2nd January 2024

Damn, it’s good to be back.

Happy new year everyone. And congrats to those of you who didn’t murder your mother-in-law over the holidays.

I might have taken some time off, but energy never sleeps. Today’s update will cover some of the key stories from the past week or so to get you up to speed.

• 🥶 Arctic LNG in doubt as partners jump ship

• 🤝 Harbour buys Wintershall DEA

• 👋 Angola leaves OPEC

• 🇨🇳 Xi’s ominous Taiwan pledge 

• ➕ plus: US airstrikes coming to Yemen?; reports of gasoline’s death have been greatly exaggerated; Norway’s virtue signalling; greenlight for Willow.

Let’s go 2024.

📈 THE NUMBERS

No major moves in oil and gas prices over the break.

After another volatile 12 months, Brent ended the year almost exactly where it began at ~$78/bbl.

🗞️ WELL-HEADLINES

 🗽 North America

• Conoco greenlights Alaska's Willow project - after years of dispute and regulatory and environmental review, Conoco has taken FID on the 600 mmboe project on Alaska’s North Slope. Willow had become somewhat of a symbolic battleground for environmentalists but the White House’s approval of the project earlier this year proved that, despite all Biden’s anti-O&G talk, the administration ultimately understands energy realities.

• US oil output’s bumper year - back in December 2022, the EIA forecast that US crude supply would grow by 0.8 mmb/d in 2023. It actually grew by double that, ~1.6 mmb/d, to a record high of 13.3 mmb/d. The forecast for 2024? A decline of 0.3 mmb/d. Remember, no one knows anything.

• Crude inventories fall sharply - US oil stocks fell by 6.1 mmbbls in the latest EIA release on 28th Dec, following a 3.5 mmbbls build in the week prior to that.

🏰 Europe

• Harbour splashes out $11.2bn on Wintershall DEA - the UK producer has become a major global independent after buying Wintershall’s non-Russian assets in a cash and stock deal. The portfolio consists of oil & gas assets in Norway, Germany, Denmark, Argentina, Mexico, Egypt, Libya and Algeria with total 2P reserves of 1.1 bnboe and over 300 kboe/d of production. The deal will make BASF, Wintershall Dea's majority owner, a 46.5% shareholder in Harbour.

• More job cuts at Shell - the unknown number of job losses are in addition to the cuts made in October and are part of CEO Wael Sawan’s efforts to cut ~$3bn of structural costs by the end of 2025.

⛩️ Asia & Oceania

• Arctic LNG in doubt after foreign partners jump ship - following the imposition of US sanctions on the giant new $21bn, 19.8 mtpa LNG plant in Russia’s far east, partners including Total, Mitsui and even Chinese firms have renounced their responsibilities for financing and for offtake contracts.

  • Without involvement from partners, developer Novatek may have to finance the project by itself and sell some of the gas on the spot market.

  • Arctic LNG is a core part of Russia’s LNG master plan and this will be considered as a huge setback, with some commentators suggesting the future of the entire project may now be at risk.

  • Despite these developments, production has just started at the project.

  • Russia responded that US sanctions threaten to “destroy global energy security”

🦁 Africa

• Petrobras returns to Africa - after years of divestments, Petrobras is back in expansion mode and has acquired three exploration blocks from Shell in Sao Tome and Principe. The Brazilian giant has big expansion plans and recently announced its 5-year capex budget which was a 31% increase on its previous plan.

🗿 Central & South America

• Liberalizing Argentina’s oil patch - the country’s new firebrand president has proposed sweeping new rules aimed at catalyzing growth in the oil sector. The changes will remove decades old rules that prioritize low local fuel prices which effectively capped producers’ profits and deterred investment. Argentina’s domestic gas prices are among the cheapest in the world thanks to those policies which are great for local consumers, but not great for producers and growth.

• EIG acquires Ocyan - the acquisition of the Brazilian FPSO operating company is valued at $390m. Brazil is a major market for FPSOs and is home to 25% of the global FPSO fleet.

• First oil at the mega Mero-2 - the second phase development of the vast Mero field in Brazil’s pre-salt Libra block has begun production. The Total operated field will eventually reach production of ~500 kb/d after full development is complete in 2025.

🌍 GEOPOLITICS & MACRO

• Xi’s ominous Taiwan pledge - in his New Year’s Day address, the Chinese president made his views on Taiwan pretty clear: “The reunification of the motherland is a historical inevitability…China will surely be reunified". Needless to say, a military invasion of Taiwan would wreak havoc on so many levels. Let’s just keep kicking this can down the road, OK, Xi?

• US conflict with Houthis cranking up - the US and UK are set to begin airstrikes against the Houthis in Yemem after more attacks in the Red Sea. In one failed vessel hijack attempt, US Navy helicopters killed 10 Houthi militants. Meanwhile, an Iranian warship has entered the Red Sea. Buckle up.

• US and Israel trade blows with Iran - an Iranian-backed militia drone attack on a US base in Iraq injured three troops, one critically. In response, the US struck several Iranian targets in Iran. Meanwhile, Israel has killed a senior official of Iran’s Revolutionary Guard with an airstrike in Syria.

• Angola bails on OPEC - after a very public disagreement over OPEC production quotas a few weeks ago, it’s no surprise that the West African producer’s time in the cartel is over. Angola had demanded a quota of 1.18 mmb/d but the group didn’t budge from 1.11 mmb/d, so Angola decided it was better off on its own. Angola’s departure, which follows Ecuador in 2020 and Qatar in 2019, leaves OPEC with 12 members and crude production of ~27 mmb/d (~27% of global supply). It isn’t a major loss for the group but it certainly isn’t good news at a time when it’s trying to retain control over a wobbly oil market, under pressure for surging US output, again.

• Building BRICS - the UAE, Saudi Arabia, Ethiopia, Egypt, and Iran officially join the emerging markets crew. That makes a pretty formidable group of energy producers and consumers.

• Iran ramping up uranium enrichment - the global nuclear watchdog, IAEA, released a report saying Iran had increased its rate of highly enriched uranium, which could be used for weaponry. The US, France, UK, and Germany jointly condemned the revelations as “reckless behavior in a tense regional context”, but Iran said it was acting "according to the rules". I think we can forget about a new nuclear deal for the foreseeable future.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Norway’s virtue signalling - KLP, the largest pension fund in Norway, yes the country that got stinking rich on O&G development, is divesting from various oil & gas companies including Aramco on environmental grounds. As I’ve written about before, the “divest” movement is so moronic and ineffective that it serves no purpose other than to help a few paper pushers espouse their empty righteousness at drinks parties.

• Spain didn’t get the memo - while most of the world is waking up to importance of nuclear energy, Spain has gone the other way, deciding to follow Germany over the edge and shut down its nuclear plants in favour of wind and solar. The facilities provide ~20% of Spain’s power needs but will be closed by 2035 under the new plans. Buena suerte.

• “There isn’t enough cooking oil in the world to power one day of green aviation” - said Michael O’Leary, the straight talking CEO of Ryan Air. Used cooking oil is the primary component of Sustainable Aviation Fuel (SAF), which some very wishful thinkers believe will decarbonise the aviation sector.  

🛢️ BOTTOM OF THE BARREL

So much for EV’s spelling the impending decline of gasoline demand:

👋 BEFORE YOU GO 

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Thanks for reading. Have a day out there. 🛢️🛢️