10th October 2023

Good morning team. This is Both Barrels, your daily dose of all things oil, gas, and energy, without the hot air.

Some highlights from today:

• 🇮🇷 US’ Iran dilemma

• 🇻🇪 Venezuela’s leverage

• ❌ Israel shuts Tamar gas field

• 👀 European gas prices spike 15%

plus plenty more. Let’s get to it…

📈 THE NUMBERS

European gas prices were up by ~15% at one point on the news of output disruptions in Israel, the resumption of strikes at Chevron’s LNG facilities, and a gas leak at another Baltic Sea pipeline.

With the current fragile state of global gas supplies and an impending winter, gas markets are on tenterhooks these days.

🗞️ WELL-HEADLINES

 🗽 North America

• Exxon’s Permian dominance - there are concerns that Exxon’s (still unannounced) takeover of Pioneer will soften production growth in the Permian and squeeze pipelines and suppliers given the combined company’s huge volume and bargaining power. There’s some chatter of possible anti-trust involvement but the consensus is that it would be hard for bureaucrats to block the deal.

• US cracking down on Russian oil price cap - Treasury Secretary Janet Yellen has said the US will work harder to enforce the Russian oil price cap of $60/bbl. Russia has unsurprisingly found ways to evade the ineffective cap and it’s unclear quite how the US will try to improve its enforcement.

• Mexico’s refining push - Pemex’s CEO has said the company is targeting refining throughput of 1.2 mmb/d by the end of this year, up from ~0.8 mmb/d currently, and 1.6 mmb/d in 2024. Increasing refining capacity has been a major policy goal of President AMLO’s and the new Dos Bocas refinery a flagship project.
  

🕌 The Middle East

• Energy implications begin - Israel has shut down production from the Chevron-operated offshore Tamar gas field in the East Med citing security concerns in the wake of the conflict with Hamas. The large field, which produces ~10 bcmpa, is a major source of domestic energy for Israel and also provides gas to Egypt and Jordan. Other gas fields in the prolific East Med region are still operational. Israel’s Ashkelon oil import terminal has also been shut.

• Kuwait’s grand energy plans - Kuwait’s new energy plan expects to generate an additional $11bn per year for the emirate. It includes increasing oil production to 4 mmb/d by 2035, from ~2.5 mmb/d today, as well as increased gas production from new mega projects like the 20 tcf offshore Durra gasfield that it shares with Saudi. Its new Al Zour refinery is expected to be fully operational “within days”.

⛩️ Asia & Oceania

• Back to the negotiating table - Chevron and unions at its Wheatstone and Gorgon LNG plants in Australia have restarted talks, again, aimed at ending the strike action. Unions accuse Chevron on reneging on a previous deal.

🦁 Africa

• Victims of Mozambique attack blame Total - survivors and relatives of victims of an attack in Mozambique in 2021 are suing Total for negligence and indirect manslaughter. Total has responded saying the allegations are “inaccurate”.

• San Leon secures new funding - the Nigerian-focused independent has received $187m in new funding from Tri Ri Asset Management Corp and is using some of the proceeds to increase its interest in infrastructure company Energy Link Infrastructure.
  

🗿 Central & South America

• Dragon nears takeoff - Trinidad & Tobago and Venezuela have begun price negotiations for the supply of gas from the joint Dragon field to T&T which desperately needs volumes for its LNG plant and petrochemical facilities. The 4 tcf project has been delayed for over a decade due to lack of investment and sanctions.

🌍 GEOPOLITICS & MACRO

• Israel’s retribution has “only just begun” - Israel has imposed a “total blockade” of Gaza and has continued its heavy air assault on the enclave in response to the attacks by Hamas over the weekend, warning that its response has only just begun. Israel has called up 300,000 reserve troops as it seems to prepare for a ground invasion of Gaza. Any ground operation would be destructive, complex, and bloody anyway, but is made even more so by the dozens of Israeli hostages held by Hamas.

• US’ Iran sanctions dilemma - calls are mounting for the US to intensify sanctions on Iran following the attacks on Israel that likely had Iranian complicity. The US had been unofficially easing sanctions to allow Iranian crude (~0.5 mmb/d extra) to market over the past few months to mitigate supply shortages. The administration is now faced with a big dilemma: support its ally or its domestic consumers?

• Venezuela's leverage - The US and Venezuela are reportedly making progress in talks aimed at easing sanctions relief. The deal would allow more international oil companies to operate in Venezuela and in return President Maduro must open up negotiations with his political opposition. With high oil prices and barrels from Iran now at risk, the US is keen to get more oil to market from wherever it can. This is realpolitik and Venezuela has been handed an ace by Hamas.

• US calls on China’s help - a delegation of US officials in China has asked President Xi Jinping to use China’s influence over Iran to help prevent an escalating conflict in the Middle East. A desire to prevent an all out war is a rare point of agreement between the two preeminent global superpowers.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• A looming deficit in copper - producers have warned there will be a huge shortfall in the supply of copper to meet the demand for electrification unless prices rise and more investment is made. The energy transition is dependent on an unprecedented increase in mining of raw materials like copper, nickel, rare earths, cobalt, and lithium. Ironically, environmentalists tend to oppose the opening of new mines.

• Saudi carbon credits - the voluntary scheme will be launched next year and enable companies in the country to offset their emissions by purchasing carbon credits from projects that avoid (eg hydrogen) or remove (eg reforestation) CO2 emissions.

• Dogger Bank first power - the world’s largest offshore wind farm, situated off the UK coast and part owned by Equinor, has started generating power. Once completed in 2026, the 277 turbines will have an installed capacity of 3.6GW.

🛢️ BOTTOM OF THE BARREL

👋 BEFORE YOU GO 

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