Editors: Tom Whipple, Steve Andrews
Quote of the Week
“The big question is: have we passed peak growth for US tight oil? Our forecasts suggest we have. And pipeline developers (and their financiers) who’ve done so well out of the boom are increasingly concerned about it.”
Wood Mackenzie consultancy
Graphic of the Week
1. Energy prices and production
2. Geopolitical instability
3. Climate change
4. The global economy and trade wars
5. Renewables and new technologies
1. Energy prices and production
Oil prices settled lower Friday, ending eight consecutive up days, due to the increasing spread of the coronavirus outside of China. London settled down 81 cents at $58.50, and New York finished 50 cents lower at $53.38. The pendulum of crude traders worrying first about the world swimming in oil and then worrying about supply shortages at the other end swung decisively to the latter on Wednesday. After reaching a one-month high on Thursday due to more sanctions on Venezuela, prices were hit hard ahead of the weekend as traders continue to be concerned over demand growth after weak Asian economic data fueled uncertainty about the economic outlook.
Saudi Arabia remains committed to another OPEC+ production cut, the kingdom’s energy minister said Friday, rejecting a report that it was considering a pause in its cooperation with the group. The Wall Street Journal had reported earlier Friday that Saudi Arabia could take a break from the OPEC+ alliance, given Russia’s reluctance to commit to deeper production cuts to combat the coronavirus’ impact on global oil demand. Despite the uncertainty on the oil market amid the coronavirus outbreak, the OPEC+ oil ministers agree that they do not need to move forward their meeting planned for the first week of March.
The EIA reported a crude oil inventory build of an insignificant 400,000 barrels for the week ending February 14th. A day earlier, the American Petroleum Institute reported an estimated inventory build of 4.16 million barrels, which had sent prices lower.
US shale oil production is set to increase only 11,000 b/d in February and 18,000 b/d in March, low growth levels not seen in over three years, the EIA said Tuesday. Only the Permian Basin is forecast to increase output in the two months. Last month, EIA predicted February output growth at 22,000 b/d in its initial estimate before halving that figure in its revised forecast 30 days later in its Drilling Productivity Report. The last time the agency’s forward growth forecast for shale oil was lower came in January 2017.
The Permian in West Texas/New Mexico is supposed to grow in February by 42,000 b/d on month to 4.816 million b/d and increase by 39,000 b/d in March to 4.855 million b/d. For March 2020, oil output at Eagle Ford should remain steady at 1.369 million; production in the Anadarko Basin in Oklahoma is forecast to drop by 10,000 b/d to 526,000 b/d; while production in the Niobrara Shale in Colorado should fall by 8,000 b/d. Output in the Bakken Shale of North Dakota should recede by about 2,000 b/d next month to 1.472 million, while in natural gas-prone Appalachia, oil production is predicted to be down 1,000 b/d to 145,000 b/d.
The EIA has forecast progressively lower growth levels in the second half of 2019, after its initial prediction of an 85,000 b/d increase for September 2019, as rig counts dropped, E&P companies exhausted their capital budgets, and already-volatile oil prices inched down. Since then, the agency’s monthly outlook for total US output growth has dwindled each month. For example, the agency initially predicted 74,000 b/d of growth in October, 58,000 b/d for November, 49,000 b/d in December, and 30,000 b/d for January. The impact from the China coronavirus has not yet figured into the administration’s forecasts, although EIA says it is monitoring the situation.
The IEA’s 2018 World Energy Outlook predicted an oil crunch could happen as soon as 2023 and acknowledges that politically-driven shortages are as big a problem as geological depletion. At least 90 percent of remaining global oil is in government hands, especially Saudi Arabia and other countries in the middle east that remain vulnerable to war and political instability. In 2018, the US accounted for 98 percent of global oil production growth, and since 2008, the US has accounted for 73.2 percent of that worldwide growth.
One analyst notes that what really matters is “peak diesel — when trucks stop running.” Fracked light oil is not generally suitable for distillation into diesel; much of is only useful for making petrochemicals. “America may well be the last gasp of the oil age.”
2. Geopolitical instability
Libya’s oil output is down to less than 125,000 b/d, a decline of more than 90 percent since the Libyan National Army imposed a blockade on the country’s five export terminals on January 18th. The total cumulative loss amounts to 29.4 million barrels, or $1.74 billion. The NOC’s Chairman has warned that output would sink to just 72,000 b/d “very soon” if the blockade continues. This is not a sustainable situation, even though the media claims that both sides in the conflict are in it for the long haul. The NOC is still supplying the Central and Eastern regions of Libya with enough to meet their transport and domestic needs, though storage facilities in and around Tripoli are facing supply shortages.
Offloading operations for fuel vessels at Tripoli have been halted, Libya’s National Oil Corporation announced on Tuesday, as military forces led by General Haftar were responsible for projectiles striking near a highly explosive LPG tanker. The LPG tanker and a gasoline tanker have since left the port and relocated to safer waters.
The EU foreign ministers agreed to revive a naval mission in the Mediterranean Sea to enforce the internationally-backed arms embargo on Libya. This move is likely to encounter stiff challenges given the recent arms buildup by Russia, the USA, Turkey, and Egypt in Libya. EU officials say they hope to have the new embargo operation ready by the end of March.
Businesses and homes in Tehran and several other cities were intermittently without power last week, according to a spokesman for Iran’s electrical power industry. The cuts were likely due to insufficient natural gas production. When power cuts take place in Iran, they usually do not happen during the cold winter months. Moreover, Tehran is rarely included in deliberate power cuts for security reasons. The government says emergency power cuts will be for two hours per day and will be carried out in the big cities unless domestic gas use is cut.
Iran will never hold talks with the United States under pressure, President Rouhani said on Sunday, adding that Tehran’s help was essential in establishing security in the Middle East. Hardliners are set to tighten control of Iran this week after a parliamentary election was stacked in their favor. Gains by hardline factions confirm the political demise of the country’s pragmatist politicians, weakened by Washington’s decision to quit a 2015 nuclear deal and reimpose sanctions. More hardliner seats may also hand them another prize — more leeway to campaign for the 2021 contest for president.
The UN warned on Friday that fighting in northwest Syria could “end in a bloodbath” and called again for a ceasefire. Moscow denies reports of a mass flight of civilians from the Russian-led Syrian government offensive. Syrian troops backed by Russian airpower have been battling since December to eliminate the last rebel strongholds in the region in a war that has killed an estimated 400,000 Syrians, displaced millions more, and left much of the country in ruins. The latest offensive has uprooted nearly 1 million people – most of them women and children – who have fled clashes to seek sanctuary further north, near the Turkish border.
The US imposed sanctions on Russia’s Rosneft Trading company last week. The firm was supporting Venezuela’s oil sector by continuing to trade with PDVSA, concealing shipments, and handling more than half of the country’s oil exports. While the action could have a significant impact on global oil flows, the State Department said it was “confident that energy markets will remain stable. Rosneft, however, said it would continue doing business with Venezuela.
It seems that part of PDVSA’s attempts to manage its oil crisis involves ceding control of its oil fields to foreign companies. Earlier this month, the New York Times reported that the day-to-day operations of oil fields are being entrusted entirely to the international partners in PDVSA’s joint ventures. The report cited industry insiders who said the foreign operators are taking care of everything from production to export arrangement and even field security, with one source calling it a “stealth privatization.” PDVSA is preparing a fuel rationing plan for domestic consumers as the state-owned company confronts a shortfall of refined products and the consequences of US sanctions on production and trading activities.
Iraqi forces are increasing security around southern oil fields and facilities in Basra province as Baghdad continues to grapple with protests demanding political and economic change. Iraqi troops in Basra will work with security personnel at oil companies in Basra to enforce security measures, the head of Basra operations told state-run Iraqi News Agency last week. The country’s most significant oil fields are in the Basra region, including Rumaila, Majnoon, West Qurna 1, West Qurna 2, and Zubair and are operated mostly by international oil companies. Iraqi protestors have often blocked roads to oil fields and facilities in Iraq since October last year when demonstrations broke out.
Thousands of barrels of oil per day are flowing from Syria into Iraq’s semiautonomous Kurdistan region, in an opaque trade that has served for several years as a financial lifeline for the Kurdish-led government. The trade has evolved since it first began in 2014, and many details are still murky, but the exports are currently earning tens of millions of dollars per month.
3. Climate change
It may only be February, but 2020 is already “virtually certain” to be among the 10 warmest years on record and has a 50 percent chance of being the warmest ever, according to scientists with the National Oceanic and Atmospheric Administration.
The predictions follow a January that was the warmest ever in 141 years of record keeping according to Karin Gleason, a climatologist with the National Centers for Environmental Information. Global average temperatures last month were 2.05 degrees Fahrenheit (1.14 degrees Celsius) above average, slightly higher than in January 2016, the previous record-holder. In comparing this year with previous years, Ms. Gleason said, one way to look at it is “we completed the first lap in a 12-lap race, and we are in the lead.” “According to our probability statistics, it’s virtually certain that 2020 will rank among the top 10 years.”
The coronavirus epidemic has lowered energy demand and industrial output in China, cutting carbon dioxide emissions by about 50 million metric tons a week. A new analysis by the nonprofit Carbon Brief found that the widespread impact of the coronavirus—including travel restrictions, longer holidays, and lower economic activity—means that carbon emissions have not increased after the usual lull around the Chinese New Year festival that began this year on January 25. The report looked at emissions during the two-week period beginning 10 days after the start of the festival and compared that to the same period for each of the previous five years. Over that period in 2019, China emitted 400 million metric tons of carbon dioxide; this year’s figure is likely closer to 300 million metric tons, and the economic slowdown still is far from over.
Two new studies bring up new information on the sources of methane in the atmosphere. One study, published in the journal Nature, found that the extraction of fossil fuels since the industrial revolution has released more climate-warming methane—as much as 40 percent more—than scientists previously thought. This is a startling number that could drastically upend currently agreed-upon global emissions targets in the Paris climate agreement, given that the impact methane emissions are 25 or 30 times more impactful than a similar volume of CO2 emissions.
The other study, published Thursday in Science, found that “minimal” methane was emitted from permafrost and geologic seepage as Earth was emerging from the last ice age, a finding that suggests that less methane than scientists thought might be emitted in coming decades as the polar regions warm. Though it’s clear that methane concentrations in the atmosphere have doubled since the industrial revolution—and are rising—researchers have not pinned down how much methane comes from natural geologic sources, like seepage from ocean vents or mud volcanoes, and how much from burning fossil fuels.
Taking advantage of rare ice-free waters in West Antarctica last February, scientists got their first look underneath Thwaites Glacier, a massive and increasingly unstable formation perched at the edge of the Antarctica continent. What they saw only increased fears of a collapse that could raise global sea levels by more than half a meter. Scientists with the International Thwaites Glacier Collaboration say that warm water from the deep ocean is welling up from three directions and mixing underneath the ice. The warm currents could further destabilize the glacier, which is as large as the island of Great Britain and holds enough ice to boost global sea levels by an estimated 65 centimeters. If it collapses, Thwaites could take other parts of the western Antarctic ice sheet with it and become the single largest driver of sea-level rise this century.
4. The global economy and trade wars
Beijing appears to have decided that the best way to get its economy going again is to convince its people that the worst of the epidemic is over by redefining what constitutes a case of coronavirus. This redefinition allows the government to announce a lower number of new cases each day. When Beijing wants small coronavirus case numbers, they get them, so on Saturday, only 31 new “confirmed” cases were reported outside of Hubei province. In contrast, South Korea authorities said on Saturday the number of new infections had doubled to 433. The numbers surged elsewhere, with outbreaks worsening substantially in Iran, Italy, and Lebanon.
The leading academic group modeling coronavirus epidemiology estimated on Friday that about two-thirds of Covid-19 cases exported from mainland China remain undetected worldwide, potentially resulting in multiple chains of as-yet undetected human-to-human transmission outside China.
Neil Ferguson leads the modeling group at Imperial College London. In response to the new study, Jonathan Ball, Professor of Molecular Virology at the University of Nottingham, said: With each new finding of how this virus is behaving – large proportions of people with mild or no symptoms, frequent detection of the virus in the nose and throat irrespective of disease severity – we should start to accept that this outbreak will be incredibly difficult to control using standard public health measures, such as isolation of cases and contact tracing. We are likely to see continued spread around the world and the eventual emergence of what will be the fifth commonly circulating human coronavirus infection.
There is still little information other than anecdotes on the damage being done to China’s economy by the virus. Businesses and factories have been told to reopen unless they have permission to stay closed. Workers have been told they will be punished if they do not return to work. Many companies across China have restarted operations, but only on a limited scale and with few employees because the authorities have maintained strict restrictions on people’s movement. In recent days, officials have urged companies and factories to move more quickly, citing the toll that the epidemic has taken on the economy.
The government’s measures have prompted some pushback from business leaders, who in recent days have suggested that the control measures have been too stringent and choked economic growth. Except for pictures of empty streets, empty malls, and shipping data, there is little information available for now.
Chinese oil refiners have cut their daily run rates further, to around 10 million b/d, which is the lowest since 2014. State refiners had cut their processing rates by some 10 percent or 940,000 b/d, but independent refiners had cut even deeper, at around 25 percent of what they processed before the outbreak. The sharp decline in demand in China, which by the way is the world’s largest oil importer, is now stranding oil cargoes off the country’s coast and across Asia.
The coronavirus outbreak is forcing international companies across nearly every industry to face a stark reality: Business will not go on as usual. US stocks fell for the second straight day on Friday, with the S&P closing more than 1 percent lower. Auto sales in China collapsed to 8 percent of normal this month. The International Air Transport Association last week warned of a deep drop in earnings of about $29 billion this year among global carriers, with virtually all of the losses expected to hit airlines in the Asia-Pacific region.
The US government still expects China to honor its commitments to buy more US goods under a trade deal despite the coronavirus outbreak. A Treasury official said it was too soon to make accurate forecasts for the impact of the virus on the global economy. Still, the US’s “base case” scenario foresees China’s growth dropping in the first quarter and then rebounding sharply.
5. Renewables and new technologies
Thanks to a wave of new investment, solar farms across the US are increasingly being built with industrial-scale battery packs on-site so that noontime surpluses can be stored for release in the evening. Battery capacity in the US is set to more than double this year to about 4,800MW and to surpass 32,000MW by 2025 – enough power to serve about 26 million households. But capacity forecasts are still only a fraction of the US’s more than 1 million MW in electricity generating capacity.
Today, the US electric grid connects more than 9,000 electricity producers to millions of consumers through 6 million miles of transmission lines managed by more than 3,000 different private and public organizations. To meet the surge in demand projected by 2050, utility operators are planning for a future that blurs the distinctions between energy consumers and producers. Homeowners, businesses, and other traditional utility customers are beginning to take on a new role as energy producers through small-scale solar arrays, wind turbines, and other new affordable technologies. To coordinate so many different power sources and demands, the future power grid will depend on artificial intelligence, automated two-way communications, and computer control systems.
Pumped storage is a process whereby excess electricity from baseload generating stations is used to pump water to high-altitude lakes and then drain it back down through generators during periods of high electricity demand. This is a relatively efficient way to store electricity, but unfortunately, there are few high-altitude lakes and sources of water in suitable locations. However, in an Alpine town in Switzerland, a 400-foot-high crane with six heads lifts a block of compacted soil into the air and carefully adds it to the top of a stack of massive blocks. Later, the crane reverses that process, generating power as gravity lowers the block back toward the starting level. Energy Vault, the company that built the device, believes it could help the renewable-energy industry confront its most intractable problem: storing energy to capture the surges and moderate the lulls that characterize renewables.
Scientists at the Tokyo Institute of Technology have demonstrated the first visible-light photoelectrochemical system for water splitting using TiO 2 enhanced with cobalt. The proposed approach is simple and represents a stepping-stone in the quest to achieve affordable water splitting to produce hydrogen.
In northwest India, a solar-power plant is producing some of the world’s cheapest energy. Built in 2018, the plant can generate 200 megawatts of electricity, enough to power the homes in a middle-size US town. The electricity sells to distributors for 3.4 cents a kilowatt-hour, a record low for solar power in India, a country that has the world’s cheapest solar energy. This solar power costs less to generate in sun-drenched India than coal, the cheapest competing fossil fuel. The country currently makes the bulk of the electricity used by 1.3 billion people by burning coal.
In Germany, the government is proposing the production of 5 GW’s worth of hydrogen by 2030 for transportation, industry, and heating homes. Also, the network of filling stations needs to be expanded to make fuel cell vehicles more attractive to consumers. The organization representing Germany’s gas grid operators has proposed a hydrogen grid of 3,700 miles running along 90 percent of the existing natural gas network right-of-way.
6. The Briefs (date of the article in the Peak Oil News is in parentheses)
Need to diversify: The six countries that make up the Gulf Cooperation Council need to expand faster away from oil as the transition toward renewable energy picks up pace, putting pressure on the region’s energy-dependent economies, according to S&P Global Ratings. Oil accounts for more than 70 percent of Gulf revenue. (2/18)
Saudi Arabia and Kuwait share the two oilfields Khafji and Wafra that have not been pumping oil for five years due to disputes over concessions. Trial production at the Khafji and Wafra began on Sunday. The end of the year will restore the normal levels of production of nearly 550,000 b/d. (2/18)
In the United Arab Emirates, a Dubai-based operator of ports and terminals around the world is returning to full state ownership with a proposed transaction and a subsequent delisting from Nasdaq Dubai. This could be one of the latest signs that the oil-rich countries in the Middle East are still struggling to shore up budgets and finances in the aftermath of the 2014 oil price crash. (2/19)
Brazil’s oil production jumped by 20.4 percent on the year to set a new production record of 3.168 million b/d in January, thanks to the prolific pre-salt basin, oil regulator ANP said on Wednesday. Oil production in January 2020 rose by 2 percent compared to December 2019 and by 20.43 percent compared to January 2019. (2/20)
The US oil rig count increased by 1 to 679, Baker Hughes reported. The gas rig count remained flat at 110. The total rig count of 791 is down 265 year-over-year. The offshore rig count is down one to 22 but up three rigs year-over-year. In Canada, the rig count dropped 11 rigs from last week to 244, with oil rigs down three to 169 and gas rigs down eight to 75. (2/22)
A ransomware attack on a US natural gas facility meant a pipeline had to be shut down for two days, the US Department of Homeland Security (DHS) has said. However, it did not name the facility or tell when the attack happened. The event was severe in part because the organization was not prepared for such an attack, the DHS statement said. (2/20)
EV range: Tesla already makes an electric car that has the longest battery range in the industry —373 miles. Now the Model S has gotten hardware and software updates that will push that up the range to nearly 390 miles. The longer the range, the lower the “range anxiety” of drivers. (2/22)
In Germany, Tesla Inc got approval from a German court on Thursday to continue to cut down part of a forest near the capital Berlin to build its first European car and battery factory, in a defeat for local environmental activists. Tesla had temporarily halted the tree felling earlier this month. (2/21)
Japan’s auto industry and government are setting up a joint council for carmakers and auto parts suppliers as they face disruption due to the coronavirus outbreak. The group will share information and offer any necessary financing and policy support if the situation worsens, the Ministry of Economy, Trade, and Industry said in a statement Thursday. (2/20)
The hydrogen fuel cell market has a serious player emerging in South Korean automaker Hyundai Motor Corp. Hyundai is jumping into the hydrogen truck market to compete with Nikola, Toyota, and Tesla’s Cybertruck and Semi. Hyundai and Yeosu Gwangyang Port Corp. are partnering to commercialize hydrogen fuel-cell trucks in South Korea. (2/20)
India is aiming to become self-sufficient in thermal coal from the financial year 2023-2024, said Pralhad Joshi, the Union Minister of Coal and Mines Tuesday, while chairing a brainstorming session organized to find a way forward for the coal sector in the western Indian state of Gujarat. (2/19)
The UAE’s nuclear regulatory authority granted the license needed to start the country’s first nuclear plant, paving the way for the Gulf state to be the first in the region to use nuclear power to generate electricity. (2/17)
Solar farming: The Kominek family farm is a green expanse of hay and alfalfa in northern Colorado. After 50 years, the farm began losing money. In late 2017, Byron Kominek went looking for more profitable alternatives, including installing solar panels and selling electricity to the utility. Land-use codes made it difficult to use their 24 acres for anything but farming. So, the Komineks found a compromise: a solar array with plants growing beneath, between, and around rows of photovoltaic panels. Some 3,300 solar panels will rest on 6-foot and 8-foot-high stilts, with vegetables planted underneath. (2/19)
Solar performance improvement: A study by Brown University found that the use of perovskite materials (“a broad class of crystalline materials”) can create a much more resilient and durable next generation of solar cells. Though perovskite films tend to crack easily, those cracks are quickly healed with some compression or a little bit of heat. That bodes well, the researchers say, for the use of inexpensive perovskites to replace or complement pricy silicon in solar cell technologies. (12/17)
Dominant factors in energy markets: The geopolitical landscape is likely to be significantly modified by the energy transition from fossil fuels to renewable and low-carbon resources, both on the global and sub-national levels, experts said during the University of Texas Energy Week’s second day of sessions. In a keynote address, Paul Hudson, president of Blackstone Group’s General Infrastructure investment firm and former Public Utility Commission of Texas chairman, identified climate change, greenhouse gas emissions, and the environment as dominant factors in energy markets over the past few years. (2/19)
Japan recorded a $12 billion trade deficit for January Wednesday, as exports declined amid worries about the spread of a new virus that could deaden regional economic growth. That marked the third straight month of a trade deficit for the world’s third-largest economy. (2/19)
CO2 from energy level in 2019: This week, the Economist reported that “emissions of carbon dioxide in 2019 which were related to energy had remained the same (33.3 billion tons) as the previous year’s” according to figures released by the intergovernmental data-collecting group the IEA. While this seems to be great news, the Economist is reluctant to be overly celebratory, asking, “is it a peak, a stutter or just a brief pause?” (2/17)
Chinese emissions down: One of the deadliest epidemics in decades has dented energy demand and industrial output in China, cutting carbon dioxide emissions by about 100 million metric tons—close to what Chile emits in a year. A new analysis by the climate nonprofit Carbon Brief found that the widespread impact of the virus—including travel restrictions, longer holidays, and lower economic activity—means that neither has recovered from the usual lull around the Chinese New Year, a roughly two-week festival that began this year on January 25. (2/19)
Methane leaks impactful: Oil and gas production may be responsible for a far larger share of the soaring levels of methane, a potent greenhouse gas, in the earth’s atmosphere than previously thought, new research has found. The findings, published in the journal Nature, add urgency to efforts to rein in methane emissions from the fossil fuel industry, which routinely leaks or intentionally releases the gas into the air. (2/20)
Amazon CEO Jeff Bezos, the world’s richest man, committed $10 billion of his fortune to set up the new Bezos Earth Fund, which would support “scientists, activists, NGOs—any effort that offers a real possibility to help preserve and protect the natural world.” (2/22)
The Colorado River’s average annual flow has declined by nearly 20 percent compared to the last century, and researchers have identified one of the main culprits: climate change is causing mountain snowpack to disappear, leading to increased evaporation. (2/21)
Great Lakes high water: The water line along Lake Michigan’s shoreline is at all-time high levels. But it has been there before, through cyclical behavior of contributing factors. What’s unknown now is how impactful the added element of climate change will be on those along the shorelines. (2/20)
US Secretary of Agriculture Sonny Perdue announced the Agriculture Innovation Agenda, a department-wide initiative to align resources, programs, and research to position American agriculture to meet future global demands better. Specifically, the US Department of Agriculture (USDA) will stimulate innovation so that American agriculture can achieve the goal of increasing production by 40 percent while cutting the environmental footprint of US agriculture in half by 2050. The new agenda targets biofuel blend rates of 15 percent in 2030 and 30 percent in 2050. (2/21)