Tom Whipple and Steve Andrews, Editors.
Quote of the Week
“We have been called to leave our oil in the ground; we believe it’s totally unfair. We’ll develop our oil industry putting in place regulations for safe, low carbon operations.”
Bharara Jagdeo, Vice President of Guyana, at a US offshore conference
Graphic of the Week
Oil production is generally declining in the list of nations below; nearly all appear to be in permanent decline, though a few—especially Suriname—will increase again. While the list only accounts for just under 30% of current world production, it includes several oil producers that either are or used to be Top 10 world oil producers, such as China, Mexico, Norway, the UK, and Venezuela. Note that, over the course of the last decade, several oil-producing nations not on this list more than offset the 10 million barrels/day decline shown here.
Ron Patterson: The Peak Oil Barrel
1. Energy prices and production
Oil: Last week ended with the longest losing streak since 2019 as the dollar strengthened after the Federal Reserve signaled it would start tapering stimulus and the virus resurgence raises doubts about demand growth. West Texas Intermediate futures closed Friday 2.2% lower, tumbling for the seventh day, and extending the week’s decline to 8.9%. The pandemic remains a threat to energy demand, especially across Asia, with China restricting mobility to combat an outbreak.
Inventories have been declining for several months as US fuel demand rebounded with Americans getting vaccinated against coronavirus. Infections, however, are increasing again, and analysts are watching to see if fuel demand slackens, particularly across southern states where the number of people infected has surged. Crude inventories fell by 3.2 million barrels in the week to Aug. 13th to 435.5 million, exceeding estimates for a 1.1 million-barrel drop. Crude exports rose in the most recent week to 3.4 million b/d.
However, US gasoline inventories unexpectedly climbed in the week ended Aug. 13th amid a continued slowdown in demand. Total US gasoline inventories rose 700,000 barrels to 228 million barrels, snapping four consecutive weekly draws and narrowing the deficit to the five-year average to around 3%. The build ran counter to market expectations.
In the US, one of the many political confrontations is Big Oil versus President Biden. Once again, oil industry groups are suing the president for halting drilling auctions on federal lands. Since President Biden’s inauguration, this has been an issue with Republican states and Big Oil fighting for their right to continue with new leases. At the same time, oil and gas demand remains high, while Biden responds to his green policy promises from his election campaign. In January, the newly elected president paused drilling auctions to review the environmental impact and value to taxpayers. However, the evaluation, which was expected to be completed by now, remains ongoing, causing backlash from oil firms across the country.
The merger and acquisition wave in the US oil and gas industry has not been limited to the shale patch in recent months. The largest oil companies have significantly raised their share of crude oil production in the Gulf of Mexico. In contrast, smaller firms have been held back by the pandemic and licensing suspension for drilling in federal waters. As a result, the Gulf of Mexico has seen Big Oil pump a growing share of crude from the offshore region compared to just a few years ago. According to Reuters estimates, the ten biggest producers in the US Gulf of Mexico have produced as much as 86% of the average 1.6 million b/d pumped in the area so far this year.
International aviation restrictions are still preventing jet fuel from recovering as fast as other oil products, according to a Rystad Energy analysis. Most of the demand destruction seen in road fuels since the pandemic outbreak has now been reversed, and jet fuel has become the top laggard that keeps total oil demand from recovering to pre-Covid-19 levels. Asian jet fuel demand just slipped to below European levels for the first time since July 2010, a stunning setback as it had been about 50% ahead in January 2020.
OPEC: The cartel and its allies, including Russia, believe oil markets do not need more oil than they plan to release in the coming months, despite US pressure to add supplies to check an oil price rise. As oil prices have fallen markedly in the past week, more oil from OPEC does not seem to be an issue for the time being.
Shale Oil: Output is expected to rise to 8.1 million b/d in September, the highest since May 2020, according to the EIA’s August drilling productivity report. The forecast is led by growth in the largest formation, the Permian Basin, where crude output is estimated to rise 49,000 b/d in September, offsetting falling output expected from the Bakken and other top regions. As a result, production in the Permian is expected to reach 4.8 million b/d in September, the highest since March 2020. In contrast, the Eagle Ford in South Texas output is likely to slide by 5,000 b/d to 1.05 million, while the Bakken basin of North Dakota and Montana is expected to see a decline of about 1,000 b/d to 1.14 million.
As production in North Dakota’s Bakken Basin seems to be declining, companies owing assets in the region are trying to pull out. According to people with knowledge of the matter, ConocoPhillips is offering its oil assets in the basin for sale. The company estimates it could fetch roughly $200 million for the assets, said people who asked not to be identified. Dallas Cowboys owner Jerry Jones’ Comstock Resources oil company also is offering to sell properties in North Dakota’s Bakken oilfield, a marketing document seen by Reuters shows.
A few major oil companies are starting to shed assets as they focus on less carbon-intensive operations. For example, Royal Dutch Shell’s portfolio of Permian Basin oil fields, which could be worth as much as $10 billion, is said to be for sale and attracting interested parties, including ConocoPhillips.
A study published last week in the journal Science suggests a previously undocumented risk to surface water in streams, rivers, and lakes. After analyzing 11 years of data, including surface water measurements in 408 watersheds and information about more than 40,000 fracking wells, the researchers found a minimal but consistent increase in three salt compounds—barium, chloride, and strontium—in watersheds with new wells that were fracked. While concentrations of the three elements were elevated, they remained below the levels considered harmful by the EPA.
Back in April, US oil and gas companies were still filing for bankruptcy at record levels right during an oil price recovery. Again, smaller producers were the primary victims as a total of eight North American oil and gas producers with an aggregate debt of $1.8 billion filed for bankruptcy protection in Q1 2021. But it now appears that the massive wave of bankruptcies has finally abated. According to energy and restructuring law firm Haynes and Boone, just four US exploration and production (E&P) companies filed for Chapter 11 during the second quarter, bringing the tally for H1 2021 to 12, the lowest number in six years. More importantly, there were no producers with billion-dollar bankruptcies during the quarter, the first time this has happened in 12 consecutive quarters.
Natural Gas: Europe is facing a potentially harsh winter with natural gas supply nowhere near enough to meet heightened seasonal demand, according to storage data and industry insiders. LNG deliveries in July were at the lowest for that month in three years, and this month things look even worse, with only one cargo set to arrive in the UK. Meanwhile, six shipments of LNG are set to depart from Spain in August as traders seek to profit from higher prices in the Asian market.
Pipeline supplies from Russia are also problematic but possibly not for political reasons. Gazprom recently said that it is overwhelmed by demand at home and abroad. This is given as the reason Russian gas supplies have been lower this summer and not political pressure on the EU as some have speculated. In a statement, Gazprom said that winters in Russia and Europe were now lasting into March, meaning it needed to prioritize gas storage injections this summer. This, it said, was “well understood” by its European colleagues. Gazprom said that supplies in August to the domestic market and to the Far Abroad (Europe and Turkey minus the countries of the former Soviet Union) had reached a “new peak” compared with previous years.
The US-dominated global natural gas production until the 1980s when it ceded the lead to Russia. The Middle East also grew its natural gas production rapidly over the past 50 years and was on track to take the global lead. Natural gas production had been in decline in the US until the fracking boom that began to boost production in 2005. As a result, production grew in the US by an astounding 86% from 2005 to 2020, which pushed the US back into the global leader among natural gas producers.
Natural Gas Production in 2020
The US may continue to lead the world in natural gas production for a few more years, but the level of proved natural gas reserves implies that our lead could be short-lived. The Middle East’s proved natural gas reserves at the end of 2017 were 2.8 quadrillion cubic feet, versus US proved reserves of 446 trillion cubic feet. For perspective, US proved reserves are only 6.7% of the global total. Russia has more proved natural gas reserves than any other country with 1.3 quadrillion cubic feet, followed by Iran with 1.1 quadrillion.
Electricity: The California Energy Commission has approved orders to comply with Governor Newsom’s emergency proclamation to reduce strain on the energy infrastructure and ensure increased clean energy capacity due to projected shortfalls of 3.5 GW in 2021 and 5 GW in summer 2022. One of the two orders focuses on new emergency and temporary generators, while the other deals with changes in design, operations, or performance of existing facilities. Both orders are in response to the governor’s July 20th proclamation declaring a state of emergency due to extreme drought, wildfires, and record-breaking heat.
Coal: The Biden administration said it would conduct a formal review of coal sales on federal lands to study their impact on climate change and value to American taxpayers. The move is the latest in a string of efforts by the administration to address climate change by reining in fossil fuel development on public lands. Coal was the primary fuel for US power plants for much of the last century, but its use has declined for more than a decade as lower prices for natural gas plus wind and solar energy have made it less competitive.
Prognosis: The US Treasury Department issued new energy financing guidance to multilateral development banks, saying the US would oppose their involvement in fossil fuel projects except for some downstream natural gas facilities in developing countries. The new guidance from the Treasury, the largest shareholder in major development banks including the World Bank and the African Development Bank, prioritizes financing for renewable energy options and “only to consider fossil fuels if less carbon-intensive options (are) unfeasible.” Treasury said in the guidance it would “strongly oppose” coal energy projects across the entire coal value chain from mining, transport to power generation.
Big Oil and renewables look like opposites to many who follow the energy transition from a distance. After all, this transition is a response prompted by the decades-long polluting activity of Big Oil. And yet, there is a good chance that Big Oil will dominate this transition, as well as the renewable future that follows. On one level, the reason for this is purely technical. One might think that the oil industry and the wind power industry have nothing in common, but in fact, they do. Installing wind turbines in the sea, especially in deep waters, is somewhat like installing oil platforms.
Big Oil is trying to green itself up, bidding for wind farm construction tenders and buying other renewable assets. In doing this, however, it is undermining the profit margins of smaller renewable energy companies. Thanks to a surprisingly strong rebound in oil demand, Big Oil can afford to be generous with its wind and solar purchases and bids.
One of the messages of JP Morgan’s 2021 Annual Energy Paper said that if the world were to reach net-zero emissions by 2050, it would have to stop investing in new oil gas and coal supply immediately. Overwhelmed by enthusiasm about electric vehicles and solar and wind energy, many enthusiasts believe that new technologies about carbon capture, hydrogen production and its industrial use, surging solar and wind power installations, and constantly growing energy efficiency could be enough to transform the world of energy over the next few decades.
Don’t get ahead of yourselves, Michael Cembalest, Chairman of Market and Investment Strategy for JP Morgan Asset Management, warns in the bank’s paper. “The overarching message is not climate nihilism; it’s that the behavioral, political and structural changes required for deep decarbonization are still grossly underestimated.”
2. Geopolitical instability
(These are the situations that reduce the world’s energy supplies or have the potential to do so.)
Iran: Last week, the government revealed a vast new gas deposit located in the Iranian sector of the Caspian Sea. The ‘Chalous’ structure is to be developed to form a new gas hub in northern Iran to complement the southern gas hub centered on the massive South Pars field. If the initial estimates of the gas reserves held in the Chalous deposit are correct, then Iranian gas could supply at least 20 percent of Europe’s gas needs. However, this gas’s size, price, and destination will be coordinated with Russia, adding to Moscow’s energy power over Europe. It is already a critical matter of contention between Europe and its NATO partner, the US.
Iran has nearly doubled its enrichment capacity dedicated to purifying uranium close to the levels required for nuclear weapons, signaling it won’t de-escalate its atomic activities before meeting again with world powers. Inspectors verified on Aug. 15th that Iran introduced a second cascade of nuclear centrifuges to produced uranium enriched to 60% purity at a fuel plant in Natanz. At the start of now-stalled negotiations to bring Washington back into the deal, Iran had initially taken that added enrichment capacity offline in April.
Deep discounts for Iran’s LPG are attracting Chinese buyers. Pakistan and Bangladesh also take small amounts from Iran. Iran’s LPG exports are set to stay near two-year peaks of around 500,000 tons in July and August, meeting China’s voracious appetite for cheaper petrochemical feedstock. The high volumes are expected to last through the end of 2021, driven by the increase in Iran’s LPG production and demand. Initial hopes of easing sanctions after Biden became the US president have dimmed as negotiations have stalled following the election of conservative President Ebrahim Raisi in Iran.
The militant group Hezbollah warned Israel and the US against intercepting an Iranian ship carrying fuel for Lebanon as the country reels from a crippling power crisis. The Iran-backed group’s leader Hassan Nasrallah was cited as saying by Al Jazeera, “I tell the Americans and the Israelis that as soon as the ship sails, it becomes Lebanese territory.” After that, more such ships would follow, he said. In recent months, Iranian and Israeli-operated ships have been targeted in regional waters in unclaimed attacks widely believed to be tit-for-tat actions by the Middle Eastern rivals. Iran’s oil exports are under US sanctions.
Iraq: Suspected insurgents detonated explosives at the N Bai Hassan oil field and on a critical electricity transmission line from Erbil to Kirkuk, the latest in a string of escalating acts of violence across northern Iraq. The attacks on energy infrastructure and security force checkpoints are a near-daily occurrence in areas once the frontlines of the war against the Islamic State.
The Kurdistan Regional Government stated its intention to scrap its Bina Bawi and Imran natural gas projects tracts, Genel Energy, the project’s contractor, said. However, Genel sees “no grounds” for such a move and will “take steps to protect its rights.” The KRG’s plan is a further blow to the producer, which has been unable to unlock the gas resources at the fields after talks over their development stalled.
Libya: Oil Minister Mohamed Oun has recommended that the government of national unity replace the long-serving chairman of the National Oil Corporation (NOC), Mustafa Samella, in a board reshuffle. Since getting a unity government in March and a petroleum minister for the first time in five years, Libya has vowed it would raise its oil production, provided that the NOC receives the necessary funds. However, the tensions between the oil minister Oun and NOC’s boss Sanalla have increased because of the overlapping of their functions and duties and the jurisdiction of the oil ministry and the NOC.
Venezuela: Negotiations for the November 2021 regional elections, which Norway is brokering, kicked off last week in Mexico. The talks between the authoritarian regime of Nicolas Maduro and opposition leaders aim to establish a memorandum of understanding for further detailed discussion in September 2021. The goal of the talks is to ultimately develop the terms for holding the November regional elections for governors and mayors. Maduro has actively and violently suppressed democracy, human rights, and opposition to his regime. Last December, he finally removed the US-recognized interim president Juan Guaido from the National Assembly where he had been the law-making body’s leader.
Refiner Citgo Petroleum, the US subsidiary of Venezuela’s state-held oil firm PDVSA, reported a net income for the second quarter, its first quarterly profit since the third quarter of 2019. Citgo Petroleum, the eighth-largest refiner in the US in terms of crude processing capacities, had been suffering even before the pandemic when it lost access to Venezuelan oil with the US sanctions on the Maduro’s regime. Citgo Petroleum, headquartered in Houston, also faces possible seizure of assets from creditors who are going after debts owed by Venezuela or its state oil firm PDVSA.
3. Climate change
California’s wildfire crisis escalated last week as resurgent strong winds fanned the state’s most extensive conflagration, drove flames from a separate, smaller blaze into a rural mountain community, and prompted widespread precautionary power shutoffs. Already the second-largest California wildfire on record, the Dixie fire raging since mid-July in the rugged Sierra Nevada range northeast of San Francisco has charred over 600,000 acres of drought-parched timber and brush. Government forecasters said that the severe drought that has gripped much of the western half of the US in the spring and summer is likely to continue at least into late fall.
Firefighters are struggling to control blazes in France’s Gulf of Saint Tropez and in the Spanish province of Avila, another manifestation of dangerous global warming that’s already caused a long list of extreme weather events this summer. According to local authorities, a wildfire burned through 5,000 hectares in France’s Var department, leading to the deployment of about 900 firefighters and the evacuation of at least 10,000 people. A separate fire in Avila consumed at least 15,000 hectares. Spain’s Minister for the Ecological Transition, Teresa Ribera, noted last week that forest fires “are something we are bound to live with as these are one of the most dramatic effects of climate change.
With climate change and long-term drought continuing to take a toll on the Colorado River, the federal government, for the first time, declared a water shortage at Lake Mead, one of the river’s main reservoirs. The declaration triggers cuts in the water supply that, for now, primarily will affect Arizona farmers. Beginning next year, they will be cut off from much of the water they have relied on for decades. Much smaller reductions are mandated for Nevada and Mexico across the southern border. But more significant cuts, affecting far more of the 40 million people in the West that rely on the river for at least part of their water supply, are likely in coming years.
Skyrocketing carbon prices and a “code red” warning about the threat posed by climate change are giving fresh momentum to a technology that captures and removes greenhouse gas emissions so they can be buried. According to Credit Suisse Group AG, the market for these tools could reach $2 trillion if used to cut pollution from heavy industry. With carbon more than doubling in the past year and prices set to reach 100 euros ($118) as soon as the middle of this decade, capture technology finally is going mainstream as governments push to reach net zero.
The cost to release carbon has never been higher in Europe, and it’s poised to keep increasing, creating a tipping point where preventing the emissions becomes a viable economic alternative. Carbon-capture technology has been around for decades and is used in some industries. However, according to the IEA, it’s still expensive – costing as much as $120 a ton in cement production and power generation. Costs depend on the location of the project and the technology used. That compares to the current price of pollution permits of about 55 euros a ton.
Despite the devastating impacts of climate change accelerating faster than ever, America’s National Flood Insurance Program hasn’t changed at all since its inception. But it is about to. Under the current program, the Federal Emergency Management Agency provides $1.3 trillion in coverage for more than 5 million policyholders in 23,500 communities nationwide.
Today, federal flood insurance is based on the property’s elevation and whether it has a 1% annual chance of flooding. Under the new model, FEMA will also look at the home’s replacement cost, whether the risk is rainfall, river, or coastal flooding; and how close the property is to the source of the potential flooding. Most important, FEMA will now factor in future catastrophic modeling from climate change, including sea-level rise, drought, and wildfires. This shift will inevitably change the value of some homes.
Most US infrastructure was built to withstand once-in-a-century floods, fires, storms, and droughts so that only 1% of it was vulnerable each year. But those disasters now happen every 20 years or less. The early arrival of severe climate disruption is effectively writing down the actual value of our built environment. Much of it will need significant upgrades or even complete replacement. The US, in other words, has lost a substantial part of its accumulated wealth. Houses, roads, office buildings, power plants, ports, water treatment facilities, schools, hospitals, electric lines, and telecommunications facilities are vulnerable to higher winds, harsher freezes, rising sea levels, hotter summer temperatures, and more extreme droughts. Now, they must be relocated, hardened against the weather, replaced more frequently, and depreciated faster.
4. The global economy and the coronavirus
United States: Covid-19 patients are dying in US hospitals at levels not seen since February, and the numbers could worsen as intensive-care units overflow in parts of the South. The fast-spreading delta variant has fueled the Covid-19 wave that began in the Ozarks in late June and spread nationwide. Some preliminary signs indicate that the tide may be close to a peak, especially in those original hot spots. Still, the situation remains dire in hospitals, where officials say most Covid inpatients are unvaccinated.
The number of Americans filing new claims for unemployment benefits fell to a 17-month low last week, pointing to another month of robust job growth. However, surging Covid-19 infections pose a risk to the labor market recovery. The weekly unemployment claims report from the Labor Department also showed the number of people on state jobless rolls dropped in early August to levels last seen in mid-March 2020 when the economy almost ground to a halt due to the first wave of COVID-19 cases.
Europe: A British public health study has found that protection from either of the two most used Covid-19 vaccines against the now prevalent Delta variant of the coronavirus weakens within three months. It also found that those who get infected after receiving two shots of either the Pfizer-BioNTech or the AstraZeneca vaccine may be of greater risk to others than under previous variants of the coronavirus. Based on more than three million nose and throat swabs taken across Britain, the Oxford University study found that 90 days after a second shot of the Pfizer or AstraZeneca vaccine, their efficacy in preventing infections had slipped to 75% and 61% respectively. That was down from 85% and 68%, respectively, seen two weeks after a second dose. The decline in efficacy was more pronounced among those aged 35 years and older than those below that age.
The Oxford findings are in line with an analysis by the U.S. Centers for Disease Control and Prevention (CDC) and come as the U.S. government outlines plans to make Covid-19 vaccine booster shots widely available next month amid a rise in Delta variant infections. It has cited data indicating diminishing protection from the vaccines over time.
Wind and solar power generation across EU markets peaked at 123 GW on August 17th amid an increase in wind that helped ease record spot power prices. The brief surge in the wind reduced demand for gas and coal generation, with average generation costs for such plants now exceeding $118 per million Wh. Generation cost for a 50% efficient gas plant rose above $137 for September and Q4 2021, boosting forward power contracts as fuel and carbon costs hit record highs.
China: Factory output and retail sales growth slowed sharply and missed expectations in July, as new Covid-19 outbreaks and floods disrupted business operations, adding to signs the economic recovery is losing momentum. Industrial production increased 6.4% year-on-year in July, according to data from the National Bureau of Statistics. Analysts had expected output to rise 7.8% after growing 8.3% in June. Retail sales increased 8.5% in July from a year ago, far lower than the forecast 11.5% rise and June’s 12.1% uptick. China’s economy has rebounded to its pre-pandemic growth levels, but the expansion is losing steam as businesses grapple with higher costs, supply bottlenecks, and new Covid-19 infections.
The partial closure of the world’s third-busiest container port worsens congestion at other major Chinese ports, as ships divert away from Ningbo amid uncertainty over how long virus control measures in the city will last. In nearby Shanghai and Hong Kong, congestion is once again increasing after dropping due to the reopening of Yantian port in Shenzhen, which shut in May for a separate outbreak.
According to data from the General Administration of Customs, Chinese exports of gasoline and diesel plunged in July compared to June, after China slashed the quotas of authorized exports of refined petroleum products. Analysts say that exports of gasoline, diesel, and jet fuel are expected to drop significantly for the rest of the year because of the slashed quotas. In July, China’s diesel exports slumped by 41 percent, and gasoline exports plummeted by 49 percent as refiners ran out of export quotas allocated in the first batch for 2021.
As President Xi Jinping calls for greater environmental protection, officials are eager to demolish poorly planned dams. But the country will need vast amounts of clean hydroelectric power to meet its net-zero goal. Moreover, China is trying to wean its massive economy off coal and fossil fuels to meet its ambitious goal of becoming carbon neutral by 2060. So why is it trying to shut down as many as 40,000 hydropower plants? The answer lies deep in the nation’s troubled history of trying to control its rivers. Ever since Chairman Mao Zedong urged workers in the 1950s to “conquer nature,” China has been throwing up dams large and small at a prolific rate to generate power, tame flooding, and provide irrigation for fields and drinking water for cities. Unfortunately, the long-term effects of that often-chaotic policy are now coming home to roost.
Inner Mongolia’s Energy Administration has given the go-ahead to a cluster of plants in the cities of Ordos and Baotou that will use 1.85 gigawatts of solar and 370 megawatts of wind to produce 66,900 tons of green hydrogen a year. The development will begin in October, and the projects will be operational in mid-2023 without specifying the developers’ cost. The project, which would produce enough hydrogen output to displace about 180 million gallons of gasoline a year if used for fuel cell vehicles, is the biggest yet to be sponsored by the government.
Russia: Worsening crop prospects and President Putin’s bid to keep a lid on inflation are derailing exports to Egypt, one of the country’s most important wheat markets. Russia’s wheat has become less competitive as the government introduced export taxes after Putin bemoaned surging local food costs, while poor weather has hurt crops. That’s seen Russian supplies account for just a fifth of tender purchases by top importer Egypt this season, the lowest level in at least seven years. Russia has traditionally dominated sales to Egypt thanks to bumper harvests of cheap grain.
The controversial Nord Stream 2 natural gas pipeline from Russia to Germany may supply 5.6 billion cubic meters of gas to Europe later this year, according to Gazprom. The announcement caused European gas prices to drop 10% on Thursday morning. Europe’s gas prices have hit record levels amid higher demand and lower supply in recent weeks, including from Gazprom. The operating company behind the project, Switzerland-based Nord Steam 2 AG, told Reuters that construction is 99% complete. The Fortuna pipe-laying vessel from Russia is working on the final part of the construction. Earlier reports from German news outlet Deutsche Welle suggested that the construction on the pipeline is expected to be completed on August 23rd.
President Vladimir Putin said on August 20th that Russia was ready to continue supplying gas to Europe via Ukraine after 2024 but that Moscow needed clarity on future European gas demand before agreeing to any new transit deal. Speaking at a joint press conference in Moscow with German Chancellor Angela Merkel, Putin said Russia would continue gas transit via Ukraine after the Nord Stream 2 pipeline is finished. There are just 15 km of the link left to lay. Russia’s state-controlled Gazprom in late 2019 agreed to transit 65 billion cm of gas via Ukraine in 2020 and 40 billion per year in 2021-2024.
Gazprom Neft, the oil arm of Russian gas giant Gazprom, will be able to raise its crude oil production in line with the OPEC+ deal for unwinding the collective cuts. Gazprom Neft has many oil wells at which it had reduced production because of the OPEC+ production quotas. In addition, some oil wells have been sitting idle since last year. Russia, the leader of the non-OPEC group in the OPEC+ alliance, currently pumps somewhere around 9.6 million b/d of crude oil and another roughly 900,000 b/d in condensates, which are not included in Russia’s quota.
India: Oil and gas production from India’s northwestern state of Rajasthan—home to the country’s single most significant oil and gas deposit—has slumped by 40% over the past two years. The slump is primarily due to the pandemic and its effect on oil demand and prices, officials told Hindustan Times last week. Despite the COVID-induced slump, Indian companies haven’t given up on investment in new production in the area. State-controlled Oil India, for example, will be investing in oil and natural gas exploration, an official told Hindustan Times.
Saudi Aramco is in advanced talks for an all-stock deal to acquire a stake in Reliance Industries’ oil refining and chemicals business, people with knowledge of the matter said. The Saudi Arabian firm is discussing purchasing a roughly 20% stake in the Reliance unit for about $20 billion to $25 billion worth of Aramco shares. Reliance could reach an agreement with Aramco in the coming weeks. Shares in Reliance extended gains to as much as 2.6% in Mumbai after the Bloomberg News report. A deal would forge closer ties between the world’s biggest oil exporter and one of the fastest-growing energy consumers.
Nigeria: President Muhammadu Buhari signed the country’s newly passed petroleum bill into law, marking the end of 20 years of efforts to overhaul Nigeria’s oil industry. Last month, the House of Representatives voted to approve a new petroleum industry bill putting an end to years of debates and delays. The House voted in favor of the bill after the Senate had endorsed the new legislation earlier. The new petroleum bill aims to attract more foreign capital to the country’s oil sector.
The Petroleum Industry Bill is supposed to overhaul the way Nigeria will share its oil resources with international oil companies as the country looks to attract new investment in oil and gas. However, global oil majors have not been flocking to Nigerian oil assets now that fossil fuels are even more fiercely competing for capital as oil majors start shifting more funding to low-carbon energy sources. Given the endemic corruption, endless oil thefts, and attacks on oil company infrastructure, most of the international oil companies are looking for ways to get out of the country or at least move operations offshore.
5. Renewables and new technologies
The Lawrence Livermore National Laboratory in California is on the verge of achieving a longstanding goal in nuclear fusion research. The National Ignition Facility is using a powerful laser to heat and compress hydrogen fuel, initiating fusion. An experiment suggests the goal of “ignition,” where the energy released by fusion exceeds that delivered by the laser, is now within touching distance. Harnessing fusion, the process that powers the sun, could provide a limitless, clean energy source, supporters say. In a process called inertial confinement fusion, 192 beams from NIF’s laser – the highest-energy example in the world – are directed towards a peppercorn-sized capsule containing deuterium and tritium, which are different forms of the element hydrogen. This compresses the fuel to 100 times the density of lead and heats it to 100 million degrees Celsius – hotter than the center of the sun.
Addressing climate change requires a clean electrical grid and a clean fuel to reduce emissions from industrial heat, heavy long-haul transportation, and long-duration energy storage. Hydrogen and its derivatives could be that fuel, argues a commentary by four energy researchers in the journal Joule. However, they note, a clean US hydrogen economy will require a comprehensive strategy and a 10-year plan. The commentary suggests that careful consideration of future hydrogen infrastructure, including production, transport, storage, use, and economic viability, will be critical to the success of efforts aimed at making clean hydrogen viable on a societal scale.
The technologies involved in blue hydrogen – produced from natural gas or coal with carbon capture, utilization, and storage— are not new. Still, renewed interest in blue hydrogen projects is leading analysts and academics to take closer looks at the environmental impacts through emissions modeling. As with any modeling, the assumptions used can vary considerably, leading to vastly different conclusions. One recent such study by Robert Howarth of Cornell University and Mark Jacobson of Stanford University has attracted much attention by asserting that blue hydrogen is worse for the environment than burning gas in heating applications.
6. The Briefs (date of the article in the Daily Energy Bulletin is in parentheses)
In Norway, a government panel said the world’s largest sovereign wealth fund ($1.4 trillion) should ask more from the companies it is invested in to reach its 2050 net-zero emissions goals. The fund said that oil firms in its portfolio need to cut their emissions more drastically. (8/21)
In Nigeria, international oil companies owe $4 billion to an agency responsible for fostering development in the Niger Delta, the impoverished wetlands region where much of the industry is located, a minister said on Thursday. The ministry claims IOCs are expected to pay 3% of their annual budget to NDDC, but they have been defaulting for an extended period. (8/20)
Australia-based BHP Group unveiled the most sweeping change to its business since the world’s biggest miner was created two decades ago, as it plans an escape away from fossil fuels to shift toward what it calls “future-facing” commodities and clears up some longstanding questions facing investors. BHP will sell its oil and gas operations to Woodside Petroleum Ltd. in exchange for shares to distribute to its investors. (8/17)
Guyana and Suriname, relatively new stars on the oil map, expect more exploration drilling over the next two years after a string of discoveries revealed the potential of the Guyana-Suriname Basin. The Guyana-Suriname Basin could see ten drilling rigs in 2022 as exploration in the area accelerates. (8/20)
Guyana will develop its massive oil and gas discoveries with complete environmental protection, a top official told a US energy conference on Tuesday, pushing back against calls for energy providers to halt new exploration. (8/18)
Brazil is hoping to attract oil majors to new deepwater projects that would employ low-carbon extraction technology, according to Reuters. Exxon, TotalEnergies, BP, and Chevron were among the targets for potential talks about the development of the new fields, to be auctioned this December. (8/18)
Multiple Canadian companies, including the country’s most prolific natural gas producer, plan on growing volumes and capital spending in the quarters ahead, in stark contrast to major US oil and gas operators prioritizing fiscal discipline and relatively static production. (8/21)
Canada’s oil sands producers may find welcome relief to years of pipeline capacity constraints when the first new pipeline in years could enter into service as early as next month. Enbridge will complete its Line 3 replacement capacity expansion from 370,000 to 760,000 within 30 to 60 days. (8/18)
The US oil rig count rose 8 to 405 last week while gas rigs fell 5 to 97, registering their most significant weekly decline in 16 months, Baker Hughes reported. (8/21)
Leasing battle: The Biden administration is appealing a federal judge’s ruling against its oil leasing moratorium and deepening government scrutiny of the activity it blames for fanning climate change, even as it promises to resume auctions. The moves, announced by the Interior Department in an emailed statement Monday, mark the beginning of an open-ended analysis of the federal oil, gas, and coal leasing programs that could span years — and lead to higher fees as well as new limits on development in sensitive areas. (8/18)
Alaska reversal: A federal judge threw out the permits for a controversial oil project planned for Alaska’s North Slope, faulting the way the federal government had assessed its environmental impact, including how it might harm polar bears. Both the Trump and Biden administrations had backed ConocoPhillips’s $6 billion Willow project, despite a host of concerns environmentalists and others raised about how the large operation might affect wildlife and the Indigenous communities. (8/19)
Between 69% and 84% of observed methane gas flares in Texas were unpermitted, environmental group Earthworks said in a report published on Thursday, which says the Railroad Commission of Texas “systemically fails to regulate flaring.” (8/20)
TX flaring: Oil producers such as Exxon Mobil and Royal Dutch Shell are burning off the gas in the largest oil field in the US without required Texas state permits. Texas, the nation’s biggest oil producer, has more permissive rules on flaring than other oil-and-gas producing states, and regulators have opposed additional regulations to limit emissions. (8/19)
Biofuels reversal: The US Environmental Protection Agency is expected to recommend to the White House reducing federal biofuel blending mandates for 2021 to below 2020 levels in what would be a blow to the biofuels industry. (8/21)
Weaning airlines off oil: The Biden administration is now targeting weaning all airlines off of fossil fuels by 2050; it follows their push for auto manufacturers to go all-electric and hybrid by 2030. (8/17)
Solar could supply more than 40% of the nation’s electricity by 2035 – up from 3% today – if Congress adopts policies like tax credits for renewable energy projects and component factories, according to a memo published on Tuesday by the Dept of Energy. The notice is part of a push by the White House to pump up solar as a jobs engine and pivotal pillar in the climate change agenda of President Joe Biden. (8/18)
Chinese solar panel ruckus: The first big test of Joe Biden’s lofty clean-power ambitions may not be sweeping climate legislation that needs congressional approval but managing a solar supply chain that’s being shaken by the seizure of imported Chinese panels. Multiple companies have now had solar components detained at US ports after a Biden administration ban on equipment that may have used raw materials originally from Hoshine Silicon Industry Co. The seizures come amid a new push by some US solar manufacturers to extend tariffs to China-linked factories in Vietnam, Malaysia, and Thailand, the US’s largest panel suppliers. (8/18)
Renewable fuels refining: Starwood Energy Group Global has agreed with Slate Refining to reconfigure Slate’s refinery in Douglas, Wyoming, into a renewable fuels production facility. Upon completion, the facility is expected to produce over 100 million gallons of renewable fuels such as renewable diesel, sustainable aviation fuel, and arctic diesel. (8/20)
The global shortage of semiconductors will cut worldwide auto production by as many as 7.1 million vehicles this year, and pandemic-related supply disruptions will hobble the industry well into next year, IHS Markit said. The grim outlook shows the chip crisis is far from over. (8/20)
While most electric vehicle (EV) owners primarily charge their vehicles at home, public charging is a significant part of the EV ownership experience. Unfortunately, the availability of public charging is the least satisfying aspect of owning an EV. (8/19)
EV tractors etc.: Electric vehicle technology has finally arrived in heavy machinery. Thanks to battery breakthroughs, a small crop of EV startups and investors are hungry for the next new thing on wheels. (8/19)
Large-scale battery power capacity in the US jumped by 35% last year to reach 1,650 megawatts (MW), and the significant growth of the past few years is set to continue, the EIA said in a report this week. Utilities have reported plans to install over 10,000 MW of additional large-scale battery power capacity in the US between this year and 2023. (8/21)
A new California building code is a leap forward for reducing the use of natural gas, with rules that set a strong preference for electric heating in new construction. But environmental advocates had hoped that California would become the first state in the country to ban natural gas in most new construction. (8/20)
The UK said it would review green retail electricity tariffs because energy companies could be exaggerating how environmentally friendly their products are. (8/16)
A.P. Moller-Maersk said it had signed a contract securing green methanol as the world’s most giant shipping firm gears up to operate its first carbon-neutral ship in 2023. Maersk needs to have a carbon-neutral fleet by 2030 to meet its target of net-zero emissions by 2050. (8/19)
SSAB has now produced the world’s first fossil-free steel and delivered it to a customer. The hydrogen gas used in the direct reduction process is produced by electrolysis of water with fossil-free electricity and can be used directly or stored for later use. (8/19)
The UK government has launched a Hydrogen Strategy intended to create a thriving low-carbon hydrogen sector—blue and green—in the UK over the next decade and beyond. The UK’s first Hydrogen Strategy drives forward the commitments laid out in the Prime Minister’s 10 Point Plan for a green industrial revolution. (8/17)
UK Business Secretary Kwasi Kwarteng unveiled on Tuesday a strategy that aims to unlock 4 billion pounds ($5.5 billion) of investment in hydrogen production by 2030, supporting 9,000 jobs. Ministers are planning to use similar incentives to those that helped boost offshore wind production. (8/18)
A Danish project to store captured CO2 in North Sea reservoirs once filled with oil and gas moved closer to becoming operational after winning approval from new stakeholders. Twenty-nine companies, research institutes, and universities agreed to support the next testing phase of the Greensand project. (8/18)
Killer heat: More than 356,000 people died in 2019 due to extreme heat, and that number is likely to grow, according to a study published in The Lancet this week. While cold temperatures still cause a greater number of deaths, mortality rates attributable to heat are growing faster, particularly in hotter regions of the world. (8/20)
Climate and flight cancellations: Some airlines and airports have started to plan for a future where severe weather jolts flight schedules more frequently, as climate change increases the likelihood of extreme heat and big storms. This month, storms forced the cancellation of more than 300 flights at both Chicago’s O’Hare airport and Dallas/Fort Worth airport in Texas. In July, eight flights in Denver were canceled and another 300 delayed due to smoke from forest fires burning in the US Pacific Northwest. Extreme heat-affected takeoffs in Las Vegas and Colorado earlier this summer. (8/18)
The climate on kids: Almost half of the world’s 2.2 billion children live in countries that face an extremely high risk of the impacts of the climate crisis, including environmental shocks such as cyclones and heatwaves, according to an index published Friday by UNICEF. (8/21)
Greenland ice cap gets rain: Something extraordinary happened at the frigid high point of the Greenland ice sheet, two miles in the sky and more than 500 miles above the Arctic Circle: It rained for the first time. And it rained for several hours, as temperatures rose slightly above freezing — is yet another troubling sign of a changing Arctic, which is warming faster than any other region on the planet. Ice cores showed that above-freezing conditions had occurred only six times in the past 2,000 years (8/21)