Tom Whipple and Steve Andrews, Editors
Quote of the Week
The world consumes oil but is not ready to invest in it. This trend [of low upstream investment] may become a ‘new norm’ for global majors and result in resource base depletion. The world runs the risk of facing an acute deficit of oil and gas.”-Igor Sechin, Rosneft’s CEO
Graphics of the Week
1. Energy prices and production
Oil: Prices posted a fourth straight weekly gain as signs of a global demand recovery and supply discipline among producers encouraged investors. Futures in New York rose 1% last week. Strong US demand growth is being passed on to Europe and emerging markets, where India is also starting to show improvements.
US crude oil stockpiles dropped sharply the week before last as refineries boosted operations to their highest level since January 2020, signaling a continued improvement in demand. Analysts said the 7.4-million-barrel drawdown in crude stocks to 466.7 million barrels, the fourth consecutive weekly decline, augurs for improved demand in coming weeks. Net US crude imports fell two weeks ago by 845,000 b/d, driven by rising exports of nearly 1 million b/d. Both exports and products supplied by domestic refiners increased sharply as consumer activity rebounds from 2020’s coronavirus-induced weakness.
Flat domestic production in recent months has boosted the price of the US oil benchmark WTI Crude, which has significantly narrowed the discount to Brent Crude in recent weeks. Weekly US gasoline demand for the week to June 13th rose for the fourth consecutive week to a new pandemic high and was up by 0.8% from the prior week. US gasoline and distillates production are also growing, with gasoline production averaging 9.9 million b/d in the week to June 11th, compared with 9.4 million a week earlier.
Crude storage tanks brimming a year ago are beginning to empty in the main US distribution hub. For the first time since before the pandemic, empty tanks are being offered for lease at Cushing, Oklahoma. At least 1.4 million barrels of storage are up for rental starting in July, for roughly 12 cents per barrel a month. That’s a stark contrast to at least 60 cents charged when there was little space left about a year ago.
In Louisiana, a federal judge issued a preliminary injunction blocking the Biden administration from pausing new oil and gas leases on federal land. Judge Terry A. Doughty of the US District Court in Monroe, a Trump appointee, said the administration doesn’t have the legal right to stop leasing federal territory for oil-and-gas production without approval from Congress. The judge also said that states suing the federal government—primarily southern and coastal states—will be harmed immediately as the pause prevents them from collecting lease bids and bonuses from oil-and-gas prospectors. During his first week in office, Present Biden directed the Interior Department to suspend the program, among several new initiatives aimed at addressing climate change.
According to industry and environmental experts, the Biden administration has the power to hinder oil and gas development on government-controlled lands and waters despite the court decision. Some options, they said, include offering sparse acreage or imposing more time-consuming permitting requirements.
Brazil and Mexico are beginning to emerge from the pandemic, and that’s boosting demand for fuel in economies that buy more US gasoline and diesel than any other foreign nations. Even with both countries still struggling with high Covid-19 infection rates, government leaders are taking steps to reopen, driving more economic activity.
International Energy Agency: Global crude oil demand will rebound to pre-pandemic levels and exceed them, increasing production to 100.6 million barrels daily by the end of next year, the IEA said in its latest monthly Oil Market Report. This, however, will only happen “in the absence of further policy changes.” In 2021, demand will grow by some 5.4 million b/d, the agency said, which next year will slow down to 3.1 million b/d. The IEA also said supply would increase with non-OPEC production growing by 1.6 million b/d next year, driven by the United States. US oil production is expected to rise by over 900,000 b/d next year. “That leaves room for OPEC+ to boost crude oil production by 1.4 mb/d above its July 2021-March 2022 target to meet demand growth,” the IEA said.
Shale Oil: After years of booms and busts that produced astronomical losses along with a whole lot of oil, the fracking industry seems to have found a sweet spot. It’s poised to generate more than $30 billion of free cash this year, a record, according to Bloomberg Intelligence. While that’s just a blip compared with the $300 billion that Deloitte LLP estimates the sector burned over the previous decade, it marks at least a temporary revival for an industry that a year ago had been largely written off by investors. Frackers have benefited from the 50% run-up in global oil prices this year as demand roars back in places where the pandemic has receded. Just as crucial to their bottom lines, though, has been the ability to hold back on new supply by avoiding drilling more marginal wells as they would have done in years past.
US oil output from the seven major shale formations is expected to rise by about 38,000 b/d in July to about 7.8 million b/d, the highest since November, the EIA said in a monthly forecast last week. The biggest increase is set to come from the Permian, where output is expected to rise by 56,000 b/d to about 4.66 million. The forecast increase of total production was attributable to the Permian and Appalachia basins, with the other five basins expected to decline or remain flat.
Shell is reviewing its holdings in the Permian Basin for a possible sale as the company looks to focus on its most profitable oil-and-gas assets and grow its low-carbon investments. The deal could be for part or all of Shell’s about 260,000 acres in the Basin, located mainly in Texas. The holdings could be worth as much as $10 billion. The sale of Shell’s Permian holdings would be a litmus test of whether rivals are willing to bet on shale’s profitability through the energy transition to reduce carbon emissions. Shell would follow in the footsteps of other producers, including Equinor and Occidental Petroleum which have shed shale assets this year, looking to cut debt and reduce carbon output in the face of investor pressure.
Remote work was one of the changes brought to us by the pandemic—and it may turn into a long-term trend. This trend was most visible in office jobs, but it was by no means limited to them. Oil drillers went remote too, and they plan to stay remote. The words “remote drilling” conjures up an image of a lonely field in the Texas shale plays with no crew to operate the equipment because everything is done from a command center hundreds of miles away. Yet remote drilling is much more than that. The activities grouped under the term are a whole spectrum. Remote drilling spans activities as diverse as drilling, logistics, data processing and sharing, and a better operational organization overall.
Reducing the number of personnel needed on site means lowering costs associated with personnel, the potential for safety issues, and not least, emissions. According to Baker Hughes, for every engineer the company remotes from an offshore platform, it saves travel- and accommodation-related emissions to the tune of 6 tons of carbon dioxide equivalent annually.
Natural Gas: Pennsylvania’s counties and municipal governments will see the lowest level of annual fee revenue they get from Marcellus Shale gas wells, as drilling slowed, and prices sank during the pandemic. Impact fee revenue from Marcellus Shale wells declined to $146 million from drilling activity in 2020, down $54 million from the prior year. Lawmakers authorized the fee in 2012, pinning it to new wells and the price of natural gas. But the average cost of natural gas in 2020 was $2.08 per million British thermal units, down from $2.63 in 2019. Pennsylvania also saw the fewest new wells drilled than in any year since the law was enacted. Most of the money, about $71.5 million, goes to the county and municipal governments, while smaller amounts are earmarked for environmental improvement programs.
Electricity: States across the West are at risk of electricity shortages this summer as a crippling drought reduces the amount of water available to generate hydroelectric power. Some of the region’s largest reservoirs are at historically low levels after a dry winter and spring, reducing snowpack and precipitation feeding rivers and streams. The conditions are especially dire in drought-stricken California, where officials say the reservoir system has seen an unprecedented loss of runoff this spring—800,000 acre-feet, or enough to supply more than a million households for a year.
The California Department of Water Resources operates eight major hydroelectric facilities that are now forecast this year to be about 30% of their 10-year average generation. According to state data, hydroelectric power, some of which was imported from other states, accounted for about 16% of California’s generation mix in 2019. California needs all the electricity it can get when temperatures climb: The margin for error is slim when balancing supply and demand, so any reduction in generation capacity can pose significant challenges.
Meanwhile, according to an update this month by the National Oceanic and Atmospheric Administration, streamflow forecasts for Utah, Wyoming, Colorado, New Mexico, and Arizona are among the five driest on record. The Colorado River’s Lake Powell is projected to receive only 25% of the water it usually would between April and July. Lake Powell is the main reservoir that feeds Nevada’s Lake Mead, where the Hoover Dam is located. The dam is one of the nation’s largest hydroelectric facilities, producing enough power to serve about 1.3 million people. About 23% of its output serves Nevada, and 19% serves Arizona. Most of the remainder serves Southern California. Hoover Dam’s current generation capacity is 1,567 megawatts, down 25% from its peak of 2,074.
2. Geopolitical instability
(These are the situations that are reducing the world’s energy supplies or have the potential to do so.)
Iran: Ultraconservative cleric Ebrahim Raisi swept to a landslide win in Iran’s presidential election, potentially setting the oil-rich country on a more hostile course toward the West as world powers attempt to revive the 2015 nuclear deal. Raisi secured 17.8 million votes, and the only moderate candidate in the race, Abdolnaser Hemmati, came third with 2.4 million ballots. Turnout was 48%, the lowest in a presidential vote in the history of the Islamic Republic, with Raisi securing 62% of ballots cast.
The cleric’s victory means that hardliners, who won a sweeping majority in parliamentary elections last year and controlled the judiciary and the military, are now at their most powerful since 2013. Reformists, who favor greater engagement with the West, have been pushed to the margins. The election was held at a critical time for the Islamic republic and the region.
Raisi has said his government would continue negotiations with the deal’s remaining signatories — the UK, France, Germany, Russia, and China. But hardliners want to negotiate on their terms as the second and final term of President Hassan Rouhani’s centrist government ends in August. Moreover, the election of Raisi, who has headed the judiciary for the past two years and was the subject of sanctions by the Trump administration in 2019, as it targeted dozens of senior regime officials, risks complicating those talks.
The relationship between the two great indigenous powers in the Middle East – Saudi Arabia and Iran – has become significantly more nuanced in the past few weeks than the pure hostility between the two countries that prevailed before. On the Saudi side, Crown Prince Mohammed bin Salman stated only recently that he seeks “a good and special relationship with Iran”. From the Iranian side, a high-level delegation conducted lengthy meetings with Saudi counterparts shortly after that statement was made in a secret summit in Baghdad brokered by Iraq Prime Minister al-Kadhimi. Iraq, for its part, is playing a crucial role in this rapprochement announcing in tandem with these recent events that Baghdad will establish a joint $6 billion fund with Saudi Arabia and the UAE to invest in various projects in Iraq. This was quickly followed by news from a Saudi oil firm, Delta Oil Company, that it is in talks to develop Iraq’s Akkas gas field alongside the US’s Schlumberger.
Iraq: According to an analysis based on data gathered from each producing field, Iraq’s nationwide oil production held steady at about 4.10 million b/d in May. Fields controlled by the federal government produced about 3.63 million b/d, and the semi-autonomous Kurdistan Regional Government produced about 471,000 b/d — both virtually unchanged from April.
The leaders of Iraq’s federal government and semi-autonomous Kurdistan Regional Government have reached a preliminary agreement to implement a revenue-sharing deal that has been stalled since the ratification of the 2021 budget in April. If both sides follow through, the agreement could unlock monthly federal budget payments of $138 million to the KRG. But it remains unclear whether or when those transfers will happen, given the technical hurdles that might still need to be overcome before the money is released, as well as staunch opposition from some political blocs.
Venezuela: President Maduro has been waiting for the Biden Administration to negotiate a deal that would relieve US sanctions. The US’s “maximum pressure” campaign on Maduro’s oil income began to cripple Venezuelan oil exports in early 2019. At the same time, the lack of investment in the oil industry, years of mismanagement and corruption, and the hyperinflation in Venezuela compounded problems for the oil sector. The pandemic further crippled economic activity. Maduro hopes for a deal with the US that could allow foreign capital to flow into the country.
After Maduro outlasted the Trump administration’s maximum sanctions pressure, President Biden will have to decide whether to offer Venezuela sanctions relief, amid calls from the left in Congress for humanitarian relief. However, an easing of some sanctions would only return Venezuelan oil production to around 700,000 b/d by the end of 2022. Any significant recovery would depend on the removal of US sanctions against state-owned PDVSA.
3. Climate change
According to new research from NASA and the National Oceanic and Atmospheric Administration, the amount of heat the earth traps has roughly doubled since 2005, contributing to more rapidly warming oceans, air, and land. “The magnitude of the increase is unprecedented,” said Norman Loeb, a NASA scientist and lead author of the study, which was published this week in the journal Geophysical Research Letters. “The Earth is warming faster than expected.” Using satellite data, researchers measured what is known as Earth’s energy imbalance — the difference between how much energy the planet absorbs from the sun and how much it’s able to shed or radiate back out into space.
That imbalance roughly doubled between 2005 and 2019, the study found. “It is a massive amount of energy,” said Gregory Johnson, an oceanographer for NOAA’s Pacific Marine Environmental Laboratory and co-author of the study. Johnson said the energy increase is equivalent to four detonations per second of the atomic bomb dropped on Hiroshima or every person on Earth using 20 electric tea kettles at once.
A heat dome baked Arizona and Nevada last week, where temperatures have soared past 115 degrees, and doctors are warning that people can get third-degree burns from the sizzling asphalt. At Lake Mead, which supplies water for 25 million people in three southwestern states and Mexico, water levels have plunged to their lowest point since the reservoir was filled in the 1930s. In California, farmers abandon their thirstiest crops to save others, and communities are debating whether to ration tap water. In Texas, electricity grids are under strain as residents crank their air-conditioners, with utilities begging customers to turn off appliances to help avert blackouts.
Record-breaking heat and historic drought in the US West are doing little to discourage cities from planning to welcome millions of new residents in the decades ahead. From Phoenix to Boise, officials are preparing for a future with more people and less water, seeking to balance growth and conservation. Development is constrained because 46% of the 11-state Western region is federal land, managed by agencies like the US Forest Service and Bureau of Land Management that are tasked with maintaining it for future generations. That’s led officials in states like Nevada and Utah to lobby the federal government to approve land transfers to allow developers to build homes and businesses on what had been public land. Supporters in the two states have won over environmentalists in the past with provisions that allocate proceeds to conservation projects.
Much of Russia’s Far East is so vast and remote that it’s mostly been left to the bears and wolves that live there. Now the Kremlin wants to use the region to convince the world that the country is doing its part to fight climate change. Therefore, Russia, the world’s biggest energy exporter and one of its largest polluters, is creating a digital platform to collect satellite and drone data about the CO₂ absorption capacity of the region’s forests. The aim ostensibly is to monetize an area nearly twice the size of India by turning it into a marketplace for companies to offset their carbon footprint.
The hope is that the plan will also deflect some criticism Moscow is getting over its unambitious climate efforts ahead of UN talks later this year. Russia has long argued that it should be granted more slack in climate talks for the sequestration potential of its forests, which hold an estimated 640 billion trees. But until now, the vast taiga has been poorly managed, leading to record forest fires in the past two years as global warming has made summers hotter and dryer.
In just a few years, the image of natural gas markedly shifted from the bridge fuel of the energy transition to just another fossil fuel that emits an even more polluting and dangerous gas than carbon dioxide—methane. Moreover, the green energy drive is changing how LNG developers and sellers plan for future projects as buyers are increasingly demanding proof that the cargoes are carbon neutral.
A massive methane plume was detected earlier this month over Russia that stemmed from emergency repairs that forced the partial shutdown of a Gazprom pipeline. Gazprom’s enormous methane leak, first identified in satellite data by geoanalytics firm Kayrros SAS, points to a worldwide problem preventing the release of greenhouse gas with 80 times the impact of carbon dioxide in the short term. The Russian gas giant said its pipeline repairs on June 4th released 2.7 million cubic meters of methane. That has roughly the same short-term planet-warming impact of 40,000 internal combustion cars in the US driving for a year.
Volkswagen’s chief executive criticized leaders of the Group of Seven for failing to set a firm date to phase out coal power and rejecting a proposal to halt the production of diesel and gas cars. Herbert Diess, who is leading VW’s transformation to a manufacturer of electric vehicles, vented his disappointment on Twitter. “That’s not enough, @G7,” Diess tweeted Tuesday. “We need to exit coal much earlier! EVs are key to reach the climate goals 2030. But EVs only make sense with green energy; letting EVs run on coal is regulatory nonsense.”
4. The global economy and the coronavirus
Last week, the Group of Seven pledged to rapidly scale up technologies and policies that accelerate the transition away from unabated coal capacity, including ending new government support for coal power by the end of this year. In addition, in a communique, the countries confirmed pledges to increase climate finance contributions as part of efforts to reduce emissions that contribute to climate change and help a move toward cleaner energy. However, climate groups said firm cash promises and other details were missing.
The air travel industry is at a critical inflection point. Steady vaccination rollouts and falling infection rates in most Western economies allow commercial travel to resume after more than a year of downtime. As a result, pent-up travel demand is expected to trigger a 30% surge in jet fuel use during the summer compared to first-quarter levels. Yet, jet fuel remains one of the most significant weak links in the bullish oil thesis, with a full recovery of aviation fuel demand to pre-pandemic levels not expected to arrive until 2023.
United States: The country is entering a new phase of the Covid-19 pandemic as people settle back into everyday life thanks to vaccines, but public-health authorities are preparing for Americans to live with the disease lurking in the background for the long run. Many health professionals believe that reaching herd immunity is a distant goal due to highly varied vaccination rates in the US and uncertainty about just how much Covid-19 must be suppressed to stop its spread effectively.
Retail sales dropped in May, marking a shift in consumer spending from big-ticket items to goods and services related to going out amid business reopening and higher vaccination rates. Consumers cut spending by 1.3% last month, trimming expenditures on autos, furniture, electronics, building materials, and other items. People spent more on such things throughout the Covid-19 pandemic but are now pulling back. Supply-chain disruptions and higher prices are also crimping sales of long-lasting goods.
Senate Democrats have begun privately weighing a sprawling economic package that could be as large as $6 trillion. This package is being considered even as a bipartisan group of senators works to draw support for a much narrower infrastructure plan that would devote $579 billion in new money to fund physical public works projects. The details of both plans remain in flux, as lawmakers work to maneuver some, if not all, of President Biden’s economic agenda around the 60-vote filibuster threshold in the Senate and past razor-thin margins in the House.
The US oil market is reaching a crunch point. Each week, drivers travel billions of miles on interstates, just as they did in 2019 before the pandemic ravaged global oil consumption. But despite a steady ramp-up in demand in recent months, oil drillers in West Texas aren’t firing up rigs like they used to, with production still down 15% from the peak last year.
The European Union: The Union recommended on Friday that its member states lift the ban on nonessential travel for visitors from the US, a move sure to be welcomed by Americans eager to travel to the continent. The recommendation is nonbinding, and each member state can decide what regulations, including quarantines, to impose on visitors. The opening is expected to provide relief for southern European countries that are very dependent on tourism, including Greece, Italy, and Portugal. Germany recorded its lowest number of new daily coronavirus infections in nearly nine months, and officials are floating the possibility of loosening mask-wearing rules.
Europe is so short of natural gas that the continent — usually seen as the poster child for the global fight against emissions — is turning to coal to meet electricity demand that is now back to pre-pandemic levels. Coal usage in the continent jumped 10% to 15% this year after a colder- and longer-than-usual winter left gas storage sites depleted. As economies reopen and people go back to the office, countries like Germany, the Netherlands, and Poland turned to coal to keep the lights on.
The UK is struggling to put adequate measures in place to deal with rising sea levels and warmer temperatures caused by pollution. Average land temperatures in the UK have increased by around 1.2-degrees Celsius compared to pre-industrial levels, while sea levels have risen by 16 centimeters since 1900, the Climate Change Committee said in a report. Adaptation isn’t happening fast enough. According to the panel, in the last five years, more than half a million new homes were built that won’t be resistant to future high temperatures.
More than 4,000 heat-related deaths have taken place in England alone since 2018. The committee called on the country’s leaders to boost their efforts to address climate change, including delivering a better action plan to support adaptation planning.
China: Crude throughput in May rose 4.4% year on year to hit a record high of 60.5 million tons, marking the first time it has crossed 60 million tons during a month. On barrels per day basis, the volume also touched a record high at 14.31 million b/d, compared with the previous high of 14.26 million b/d in November 2020. The fresh high was attributed to state-owned refiners boosting crude runs to 80% of their capacity from 76% in April as 30 million tons/year of refining capacity returned from scheduled maintenance.
It was the strong demand for gasoline in China that drove the country’s crude oil demand higher, according to estimates from CNPC and Sinopec, along with analysts. Gasoline demand in May was 5 percent higher than it was in the last pre-pandemic year. Diesel consumption, on the other hand, remained essentially flat, Bloomberg said. The data adds to solid evidence that China is among the most significant swing factors in oil prices. Crude oil import data from the world’s top importer has been particularly bullish for prices. China has been buying oil like there’s no tomorrow for months, especially during the worst of the pandemic when prices tanked to multi-year lows.
China is reshaping global shipping fuel markets by taking advantage of its booming maritime trade and massive refining capacity to undercut rivals from Singapore to South Korea and become the world’s fastest-growing central marine fuel hub. China’s rising influence in marine fuels, globally worth over $100 billion a year, has been made possible by a surge in its fuel output and thriving trade thanks to being home to its most extensive manufacturing base and four of the five busiest global container ports. That has allowed Chinese suppliers of marine fuel to lure business with more competitive prices, chipping away at market share held by competitors such as Hong Kong, Taiwan, South Korea, Japan, and Singapore.
A significant bottleneck at a Chinese port is creating additional disruption to supply chains and global trade. The current situation at the Chinese port of Yantian Port is a “worrying” trend, the world’s largest container shipping company, Moller – Maersk, said on Thursday. The port’s operations were disrupted several weeks ago because of a COVID-19 outbreak, creating considerable congestion of container ships bound out of China. Nevertheless, Chinese exports are booming with global economies reopening. “After a six-day stop on export containers, the Yantian Port Authorities have announced that productivity is gradually set to increase as more workers return and more berths reopen, but the damage has already been done,” Maersk said in a statement.
Chinese state planner, the National Development and Reform Commission (NDRC), and the state market regulator have announced a probe into coal prices. The Chinese authorities will “check abnormal trading and speculation, as well as a crackdown on hoarding and driving up prices,” the statement reads. Coal prices in China have surged in recent weeks as thermal coal power plants hoard supply ahead of the expected peak in summer demand. China’s coal market has been distorted since the Chinese authorities banned coal imports from Australia.
A nuclear power plant in southeastern China could turn into an “imminent radiological threat,” the part-owner of the facility, a French company, has told the US. The Taishan Nuclear Power Plant in the Chinese province of Guangdong is being operated by a joint venture in which French energy giant EDF and its subsidiary Framatome hold 30%. On Wednesday, the Chinese government said that “about five” of the plant’s uranium fuel rods had been damaged but added that no radiation had leaked out of reactors at the site.
Nuclear scientists in the United States and Europe said in interviews this week that a buildup of radioactive gas in the water surrounding fuel rods, while not uncommon at reactors elsewhere, was often a sign of poor design, manufacturing, or management. The reactor is designed to operate safely despite damage to up to 0.25% of the fuel rods, the safety agency said. That would be at least 150 fuel rods.
Russia: The city of Moscow ordered workers to remain at home last week and reopened several makeshift coronavirus hospitals after cases of Covid-19 surged to the highest levels this year. The additional vacation days announced by Moscow’s mayor Sobyanin reflect the growing unease among Russian officials about rising infections and a shift in rhetoric from triumphalist proclamations that the country had weathered the worst of the pandemic.
Two commodity trading giants are betting big on a Russian oil project, and oil market observers should be paying close attention. When commodity trading major Trafigura bought a 10% stake in Rosneft’s Vostok Oil project, oil prices were trading below $50 per barrel. There were also forecasts that oil demand might never recover to pre-pandemic levels and that oil, in general, was on its way out. Trafigura’s peer Vitol has joined the company in its bet on eastern Siberian crude. In a consortium with Mercantile & Maritime, Vitol sealed a deal with Rosneft last week to acquire a 5% interest in the megaproject. Reuters has compared the project with the oil development of western Siberia in the 1970s.
Saudi Arabia: Exports of crude oil in April were at their lowest since June 2020 as the Saudis continued to hold down production well below its OPEC quota. Riyadh exported 5.40 million b/d in April, down from 5.427 million b/d in March, according to JODI data published June 17th. Saudi Arabia in February began cutting an extra 1 million b/d of its crude production to help support oil prices and only began to unwind this additional cut starting in May as the market has steadily recovered from the coronavirus crisis. Under the supply accord between OPEC, Russia, and other allies, Saudi Arabia’s production quota was 9.12 million b/d.
US-based EIG Global Energy Partners said a consortium it led had closed a deal to buy 49% of Saudi oil producer Aramco’s pipeline business for $12.4 billion. EIG said the co-investment process for the sale attracted a global group of investors from China, Saudi Arabia, Korea, the United Arab Emirates, and the United States. It included Abu Dhabi’s Mubadala Investment Company, Silk Road Fund, Hassana, and Samsung Asset Management, the company said.
India: The country will hold off on exports of coronavirus vaccines until a “significant proportion” of its domestic population is inoculated. There is no exact time frame for the lifting of restrictions on vaccine exports. The Indian government in April banned Covid vaccine exports amid the country’s devastating second wave. The Serum Institute of India, the world’s largest supplier of vaccines, has said it may not be able to start delivering doses until the end of 2021.
India’s gasoline and diesel sales rebounded in the first half of June, offering early evidence the nation’s energy consumption is on the mend after a deadly second coronavirus outbreak that hammered demand. The three biggest retailers said sales of the nation’s two most-used road fuels rose as much as 13% from the same period last month. That’s the first monthly increase since March.
Still, the rebound has some way to go. Sales of diesel and gasoline — which account for more than half of nationwide oil consumption — remain lower than last year’s level and are about a fifth less than pre-virus totals in 2019.
5. Renewables and new technologies
The US Department of Energy announced an initiative to lower the cost of hydrogen by 80% to $1/KG as compared with $5/kg currently. Cost declines are seen as being critical to meaningful penetration of low carbon hydrogen, and this has been leading to ever more ambitious long-term hydrogen production targets.
Japan, a country heavily dependent on fossil fuel imports, is betting big on hydrogen in industry, power generation, vehicles, and shipping as it looks to reach net-zero emissions by 2050. Japan relies heavily on imported crude oil, natural gas, and coal, so its ambition to lessen the 90% dependence on fossil fuels was widely expected in the net-zero plans. Japan, however, unlike other major economies, cannot rely on solar or wind power because of the limited surface on which it can locate solar and wind power farms.
A nuclear fusion startup backed by billionaire Jeff Bezos will build its first pilot power plant outside of London, potentially accelerating a new way of generating clean energy. Canada’s General Fusion is one of about two dozen startups trying to harness the power in the hydrogen atom. Rather than splitting atoms like in traditional fission reactors, fusion plants seek to bind them together at temperatures 10 times hotter than the sun. Doing so releases huge quantities of carbon-free energy with no atomic waste. While national laboratories have been trying to build economically sustainable fusion machines for more than a half century, private investors have only recently joined the pursuit as urgency builds to find new sources of emissions-free power to slow global warming.
6. The Briefs (date of the article in the Daily Energy Bulletin is in parentheses)
The world’s largest oil companies are set to report another set of strong quarterly earnings next month amid significantly higher oil prices and global oil demand in the second quarter compared to the same period last year. (6/17)
More trains, fewer planes? Deutsche Lufthansa AG and German state railway Deutsche Bahn AG cooperate on express-train services that could replace short-haul flights amid heightening concerns about aviation’s carbon footprint. (6/19)
UAE ships oil through Israeli pipeline: Oil tankers began arriving at the Israeli port of Eilat on the Red Sea in an arrangement with Emirati partners. The vessel unloaded oil to be transferred through a pipeline across Israel to the Mediterranean. The companies involved say this land bridge is the shortest, most efficient, and cost-effective route to transport oil from the Gulf to the West. But the risks to the environment are far too significant, say their opponents who are hoping to end the deal. (6/14)
Sudanese protesters burned tires in part of the capital, Khartoum, Wednesday night after the government lifted all subsidies on gasoline and diesel. Under the new pricing system, fuel will increase from about 35 cents to nearly 70 cents per liter, while diesel prices will more than double. (6/14)
Nigeria’s oil production is averaging a low 1.64 million b/d in 2021. Security concerns and regulatory risks hinder the chances of oil production growth, which will remain impeded in 2021 as it faces technical and operational issues, both exacerbated by the recent rise in pipeline leaks and sabotage. (6/15)
Nigeria’s oil subsidy program has unwittingly become a drag on the economy. When the commodity price rises on the international market, revenue increases, but this gain is more of a paper entry. It is taken away by a higher subsidy. Under the current arrangement, the government must concede that Nigerians can afford to buy refined products imported at higher costs. (6/17)
Nigeria, one of the world’s most hydrocarbon-endowed nations, has essentially no operational refinery and relies overwhelmingly on product imports to satiate its ever-growing product demand. This begs nefarious schemes by players seeking self-enrichment. (6/14)
The US oil rig count rose by 8 to 373 while the number of gas rigs increased by one and now sits at 97, according to Baker Hughes’ data for last week. Canada added 24 rigs for the week ended June 18, according to Baker Hughes data. At 117 rigs, the count is 100 more than the 17 units drilling this week a year ago. (6/19)
Refinery fix: The US Environmental Protection Agency requires that the Limetree Bay refinery install 18 air monitors in St. Croix after ordering the 2000,000 barrel/day plant to halt operations last month. (6/18)
Biofuels: Democratic US congressional members sent a letter on Wednesday to the Environmental Protection Agency, urging it to reject any action that would exempt oil refiners from obligations to blend biofuels into the nation’s fuel mix. (6/17)
Shunning fossil fuels: Maine became the first US state to enact a law requiring divestment from fossil fuels after Governor Janet Mills signed a measure ordering public funds to jettison investments in coal, petroleum, natural gas, and related products. The state treasury and the $17 billion public employees’ pension fund must dump any fossil-fuel holdings by 2026. (6/18)
Embracing nat. gas: Ohio may soon join a dozen US states to have enacted legislation to preemptively block cities and counties from banning natural gas as a source of heating or cooking in new homes. (6/16)
Texas is drawing battle lines in a fight against investors and companies turning their backs on fossil fuels. Governor Greg Abbott signed a bill into law on Monday banning state investments in businesses that cut ties with the oil and gas industry. (6/16)
The average age of vehicles on US roadways rose to a record 12.1 years last year, as high prices and improved quality prompt owners to hold on to their cars longer. Whereas 20 years ago, a car might have changed hands once or twice and lasted 100,000 miles, it is more common today for a vehicle to have multiple owners and stay for 200,000 miles or more. (6/15)
“See-you-and-raise-you” EV dual: General Motors will raise spending on electric and autonomous vehicles and add two US battery factories as it gambles that consumers will eagerly switch from gasoline to the new technology. GM plans to spend $35 billion on electric and autonomous vehicles from 2020 to 2025. The announcements Wednesday came as crosstown rival Ford said its entire Lincoln luxury brand lineup would be electric or gas-electric hybrid by 2030, including four fully electric vehicles. (6/17)
Toyota’s lineup over the next 30 years will contain a myriad of options beyond just electric vehicles, executives told their annual shareholder meeting Wednesday, saying “it’s too early to concentrate on one option.” Competitor Honda aims for 100% EVs by 2040. (6/16)
Nuclear power is an indispensable part of the Biden administration’s plan to reduce carbon dioxide emissions by 52 percent over the next ten years, Energy Secretary Jennifer Granholm said at the annual general meeting of the American Nuclear Society. (6/19)
A Chinese-backed coal-fired power plant in Bangladesh that’s been the site of deadly crackdowns on protests has now been accused of failing to ensure proper environmental inspections. The accusations are the latest in a string of controversies over the plant, demonstrating the increasing opposition to new coal generators, even in developing nations with a power deficit. (6/15)
China adds more hydropower: The Wudongde hydropower plant on the Yangtze River is now fully operational. Located on the Yangtze River, the 12-generator plant cost close to $19 billion. The world’s seventh-largest hydropower plant, the Wudongde, adds 10.2 GW of capacity. China leads the world with hydropower at 1302 terawatt-hours of annual production, while Canada is coming in a distant second at 398 TWh. (6/8)
New Euro wind team: British oil major BP will join Norway’s Statkraft and Aker Offshore Wind to bid for permits to build offshore wind power projects off Norway. (6/14)
New H2 team: Baker Hughes and Air Products have announced a global strategic collaboration to develop “next-generation” hydrogen compression to lower the cost of production and accelerate the adoption of hydrogen as a zero-carbon fuel. (6/14)
H2 auto testing: The BMW Group is beginning to test near-standard vehicles with a hydrogen fuel cell drive train on everyday European roads. (6/19)
Swedish steelmaker SSAB is teaming up with Volvo Cars to develop fossil-free steel in the automotive industry. Volvo Cars will be the first carmaker to secure the greener steel, SSAB said on Wednesday. The steel is made from hydrogen-reduced iron from a pilot plant in Lulea, Sweden. (6 /16)
Exit polls on Sunday indicated that Swiss voters appear to have narrowly rejected a proposed “carbon dioxide law” that would have hiked fees and taxes on fuels that produce greenhouse gases. The Alpine country has been experiencing an outsized impact from climate change. Switzerland has faced a rise in temperatures that is twice as fast as the global average. (6/14)