Energy, Politics, & Money - 2023.10.12
In this roundup, we look at:
Oil’s return to “normal”, after shrugging off the risk premium triggered by the Hamas attack on Israel
The final agreement between ExxonMobil and Pioneer; and why many expect this deal to be the first in a series in the Permian
The second phase of India’s strategic petroleum reserve (SPR) programme, in which the country would like to see Saudi Arabia, one of its main crude oil suppliers, participate
The New York Times report that Iran was as surprised as everyone else by the Hamas attack on Israel over the weekend; which in the EPM view is evidence that events in the conflict are developing in accordance with the hypothesis we shared early on, last Monday
Indonesia’s efforts to lead the world’s island nations at COP28
The potential of perovskite for solar panels, which can raise efficiency from max 25% to 40%, but struggles to deal with most combinations of oxygen, humidity and light
General Energy News
Oil prices fell for a third straight day, and have now erased the fear premium that developed following the Hamas attack on Israel over the weekend, writes Bloomberg. Brent declined to $85 a barrel, while WTI retreated back to $83 a barrel. Driving the decline is an ebbing away of fears that the conflict might spill over and cause a broader Middle Eastern war. You may recall, this is aligned with EPM analysis from last Monday.
ExxonMobil has closed the deal to acquire Pioneer Resources, writes Reuters. The deal values Pioneer at $253 a share, a 9% premium to Pioneer's average price for the 30 days prior to October 5 when reports of deal talks surfaced. The resulting Pioneer valuation of $59.5 billion will be all paid in ExxonMobil stock, and is expected to close in early 2024.
The ExxonMobil – Pioneer deal is likely to be the first Permian basin focused deal in a series, says Bloomberg. Output from that region of West Texas and New Mexico has doubled in just six years to the point where it yields more oil on a daily basis than OPEC heavyweight Iraq. That robust expansion has exhausted some of the Permian’s highest-quality drilling targets, and companies flush with cash from record profits are turning to acquisitions to shore up future productive capacity. Next up after Pioneer, all eyes are on CrownRock, one of the Permian’s biggest closely held oil and gas producers. The company is up for sale and could fetch around $8 billion
A new round of consolidation in the Permian is also the expectation of Scott Sheffield, Pioneer’s outgoing CEO. The independent shale drillers that undermined OPEC’s decades-long grip on global oil markets soon will be a thing of the past as international giants swallow them up, he believes, writes Bloomberg. “Shale companies cannot survive on their own long term. They’re going to have to merge up, consolidate, and be part of diversified companies.”
India wants Saudi Arabia's Aramco to participate in its planned 6.5 million metric tons (MMT) strategic petroleum reserve (SPR) programme, writes Reuters. India, the world's third-biggest oil importer and consumer, imports over 80% of its oil needs and has built strategic storage at three locations in southern India to store over 5 million tons of oil to protect against supply disruption. The country has conducted two road shows for the second phase of its SPR programme that received interest from companies including Trafigura, BP, Petrochina, Hyundai, Gulf Energy, Glencore and Shell.
Geopolitics
The New York Times writes that Iran was as surprised as everyone else by the Hamas attack on Israel over the weekend. The United States, Israel and key regional allies have not found evidence that Iran directly helped plan the attack, it says. US officials the NYT spoke to would not identify the Iranian officials who expressed surprise at the attack, but they said the Iranian officials were people who typically would be aware of operations involving the Quds Force, Iran’s paramilitary arm that supports and works with proxy forces.
The EPM response to this information. Firstly, it proves that the US accuses and threatens “third countries” without evidence. Second, it knows it does that, so the question analysts should ask is: why does it knowingly accuse and threaten without evidence? The answer, in the EPM view, is geopolitics. The accusations and threats are in fact a warning to the third countries not to get involved. In this particular case, the immediate accusation of Iranian involvement, and the threat of repercussions for Iran, was designed to ensure the conflict remains local, between Hamas and Israel. This, coupled with the information that Netanyahu is not indeed progressing with bringing the “mainstream” political parties into his cabinet, we see as aligned with our initial hypothesis about how the conflict would develop and eventually impact markets, which was that the conflict would remain local; would create a massive number of casualties; and would lead to Israel forming a government that more closely aligns with the US plan for a permanent settlement for the issue of Palestine; that would then enable the US to close the deal between Israel and Saudi Arabia in 2024; all to enable the US focus more on confronting China.
Energy Transition & Technology News
Bill Gates’ Breakthrough Energy Ventures has invested on US startup CubicPV, which makes photovoltaic cells using perovskite, writes Forbes. Perovskite is a composite that is said to enable a significant increase in the efficiency of solar panels, compared to the prevailing silicon technology, from around 25% overall efficiency to up to 40%. Forbes provides an overview of companies active in the space. Oxford University spun off Oxford PV in 2010. Equinor backs the enterprise, which is now building a solar cell manufacturing facility in Germany. First Solar bought Evolar, a European leader in perovskite technology. Chinese solar panel maker GCL System Integration has introduced a 320-watt and hardwearing perovskite solar module. Microquanta of China has presented similar testaments. But, analysts say, “Manufacturers have yet to deliver on their promise of commercial perovskite products”. One issue holding back perovskites is that they degrade when exposed to oxygen, moisture, and light. The result is that they survive just a few months outdoors, even when carefully encapsulated
Climate Politics
Indonesian President Joko Widodo and his counterparts from East Timor, Tuvalu, Niue, Sao Tome and Principe and the Federated States of Micronesia joined "the first high-level meeting" of the Archipelagic and Island States (AIS) Forum on the Indonesian island of Bali this week, to unify and amplify their voices ahead of COP28, writes Nikkei. A total of 32 countries sent delegates to the AIS-related meetings in Bali this week, including big and small island nations across the Pacific, Indian and Atlantic oceans, such as Britain, Japan and New Zealand. Older, similar groups such as the Pacific Islands Forum also sent representatives. Indonesian Environment Minister Siti Nurbaya told Nikkei Asia on the sidelines of the Bali meeting that she hopes the AIS Forum will amplify member countries' voices during COP28. "Because can you imagine, from 2015 to date, there have only been discussions [and more] discussions, but near zero implementation," Nurbaya said, referring to the U.N. climate meeting in Paris, during which developed nations reiterated their pledge to mobilize $100 billion per year for climate solutions in developing countries.