World Energy News for 28 June 2022
General Energy News
“Oil prices rallied for a third day on Tuesday as major producers Saudi Arabia and the United Arab Emirates looked unlikely to be able to boost output significantly while political unrest in Libya and Ecuador added to those supply concerns.”
“Qatar Energy, the world’s biggest producer of liquefied natural gas, has joined a group of oil and gas companies aiming to cut almost all methane emissions from their operations by 2030. The Qatari company has signed up to the Aiming for Zero Methane Emissions Initiative, which was founded in March and counts Saudi Aramco, BP Plc, Chevron Corp. and Shell Plc among its members.”
The current situation is clearly much more complex as the ExxonMobil makes it out to be. This is not just the result of “pressure to move to cleaner energy”, it is also about COVID-induced disruptions of the global economy, i.e. the lock-downs’; a war in Ukraine that has triggered sanctions on a major producer of natural gas, oil and refined products; and of course sanctions on other major oil producing nations Iran and Venezuela. But his criticism that in their renewable energy push “Governments =… failed to deal ‘with the demand side of the equation’ ” is certainly valid:
“ExxonMobil’s chief executive predicted a resurgence of investment in fossil fuel production as he blamed soaring oil and gas prices on pressure to move to cleaner energy at a time of relentless demand.”
https://www.ft.com/content/a99918de-35dc-4be5-8a91-1763ee681c6b
“Libya's state-owned National Oil Corporation is on the verge of declaring force majeure on oil exports from its key eastern oil terminals as the country's political crisis is now affecting a large chunk of the country's oil supply… The Gulf of Sirte includes four main oil export terminals with a total capacity of 630,000 b/d – Es Sider (250,000 b/d), Ras Lanuf (200,000 b/d), Brega (90,000 b/d) and Zueitina (90,000 b/d).”
Re-fracking is something that has been well-known (and applied) in the US shale patch for quite some already, but “the technique is winning broader adoption as technology improves, aging oilfields erode output, and companies try to do more with less” as
“U.S. shale oil producers are returning to existing wells and giving them a second, high-pressure blast to lift output for a fraction of the cost of a finishing a new well. These "re-fracs" are taking hold as shale oil producers look to take advantage of $100 a barrel crude without making big investments in new wells and fields.”
Energy Transition & Technology News
“The reaction to the 2022 energy crisis must be fundamentally different from past energy crises. New innovative policy initiatives are required as the world grapples with the twin problems of the aftermath of Russia’s invasion of Ukraine and the longer, more important threat of global warming… This includes financial system reforms, the end of large, entrenched corporations dominating innovation, and the incredible expansion of funding for creative ideas as forces that can and likely will make the consequences of the 2022 energy crisis unique compared with those of past events.”
https://www.energyintel.com/00000181-6c37-d35b-a7eb-ee7fda3e0000
The practice of “offsetting” has been under public scrutiny for quite some time now, with support for it being considered a valid methodology for reaching Net Zero on ever more shaky ground. Stories such as these don’t help, therefore, and should serve as a warning call to any company relying on offsetting to meet its decarbonization targets:
“BP has found a carbon bargain in some of Mexico’s poorest areas. In more than a dozen places identified by Bloomberg Green, the oil company has bought offsets at an enormous discount”
https://www.bloomberg.com/features/2022-carbon-offset-credits-mexico-forest-bp/
More on the subject of offsetting:
“Companies are buying carbon offsets like never before. They’re also facing unprecedented scrutiny over whether helping to fund green projects elsewhere really makes up for their heat-trapping emissions. The most common offsets are based on avoiding the release of additional carbon dioxide into the atmosphere, for example by preventing deforestation or supporting renewable energy projects. The other, much more expensive, option is to fund programs that actually remove CO₂ by planting forests or employing machines that capture greenhouse gas from the air and store them away. Should companies be allowed to use cheaper “avoided emissions” to deliver on their promises to eliminate pollution?”
“Finnish biofuel producer Neste said on Monday it would invest 1.9 billion euros ($2.01 billion) in the Dutch port of Rotterdam for its next renewable products refinery, citing growing demand as climate change concerns intensify.”
“What you can see, even from 40,000 feet, is that — behind all this turmoil — the landscape of energy is changing fundamentally. You can see a lot of new electric vehicles coming onto roads in Europe, China and, increasingly, even the gasoline-guzzling US. You can see solar panels going up in fields and on rooftops. You can see windmills out on the water, as well as in the prairies and deserts. You can’t see many new oil and gas wells being sunk or new refineries being built at anything like the rate that high prices might once have spurred. As economic growth threatens to crumble, the game is to cut fossil fuel use to match supply, not to grow supply to meet demand. And there’s nothing like a severe recession to cut oil and gas demand — except maybe a war.”
https://www.energyintel.com/00000181-733b-df0a-a9cb-ff3b0b790000
The Macro Environment (economics & geopolitics)
According to Russian foreign minister Lavrov, “Crimea is a part of Russia. And that means forever. Any attempt to encroach on Crimea is a declaration of war against our country. And if this is done by a NATO member-state, this means conflict with the entire North Atlantic alliance; a World War Three. A complete catastrophe.” This is a reminder that among your scenarios for the Russian-Ukraine conflict needs to be a scenario where the conflict broadens and develops into a regional war – Lithuania’s decision to close Russian access by land to Kaliningrad is another potential flashpoint for such an outcome.
What this signals is a trend towards a longer term separation of Russia from Europe. I.e. a return to pre-2022 normal is essentially out of the question for years to come: “NATO will boost the number of troops on high alert by more than sevenfold to over 300,000, its secretary-general said on Monday, as allies prepared to adopt a new strategy describing Moscow as a direct threat four months into the Ukraine war.”
The Electrification of Transport
“Thailand, the nation with the highest per person use of motorcycles. There 87% of households own at least one motorbike. These are typically the scooter variety, whereby the rider sits with his or her feet directly in front. Thailand is closely followed by Vietnam (86%), Indonesia (85%), and Malaysia (83%) for households with motorbikes. The figures then drop to 60% and 47% respectively, in giant markets China and India, but that still dwarfs the UK's 7%. The vast majority of Asia's motorbikes currently run on petrol, but transport experts say that a big switch to electric versions is now gathering pace.”
https://www.bbc.com/news/business-61907734
“As vehicles become electric, autonomous, gadget-stocked and web-connected, the movement is luring a wide array of new players — most notoriously Apple Inc. with its secretive Apple Car — all betting they have the technologies necessary to disrupt the $3 trillion market… That culminated in [Sony and Honda] unveiling plans to create a new company to develop and sell next-generation EVs.”
This is quite the turnaround. Until recently, ExxonMobil (as Chevron) was in the “not in our lifetime” group of companies that felt the electrification of transport would not happen: “Even Exxon Mobil thinks electric vehicles are the future. The oil giant is predicting that by 2040, every new passenger car sold in the world will be electric”
https://www.cnbc.com/2022/06/25/exxon-mobil-ceo-all-new-passenger-cars-will-be-electric-by-2040.html
ESG
Fir all the criticism that can be levied at it (ESG ratings don’t necessarily correlate with “making the world a better place for all”, the methodologies used for ratings are opaque, and vary significantly, etc), its appeal continues to be strong:
“Flows into ESG funds have surged in recent years, driven in part by a growing regulatory focus on issues such as climate change as governments seek to push more money to activities that can help them meet their net-zero emissions goals… [A] PwC survey of 3,354 respondents suggested ESG assets domiciled in Europe could grow to between 7.4 trillion euros and 9.0 trillion euros ($7.8 to $9.5 trillion) by 2025 and account for up to 56% of total European mutual fund assets, against 37% at the end of last year.”
https://www.reuters.com/markets/europe/european-fund-managers-set-go-all-esg-survey-2022-06-27/
Special features – The Global Energy Crisis
“Sri Lanka has banned private vehicles from accessing fuel until July 10 as its government attempts to manage a severe shortage amid a worsening economic crisis.”
https://www.ft.com/content/7b166a66-ce36-41c2-b799-fcaa32e5f3a6
If implemented (a big if considering the effort Europe had to put in developing an agreement on boycotting Russian crude…), this proposal would make Russian crude available to Europe, unlike what a boycott does. But, it would make it much less attractive for Russia to sell its crude to Europe. As such, it would imply a continuation of the incentive for Russia to sell its crude to Asia. There, Russia has not had much difficulty selling its crude anyway, so as to how the new US proposal would change things on the ground practically, remains to be seen. If anything, it would make it easier for Asian buyers to purchase Russian crude, i.e. make more volumes available to them. This would support the global supply / demand balance, but not change much in Europe – unless if Europe then increases imports of the refined products made from Russian crude in Asia…:
“Treasury Secretary Janet Yellen is pressing European counterparts to embrace measures designed to enforce a price cap on Russian oil, a move that US officials hope would maintain global crude oil supplies while at the same time limiting Moscow’s revenue.”
The current situation in Europe is “severe cost increases” for electricity and heating, hurting not only households but also large segment of European industry – effectively making them non-competitive on a global level. Looking ahead, unfortunately, the most likely scenario for Europe is “severe interruption” of the electricity and heating systems underlying normal life and industrial operations over the winter period, as gas inventories are presently not being build but rather being depleted. However, considering the course Europe – Russia relations are on at present, things could well get even worse!
“The European manufacturing sector is crumbling under the weight of sustained high electricity and natural gas prices. With little prospect of relief, another wave of curtailments and closures looms. And that’s before any rationing of natural gas, potentially later this year, in Germany in the event Russia reduces supply even further. In that scenario, many companies will have no choice but to shut down.”
Of course this make sense. But it will take years to build the necessary infrastructure:
“German Chancellor Olaf Scholz used a meeting with Canadian Prime Minister Justin Trudeau to push for closer energy ties as his ruling coalition in Berlin races to find alternatives to Russian fossil fuels.”
Other
The Global Energy Crisis has severely disrupted global agriculture, something to keep a close eye on for the popular discontent and thus political instability it can cause (some say, is likely to cause) in various regions of the globe:
“U.S. farmers have cut back on using common weedkillers, hunted for substitutes to popular fungicides and changed planting plans over persistent shortages of agricultural chemicals that threaten to trim harvests… Prices for glyphosate and glufosinate, another widely used herbicide sold under the brand Liberty, jumped more than 50% from last year, dealers said”
https://www.reuters.com/markets/commodities/off-charts-chemical-shortages-hit-us-farms-2022-06-27/