TROUBLES AHEAD?
Editor's Comments
One of our greatest fears since the 2008 meltdown was to see oil prices return to $100 per barrel or more - as many experts concluded that it was a primary factor behind the financial crisis. Since then it appeared that the supply-demand balance would keep prices well below $60 per barrel; even trading at one point in the negatives. But that expectation now seems fool-hardy and a long-distant memory, as oil prices, along with other industrial and agricultural commodities have soared, and in some cases doubled, in the past 12 months.
Why? There are a number of political, economic, and physical factors causing the shortage of supply but the truth be known we have little faith in the reported oil reserves and the expected Net EROI - meaning that all proven and probable reserves may not be recoverable because the marginal energy cost of recovery faces rapidly diminishing returns. Moreover, OPEC reserve numbers are highly suspect and thought by many to be wildly overstated with Venezuela being the OPEC poster boy in this case.
Let us not forget that when it comes to supply there are the known knowns, known unknowns, and unknown, knowns. But lastly; and most importantly, are the unknown unknowns -and that is what we are facing here - meaning the potential for another meltdown driven by oil prices going to $250 per barrel or more is in the cards.
And so are the severe social, political, and economic cosequences.
T A McNeil
June 8, 2021
OIL PRICE.COM INTELLIGENCE REPORT
JUNE 8, 2021
Greetings from London.
In today’s newsletter, we will take a quick look at some of the critical figures and data in the energy markets this week.
We will then look at some of the key market movers early this week before providing you with the latest analysis of the top news events taking place in the global energy complex over the past few days. We hope you enjoy.
Chart of the Week
- But renewables are growing quickly, and now make up 5% of the total.
- Vietnam plans on adding nearly 18 GW of solar over this decade but will need to build out its grid capacity.
Market Movers
- Plains All American (NASDAQ: PAA) agreed to sell its natural gas storage assets to Hartree Partners for $850 million.
- Pembina Pipeline (NYSE: PBA) announced a partnership with the Haisla Nation to develop the $3 billion Cedar LNG project in British Columbia.
- KKR's Independence Energy and Contango Oil & Gas (NYSE:MCF) are near a merger deal that could value the new business at $5.5B including debt, Bloomberg reports.
Tuesday, June 8, 2021
Oil prices held their gains at the start of the week, with Brent at $71 and WTI just below $70 (after briefly touching that threshold on Monday). Analysts see investors pocketing gains at these roughly two-and-a-half-year highs, allowing the rally to take a breather.
Oil pauses at $70. “For many, the $70 per barrel oil signal may be enough for investors to cash out of the bull cycle early – likely what happened today -- which would stifle the upward price trajectory forecasted by our bullish crude balances,” said Louise Dickson, an analyst at Rystad Energy.
Options bets on $100 oil. Investors are scooping up options bets on crude that pay off if oil prices soar to $100 per barrel.
OPEC lost $1 trillion in the 2015 oil price crash. The members of OPEC lost a collective $1 trillion in foregone revenues during the last crisis in 2015 and 2016. With the Covid-19 crisis hitting the oil industry a lot harder than the 2014-2016 crisis, chances are the losses that OPEC producers suffered last year would be even greater than $1 trillion, but these are still being calculated.
G-7 backs climate disclosures. G-7 nations backed initiatives to force banks and companies to disclose their climate-related risks.
Shell case could affect TotalEnergies. The recent court case in the Netherlands that went against Royal Dutch Shell (NYSE: RDS.A) could be a warning to Total Energies SE (NYSE: TOT), the French oil giant that was known as Total until a rebranding last week. A French court is expected to make a decision on a similar case in September.
Rosneft warns of oil shortage. Rosneft warned that the global push towards energy transition could result in a supply shortage if there is too little upstream development for new oil supplies. “The world risks a severe deficit of oil and gas,” Rosneft CEO Igor Sechin said. “The world consumes oil, but isn’t ready to invest in it.”
Texas passes weatherization bill. The Texas legislature passed a bill that would require electricity providers to weatherize their assets, and it now goes to the Governor for consideration.
Higher oil prices boost M&A. Higher oil prices offer oil companies and private equity firms the opportunity to sell off U.S. shale assets. In the first five months of 2021, land deals have totaled $6.9 billion, nearly as much as the $7 billion in total deals for all of 2020.
Fiat announces EV-only transition. Fiat said it would sell only electric vehicles by 2030 and begin a phaseout of the internal combustion engine beginning in 2025.
Canada’s oil consolidation hits white-collar jobs. BNN Bloomberg looks at the loss of jobs among management in Canada’s oil and gas sector as the industry has consolidated in recent years.
U.S. LNG terminals looking at carbon capture. Under pressure from investors and the Biden administration, several U.S. LNG export facilities are exploring carbon capture. Virginia-based Venture Global LNG said it would implement carbon capture and sequestration at three export terminals in Louisiana. But 60% of a project’s emissions come from upstream and midstream – leaking methane at well sites and in pipelines.
LNG faces headwinds. U.S. LNG exports face multiple headwinds, including surplus supply, rising costs “fickle” demand, and surging Qatari investment, according to a new report.
BP CEO: Strong Oil Demand Growth Is Here To Stay. Global oil demand is set to rebound and remain robust for some time, BP’s chief executive Bernard Looney told Bloomberg News on the sidelines of an economic forum in Russia, reiterating views expressed by most forecasters and analysts. “There is a lot of evidence that suggests that demand will be strong, and the shale seems to be remaining disciplined,” Looney said.
Pipeline regulator tells pipelines to prepare for methane regs. The Pipeline and Hazardous Materials Safety Administration (PHMSA) sent an advisory to oil and gas pipeline operators, telling them to prepare for methane curbs.
Enbridge sees big protests of Line 3. Indigenous communities and environmental activists blockaded sections of the Line 3 pipeline in northern Minnesota.
Carbon dioxide in the atmosphere hits a record high. The amount of carbon dioxide piling up in Earth’s atmosphere set a record last month, rising to 417 parts per million, the highest in human history.
DOE announces hydrogen “Earthshot.” The Department of Energy launched an “Earthshot” program to cut the costs of hydrogen to $1 per kilogram within a decade.
State Department says Nord Stream 2 “fait accompli.” U.S. Secretary of State Anthony Blinken called the completion of the Nord Stream 2 pipeline from Russia to Germany a “fait accompli” and said the U.S. is now working with Germany to limit how dependent Europe’s energy system will be on Russia after it is finished.
U.S. claws back millions from ransomware. The FBI has seized $2.3 million of the $4.4 million paid to the ransomware attackers of the Colonial Pipeline.
China’s Efforts To Curb Oil Prices Are Futile. Crude oil imports into China dropped by almost 15 percent annually last month. There is speculation that China is tapping its strategic reserve to tamp down on import costs, although it isn’t working.
How oil companies use bankruptcy law to avoid cleanup. Oil and gas companies use the bankruptcy process to shed liabilities. “It's basically bankruptcy for profit.” Here’s how they do it.
Here are a few other articles in case you missed it:
Buffett And Gates Are Building A Nuclear Plant In Coal Country
Saudi Arabia Says It is No Longer An Oil Producing Country
"We'll See $200 Oil": Russia & OPEC Ministers Blast IEA's Net Zero Plan
That’s all from your midweek intelligence report, we hope you enjoyed it and we´ll be back on Friday, with your latest energy market update, industry intelligence, and special report.
Best regards,
Tom Kool
Editor, Oilprice.com
Remembering the 2008 Meltdown
