16th December 2024

Good morning team - this is Both Barrels. Here’s what went down over the weekend in the hydrocarbon hinterlands:

• 🚢 Titanic tanker

• 📉 The oil / gas arbitrage

• ⚡ A new biz line for US majors

• ⬇️ LNG tanker glut

• ➕ plus China’s growing E&P; gimme more Namibia; INEOS buys CNOOC GoM assets; rig count holds steady; fresh hope for Syrian E&P; introducing Arcius Energy; and barrels more.

Let’s take a look…

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• Majors getting into power generation - Exxon and Chevron are both considering getting into gas fired power generation amid forecasts of booming power demand from data centers in the US. “It fits many of our capabilities - natural gas, construction, operations, and being able to provide customers with a low-carbon pathway on power through CCUS”, said Chevron’s head of New Energies.

• INEOS buys CNOOC GoM assets - INEOS is rumoured to have paid about $2bn for the offshore interests which are mainly non-operated and include assets such as the Appomattox and Stampede fields.

• Rig count holds steady - the number of operational oil rigs in the US continues its months long streak of minimal movement, staying flat last week at 482. Gas rigs, meanwhile, rose by 1 to 103.

• Enbridge pipeline spills 70,000 gallons - Enbridge said the spill in Jefferson County was caused by a faulty connection on a pump transfer pipe and that 60% of the spilled volumes have been removed.

• PHX exploring sale - the oil & gas company that focuses on the Midcontinent and Haynesville shale plays has hired banks to look into the idea of selling itself. PHX has reportedly rejected multiple unsolicited acquisition offers in recent years.

🏰 Europe

• Russian tanker splits in two - a strong storm in the Black Sea has wrecked two Russian tankers, causing an oil spill and setting off a major rescue mission. It’s not yet clear how severe the spill is. One sailor is reported to have died.

🕌 The Middle East

• New hope for Syria’s oil & gas sector - oil and gas companies are hoping that the fall of Assad in Syria can pave the way for Western companies to re-enter the country. In 2010, prior to the civil war, Syria was producing ~400 kb/d of oil, but that has fallen to ~80 kb/d today.

⛩️ Asia & Oceania

• China’s emerging E&P sector - whatever China does it usually does at super scale. Except for E&P, where it has always punched below its weight. This may be gradually changing though as its oil and gas output is set for strong growth in 2025. Crude production is expected to increase by 3.8% in 2025 to 1.36 mmb/d, while natural gas will jump by 10.7% to 79 mcm/d.

🦁 Africa

• Introducing Arcius Energy - BP and XRG (a subsidiary of ANDOC) have launched a new company to focus on the development of natural gas assets in Egypt. Resource rich Egypt has found itself having to import LNG recently due to a lack of investment in domestic production.

• Gimme more Namibia - QatarEnergy has acquired a 27.5% interest in Block 2813B from Chevron, in the Orange basin offshore Namibia, where a highly anticipated exploration well is due to be drilled soon. Qatar has other interests in Namibia which is fast becoming one of the most exciting offshore O&G patches in the world.

• Shell greenlights Bonga - the major has made a final investment decision at the Bonga North project offshore Nigeria which has estimated recoverable resources of ~300 mmboe, with first oil expected by the end of the decade.

• Force majeure at Libya's Zawiya refinery - fires broke out at the 120 kb/d refinery after violent clashes in the area. All is now under control, apparently.

🗿 Central & South America

• Touchstone bags Shell Trinidad interest - the indy is buying Shell’s 65% interest in the offshore Central block which has net production of ~2 kboe/d and includes a gas processing plant.

🌍 GEOPOLITICS & MACRO

• LNG tanker glut - a wave of newbuild LNG tankers hitting the market before delayed LNG exports projects start up has pushed LNG tanker rates down to all time lows. Rates have fallen by ~80% since the summer. There were around 650 LNG carriers in operation as of last year, according to International Gas Union. 68 vessels would have been added to that by the end of this year and a further 88 in 2025

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• New record high for China’s coal production - the world’s largest producer and consumer of coal saw coal output reach a new high in November of 14.27 million tons per day. Yes, China is spending big on solar and EVs but, at the end of the day, energy security will always be number on priority. While China’s coal reaches new highs, Europe bankrupts itself trying to save a tiny fraction of global CO2 emissions.

🛢️ BOTTOM OF THE BARREL

Not enough is said about the price arbitrage between US natural gas and oil.

On a barrel of oil equivalent basis (i.e. adjusted for energy content - multiply the gas price in mmBtu by 6), natural gas in the US costs ~$20/bbl, compared to WTI oil that is currently trading at ~$70/bbl.

That means that oil in the US is 3.5x more expensive than natural gas for the same amount of energy.

This creates huge incentives for fuel switching in engines and puts long term downwards pressure on oil prices, and upwards pressure on gas prices.

Eventually the prices of the two commodities, which ultimately offer the same service: energy, will converge.

👋 BEFORE YOU GO

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

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