11th October 2023

Good morning Both Barreler. Here’s what hit the wires today:

💣 More sabotage in the Baltic Sea? | 💸 $250/share for Pioneer | 🔥 Total & Qatar’s mega LNG deal | 🚢 The “dark fleet” of aging oil tankers | ➕ plenty more.

Let’s get to it…

📈 THE NUMBERS

European gas prices reversed earlier gains today, but are still up ~25% in just two days thanks to various supply outages around the world and a fast approaching European winter.

🗞️ WELL-HEADLINES

 🗽 North America

• $250/share for Pioneer - rumors are that the deal will be announced any minute now with an offer of $250 per Pioneer share to be paid entirely with Exxon shares. This would value the company at $58bn and represent a 16% premium to Pioneer’s share price on the day before the news broke, and an 11% premium to its 1-year average share price.

• US crude exports hit record high - the US exported a record 3.99 mb/d of crude in H1 2023, according to the EIA. Its largest customers are the Netherlands, UK, China, and South Korea. The US is still a net importer of crude though, mostly from Canada and Mexico. Why? Mainly because US refineries are designed to process heavy, sour crude oil, while most of the shale oil produced in the US is light, sweet crude.

🏰 Europe

• More sabotage in the Baltic Sea? - Finland has said that “outside activity” likely caused damage to the Balticconnector gas pipeline and a telecoms cable that connects it to Estonia. A reminder that this pipeline is in the same waters as the Nord Stream 2 pipeline that was blown up last year. Wow. Wtf is going on in Europe…?

• Russia cashing in - Moscow’s current account surplus rose to $16.6bn in Q3 of this year, surpassing expectations, and driven by higher energy sales. The figure represents a big increase from $9.6bn in Q2 but is still well below where it was last year when energy prices were significantly higher. Bottom line: Western sanctions on Russia are ineffective - perhaps even counterproductive as they drive prices up - at reducing its O&G revenue.

• Oil-to-gas at Eni - at an event to mark the Italian major’s 70th birthday, Eni’s CEO has said the company’s strategy is to gradually increase its focus on gas production rather than oil. He also commented on the need for increased gas investment to reduce coal use and keep energy prices low.

🕌 The Middle East

• Total & Qatar’s mega LNG deal - the deal is for 3.5 mtpa of LNG delivered to France every year for 27-years! It represents Qatar’s largest and longest European gas supply deal and deliveries will start in 2026. “Transition fuel” pffft.

• Wintershall selling its Ghasha stake - Thailand’s PTT is the rumoured buyer for the 10% interest in the UAE gas project. The giant project is one of the world’s largest offshore sour gas developments and is expected to produce up to 1.5 bcf/d of gas and 120 kb/d of liquids when it comes onstream towards the end of the decade.

⛩️ Asia & Oceania

• Oil tanker adrift in the Indian Ocean - the 26-year old vessel carrying Russian crude has signaled that it is unable to maneuver itself. There are growing concerns about a “dark fleet” of old, unsafe tankers that are being used to avoid sanctions on Russian crude. In May, another 26-year-old oil tanker, the Pablo, exploded in the South China Sea.

🦁 Africa

• FID edging closer for Coral Sur expansion - Eni and its partners are expected to give the go-ahead for a second FLNG plant at the Corul Sur LNG project in Mozambique in H1 next year. The development would double the capacity of the project , which started producing last year and marked the country’s first ever LNG export, to ~7 mtpa.

🌍 GEOPOLITICS & MACRO

• Another shot in the arm for the Chinese economy - China is weighing up new economic stimulus measures as it attempts to spur on its post-pandemic recovery. The measures include ~$137 billion of government spending on infrastructure projects. Consumption and home sales have been slower than expected in recent months despite various government interventions, contributing to an uncertain outlook for the world’s second largest economy.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• No, merci - France and Germany have had “very encouraging” discussions on European power reform. The EU neighbors are looking for an agreement to help stabilize EU power markets but have been at loggerheads due to their differing power mixes. Renewable-heavy Germany is concerned that nuclear-dominated France will be at an economic competitive advantage thanks to its cheap power. And, unsurprisingly, France doesn’t want to pay the price for Germany’s clueless reliance on wind and solar. If I were France, I’d want as little as possible to do with Germany’s power system…

• AI’s energy demand - the AI industry may consume as much energy as the Netherlands according to a new study. It’s risky to assume that as we develop energy efficiencies will reduce total demand. Progress creates entirely new industries and unlocks entirely new energy demand.

• OPEC at COP28 - for the first time OPEC will have its own pavilion at a COP conference when the next iteration of the climate jamboree kicks off in the UAE in November. It’s a clear statement of intent from hydrocarbon producers that their voices will be heard and should ruffle a few feathers!

• US hydrogen hubs - President Biden is expected to announce $7bn in investment for new hydrogen projects across the US. The funding is for so-called “hydrogen hubs”, where the clean-burning gas can be both produced and used at the same site, e.g. at factories.

• Investors souring on renewables - funds investing in wind and solar stocks saw a record outflow of capital in Q3. Renewable companies have been struggling under higher costs, rising interest rates, and poor performance and investors are beginning to take note.

🛢️ BOTTOM OF THE BARREL

European TTF gas prices have hit €49/MWh, a jump of ~25% in 2 days, thanks to a series of supply disruptions around the world.

These prices are still a long way off the highs of last year when TTF surged past €300/MWh, but the worrying thing is that temperatures are still fairly warm in Europe.

Europe’s gas crisis is still far from over. Brace yourselves…

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