06th November 2023

Morning team. This is Both Barrels, here’s what happened over the weekend in all things oil, gas, and energy:

• ✂️ OPEC+ confirms cut extension

• 😬 Europe’s second Charge of the Light Brigade

• 🤝 Another giant LNG deal for Qatar

• 📉 Fading geopolitical risk premium in crude

• ➕ plus UK legislates annual O&G licencing; US gas infra bottlenecks; Russian naval base on the Med?; US rig count drops sharply

📈 THE NUMBERS

Oil prices are now more or less back to where they were before Hamas attacked Israel on October 7th.

The “geopolitical risk premium” seems to have faded as traders grow confident that the conflict won’t spill over and disrupt supply. Let’s hope they’re right.

🗞️ WELL-HEADLINES

 🗽 North America

• “Pipeline fights endanger industrial world” - EQT’s CEO has bemoaned the legal battles involved in building new gas pipelines in the US and said they could trigger a European-style energy crisis. The US has “oceans of natural gas” but lawsuits are taking their toll on the industry’s ability to unlock these resources.

• Tellurian in trouble - the LNG player announced last week (sorry, we somehow missed it at the time) that it had doubts about its ability to operate as a going concern as it doesn’t have the cash to meet debt obligations and fund working capital over the next 12 months.

• Oil rig count falls sharply - the US oil rig fleet fell by 8 last week to 496 and is now 117 lower than a year ago. After several weeks of stability, I suggested last week that the count may have flattened out. I was wrong!

• US oil workers making bank - average wages for US oil workers hit a record high last month of $46.60/hr, even as drilling activity in the US shale sector slows. Drinks on you lot.

🏰 Europe

• UK to offer annual licencing rounds (for now) - the government has said new projects will have to reach net-zero targets but would boost energy security. The opposition Labour party, which will likely win the next election in 2025, has said it would not grant any new licences if it comes to power.

• First oil at Seagull - the BP oil and gas field in the UK North Sea has 50 mmboe of 2P reserves and is expected to reach peak production of 50 kboe/d. Some more rare good news for the UKCS oil patch.

🕌 The Middle East

• Qatar’s latest big money LNG deal - China’s Sinopec is the latest company to secure a 3 mtpa, 27-year LNG supply deal from Qatar’s North Field expansion project. Shell, Total, and Eni have all signed similar deals in recent weeks. Sinopec is also taking a 5% stake in a JV that owns ~6 mtpa of capacity in the North Field South project.

⛩️ Asia & Oceania

• All quiet over here…

🦁 Africa

• Kosmos increases Yakaar-Teranga stake - the giant offshore Sengal gas fields hold an estimated 25 tcf of gas in place. Kosmos’s interest will increase to 90% and it will take over operatorship, filling the void left by BP exiting the asset.

• OMV restarting exploration in Libya - the Austrian company follows Equinor last week in announcing plans to resume some activity in the war-torn North African producer. They must be more confident in Libya’s security situation. Promising signs.

🗿 Central & South America

• Took it very easy over the weekend…

🌍 GEOPOLITICS & MACRO

• OPEC+ maintains output cuts - Saudi, Russia and co have confirmed they will extend their crude cuts until at least the end of the year and will review the policy again in December. In total, OPEC+ has reduced production by about ~3 mmb/d since its cut in April, with ~2 mmb/d of that coming from Saudi. Barring any disruptions in the Middle East, I’d be very surprised if these cuts don’t continue deep into Q1 2024.

• Some updates on the Israel / Hamas conflict:

  • Israel forces on the ground have surrounded Gaza City and reached the coast, cutting the enclave in two.

  • Iran continues its saber-rattling and has said the US will be “hit hard” if it doesn’t secure a ceasefire, something Israel has repeatedly rejected.

  • US Secretary of State has been rushing around the Middle East talking with Turkey, Jordan, Iraq, and Palestine, in a bid to contain the conflict and facilitate humanitarian aid.

• Russia’s Mediterranean naval plans - a military deal with Libya is in the works that would see Russia build a military base on Libya’s Mediterranean coast, Europe’s southern doorstep. Yikes.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Spain’s business lobby calls for nuclear power u-turn - the country currently gets ~20% of its power from nuclear energy but has plans to phase-out the technology from 2027. “Ideological positions should not prevent us from recognizing the need to extend the useful life of power plants already installed, which guarantee the stability of the system,” the lobby said. Que bueno!
  

🛢️ BOTTOM OF THE BARREL

“Europe, reminds me somewhat of the Charge of the Light Brigade, immortalised in Tennyson’s wonderful poem, full of valour and good intention but the outcome will not be pretty.”

These were the closing words of a letter written by Jim Ratcliffe, founder of INEOS and one of Europe’s great businessmen, to the European Commission in 2019.

It’s short, sweet, and well worth a read but, in a nutshell, he was warning about the disastrous impacts that Europe’s energy and environmental policies were having on the continent’s famous industrial heartlands.

And, sadly, he was spot on.

Data over the weekend about Germany’s energy demand crashing in recent years is the latest in a long stream of flashing alarms signalling the country’s economic malaise:

Only a small part of this is energy efficiency.

Most is demand destruction caused by unaffordability and waning industrial activity. Unsurprising, given that Germany and other European countries have some of the most expensive electricity prices in the world.

Factories simply can’t afford to operate when energy costs are so high.

While Europe loses jobs, competitiveness, progress, and vigor, the environment is no better off. Heavy industry doesn’t just disappear, it moves abroad where sustainability standards are more lax and energy more affordable. BASF, a mighty German chemicals company, is a great example of this.

I’m an always-look-on-the-bright-side kind of guy but the outlook for European industry looks perilously bleak. Once factories shut down, they aren’t coming back for generations. Energy infrastructure investments are decades-long commitments. Expertise can’t be relearned over night.

The Europeans have f&%ked around with their energy policy and now they’re finding out.

👋 BEFORE YOU GO 

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