Hello, hello, hello - this is Both Barrels. Your daily dose of all things oil, gas, and energy, without the hot air.

Here’s what’s happening:

• 💸 Saudi and Russia are cashing in

• 🤔 Orsted reveals some truths about offshore wind

• 🤝 A busy day for US M&A bankers

plus plenty more. Let’s get to it…

📈 The numbers

Brent shot up above $90/bbl yesterday before giving up some of its gains as Saudi and Russia announced an extension of output cuts until the end of the year. More on that below…

🗞️ Well-headlines

 🇺🇸 North America

• Enbridge is acquiring Dominion Energy’s US gas distribution business for $14bn, to create North America’s largest natural gas provider. The all-cash deal leaves Dominion to focus on its power business, while providing Enbridge with balance to its previously oil-dominated portfolio. Enbridge’s shares fell ~6% on the news.

• Western Midstream Partners have acquired Meritage Midstream Services for $855m. Meritage owns and operates a large-scale natural gas gathering and processing business in the Powder River Basin.

• Viper Energy Partners is acquiring mineral royalties across 32,000 acres in the Permian basin from Warwick Capital Partners and GRP Energy Capital in a $1bn cash-and-stock deal.

• BP has entered its third long-term LNG offtake agreement from Woodfibre’s British Colombia LNG facility. This means that almost all of the 2.1 mtpa output from the plant is now committed to BP. Construction is due to start this month. Operations in 2027.

• The US government is selling an emergency 1 mmbbls gasoline reserve that was set up in the wake of Hurricane Sandy. The Northeast Gasoline Supply Reserve has never been used, and it is unlikely to be big enough to make much of a dent in gasoline prices, if that’s the intention of the sale.

🇪🇺 Europe

• Around £100bn of UK North Sea projects are being delayed due to political uncertainty, according to a report by trade body Offshore Energies UK. The figure includes low carbon projects as well as oil and gas. The report also warned about the decline in UK North Sea O&G production, highlighting that over 180 fields, which produced 45% of UK output last year, are due to shut this decade.

🇸🇦 The Middle East

• ADNOC has given the green light to an investment in one of the largest CCS projects in the MENA region. The facility, situated at the vast Hasban gas processing plant in the UAE, will have the capacity to capture and store 1.5 mtpa of CO2 in underground geological formations.

• Oil flows from Iraqi Kurdistan to Turkey are unlikely to resume until at least October when Turkey’s President Erdogan visits Baghdad. Turkey shut the pipeline in March, blocking a key export route for Iraqi oil, following a dispute over unauthorized oil exports.

• Kuwait’s KOC doubled its capital expenditure to ~$5.6bn in the 2022/23 fiscal year compared with the previous year. KOC is pushing ahead with plans to increase its crude productive capacity to 3.5 mmb/d (vs ~2.8 mmb/d today) by 2030 and to develop more domestic gas resources.

🇨🇳 Asia

• Goldman Sachs estimates that Chinese oil demand growth is strong - despite concerns about economic growth - reaching a new 2023 high of 16.4 mmb/d (see chart below). Key drivers of demand are currently in gasoline and air traffic.

• Indonesia is doubling down on natural gas as its oil output declines, according to an energy minister. The country wants to boost domestic gas use after discoveries in the Andaman and North Bali-Lombok blocks, especially in power generation, trucking, and petchems.

• India remained the top buyer of Russian Urals crude in August, despite a narrowing discount between Urals and Brent. When Russia invaded Ukraine the discount on Urals reached ~$30/bbl and India took advantage, increasing its Russian share of oil imports to 40% from just 1% prior to the invasion. Today the discount is as low as $5/bbl.

📍Everywhere else

• Shell and Trinidad & Tobago’s National Gas Co are close to agreeing to credit PDVSA for its $1bn investment in a gas field, offshore Venezuela, to help resolve an impasse that has delayed the development of the field. This will have been done with permission from the US. Watch this space for more US / Venezuela rapprochement as the former looks to encourage more oil supply into global markets.

🌍 Geopolitics & macro

• Saudi Arabia and Russia, the de facto leaders of OPEC+, will extend their crude output cuts of 1 mmb/d and 0.3 mm/d, respectively, until the end of the year. With US shale’s ability to quickly respond to higher oil prices much more restricted than it was in 2015-2020, Saudi is well and truly back in control of oil markets and is cashing in. Joe Biden won’t be best pleased…

• Saudi and Iran have exchanged ambassadors, marking the latest step in a restoration of ties since a China-brokered deal in March. Diplomatic relations between the rivals were severed back in 2016 after Saudi diplomats were attacked during protests in Iran. Time will tell if these two Middle Eastern heavyweights can ever get along. I have my doubts.

💨 Carbon, Climate & other energy stuff

• Following Orsted’s warning last week about a possible $2.3bn write down on its US offshore wind business, its CEO has said it may abandon its US projects altogether without more support from the government. He said consumer power prices rises would be “inevitable” in order to bring more more projects online. Wait. What? Aren’t we constantly told that wind and solar are cheap, will lower bills, and don’t need subsidies? The truth about the real costs of intermittent energy sources is finally emerging. Orsted’s share price is down ~30% in the last week.

• Airbus, easyJet, and Rolls-Royce have formed the Hydrogen in Aviation alliance to develop the infrastructure, policy, regulatory and safety frameworks for hydrogen powered planes. Airbus plans to introduce a hydrogen-powered commercial aircraft by 2035 but many doubts remain about the viability of producing large quantities of hydrogen.

• Petrobras has made its first carbon credit purchase in Brazil, buying 175,000 credits associated with the protection of 570 acres of the Amazon rainforest. Petrobras is planning to invest $120m in carbon offsets by 2027.
  

🛢️Bottom of the barrel

At current output levels of ~9 mmb/d, Saudi’s crude production is ~2 mmb/d below highs in 2022, and 3 mmb/d below its total effective capacity of ~12 mmb/d.

By extending its cuts further, and driving up oil prices, the Kingdom is making its priorities very clear: revenue maximization to finance its eye-watering spending sprees (Vision 2030, Neom, sports etc etc). Relations with the US be damned, it’s looking like the decade of “Saudi first”.

Saudi and Russia crude output:

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