Editors: Tom Whipple, Steve Andrews
Quote of the Week
“I hear all the calls for stopping exploration, stopping production. Let me be very clear: as long as the U.K. still needs oil and gas in its consumption for its society, it’s better to produce it in its own backyard.”
Ben van Beurden, CEO of Shell, commenting on developing a new field offshore Scotland
Graphic of the Week
1. Energy prices and production
2. Geopolitical instability
3. Climate change
4. The global economy and the coronavirus
5. Renewables and new technologies
1. Energy prices and production
Oil: While global crude demand remains on an uneven upswing, the rapid spread of the coronavirus delta variant has dented most demand projections for the rest of 2021. Asian outbreaks, especially in China, are triggering new economic restrictions. China’s zero-tolerance approach to COVID-19 led to the closure of its Meishan terminal at the world’s third-busiest port — the Ningbo-Zhoushan port — which is expected to disrupt supply chains globally. WTI lost 65 cents, down to a $68.44 settlement for the week, while front-month Brent closed at $70.59. The spread of the delta variant of Covid is threatening to put an early end to the US summer driving season and spark a more precipitous downturn than usual in gasoline demand following the Labor Day holiday in early September.
Refiners, recovering from the demand destruction that followed the rise of the pandemic in March 2020, have enjoyed weeks of growth as states reopened for business and pleasure, social distancing rules relaxed, and people hit the road on vacation. As a result, gasoline demand reached a record high of more than 10 million b/d in early July before falling, then recovering to 9.78 million barrels a day in the week ended July 30th.
The EIA cut its estimate for 2022 global oil demand growth by 100,000 b/d from last month’s outlook, now predicting demand will increase by 3.6 million b/d from 2021 to 101.3 million b/d in 2022. That would put 2022 global oil demand above pre-pandemic levels for the first time, or 350,000 b/d above the 2019 average.
A new era in deepwater drilling is about to begin. With the sanctioning of the Anchor project, Chevron signaled that it was ready to risk billions tapping the ultra-high pressure, Lower Wilcox Tertiary play, some 35,000 feet below the mud line. At least two other projects are in advanced status, with several more under review. One of the biggest deepwater drillers, Transocean, notes that in the next few years, several opportunities could be spun from the success of the Anchor project and the North Platte and Shenandoah projects (nearing sanction).
Transocean sees a healthy candidate pool for its unique 20,000 psi drillships, the Deepwater Atlas and the Deepwater Titan. These are the only two rigs with this rating and probably the only two of these billion-dollar ships that will be built from scratch.
Valaris announced that its 7th generation drillship, the DS-11, will be restored from the “preservation stack” and reconfigured for 20,000 psi drilling. This rig, when properly configured, will be used to drill the North Platte project for Total Energies, with a 2024 start date. With only three of these high-specification rigs planned, compensation should be well above the average ~$225K per day most of the still-active 7th generation drillships are receiving.
OPEC: Last week, the Biden administration urged OPEC and its allies to boost oil output to tackle rising gasoline prices which the US sees as a threat to the global economic recovery. The request reflects the White House’s willingness to engage significant world oil producers for more supply to help industry and consumers, even as it seeks the mantle of global leadership in the fight against climate change and discourages drilling at home.
Biden’s national security adviser Jake Sullivan criticized big drilling nations, including Saudi Arabia, for what he said were insufficient crude production levels in the aftermath of the global COVID-19 pandemic. Biden later told reporters that the US had made clear to OPEC that “the production cuts made during the pandemic should be reversed” as the global economy recovers to lower prices for consumers. OPEC+ agreed in July to boost output by 400,000 b/d a month starting in August until the rest of the 5.8 million b/d cuts are phased out. OPEC+ is scheduled to hold another meeting on Sept. 1 to review the situation.
Goldman Sachs said a recent call by Washington for OPEC+ to boost oil output is unlikely to result in higher production over the short-term given the threat to demand from the coronavirus Delta variant.
Shale Oil: Shale drillers — some of them just emerging from bankruptcy — racked up a staggering $42 billion in new debt in the first half of the year. However, America’s oil explorers aren’t repeating the costly mistakes that landed them in hot water with investors, left them almost entirely shut out of debt markets, and forced hundreds of them into insolvency over the years. Instead, they’re holding the line on production, boosting investor returns, and are now attracting the lowest bond yields they’ve ever seen. And instead of using their newly found cheap credit to boom once again, they’re using it to retire costlier debt.
No sector has benefited from the bonanza of cheap debt more than shale, which about a year ago was on the brink of total collapse — facing a pandemic that sent fuel demand plunging and investors and creditors who, even before Covid-19, had grown weary of waiting for profits. “We came into this year with too much debt, and we plan to pay the debt down,” shale explorer APA Corp.’s CEO John Christmann told analysts and investors last week. “The priority has been the debt, and clearly, we’re on a much faster pace there than we would have envisioned at the start of the year.”
The Permian Basin has grown over the past decade to produce more oil than Iraq. But it has struggled to cope with some of the effects of its expansion over the past decade: roads crumbling from a heavy volume of 18-wheelers, a lack of doctors, skyrocketing house prices and rents, and a lack of qualified workers. A coalition of energy companies and state and local partners plan to spend $844 million on roads, education, workforce development, housing, broadband, and health care.
The North Dakota portion of the Bakken basin has good historical data from the ND Department of Natural Resources. However, the production there seems to be past peak and in general decline. Therefore, data about the region is more a historical perspective than help predicting issues that may have a significant impact on the future. The Bakken data may indicate what to expect in the Permian basin, the only one left in the US that seems to have the capacity to increase production.
The production shapes shown in the Bakken Data indicate that there aren’t core (tier 1) areas with surrounding poorer quality areas. Instead, there is a single, small central peak area (geologists might call this a bright spot). Then, the reservoir quality declines steadily to the edges of the basin, outside of which there is no meaningful production and never will be no matter what oil prices or technology improvements come along.
Natural Gas: US natural gas futures climbed to a 31-month high of $4.16 per million Btu on Thursday thanks to forecasts for hotter weather over the next two weeks and soaring global gas prices, ensuring that US LNG exports will remain at record highs. Refinitiv has projected that average gas demand, including exports, will climb from 90.9 billion cf/d last week to 94.5 billion this week as cooling demand keeps rising. This week’s forecast is lower than anticipated because some power generators will be forced to burn coal instead due to increasingly high natural gas prices. But that won’t be on a big enough scale to stop the natural gas price climb. Between January and June 2021, US LNG exports jumped by 42% Y/Y to an average of 9.6 billion cubic feet per day. The era of cheap natural gas might be gone for good.
Gas delivered from the new Whistler Pipeline to the South Texas market is pressuring prices as Permian Basin supply increases along the Texas Gulf Coast. Following the commercial startup of the Whistler Pipeline July 1st, cash basis at hubs near the mainline’s terminus has moved sharply lower amid the influx of additional supply from West Texas.
Exxon Mobil has begun marketing US shale gas properties as it ramps up a long-stalled program that aims to raise billions of dollars to shed unwanted assets and reduce debt taken on last year. Three years ago, the company set a goal of raising $15 billion from sales by December. More recently, it promised to accelerate lagging sales to whittle a record $70 billion debt pile. The company’s XTO Energy shale unit seeks buyers for almost 5,000 natural gas wells in the Fayetteville Shale in Arkansas.
Electricity: As drought persists across more than 95% of the American West, water elevation at the Hoover Dam has sunk to record-low levels, endangering a source of hydroelectric power for an estimated 1.3 million people across California, Nevada, and Arizona. The water level at Lake Mead, the Colorado River reservoir serving the Hoover Dam, fell to 1,068 ft. in July, the lowest level since the lake was first filled following the dam’s construction in the 1930s. This month, the federal government is expected to declare a water shortage on the Colorado River for the first time, triggering cutbacks in water allocations to surrounding states from the river.
Widespread drought conditions throughout the Southwest over the past 20 years have led to a more than 130-foot drop in the water level at Lake Mead since 2000. From July, the Bureau of Reclamation’s latest projections shows the lake’s water level falling another 31 ft., to 1,037 ft., by June 2023. If the water level drops 118 ft. from July’s level to 950 ft., it would fall below the turbines, at which point power generation must shut down.
The Hoover Dam is one of the nation’s most extensive hydroelectric facilities. About 23% of its power output serves Nevada, 19% serves Arizona, and most of the remainder serves Southern California. Last summer, the California Independent System Operator, which oversees the state’s power grid, resorted to rolling blackouts during a West-wide heatwave that constrained the state’s ability to import electricity. The supply crunch was most acute in the evening after solar production declined.
2. Geopolitical instability
(These are the situations that reduce the world’s energy supplies or have the potential to do so.)
Iran: The country is suffering through yet another surge in the coronavirus pandemic — the worst yet — and anger is growing at images of vaccinated Westerners without face masks on the internet or TV while they remain unable to get the shots. Like much of the world, Iran remains far behind, with only 3 million of its more than 80 million people having received both vaccine doses. After Iran’s Supreme Leader Ayatollah Ali Khamenei refused to accept vaccine donations from Western countries, the Islamic Republic has sought to make the shots domestically. Again, however, that process lags far behind other nations.
According to an updated analysis by the US EIA, Iran’s crude oil production fell to the lowest in 40 years. At less than 2 million b/d, the EIA said, the country’s oil output was affected by both the pandemic, which decimated demand for oil, and US sanctions targeting specifically the Iranian oil industry. Before the US withdrawal from the Iran nuclear deal and the snap-back of sanctions, Iran pumped around 2.6 million b/d and exported some 2.5 million. The decline in production is a far cry from the Trump administration’s target of bringing Iran’s oil output and exports to zero to force Tehran to return to the nuclear negotiating table.
Iran has met just one-fifth of its renewable energy capacity installation target for the five years between 2016 and 2021. Data from the IEA shows that as of 2019, most of Iran’s electricity generation came from natural gas, followed by oil, with hydropower a distant third, and nuclear power—generated by the only nuclear power plant in the country Bushehr—an even more distant fourth. Renewable energy, including hydropower, accounts for only 7 percent of Iran’s power generation, compared to a 90-percent share for natural gas.
French President Emmanuel Macron has urged Iran to resume talks on reviving the 2015 nuclear deal with world powers. Still, Iran’s new hardline president, Ebrahim Raisi, says that Iran’s “rights” must first be guaranteed. In addition, Iran’s new president picked a hawkish Foreign Ministry veteran with close ties to the military elite to replace Mohammad Javad Zarif as the nation’s top diplomat, underscoring the shift in power that’s clouding the resumption of nuclear talks with world powers.
Iran’s new president also picked the former head of the country’s natural-gas company as oil minister. Javad Owji, who hasn’t previously held a full ministerial post, was once managing director of the National Iranian Gas Co. He would replace retiring veteran Bijan Zanganeh. Owji was more recently the head of Sina Energy Development Co., owned by a state-run charity controlled by Supreme Leader Ayatollah Ali Khamenei. His career has included senior positions at other energy and petrochemical companies.
Iraq: Baghdad wants to boost its oil production to 8 million b/d by 2027, according to the country’s oil minister, as OPEC’s second-biggest producer targets a higher output level than previously planned. Iraq has a current oil production capacity of around 5 million b/d. However, the minister used to say the target for oil production capacity was only 7 million b/d by 2027.
Reduced hydropower output in Iran amid a water scarcity has prompted Tehran to suspend electricity exports to neighboring Iraq, which relies on Iranian power and gas supply. Baghdad’s power generation is insufficient to ensure domestic supply, especially with crumbling infrastructure and 110-plus degrees Fahrenheit in the summer. Even after the US slapped sanctions on Iran’s energy exports in 2018, Iraq imports natural gas and electricity from Iran under a special waiver that the US has regularly extended. But this year, Iran is also suffering from power shortages and power outages as consumption soars, while power generation has declined.
The federal government and the semi-autonomous region of Kurdistan pledged to cooperate in resolving their differences in energy issues, hoping to “turn a new page.” The Iraqi oil minister “welcomed cooperation with the KRG ministry of natural resources and expressed his ministry’s readiness to remove all the technical and financial barriers.”
There was always something that did not look quite right about Russia’s Lukoil’s recent announcement that it would withdraw from Iraq’s giant West Qurna 2 oil field which has roughly 14 billion barrels of reserves. However, there was a bland statement recently that Lukoil will stay on in the role of lead developer on the supergiant site. The recent development history for Lukoil in West Qurna 2 is essential to understanding its flip-flopping announcements.
The Oil Ministry’s first response to Lukoil’s threat to leave was to say that it was okay if Lukoil wanted to go but that before it did so, it would pay compensation instead of the upfront investment that it promised in 2017 and promised again in 2019 as it was not meeting the time-sensitive oil production targets that it had agreed to. This compensation could run into hundreds of millions of dollars. Not surprisingly, Lukoil has now said that it is staying, and one of the company’s senior financial people was summoned to Moscow for a meeting with Putin’s senior energy adviser to discuss what happened.
Given the widespread corruption in Iraq’s oil industry and inadequate financial returns that Baghdad is willing to allow foreign companies developing its oil fields, most western oil companies have pulled out. This leaves the field to Russia and China who are there for state mandated political reasons rather than the opportunity to earn a fair return on their investments.
Libya: Production at Libya’s Gallo field dropped by as much as 70,000 b/d after an oil pipeline leak. The poor condition of Libya’s energy infrastructure continues to hamper its production plans. However, crude production has been averaging 1.15-1.20 million b/d in the past two months, according to the S&P Global Platts monthly survey. Platts is forecasting Libya’s oil output will hover around 1.1 million b/d in the second half of 2021. Still, risks are skewed to the downside on technical challenges, sporadic blockade threats, and the potential for the Dec. 24 presidential and parliamentary elections to trigger another flare-up into civil war.
3. Climate change
The UN’s panel on climate change told the world last Monday that global warming was dangerously close to being out of control – and that humans were “unequivocally” to blame. Already, greenhouse gas levels in the atmosphere are high enough to guarantee climate disruption for decades, if not centuries. In other words, the deadly heatwaves, massive hurricanes, and other weather extremes that are already happening will only become more severe. Some of the report’s main conclusions:
HUMANS ARE TO BLAME. The panel used its strongest terms yet to assert that humans are causing climate change, with the first line of its report summary reading: “It is unequivocal that human influence has warmed the atmosphere, ocean, and land.”
TEMPERATURES WILL KEEP RISING. The report describes possible futures depending on how dramatically the world cuts emissions. Unfortunately, even the severest of cuts are unlikely to prevent global warming of 1.5 degrees C above preindustrial temperatures. Without immediate steep emissions cuts, average temperatures could cruise past 2C by the end of the century.
THE WEATHER IS GETTING EXTREME. Severe heat waves that happened only once every 50 years are now happening roughly once a decade. Tropical cyclones are getting stronger. Severe droughts are happening 1.7 times as often. And fire seasons are getting more prolonged and more intense.
ARCTIC SUMMERS COULD SOON BE FREE OF ICE. Under the IPCC’s most optimistic scenario, summertime sea ice atop the Arctic Ocean will vanish entirely at least once by 2050. As a result, the region is the fastest-warming area globally – warming at least twice as fast as the global average.
SEAS WILL RISE NO MATTER WHAT. Sea levels are sure to keep rising for hundreds or thousands of years. So even if global warming were halted at 1.5C, the average sea level would still rise about 2 to 3 meters (6 to 10 feet), and maybe more.
RUNNING OUT OF TIME. With 2.4 trillion tons of climate-warming CO2 added to the atmosphere since the mid-1800s, the average global temperature has risen by 1.1C. That leaves 400 billion tons more that can be added before the carbon budget is blown. Global emissions currently total a little more than 40 billion tons a year.
Drought across the Western US has forced California to ration water to farms. Hydroelectric dams barely work. There are now both short- and long-term factors drying out the Western US. Under the influence of fast-warming temperatures, the region may be entering a permanently drier state. Drought season might be giving way to a drought era.
Severe droughts are drying up rivers and reservoirs vital to producing zero-emissions hydropower in several countries around the globe, in some cases leading governments to rely more heavily on fossil fuels. The emerging problems with hydropower production in places like the US, China, and Brazil represent what scientists and energy experts will be a long-term issue for the industry as climate change triggers more erratic weather and makes water access less reliable.
Climate action remains a fight over each dollar and incremental policy, at least on Capitol Hill. Lawmakers are wrestling over a pair of significant bills that include important climate provisions. Each, if passed, would invest billions of dollars in the sort of clean energy transition the US must make to have any chance of cutting the nation’s emissions by at least 50 percent by the end of this decade. However, the political climate in Washington makes it difficult to act with the urgency the science says is necessary. Climate change remains a distinctly fraught issue in the United States compared with many other countries.
There are two types of fires raging across Siberia: the kind the authorities are fighting and the others they are allowing to burn. That’s because Siberia is so vast that massive fires can burn without threatening any significant settlements, transportation systems, or infrastructure. The fires raging in Siberia are bigger than fires in Greece, Turkey, Italy, the United States, and Canada combined, with analysts warning that this year could surpass Russia’s worst fire year, 2012.
A dangerous heatwave is sweeping across the Mediterranean, the latest in a series of recent extreme weather events that underscore the real-world impacts of climate change. On Wednesday, Sicily may have smashed continental Europe’s heat record when thermometers hit 48.8 degrees Celsius (119.8 Fahrenheit).
4. The global economy and the coronavirus
United States: The US is averaging more than 124,000 new virus cases each day, more than double the levels of two weeks ago and the highest rate since early February, according to a New York Times database. Hospitals in hot spots around the country are approaching capacity. With all of this at play, President Biden has urged the private sector and state and local governments to ramp up pressure on the nearly one-third of eligible people in the country who remain unvaccinated. He has also ordered all civilian federal employees to be vaccinated or submit to regular testing and other restrictions.
However, several Republican-led states have barred businesses from requiring consumers to provide proof of vaccination. Only about a quarter of all US hospitals require staff members to be vaccinated. As a result, hospitalizations are soaring in areas with low vaccination rates. Inoculations have picked up again in the country, but public health experts note that it takes weeks for the vaccines’ full effect to kick in. So, they say that more immediate measures, like mask mandates, are needed.
US job openings jumped to a fresh record high in June, and hiring also increased, indicating that the supply constraints that have held back the labor market remain elevated even as the pace of the economic recovery gathers momentum. Job openings, a measure of labor demand, shot up by 590,000 to 10.1 million on the last day of June, the Labor Department said in its monthly Job Openings and Labor Turnover Survey.
The European Union: Natural gas prices hit a new record high as a slow at first, then much faster tightening of Russian supply looks set to cause a storage crunch on the continent. Russian gas flows via the Yamal-Europe pipeline that runs across Belarus and Poland to Mallnow, Germany, have continued to shrink since the start of the month, leaving Europe out of time to refill inventories ahead of the winter.
The amount of gas entering Germany at the Mallnow compressor station has plunged by almost half, signaling Russia is flowing less through the Yamal-Europe pipeline. This situation may be a Kremlin shot across the European bow and a reminder of who keeps the lights on during the winter. Although Gazprom said that it was continuing to fulfill its obligations for deliveries via the pipeline and was using all available options to meet its commitments, the facts speak otherwise.
One week ago, Gazprom suffered a fire at its processing plant in Urengoy, which curbed gas exports via the Yamal-Europe pipeline; it also prompted the Russian natural gas giant to cancel gas condensate exports this month. But, of course, that could simply be a rationalization for a sharp decline in natural gas shipments to Europe, giving the continent a taste of just how expensive the coming winter could be if Russia were “forced” to limit natural gas exports.
China: The worst coronavirus outbreak since the virus first emerged in Wuhan adds to concerns about the quality of its domestically developed vaccines amid an absence of data on the efficacy of the shots. Rapid transmission across the country has ended China’s year-long streak of only small-scale, locally contained clusters. In addition, the rising case numbers have focused attention on the absence of rigorous studies from state-run Sinopharm and privately owned Sinovac proving that their vaccines work against the Delta coronavirus variant.
Declining efficacy against emergent mutations of the virus is a problem for all vaccines. But unlike the shots developed by BioNTech/Pfizer, Oxford/AstraZeneca, and Moderna, no research into the Chinese shots’ efficacy against the Delta variant has been published in an international journal with a robust process of peer review to confirm the results. Hundreds of cases have been linked to an outbreak in Nanjing in China; however, public discussion of the issue is being damped down.
Senior Chinese health experts insist the vaccines are still effective against new variants. But they have also acknowledged that the prevention rate is falling, a trend that risks undermining the vaccination drive. According to a Beijing-based research firm, since the World Health Organization approved vaccines developed by Sinovac and Sinopharm, 570 million doses have been shipped to more than 100 countries. Moreover, Southeast Asian countries that had widely rolled out Chinese-made coronavirus vaccines are turning away from the shots in favor of Western alternatives as they scramble to contain deadly outbreaks caused by the delta variant.
According to Goldman Sachs, China’s oil demand is expected to be 1 million b/d lower in the next two months than previously expected due to the rising number of COVID cases. As a result, Goldman Sachs analysts now see total global crude oil demand at 97.8 million b/d over the next two months, compared to an estimated 98.4 million b/d in July. In the past two weeks, China imposed widespread restrictions on travel in major cities, including Beijing, to contain a resurgence in COVID cases of the Delta variant. As with the previous outbreak, which China stifled with a complete lockdown, the rise in infections affects movement and, consequently, fuel use.
The Covid outbreak that has partially shut one of the world’s busiest container ports is heightening concerns that the rapid spread of the delta variant will lead to a repeat of last year’s shipping nightmares. In addition, the Port of Los Angeles, which saw its volumes dip because of a June Covid outbreak at the Yantian port in China, is bracing for another potential decline because of the latest shutdown of the Ningbo-Zhoushan port in China.
China’s expansion of coal-powered steel mills accelerated sharply in the first half of 2021, exposing the government’s reluctance to sacrifice industry-fueled growth to achieve its climate goals. Analysis of Chinese government approvals found that 18 steelmaking blast furnaces and 43 coal-fired power plants were announced in the first half of this year. As steel prices surged, 35 million tons of coal-dependent ironmaking capacity were reported in the first half of 2021, more than in 2020. If built, the combined coal and steel projects would emit about 150 million tons of carbon dioxide per year, equivalent to the total emissions of the Netherlands.
The steelmaking sector will probably miss a 2020 target of limiting output in 2021 to the same level as last year because steelmaking is the second-largest source of China’s carbon emissions. There is no way for getting to carbon peak by 2030 without a 30% reduction from steel; the most plausible way for that to happen is by reducing output.
Crude imports fell 19.6% yearly to 9.75 million b/d in July, General Administration of Customs preliminary data showed. The inflow was also down 0.6% from 9.81 mb/d imported in June.
Russia: Daily COVID-19 deaths hit a new record of 819 on Saturday, a day after Moscow’s health department reported the highest number of monthly deaths in the city since the start of the pandemic. Russia’s daily coronavirus deaths are on the rise after infections peaked in July. Authorities blame the infectious Delta variant and a slow vaccination rate. Moscow said late on Friday that the mortality rate in the city in July was 70% higher than before the pandemic in 2019 and 60% higher than in the same month last year. A total of 17,237 deaths in Moscow in July is the highest monthly death toll since the pandemic began. Deaths in Russia likely exceed reports by a significant margin.
Saudi Arabia: Aramco plans to have 550,000 b/d more in oil production capacity by 2025 when the expansion projects on two major oilfields are complete. The Saudis are aiming for 13 million b/d of production capacity, up from 12 million b/d now. In its earnings report, Aramco said that the programs to boost production at the Marjan and Berri oilfields were in the final stages of detailed engineering, and construction activities continued to progress. The Marjan and Berri projects are expected to add 300,000 b/d and 250,000 b/d, respectively.
Aramco has seen its profits jump almost four times, boosted by a rise in oil prices as demand recovers. The company added that the easing of Covid restrictions, vaccinations, stimulus measures, and economic activity returning supported results. Crude oil prices have risen by more than 30% since the start of the year. Aramco’s chief executive also gave an upbeat assessment for the rest of 2021. The firm, the world’s biggest oil producer, said net income rose by 288% to $25.5 billion for the second quarter.
Saudi Aramco favors more potential deals to offer to investors and unlock capital, CEO Amin Nasser said after the oil giant in June closed a $12.4 billion deal for its crude pipeline network. “We are looking at the potential for other deals that we are currently in negotiation (about),” Nasser said on a call with analysts. Aramco had reached out to banks to pitch for an advisory role to help finance the sale of a significant minority stake in its gas pipelines. The gas pipeline stake sale will be a “copy-paste” of the oil pipeline deal, one of the sources said.
Some Asian refiners are buying lower-than usual volumes of crude oil from Saudi Arabia in September as authorities in China, and the rest of Asia have re-imposed restrictions to fight the Delta variant surge. Aramco has notified those four refineries—one in Southeast Asia and three in Northeast Asia—that it would ship the crude they had asked for. In addition, China Petroleum & Chemical Corporation (Sinopec) is expected to reduce refinery run rates by up to 10% at some of its facilities amid renewed travel restrictions in China to fight the COVID wave.
5. Renewables and new technologies
While solar and wind are the dominant segments in the transition to renewables, a few emerging markets are looking at geothermal sources to meet future energy needs. Geothermal energy – generated when pipes drilled into the earth’s surface supply steam to power electric turbines – lags other forms of renewables in terms of installed capacity; however, it is an effective solution for many countries. One of the countries leveraging its significant geothermal potential is Kenya. Located on the Great Rift Valley – where tectonic plates meet and bring magma closer to the earth’s surface – Kenya derives almost half of its electricity from geothermal sources, according to Fitch Solutions, with its contribution set to expand to nearly three-fifths by 2030.
Exxon Mobil and Chevron seek to increase their renewable fuel production by finding ways to make renewable products at existing facilities. The two oil companies want to produce sustainable fuels without spending billions of dollars that some refineries are spending to reconfigure operations to make such products. Renewable fuels account for 5% of US fuel consumption but are poised to grow as various sectors adapt to cut overall carbon emissions to combat global climate change. However, Chevron has been criticized for a less urgent approach to renewable investments than European rivals Shell and Total.
Refiner Phillips 66 is betting on EV batteries for the future because it thinks we have already reached peak oil demand. The company has announced a strategic investment in an Australian lithium-ion battery materials supplier, saying, “This strategic investment enables Phillips 66 to support the development of the US battery supply chain directly.” In addition, it advances our commitment to pursue lower-carbon solutions.”
After launching the development of its 600-kW hydrogen fuel cell powertrain for use in 19-seat aircraft late last year, ZeroAvia has achieved its first significant milestone for its HyFlyer II program. The ground test involved ZeroAvia’s flight-intent 600 kW powertrain, pulling ZeroAvia’s new 15-ton HyperTruck mobile ground testing platform across the tarmac. The HyperTruck developed based on a heavy-duty M977 HEMTT military truck is sized for the company’s ZA-2000 2MW+ powertrain, which can be used to test systems for 40-80 seat hydrogen-electric powered aircraft.
6. The Briefs (date of the articles in the Daily Energy Bulletin is in parentheses)
Costs associated with onshore pipeline projects will likely increase by between 4% and 6% globally by the end of 2022, against current levels, as prices continue to surge for labor, raw materials, and transportation. That’s according to Rystad Energy’s analysis. (8/11)
In the UK, energy prices for millions are expected to rocket from October after the energy regulator said it would increase its cap on the most widely used tariffs by about 12-13% due to soaring global gas prices. (8/10)
Scotland’s First Minister Nicola Sturgeon called on the UK government to reconsider oil and gas licenses just days after a UN panel warned of dire consequences for the planet without drastic steps to slash emissions. Writing to British Prime Minister Boris Johnson, Sturgeon said: “We are both well aware of the importance of oil and gas over many decades — not least in terms of jobs — to the Scottish and UK economies.” However, “the answer to these challenges — given the urgency of the climate emergency — cannot be business as usual.” (8/14)
Yemen’s oil and gas industry could be at a crossroads after six years of brutal civil war, with the US attempting to broker a peace deal that will be critical to reviving the decimated sector. (8/12)
In Australia, expectations are growing that BHP Group will deliver a verdict on the future of its petroleum business next week, as it comes under increasing pressure to cut its fossil fuel footprint. The world’s biggest miner has been facing calls to detail how and when it will exit fossil fuels. BHP’s decision this month to approve $802 million in development spending on oil projects in the US Gulf of Mexico has only ratcheted up the pressure from some investors. (8/13)
Australia, the world’s top coal exporter and the second largest exporter of LNG, wants to develop green hydrogen to replace fossil fuels in a global push to cut carbon emissions. BP, which plans to spend $5 billion a year on low-carbon investments, found the mid-west region of Western Australia was a particularly good location for large-scale green hydrogen production. (8/11)
Security forces from Rwanda and Mozambique have taken the Mozambican port city of Mocímboa da Praia from insurgents, whose attacks in the area forced France’s giant TotalEnergies to suspend a $20-billion liquefied natural gas (LNG) project earlier this year. (8/10)
In Nigeria, oil industry unions said hundreds of investments in the oil and gas sector had been driven away by the growing insecurity in the country. It warned the federal government not to sell all the refineries to private individuals, urging it to rehabilitate and put them into proper usage. (8/14)
Shell Petroleum Development Company of Nigeria yesterday told the Federal High Court in Abuja that it would pay about N45 billion judgment debt awarded against it over oil spillages that occurred in 1970, which affected some Ogoni communities in Rivers State. (8/12)
The Gambian government said on Tuesday BP has agreed to settle a $29.3 million outstanding commitment to drill an exploratory oil well in the West African country’s offshore A1 block, which the company was awarded two years ago. BP broke its obligations by failing to drill a well before the initial exploration period expired on 29th July this year. (8/11)
Uganda is set to be a key focus of African Energy Week in Cape Town this November, as its flourishing oil industry looks set to boom in the coming years. Uganda’s government has been working hard to encourage more foreign investment recently as the country aims to develop its oil and gas industry significantly over the next decade. At present, Uganda holds an estimated 6.5 billion barrels of crude oil, far less than African oil leaders Libya and Nigeria but a significant amount in terms of the regional average. (8/13)
Columbia’s oil industry was rocked last year by the March 2020 oil price collapse and the coronavirus pandemic. Even attempts by the national government in Bogota to reactivate the economy and crucial parts of the economy, including the hydrocarbon sector, are failing to gain traction primarily because of elevated political turmoil and a long-running security crisis. By the start of June 2021, Colombia’s crude oil output had fallen to a multi-year low of 650,884 barrels per day because of the blockades created by protesters. (8/11)
In Mexico, PEMEX fought tooth and nail to wrest control of Zama, the country’s most significant private oil finds, from the companies that discovered it in 2017. It has found itself without the $2 billion cash to develop the field over the next 5-7 years. (8/14)
A critical pipeline linking Canada’s oil sands to US markets could start shipping crude as early as 15th September. Enbridge Inc.’s Line 3 oil pipeline from Alberta to Wisconsin will transport 760,0000 barrel-a-day conduit, replacing an older one with less capacity. (8/14)
In Canada, around 55% of the demand for crude and condensate during 2019, the last ‘normal’ year for demand, was met by imports from the US or by Canada-produced oil routed through the US and then back into Canada, that is, by re-exports. (8/12)
The US oil rig count jumped by ten last week to 397 while the gas rig count slipped by 1 to 103. Total rig count is now at 500, slightly more than double the count last year currently. Canada’s total rig count is 164, up 110 on the year. (8/14)
Vine Energy Inc. reported negative revenue of $64.5 million in the second quarter, leading to a $360 million loss for the period. The main culprit for the negative revenue was $274 million in unrealized derivative losses in the quarter, along with $24 million in realized losses. The loss underscores how commodity hedging can be a double-edged sword for equity investors seeking to ride the wave of rising energy prices. (8/14)
CA’s power problems persist: Even with a battery boom underway in California, the state predicts a power supply shortfall this summer may worsen next year in extreme weather conditions like the heat waves and drought seen this summer. The California Energy Commission’s summer reliability assessment for 2022 shows there may be up to a 5-gigawatt shortfall on the grid. To help ensure reliability for next year and 2023, the PUC is seeking to increase energy storage, expand programs that curtail consumer demand, setting new rates, and delivering more flex alerts. (8/12)
Nuclear energy had been falling further and further out of favor amid falling costs for renewable energy installations. But suggestions of its death have been highly exaggerated. The $1-trillion bipartisan deal that the Senate approved earlier this month envisages $6 billion to support nuclear power. And some utilities are considering mini reactors to support their emission reduction efforts. Even the infrastructure bill seeks to support existing atomic plants becoming uneconomical in competition with cheap gas and renewables. (8/10)
Co-ops, which serve some 42 million people in the West and Midwest, sourced 32% of their electricity from coal two years ago, versus 23% for the US overall. This, according to a report, is because co-ops have less motivation to shift to wind and solar due to the lack of investor pressure on them. That position, however, seems to be changing, as some co-ops actively seek to make the transition. (8/10)
Geothermal: When Kenya opened the Olkaria power plant four decades ago, it was considered more research project than a commercial venture. The untested and costly geothermal technology was experimental, with the first unit expected to supply power for perhaps 10,000 homes. Today, Olkaria generates more than 50 times that, and the technology is on track to become the backbone of the country’s electricity grid. (8/12)
A US H2 entry: The Long Ridge Energy Generation Project, a 485-MW facility equipped to run on a mix of natural gas and carbon-free hydrogen, is nearing completion. The power plant in Hannibal, Ohio, will be “fully operational” in early September. The facility first will burn a fuel blend that includes 5% hydrogen. The plant is intended to transition to 100% green hydrogen over the next decade by relying increasingly on renewable energy to power electrolysis machines that split water into its hydrogen and oxygen elements. (8/13)
Greening aviation: The Biden administration is contemplating incentives to support private-sector production of sustainable aviation fuel (SAF) as it searches for ways to eliminate greenhouse gas emissions in the hard-to-electrify aviation industry. The administration is looking at a 2050 target for airlines to fly on 100% jet fuel from renewable sources. (8/11)
Global passenger EV sales are projected to increase sharply, rising from 3 million in 2020 to 66 million in 2040, according to BloombergNEF’s Economic Transition Scenario. Electric vehicle adoption is accelerating thanks to improvements in battery density and cost, more charging points, and government policies that make driving dirty cars more difficult. (8/10)
EV truck push: Xos, Inc., a manufacturer of fully electric Class 5 to Class 8 commercial vehicles, has agreements with FedEx Ground operators to deliver 120 zero-emission electric trucks across 35 different FedEx Ground operators based in California, New York, New Jersey, Massachusetts, and Texas. (8/10)