15th January 2024

Happy Monday Both Barrels crew.

Here’s what went down in all things oil, gas, and energy over the chilly weekend. (Enjoy staying warm? Me too. Cheers hydrocarbons.)

• 🚀 Big freeze rockets power prices

• 🤥 The myth of energy independence

• 🛑 Qatar halts Red Sea LNG

• 🇹🇼 Taiwan’s election result angers China

• ➕ plus US rig count edges down; Trans Mountain gets approval; sanctions hit Russian refinery; Nigeria’s “game changing” refinery fires up.

Let’s go.

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• US big freeze rockets power prices - power prices in the Pacific Northwest hit record highs of ~$1,075/MWh over the weekend as the giant winter storm blankets large parts of North America. For context, average prices in 2023 were $81/MWh. The soaring prices are due to a surge in demand for heating and a fall in gas supply caused by freezing wells. Meanwhile, in Alberta, also suffering Arctic temperatures, people were asked to reduce their power consumption to protect the grid.

• Relief in Alberta as Trans Mountain change gets approval - the long delayed pipeline which will triple Alberta’s oil export capacity had been seeking to make changes to the final stretch of the pipeline. The developer had warned of two more years of delays had the changes been refused. The project is due to finally start operations by the end of March.

• Rig count slips by 2 - the total number of operational oil rigs in the US is now 499 after declining for the second week in a row. OPEC will be very keen to see this number keep falling. Note that there’s usually a ~3 month lag until changes in oil prices impact the rig count.

• Louisiana spill remains a mystery - back in November, over 1 million gallons of crude leaked into the Gulf of Mexico but, despite months of investigation, the source of the spill is still unknown. Leak detection specialists working on the case are stumped.

🏰 Europe

• Key Russian refinery feeling the impact of sanctions - the Nizhny Novgorod refinery, which is an important source of gasoline supply to the Moscow area, has partially shut down because it cannot replace foreign-sourced faulty parts due to sanctions. The impact won’t be huge but it highlights a growing problem for Russia getting hold of parts to upgrade its ageing energy infrastructure.

🕌 The Middle East

• Qatar pauses LNG shipments through Red Sea - they’ll instead be sending cargoes to Europe the long way around, past the Cape of Good Hope, to avoid the Houthi threat. ~20% of Qatar’s 75 mtpa LNG exports go via the Red Sea to Europe, the majority of rest heads to Asia.

⛩️ Asia & Oceania

• Santos gets Barossa pipeline green light - the $4.3bn gas project offshore Australia had been held up by a legal challenge from indigenous groups who claimed one of the pipelines impacted underwater cultural heritage by angering and impacting the travels of two "ancestral beings"…The court ruled in favour of the O&G company.

• India’s offshore expansion gathers momentum - ONGC has announced two “significant” deep-water gas discoveries off the country’s east coast. ONGC has big deep water ambitions as part of a $3.6bn capex drive this year.

🦁 Africa

• Nigeria’s “game changer” refinery fires up - after years of delay, the huge $19bn 650 kb/d Dangote refinery that will turn Nigeria into a fuel exporter, having previously been heavily reliant on expensive imports, has started operations. Meanwhile, investigators have raided the offices of Dangote Group, alleging corruption related to the financing of the project.

🗿 Central & South America

• Saipem hit with 2 year Brazil ban - the OFS giant has been banned from signing new contracts with Brazilian public corporations for two years regarding alleged corruption in a pipeline installation contract back in 2011. Existing contracts are not impacted.

🌍 GEOPOLITICS & MACRO

• Taiwan’s pro-sovereignty party secures reelection - despite China calling for people in Taiwan to vote otherwise, the DPP party has won a third term. After the election, a Chinese foreign ministry spokesman commented: “whatever changes take place in Taiwan, the basic fact that there is only one China in the world and Taiwan is part of China will not change.” The incoming president has said he will not pursue formal independence but the result of the vote only serves to increase the tensions between Taiwan and its neighbor determined for reunification.

• More tit for tat in the Red Sea - the Houthis retaliated to the US-UK airstrikes in Yemen last week by firing a missile at a US warship. The missile was shot down and caused no damage. Clearly the Houthis didn’t get the message. Expect more US-UK strikes.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• John Kerry to leave climate envoy role - the man who owned (sorry, his wife did) a private jet and has more air miles than most while preaching about climate change, is to leave the position. The former Secretary of State reportedly plans to focus on Biden’s reelection campaign.

• US considering methane emissions fee for O&G producers - the fee, proposed by the EPA, would apply to large O&G facilities with more than 25,000 tCO2e/year of emissions and would start at $900/t, before rising to $1,500/t by 2026.

🛢️ BOTTOM OF THE BARREL

If I had a dime for every time I heard a politician parrot the idea that wind and solar unlock “energy independence”, I’d be on a beach in Tulum right now napping under the shade of a coconut tree.

Their thought process is simple, as it often is: “we don’t rely on anyone for the wind and the sun”.

While that may be true, they overlook the rather important point that wind and solar energy don’t just magically make their ways into our phones and homes.

This energy needs to be harnessed by technologies which are made using processed raw materials.

And, funnily enough, we do rely on someone else for these technologies, processing, and resources.

That someone is China.

China dominates the supply chain for almost all of the key inputs to wind, solar, and batteries. Far more so than any country today dominates a hydrocarbon supply chain:

There’s hardly a lithium battery or solar panel on earth that hasn’t relied on China in some way.

“Energy independence” is a lie.

The players will change, the commodities will change, the great geopolitical game will not.

👋 BEFORE YOU GO 

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