13th December 2023

Rise and shine Both Barrels crew. Here’s the d-low on all that matters today in oil, gas, and energy, without the hot air:

• 🤝 COP: we have a deal. So what?

• 🐻 Bears taking hold of the oil market

• 🔫 Supersoakers in the South China Sea

• 🚗 Ford cutting EV production

• ➕ plus Armaco’s downstream expansion; boom time in Norway’s oil patch; inflation coming under control.

Without further ado…

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📈 THE NUMBERS

A tanker got attacked by a cruise missile in the Red Sea and oil still fell by 4% yesterday to 6-month lows…

Gives you an idea of how weak sentiment is at the moment.

🗞️ WELL-HEADLINES

 🗽 North America

• Shell takes FID at Perdido - the expansion of the project in the US GoM will involve drilling three new wells by 2025 which are set to produce an additional 22 kboe/d at peak (on top of the current 125 kboe/d capacity).

• Crude stocks fall, gasoline climbs - API estimates show oil stocks declined by 2.3 mmbbls last week (vs analyst expectations of a 1.5 mmbbls increase), while gasoline stocks jumped by a huge 5.8 mmbbls.

• Feeding the LNG beast - the EIA calculates that 20 bcf/d of new natural gas pipeline capacity across 9 pipelines is under construction or approved to deliver gas to five major LNG terminals on the Gulf Coast. These pipelines are crucial for supplying the mega LNG projects and unlocking the oceans of shale gas for global markets.

🏰 Europe

• Boom time for Norway’s oil patch - O&G companies in Norway are set to invest ~$22bn into the sector next year, up ~10% from last year and ~20% higher than previously forecast. The rise is being driven by new developments, increased scope of ongoing projects, as well as inflation and a weak currency.

• Wintershall shores up Berglnapp - a successful appraisal well at the Norwegian North Sea prospect has helped determine a resource estimate of 44-75 mmboe. The field partners will now decide on a development plan.

⛩️ Asia & Oceania

• Aramco invests in Pakistan downstream - the Saudi state-owned giant is continuing its global downstream expansion strategy by acquiring a 40% stake in Pakistan’s Gas & Oil Pakistan which deals in downstream fuels, lubricants and convenience stores. In March, Aramco completed the $2.7bn purchase of Valvoline, a global lubricants business based in the US. Aramco has also been making some large investments in midstream assets, most notably refineries in China. Heading for world domination…

🌍 GEOPOLITICS & MACRO

• China and Philippines clashing in the South China Sea - boats collided and China used water canons on Philippine vessels in a series of spats near a contested reef in the hotly disputed waters of the South China Sea. The Philippines has summoned China’s ambassador over the incident and is considering expulsion for what it called "illegal and aggressive" actions.

• OPEC needs “unified, vigilant, and effective management to prevent a collapse in prices” - according to a report by Rapidan Energy Group which says that rapid supply growth from the US, Brazil, and Guyana is causing a “huge problem” for the cartel.

• US inflation flat-ish - US CPI is estimated to have crept up slightly to 3.1% in November, from 3.2% in October. While inflation is thankfully far below its peak of ~9% back in early 2022, it’s still above the Fed’s target of 2% and expectations are that interest rates will be held at 5.25-5.5% when the Central Bank next meets today. A reminder that broadly speaking: higher interest rates → stronger US$ → weaker demand for $-dominated oil → lower oil prices.

• EIA revises down Brent forecast - I’m reluctant to report oil price forecasts as they’re usually meaningless and no one really knows, but they can be a useful barometer of sentiment. The EIA expects Brent to average $83/bbl next year, down from its previous forecast of $93/bbl.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• COP: we have a deal - delegates bickered long into the night before reaching an agreement that all 197 countries could (begrudgingly) agree with. Language re hydrocarbons was the main sticking point, here’s what they settled on:

  • “Transitioning away from fossil fuels in a just orderly and equitable manner”. Note no inclusion of the words “phasing out” which will disappoint some radicals.

  • “Recognizes that traditional fuels can play a role in facilitating the energy transition while ensuring energy security”.

  • What does all this mean? Good question. This is the 28th iteration of the UN talk fest, and today coal demand and CO2 emissions are at record highs.

  • Ultimately, the text of these agreements is always so vague that countries go away and do what’s in their own best interest anyway. COPs may have helped bend the arc of emissions but it feels like it’s outlived its purpose and become a giant stage for posturing, backslapping, and finger pointing. We certainly don’t need one every year.

• Ford slashing production of signature EV - the company is cutting planned output by nearly half next year of its all-electric F-150 Lighting pickup truck, which its CEO once said was “a test for adoption for electric vehicles” in America. As recently as this year, Ford had significantly increased plant capacity for the F-150 Lightning but demand for EVs has been slower than expected.

• Shell selling down US wind & solar stakes - the company is divesting a 60% interest in a wind farm in Texas and a solar development in Ohio to InfraRedCapital for an undisclosed sum.

• Spain to dismantle 7,500 wind turbines in the next five years - once the turbines reach the end of their useful lives, ~20 years, they are taken down. Most of the fiberglass blades can’t be recycled. So much for “renewable”.

🛢️ BOTTOM OF THE BARREL

Is COP a waste of time? I’ll leave that to you to decide…

👋 BEFORE YOU GO 

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