16th October 2023

Happy Monday, Both Barrels crew. Here’s what hit the wires over the weekend:

• ⚠️ Iran’s stark warning

• 😬 BP & ADNOCs East Med deal on the rocks

• 🎉 Good times for Shell

• 🔍 A look at previous energy transitions

plus a lot more. Let’s get to it…

📈 THE NUMBERS

Brent is back above $90/bbl, having climbed by 5% at the end of last week, as the Israel / Hamas war threatens to boil over into a broader regional conflict.

The sharp jump in the JKM LNG price today is due to the front month futures contract rolling over to the next month (which happens on the 16th of every month).

🗞️ WELL-HEADLINES

 🗽 North America

• US oil rigs increase - after several weeks of decline, the US oil rig count has risen by 4 to 501. 2 of these additions were in the Permian, and one apiece in the Eagle Ford and Williston basins. The count is 126 lower than its previous high of 627 in November last year.

• Days numbered for indy shale players? - Scott Sheffield thinks so. The CEO who just sold his company to Exxon expects a wave of consolidation in the US shale patch, driven by intensifying financial pressures and ambitious drilling targets.

🏰 Europe

• Pipeline sabotage? Wasn’t me - not that his word counts for much, but Russian President Putin has said claims Russia sabotaged the Balticconnector gas pipeline were “rubbish”. The accusations were made to divert attention from a Western attack on Nord Stream 2, he contended.

• Good times for Shell shareholders - the European major’s share price hit a new all time high today, having climbed by 3x in the past three years thanks to strong focus on its core oil and gas business. It turns out that, despite their ESG claims, investors are finding it hard to ignore the strong performance of the O&G sector.

🕌 The Middle East

• BP & ADNOC’s East Med deal on the rocks - the $2bn joint acquisition of a 50% stake in NewMed Energy, which holds large stakes in the mega Leviathan and Aphrodite gas fields in the East Med, is at risk of collapsing. Reports cite the escalating conflict between Israel and Hamas which is putting strain on Israeli / UAE relations, and NewMed’s determination for a higher selling price, as threats to the deal.

• Crescent’s Iraq gas developments - the UAE independent has signed deals with Iraq to develop gas fields in the country that will collectively produce 400 mmscf/d. Despite being awash with hydrocarbons, Iraq imports lots of its gas from Iran and so is keen to develop its domestic gas sector.

• Investors hungry for O&G opportunities - Oman’s state owned gas pipeline firm, OQ SAOC, IPO’d with a value right at the top of the expected range, making it the largest IPO in Oman’s history.

⛩️ Asia & Oceania

• Chevron’s LNG saga rumbles on - workers at the Gorgon and Wheatstone LNG plants (~5% of global LNG supply) in Australia will start striking again from the 19th October after unions voted in favour of the move. No impact to production is expected, but LNG buyers watch on anxiously as winter approaches.

• ONGC’s $11bn O&G push - India’s state-owned company is planning to invest in over 25 offshore O&G facilities in the next three years, including the development of new fields and the laying of over 1000km of pipelines.

• India’s uncomfortable yuan oil payments - India’s government is reportedly reluctant to let its companies pay for Russian crude in Chinese yuan. Using yuan has helped buyers evade US sanctions but the government sees using the yuan as benefiting China at a time when tensions are strained between the two countries.

🌍 GEOPOLITICS & MACRO

• Iran’s stark warning - Iran sent a message to Israel via the UN threatening to intervene in the conflict if Israel’s operations against Gaza continued. Without elaborating, Iran said it had “red lines” which, if crossed, would force it to respond and would risk escalating the conflict into a “huge earthquake”. Israel looks to be preparing for a ground offensive into Gaza in response to the Hamas terrorist attacks. Meanwhile, deadly clashes have been occurring between Israel and Hezbollah along Israel’s border with Lebanon.

• Geopolitical risk puts $100/bbl back in play - Iran’s oil minister thinks so, at least. Hopefully he doesn’t know something we don’t about his government’s plans…

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• EU divided ahead of COP - European climate ministers are struggling to find a united negotiating position to present at the upcoming COP28 summit in the UAE. A key sticking point is whether the bloc pushes for an ambitious (unrealistic) agreement to phase out hydrocarbons entirely or take a softer approach by including the word “unabated” (which is fairly vague but usually refers to carbon capture and storage alongside hydrocarbons). I’m not sure it matters anyway. I can think of plenty of powerful countries who simply aren’t going to commit to forgo the lifeblood of their economies.

🛢️ BOTTOM OF THE BARREL

As the climate world gears up for COP28 and the inevitable shouting match about the future role of hydrocarbons, it’s worth reminding ourselves about previous energy transitions.

It took coal roughly 80 years to displace traditional biomass (dung and firewood mostly) as our primary source of energy, and then it took another 80 years for oil & gas to knock king coal off its perch.

The takeaway: energy transitions take a LONG time and this one has only just begun.

What’s more is that the energy transition you keep hearing about is very different to the previous two. It seeks to not only move large parts of our energy system from a combustion-based model to an electric one, but also to simultaneously decarbonise all of that power.

Either of these objectives alone would be a monumental challenge. Combined, the task is Herculean.

👋 BEFORE YOU GO 

Spread the word. If you like this, please do us a solid and forward Both Barrels to your colleagues, drinking buddies, lovers. They can join the crew for free here:

Tell it to us straight. Got any feedback, requests, terrible jokes? Please just ping a reply to this email and let rip.

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