World Energy News for 6 July 2022
General Energy News
JPMorgan recently released a scenario which saw crude oil reach $380, primarily based on the possibility that Russia could halt supply. (We discussed the unlikeliness of this outcome as oil at $200 would already crash a large part of the global economy). Citigroup has now released a worst-case scenario for oil, which assumes a “a demand-crippling recession” and “absence of any intervention by OPEC+ producers”. In this case, oil could drop to the marginal cost of production, which is in the $45 – 65 range.
On the topic of the above mentioned wide range of possibilities for the near-term crude price, S&P Global Platts writes, “With crude prices under pressure from growing fears of a global recession while supply-side threats hang over the market,.. the range of oil price forecasts by market watchers has widened in recent weeks.” Take a look at this article if you want to see what the various banks are forecasting at present.
Back in the present, the redirection of Russian crude is making itself felt in crude pricing in Asia, Bloomberg writes, “(Saudi Arabia) set the pricing of its Arab Heavy and Arab Medium grades at the largest discount to Arab Light since 2014 for August-loading cargoes to Asia... China and India are typically the major buyers of the discounted varieties, but they’ve increased purchases of Russian oil following the invasion of Ukraine earlier this year.”
The Financial Times correctly concludes, “Qatar has built an outsized role in global commodity markets since it first began exporting liquefied natural gas more than two decades ago. Now, following Russia’s invasion of Ukraine and a series of deals to develop a new gasfield, the Gulf state’s influence over international energy flows is set to grow even larger… The project aims to increase Qatar’s annual export capacity from 77mn tonnes to 110mn tonnes by 2026, helping it to overtake Australia as the second-biggest producer of the fuel behind the US.”
https://www.ft.com/content/eb611a7b-45dd-4eea-ba62-f9fdac68d1d2
Energy Transition & Technology News
Varo Energy CEO Dev Sanyal previously played an important role in creating the new Energy Transition strategy of BP. According to reporting by the Financial Times, at Varo he intends to takes things a step further, “sell no oil products by 2040 … through investments in biofuels, hydrogen and electric vehicle charging. … We are planning on a company that will effectively not be selling oil in 2040 but will still be in the business of energy, just a different kind of energy”, Sanyal is quoted as saying.
https://www.ft.com/content/4637e9d7-b8cf-47fe-a64a-1eb008a54add
The labeling of natural gas and nuclear has been “hot topic” in Europe, but the current Global Energy Crisis seems to have settled the debate: “The European Parliament on Wednesday backed EU rules labelling investments in gas and nuclear power plants as climate-friendly”.
Sun Cable plans to build about 20 gigawatts of solar capacity and 40GWh of battery storage in remote northern Australia, along with a 4,200km undersea cable to Singapore. It has hired investment banks Macquarie and Moelis to raise more than A$30bn (US$20.6bn) over the next 18 months to fund the venture.
https://www.ft.com/content/ab2fdcb3-3d5b-4734-8245-adb001533720
Shell has taken FID on Europe’s largest green hydrogen plant. Once operational, the 200 MW facility will be able to produce 60,000 kg of green hydrogen annually. Apparently, this is 10 times larger than the currently largest plant. The hydrogen will replace the black hydrogen currently used by Shell’s petrochemical complex in the Rotterdam area, which means the product will be used to decarbonize conventional fossil fuels operations, rather than replace the usage of fossil fuels by end-users (in transportation, heavy-industry or power generation).
Reuters reports on it here https://www.reuters.com/business/energy/shell-start-construction-renewable-hydrogen-plant-netherlands-2022-07-06/
Bloomberg’s take on it is here https://www.bloomberg.com/news/articles/2022-07-06/shell-decides-to-build-europe-s-largest-green-hydrogen-plant
Interestingly, Shell did not disclose the value of the investment.
The Macro Environment (economics & geopolitics)
Bloomberg writes “The US is pushing the Netherlands to ban ASML from selling to China mainstream technology essential in making a large chunk of the world’s chips. Washington’s proposed restriction would expand an existing moratorium on the sale of the most advanced systems to China, in an attempt to thwart China’s plans to become a world leader in chip production.”
For context, ASML controls 60% of the market for DUV lithography machines, which apparently this US effort is about. The company has an effectively monopoly in the most advanced EUV lithography machines, which ASML is already banned from selling to China. No doubt, therefore, the Chinese will see this move as further escalation in the US’s economic war against China.
The Electrification of Transport
We’ve been bullish on electric cars since 2015. At that time, we modeled how EV uptake could impact oil demand by 2030 and 2040, using a range of assumptions. So far things have develop in line with our base case of 60% annual EV – reach out in case you are interested in our views as to what this will mean for oil.
In light of the above, you might be interested in Bloomberg Green’s review of the EV currently on the US market: https://www.bloomberg.com/graphics/electric-vehicles/
There a number of markets, in particular in Asia, where we expect electric motorcycles to have a big impact. In this article, Bloomberg provides a good overview of the companies to watch in this space.
ESG
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Special features – The Global Energy Crisis
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Other
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