14th November 2023

Good morning girls and boys. Welcome back to Both Barrels.

Here’s what matters today in all things oil, gas, and energy, without the hot air:

• 💨 China’s CO2 peaking?

• ❌ Russian oil price cap’s complete failure

• ✅ The proven tool for emissions reductions

• ⛏️ Glencore’s $7bn coal deal

• ➕ plus Orsted keeps retreating; Tamar back onstream; more SPR top ups.

Here goes…

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• Mach splashes out on Anadarko Basin assets - the acquisition from privately-held Paloma Partners is worth $815m and includes 75 mmboe of reserves and 32 kboe/d of oil & gas production.

• Little by little for the SPR - the US gov. will purchase another 1.2 mmbbls to help refill the SPR. That takes the total of recent refill announcements to ~10.2 mmbbls. A drop in the ocean compared to the 290 mmbbls that have been drained from the “emergency” stockpile since 2020.

• Capital Product Partners’ new LNG fleet - the company has spent $3.1bn on 11 new-build LNG tankers. The entire US LNG sector is gearing up to take advantage of growing global LNG demand (and fill a gap left by squeezed Russian volumes).

🏰 Europe

• Johan Sverdrup’s crude quality - Norway’s massive field, its third largest ever, is seeing demand for its heavy, sour crude slip as European refiners gradually shift towards lighter grades. The field currently produces ~750 kb/d of oil and is expected to keep pumping for 50 years.

• Wintershall farms into Poseidon CCS - the project is the largest of its kind in the UK and is the fifth North Sea CCS project in Wintershall’s portfolio.

🕌 The Middle East

• Tamar back up and running - Chevron has restarted production from the offshore Israel gasfield that was closed in the aftermath of the Hamas terrorist attacks on October 7th. The field is a key source of gas for Israel’s domestic market and for Egypt, which has been suffering from energy shortages, so will no doubt be relieved to hear that news.

⛩️ Asia & Oceania

• India nearing first oil at long delayed Cluster - the $5bn offshore development is 3 years behind schedule. India produces just ~600 kb/d of crude and relies on imports for ~80% of its oil demand, so is keen to ramp up new fields fast.

🦁 Africa

• Guinea’s oil hopes - the west African country has launched a tender for firms to survey its onshore oil production potential across 120,000 km². Guinea is resource rich in bauxite (used to produce aluminum) and iron ore but doesn’t produce a drop of crude.

🗿 Central & South America

• Referendum closes oil block in Ecuador’s Amazon - Petroecuador said it will shut down the project which currently produces 57 kb/d. The vote held in August was to determine whether the block should continue to operate in light of the risk to nature and indigenous people.

🌍 GEOPOLITICS & MACRO

• “Almost no Russian oil sold below price cap” - what a surprise! Officials have finally admitted what anyone with a handful of brain cells predicted: that Russia is completely circumventing the oil price cap. The idea that someone can dictate what one third party sells its produce at to another third party is far fetched. Then consider those third parties are the likes of Russia, India, and China, and the idea becomes even more hopeless.

• OPEC ever bullish on oil demand - in its latest monthly OMR, the cartel said “recent data confirms robust major global growth trends and healthy oil market fundamentals” and reiterated its oil demand growth forecasts of ~2.5 mmb/d for 2023 and 2.3 mmb/d for 2024. In contrast, the IEA expects demand growth next year of just 0.9 mb/d. The smart money’s somewhere in between.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• China’s emissions peaking? - Carbon Brief estimates China’s CO2 emissions (the largest in the world, by far) will fall in 2024 and may be entering structural decline after a huge expansion in low carbon power generation and transport. I really hope they're right. But this is the same outfit that’s been pushing the "wind is 9x cheaper than gas" nonsense so I struggle to believe a word they say. Remind me in a year.

• Meanwhile in India… - the government has released plans to increase coal production by 60% to 1.6 billion tonnes a year by 2030 to meet future demand. China may be turning a corner but India, the world’s most populous country, has barely got off the start line.

• Orsted keeps retreating - after abandoning two US offshore wind projects, Orsted is pulling out of a consortium to bid for Norwegian projects. The company’s share price is down 55% over the past 6 months as it struggles with higher financing and supply chain costs. Meanwhile, the CFO and COO have left the company.

• Glencore going big on coal - the trader has acquired a 77% stake in Teck’s steelmaking coal business in Canada for a whopping $6.9bn. The world’s largest commodities trader is clearly confident about the outlook for coal…

🛢️ BOTTOM OF THE BARREL

You know what the biggest driver of falling CO2 emissions in the US has been over the past 20 years?

Nope, not wind. Not energy efficiencies. Certainly not EVs.

It’s been a coal-to-gas switch in power generation, enabled by cheap, abundant shale gas.

Gas emits roughly half the CO2 per KWh as coal and, because it’s a baseload (reliable) power source unlike wind and solar, it can entirely replace coal capacity.

As India turbo charges its coal sector, we’d all do well to remember this. Some of the lowest hanging fruit in the global decarbonisation challenge would be replacing coal with gas in coal-dependent developing economies.

The problem is that activists and politicians refuse to see hydrocarbons as part of the solution. As a result, gas production doesn’t get the support it requires, and so prices aren’t as low as they need to be to beat out coal (as happened in the US).

Then throw in a few black swan events like Fukushima and Russia’s invasion of Ukraine which both sent gas prices stratospheric, and cost-sensitive developing countries learn they can’t rely on gas. Instead, they double down on coal.

Global gas resources are plentiful. With the right political support, a flood of production could be brought onstream to keep gas prices low for decades.

Sure, gas isn’t zero carbon, but it’s our best bet to finally and quickly dethrone king coal.

Let’s not allow perfect to be the enemy of the good.

👋 BEFORE YOU GO 

Any feedback, requests, terrible jokes? Please click the poll above or just ping a reply to this email and let rip. We read every word. 

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