to remove tariffs on Chinese goods and abandon what he said was an irrational suppression of the Chinese tech sector, steps he said would create the “necessary conditions” for cooperation.

To great fanfare, Chinese leader Xi Jinping on Thursday declared his country’s “complete victory” over extreme poverty. In an hour-long speech delivered from the Great Hall of the People in Beijing, Xi said the government under his leadership has waged and won “a massive people’s war against poverty,” lifting 100 million people out of destitution.

However, neither Xi nor state media explained how the figures were calculated and what threshold was used. In 2019, China’s statistics bureau defined rural poverty as below per capita annual income of $356. Previous officials have described the poverty line as less than $620 a year, or $1.69 a day — less than the World Bank’s threshold of $1.90 a day and well below the $5.50 a day that economists recommend for upper-middle-income countries.

China’s overseas energy financing dropped to the lowest level since 2008 after the pandemic hampered deal-making in developing nations. According to Boston University’s Global Energy Finance Database, funding for foreign energy projects, including power plants and mines, fell by 43% to $4.6 billion, which tracks data from two state-owned development banks. More than half of lending was for a natural gas pipeline project in Nigeria.

European Union: The Union vented frustration over sluggish deliveries of coronavirus vaccines and manufacturing delays as anxiety rises over the rapid spread of new variants. The heads of state and government were meeting for a video summit to review the EU’s immunization campaign after weeks of complaints that the bloc is lagging the US and UK.

Some, including Italy’s new prime minister Mario Draghi, questioned why the EU was not imposing stricter vaccine export controls akin to those seen in the US. Brussels last month introduced a mechanism to stop shipments by companies deemed not to be meeting delivery obligations to the EU. In a separate marathon session with EU legislators, drug company executives defended their performance, insisting that they were doing what they could to ramp up production rapidly.

New variants of COVID-19 risk a third wave of infections in Germany, and the country must proceed with great care so that a nationwide shutdown does not become necessary. Chancellor Angela Merkel told the Frankfurter Allgemeine Zeitung. The number of unique daily infections stagnated the week before last. “Because of (variants), we are entering a new phase of the pandemic, from which a third wave may emerge,” Merkel said. “So we must proceed wisely and carefully so that a third wave does not necessitate a new complete shutdown throughout Germany.”

European manufacturers are passing higher input costs on to their customers, sending eurozone inflation to its highest level in almost a year as shortages of materials and soaring shipping costs disrupt supply chains. According to industry and shipping executives, efforts to cushion rising costs from supply chain bottlenecks are unlikely to ease in the short term. More expensive manufactured goods are in turn fueling expectations of a further surge in inflation, which Germany’s central bank is already warning will reach its highest level since the 2008 financial crisis by the end of this year.

Russia: Extreme winter weather, at least more extreme than usual for Siberia, resulted in lower Russian oil production so far in February compared to January and lower than the country’s increased quota under the OPEC+ deal. Under the latest compromise OPEC+ agreement from January, Russia is boosting its oil production by 65,000 b/d in February and March. Together with Kazakhstan, Russia was the only OPEC+ producer allowed to increase its output. The other members are keeping production flat, and Saudi Arabia has been unilaterally cutting an additional 1 million b/d to support the market rebalancing. However, extreme cold, even for Russia, had producers reducing pipeline flows from some oilfields. This led to Russian oil production – including condensate, which is out of the OPEC+ deal – dropping by around 77,000 b/d between February 1st and 25th compared to January.

The Biden administration plans a broad package of measures, including sanctions, to punish Russia over the sprawling SolarWinds espionage campaign that struck at the US government. US officials have previously said the hack, believed to have started early last year, has directly affected at least nine federal agencies and about 100 companies. Officials have said the attack was “likely of Russian origin”, although the US intelligence community has yet to issue its final conclusion.

The steps under consideration underscore the tougher line Biden’s administration is preparing to take against Russia on several fronts from espionage to human rights, including Alexei Navalny’s jailing.

India: The government announced an expansion of its COVID-19 vaccination program on Wednesday but warned that breaches of coronavirus protocols could worsen an infection surge in many states. Nearly a month after the health minister declared that COVID-19 had been contained, states such as Maharashtra in the west and Kerala in the south have reported a spike in cases amid growing reluctance to wear masks and maintain social distancing. India’s infections are the second-highest globally at an official 11.03 million cases and 156,000 deaths. Given India’s population of 1.38 billion people, the lack of healthcare facilities and reporting mechanisms, and little observance of safety protocols, the real number is likely to be much higher.

The government has also asked states to speed up vaccinations for healthcare and frontline workers. Just about 11 million people have received one or two doses in a campaign that began on January 16. The target is 300 million by August. From March 1, India will start vaccinating people above 60 and those older than 45 with health conditions free of charge in about 10,000 government hospitals and for a fee in more than 20,000 private facilities, the government said.

Prime Minister Narendra Modi’s says the country’s energy landscape is undergoing fundamental transformations and will seek to attract foreign investors. After the Covid-19 crisis ravaged the country and caused massive disruptions in local industries, India slowly got back on its feet. Indian energy demand is expected to grow by some 3% per annum until 2030.

5. Renewables and new technologies

The European Council has agreed to $6.80 billion of new funding for the International Thermonuclear Experimental Reactor, or ITER, project for the seven years to 2027.  ITER, the biggest nuclear fusion project in the world involving 35 nations, is building the ITER Tokamak machine, currently in construction in southern France. According to European Commission estimates, the first plasma’s critical achievement will probably occur in December 2025, with the full operation estimated in 2035. Fusion energy as a viable commercial energy source is not expected to produce electricity before 2050, over 100 years after initial research efforts began during the 1940s

QuantumScape Corp., an electric-vehicle-battery startup, says it cleared a crucial hurdle in developing solid-state lithium-metal batteries for electric vehicles. The company claims it can produce multilayer battery cells, a critical stumbling block in taking the technology from the lab to the real world. To become commercially viable, the company needs to deal with three main issues. First, it must build bigger and multilayered batteries, compared with what it’s testing in a controlled laboratory setting. The current build has only four layers, and the company may need to have as many as a dozen in the commercial version.  Second, it also needs to develop a reliable manufacturing line for specific critical components, such as ceramic separators. Finally, it has to put all those pieces in a factory to spread billions of dollars in equipment and machinery costs over large production volumes.

However, building multilayer battery cells that essentially perform like single-layered cells may shave months off the time needed to bring QuantumScape’s batteries to consumer vehicles. The company plans to build a small pilot facility that will produce engineering samples for automakers to put in “hundreds of test cars” as soon as 2023, the CEO said. QuantumScape intends to use those samples to woo customers beyond its largest shareholder, Volkswagen.

6. The Briefs (date of the article in the Daily Energy Bulletin is in parentheses)

Sheikh Ahmed Zaki Yamani, Saudi Arabia’s long-serving oil minister (1962-87) and the public face of the 1973 oil embargo, has died.  During his early years, amid a wave of oil field nationalizations across the region, Mr. Yamani led talks to take control of the Saudi Arabia Oil Co., then a joint venture between the predecessors to Exxon Mobil and Chevron. At the end of those talks, Aramco was pumping almost 10 million barrels a day. He became the de facto leader of the OPEC, shaping it into a formidable, global economic force. (2/23)

Big oil hammered: Rystad Energy has highlighted that the five integrated supermajors posted a combined record loss of $76 billion in 2020. Rystad noted that the significant chunk of this loss, $69 billion, can be attributed to asset impairments and write-offs as the supermajors re-evaluated their strategy to focus on the energy transition and become less dependent on petroleum. ExxonMobil reported the largest loss at $22.4 billion, followed by Shell and BP, which also incurred losses of more than $20 billion. (2/24)

In the UK, E10 gasoline blends (10% ethanol) will be introduced at gasoline stations across the country in September 2021.  The objective is to reduce carbon emissions. (2/27)

India’s imports: The US and Canada accounted for 11% of India’s crude oil imports in January—a record-high share of North American crude for the world’s third-largest oil importer. India’s total crude oil imports last month averaged around 4.8 mb/d. (2/23)

In India, pump prices are so high that some gasoline and diesel exported to neighboring countries are being smuggled back through porous land borders. (2/22)

The decline of Angola shows the heavy toll of a slump in oil-industry investment. The nation’s production had fallen by more than a third since 2015 when international oil companies started slashing investment in response to a plunge in crude prices. Crude output has held at a 15-year low of just below 1.2 million barrels a day since November. Only a handful of drilling rigs now work in the deep Atlantic waters that hold the country’s most significant resources. The situation could worsen as Big Oil makes another round of deep spending cuts. (2/27)

Oil theft: Nigeria has been advised to review its maritime security rules and enlist private security companies’ support to tackle rampant piracy on its waters. Seas off the coast of Nigeria are the most hazardous in the world for seafarers, accounting for almost all kidnappings by pirates in recent years. (2/27)

Nigeria is losing an average of 200,000 b/d of its crude oil production to theft, indicating a surge in mostly onshore pipeline sabotage in the West African country. (2/26)

In some Niger Delta communities, they often don’t know the difference between day and night because of gas flares which release black soot into the sky. Over the years, the affected host communities have decried the effect of such gas flares on their environment and health. Their fears are legitimate as constant exposure to air pollutants released by gas flaring has been linked to cancer and lung damage, as well as neurological and reproductive problems. (2/24)

The Panama Canal Authority is considering seeking greater compensation for canceled bookings during peak seasonal demand periods. It plans to add a third daily reserved transit slot for LNG vessels to ease congestion. (2/24)

The US oil rig count increased by 4 to 309, while the gas rig count increased by 1 to 92, Baker Hughes reported.  While that makes seven consecutive months of growing rig count, the rate of increase slowed slightly from 33 additions during January to 18 additions during February. Canada’s overall rig count decreased this week by 9. (2/27)

In Texas, natural gas production fell almost 45% from 21.3 Bcf/d during the week ending Feb 13 to a daily low of 11.8 Bcf/d on Wednesday, Feb 17, after a week of unusually low temperatures.  Nationwide, the low-point in gas production represented a drop of 21%, most of that decline within Texas.  The decline in natural gas production mainly resulted from freeze-offs; those occur when water and other liquids in the raw natural gas stream freeze at the wellhead or natural gas gathering lines near-production activities.

Electric bill tsunami in TX: In Spring, Texas, about 20 miles north of Houston, Akilah Scott-Amos is staring at a more than $11,000 electric bill for this month, a far cry from her $34 statement at this time last year. Texas and 10 other states allow customers—roughly 11 million total—to sign up with wholesale electricity suppliers who vary their rates based on demand. (2/23)

Jet fuel prices hit a 13-month high last week as oil prices rose, making airlines’ already challenging life even more difficult. Despite still depressed demand for air transport, jet fuel follows the price curve of crude oil as costlier oil for refining results in more expensive end products, including jet fuel. (2/23)

ExxonMobil will sell most of its non-operated assets in the UK’s central and northern North Sea to private equity fund HitecVision for more than $1 billion. It divests non-core assets to focus on its priority areas—the Permian, Guyana, Brazil, and LNG. (2/25)

Exxon slashed its oil reserves by almost a third in the most radical reserve revision in its modern history. The supermajor reported reserves totaling 15.3 billion barrels as of the end of 2020 in a regulatory filing. This compared with 22.44 billion barrels a year earlier. (2/26)

The CEOs of major US airlines are set to meet virtually with the White House National Climate Adviser and an economic adviser to the President to discuss ways to reduce their carbon footprint.  The topics of discussion will include switching to renewable fuels. (2/26)

The US Senate confirmed renewable energy ally Jennifer Granholm on Thursday to lead the Department of Energy by a 64/35 vote. The former Governor of Michigan will serve as Biden’s Secretary of Energy. She will undoubtedly back Biden’s play to support his green plan, which will push for a shift to clean energy in the United States by 2050. (2/27)

Energy Secretary Jennifer Granholm said Friday she plans to revive a $40 billion loan program for energy projects and push for improvements to the country’s electric grid in the aftermath of this month’s deadly, widespread blackout. (2/27)

In Texas, almost half of the Electric Reliability Council of Texas generation capacity – 52.3 GW in all — was forced out at the highest point during the winter storm starting Feb 14, which prompted rotating outages to cut load by as much as 20 GW.  The grid operates typically very near 60 Hz, but it dipped badly Feb 14; had the grid’s frequency remained below 59.4 Hz for five more minutes, more generation units would have tripped, risking a systemwide shutdown. (2/25)

Texas’ shutdowns led to refineries flaring or burning and releasing gases to prevent damage to their processing units. That flaring darkened the skies in eastern Texas with smoke visible for miles. (2/22)

Gates supports nukes: Nuclear power generation is necessary for the world to have cleaner energy solutions, although nuclear has yet to convince naysayers who generally associate it with Chernobyl or atomic weapons, according to Bill Gates. In 2006, Gates founded the nuclear energy venture TerraPower with partners. Last year, the US DOE awarded TerraPower $80 million to demonstrate its small advanced atomic power reactor Natrium. (2/26)

France’s nuclear safety authority agreed on Thursday to extend its 32 oldest nuclear reactors’ operational lifetime by a decade to as much as 50 years. Nuclear energy currently provides about 70% of French electricity, more than in any other country. France aims to reduce that proportion to 50% by 2035 while boosting renewable energy. (2/26)

EU wind: Some 14.7 GW of wind power capacity were installed in Europe last year, down 6% on 2019 and 19% below forecast, WindEurope said Feb 25. The Netherlands led the way with 2 GW added, including 1.5 GW offshore, followed by Germany, Norway, Spain, and France. (2/26)

Wave energy: The Bureau of Ocean Energy Management has issued a lease for the first wave energy research project in federal waters off the US West Coast. The federal marine hydrokinetic energy research lease was offered to Oregon State University for the PacWave South project–a proposed open ocean wave energy test center. (2/25)

Wind jobs: a Rystad Energy analysis shows that demand for offshore wind staff will triple by the end of the decade, surging to 868,000 full-time jobs from an estimated 297,000 in 2020. (2/22)

General Motors is betting its future on electric cars. It plans to spend $27 billion on manufacturing 30 electric models and developing driverless cars by mid-decade. By 2035, it expects to have phased out gasoline-engine options entirely and to be selling only electric vehicles. (2/22)

EV mandate: A Washington legislative committee voted 17-12 to advance a bill calling for all model year 2030 or later passenger and light-duty vehicles sold in the state to be electric vehicles (EVs). (2/23)

A school system outside Washington DC is poised to become the nation’s biggest electric school bus operator.  Maryland’s Montgomery County voted unanimously on Tuesday evening to approve a 16-year, $169 million contract to lease 326 buses, part of a plan that could result in the county replacing its entire 1,422-bus fleet over the next two decades. (2/24)

Batteries: Market analysis firm FutureBridge expects that cost-parity between Li-ion and solid-state batteries could be achieved in another five years. Solid-state batteries (SSBs) promise a leap forward, compared to incremental gains from Lithium-ion batteries (LiBs), with improved safety, higher energy density, faster charging times, and longer life. (2/24)

Hyundai Motor Company recently signed a memorandum of understanding (MOU) to work with the South Korean government and logistics, battery, and mobility companies to demonstrate the electric vehicle battery leasing business. Hyundai aims to foster an EV ecosystem by alleviating the initial cost burden of EV purchases and providing innovative services that enable the eco-friendly reuse of batteries. (2/25)

Toyota has developed a fuel cell system module and looks to start selling it after the spring of this year. They say the new module, available this spring, can be used by companies developing fuel cell applications for trucks, buses, trains, and ships, as well as stationary generators. (2/27)

The first ammonia-fueled tanker will be designed, built, and commissioned by 2025, according to partners in the Joint Development Project (JDP)—called The Castor Initiative—to develop it.  (2/25)

Climate bonus? In California, in a rare bit of good climate news for farmers, a recent study suggests that orchards may see fewer crop-destroying frosts by midcentury. (2/22)

No green pushback: When Boris Johnson unveiled his 10-point green recovery plan in November, UK newspapers were surprisingly acquiescent. Tabloids have been vehemently skeptical of climate change. But now, there’s growing public concern about global warming, even among their readership. (2/22)

Deaths in Mexico last year were 52% higher than in previous years, putting the rate of excess deaths during the coronavirus pandemic well above that in some countries seen as suffering the world’s worst outbreaks.  Mexico registered 977,081 deaths since March 2020, compared with an expected 641,556 for the same period based on 2015-19 death tolls. (2/22)

“Jabs or tests?” The UK government reassured people on Tuesday they will not face significant restrictions if they refuse to have a coronavirus jab with officials considering a recent Covid-19 test result as an alternative to ‘vaccine passports.’  (2/24)

China, seeking the goodwill of politicians and people across the developing world needing low-cost Covid vaccines, is shipping millions of doses abroad to boost its image as a guardian of global public health. China’s Foreign Ministry said it is working to provide its vaccines to more than 60 countries and that more than 20 are already using them. (2/22)