2nd October 2023

Gooood morning. Trust you all had a great weekend. Let’s get back to it.

Here’s what’s up today:

• ⭕ Turkey / KRI pipeline to restart

• 🛍️ Suitors for Wintershall DEA

• 💰 Blackrock says the energy transition is too expensive

• 🌏 Slowing economic growth in Asia

plus plenty more…

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• US rig count still shrinking - the US oil rig count fell again last week, down by 5 to 502. Gas rigs fell by 2. The oil rig count is now 102 lower than a year ago, and 125 lower than its previous high of 627 in November last year when WTI was at ~$80/bbl. The ~3 month time lag between oil prices and rig count, and continued focus on cost discipline explain the relatively low rig count today.

🏰 Europe

• Suitors for Wintershall Dea - unconfirmed reports suggest that Equinor and Total are the front-runners for acquiring Wintershall Dea from BASF. The company currently produces ~350 kboe/d and is valued at around ~$7bn. Last year it took an eye-watering $7.9bn writedown after it exited Russia in light of the war in Ukraine.

🕌 The Middle East

• Turkey / KRI pipeline to restart - Turkey has said that it will restart operations this week at the oil pipeline that exports 450 kb/d of crude from the Kurdistan Region of Iraq into Turkey. The pipeline, which is a core source of revenue for Iraq, has been shut since March due to a dispute between Iraq and Turkey over payments.

• Iran giving two fingers to the West - “Our oil sales have doubled, despite the sanctions, and we do not ask for anybody's permission and pass our oil tankers before the U.S. warships' eyes and process our oil in extraterritorial refineries in Venezuela and other continents.", commented Iran’s Oil Minister. Strong words indeed!

• The enemy of my enemy… - Iran, Syria, and Venezuela (all sanctioned by the US), have signed an agreement to build a 140 kb/d refinery in Homs, Syria. Iran has already been assisting both Syria and Venezuela in bypassing the impact of Western sanctions on their oil sectors.

⛩️ Asia

• Eni hits gas in Indonesia - the major’s Geng North-1 exploration well drilled in Kutei Basin has discovered an estimated 5 tcf of gas and 400 mmbbls of condensate. The discovery will contribute substantially to the creation of a new production hub in the northern part of the basin.

• High hopes for another Indonesian wildcat - RH Petrogas has started drilling the first, play-opening, exploration well at the promising Kepala Burung block, offshore Indonesia. The well is targeting a structure that may hold up to 1.8 tcf of recoverable gas resources.

🦁 Africa

• Uganda on track for first oil - Uganda's landmark Tilenga and Kingfisher oil developments and the export pipeline via Tanzania, are on track for first production by 2025, according to Uganda’s NOC. The projects, operated by Total, will be Uganda’s first oil projects and are part of a $10bn effort to develop the country’s 1.4 bnbbls of recoverable oil resources.

• New exploration in South Africa - Total has been given the go-ahead to drill offshore the Cape coast after environmental opposition attempted to block exploration activity in the area.

🗿 Central & South America

• Unlocking new provinces in Brazil - Petrobras has received the licence to start exploring in the promising Equatorial Margin region. The company is looking to open up new hydrocarbon basins and will start drilling in the EM, which is offshore northeast Brazil, later this month.

🌍 GEOPOLITICS & MACRO

• Saudi’s spending spree - despite high oil prices, Saudi expects to report a budget deficit for this year and has revised down a previous 2023 GDP growth forecast from 3.1% to 0%. It’s not that surprising that Saudi is in the red given its lavish spending on new cities, tourist attractions, and ski resorts (yes, really), taking total government annual expenditure to $340bn. And in an indication that their cash splashing is just getting started, and therefore also a strong hint that they’ll be looking to keep oil prices high, Saudi expects to keep posting a budget deficit through to 2026.

• Slowing economic growth in Asia - The World Bank’s latest forecast expects GDP growth in Asia Pacific to fall next year to 4.5%, from 5% this year, it’s lowest level in nearly 50 years (excluding extraordinary events). It cites rising debt levels and diversification of suppliers among Asia’s key export markets, as the core reasons for the slow down.

• Merkel’s energy legacy - Angela Merkel’s former chief economic adviser said in an interview that Russian gas enabled strong growth in Germany for 10-15 years, but “the result is that we did, in the end, become very dependent on Russian gas - that’s a fact”. Before the war in Ukraine, Germany got ~60% of its gas from Russia, and is now paying the price of this dependency in the form of higher energy prices and dirtier power. Perhaps it shouldn’t have shut down its perfectly functioning nuclear plants…

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Energy transition costs too high - Blackrock’s CEO, Larry Fink, has said that the costs of low carbon energy need to fall to make the energy transition viable. He correctly stated that higher energy prices caused by a push for renewables will push many countries back to coal because “life is more important than the future.” Amen.

• EU’s carbon border tax gets started - the first phase of the EU’s Carbon Border Adjustment Mechanism (CBAM) has started. CBAM, which has been criticized by countries such as China for being protectionist, is a system to impose tariffs on carbon intensive imports like steel and cement. For this initial phase, importers will just have to report the carbon emissions embedded in the imports, and then from 2026 they will need to start paying charges on those emissions.

• High EV insurance costs - EV drivers are facing increases of up to ~300% for the cost of insurance due to higher cost of repairs compared with diesel and gasoline cars. Several insurers are refusing to insure EVs altogether. We’ve said it before, we’ll say it again: net-zero isn’t going to be cheap.

🛢️ BOTTOM OF THE BARREL

Why am I not surprised?

👋 BEFORE YOU GO 

Spread the word. If you like this, please do us a solid and forward Both Barrels to your colleagues, drinking buddies, lovers. They can join the crew for free here:

Tell it to us straight. Got any feedback, requests, terrible jokes? Please just ping a reply to this email and let rip.

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