19th October 2023

Good morning Both Barrels crew. This is what’s up today in all things oil, gas, and energy:

• 🛢️ Iran drops the ‘E’ word

• ❌ No going back with Russian energy

• 📅 Why 2023 isn’t 1973

• ➕ plus barrels more. Let’s get to it…

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• See you in court, Joe - Alaska is suing the Biden administration for cancelling oil and gas leases in the state’s North Slope. "The federal government is determined to strip away Alaska’s ability to support itself, and we have got to stop it,” said Alaska’s governor.

• Deer Park restart next week - Pemex will restart the large crude distillation unit at its 312 kb/d refinery in Texas by early next week after repairing a ruptured pipe.

• Cushing at decade lows - the EIA has confirmed the API’s crude inventory report, showing that stocks fell by 4.5 mmbbls last week. Gasoline stocks declined by 2.4 mmbbls. Crude inventories at Cushing have hit their lowest level since Oct 2014.

🏰 Europe

• No going back with Russia - even if the war in Ukraine ended tomorrow and there was regime change in Moscow, Europe’s energy relationship with Russia has “come to an end” according to German and British officials. Putin’s war in Ukraine was a huge act of self harm on many levels, but Russia permanently losing its largest customer for its most valuable export has to be up there with the severest and longest lasting consequences. Well played Vlad, well played.

• Winter could get dicey - Equinor’s CEO sees a volatile gas market for Europe this winter. The continent’s ability to shift gas supply at will in response to demand is greatly diminished compared with the past due to the shut down of the giant Groningen field and loss of Russian piped gas. “The weather is the most important element at the moment,", he remarked. How reassuring.

🕌 The Middle East

• Mitsui wants a piece of Qatar’s North Field expansion - the Japanese trading firm is interested in buying a stake in the mega LNG project as a way of ensuring future LNG supplies. Resource-poor Japan is the world’s largest importer of LNG.

⛩️ Asia & Oceania

• Tangguh Train 3 open for biz - Indonesia has shipped its first cargo of LNG from BP’s Tangguh Train 3 facility in West Papua. The new train increases the project’s capacity by 3.8 mtpa to 11.4 mtpa.

• Prelude nearly back in action - Shell expects to have completed maintenance work at its flagship Prelude FLNG facility by November. Prelude, which is based off the coast of Australia, cost $12bn to build and is the largest floating structure on Earth.

🦁 Africa

• First oil for Hylia South West - Perenco has announced the successful startup of production at the Gabonese offshore oilfield.

🗿 Central & South America

• Venezuela’s modest ramp-up - confirming what we wrote yesterday, analysts predict that Venezuela will only be able to increase its crude output by ~200 kb/d in the next two years following the lifting of US sanctions. Fairly small in the grand scheme of 102 mmb/d of global demand. A fat wad of investment into the country’s decrepit oil sector is needed to grow output much further.

🌍 GEOPOLITICS & MACRO

• Iran drops the “E” word - Iran’s foreign minister has called for an oil embargo against Israel. While the current situation has shades of 1973 when Arab states slapped an oil embargo on Western countries for their support of Israel in the Yom Kippur War, today OPEC is a different beast and has stressed that it isn’t a political organisation and won’t weaponize its oil supply.

• Japan voices oil supply concerns - the world’s 4th largest oil importer, usually quiet on the international stage, has called on OPEC to increase oil supply and stabilize prices. ~90% of Japan’s 2.7 mmb/d of crude imports comes from the Middle East.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Europe’s power market deal - the EU has reached a deal on electricity market reform. A spat between heavyweights Germany and France had held things up but it looks like Germany has rightfully caved into France’s demands to allow nuclear power to be eligible for government subsidies. By allowing states to support their nuclear industries, this reform should provide a very welcome boost to the nuclear renaissance in Europe.

• Biden’s offshore wind targets underwater - Bloomberg doesn’t think the US will get anywhere near its 30GW 2030 offshore wind capacity target. Neither do we. Higher financing and materials costs have made projects uneconomic, and many are now being reviewed and cancelled by developers. Good news for bill payers.

• US grid getting an upgrade - the US gov’t has announced $3.5 billion in grants to upgrade the country’s aging power infrastructure and enable it to better cope with extreme weather events. It’s the largest-ever direct investment in the grid and is much needed given that some of the US’ power system is even older than Joe Biden.

🛢️ BOTTOM OF THE BARREL

Middle Eastern producers know only too well how much power their natural resources wield on the global chess board.

Calls for an oil embargo on Israel by Iran are drawing obvious comparisons with the infamous Arab oil embargo back in 1973 that quadrupled oil prices almost overnight and caused endless queues at gas stations across the US.

But the world is a very different place today than it was 50 years ago. In 2023, OPEC controls 38% of global oil production, compared with 56% in 1973, and in today’s much more globalized world, the economic and political ramifications of such action would be felt hard in Riyadh and Abu Dhabi.

OPEC also learnt that an embargo isn’t in its best long term interests: the US responded to 1973 with a big push to reduce its reliance on Middle Eastern oil, including by catalyzing domestic production and establishing the Strategic Petroleum Reserve.

I don’t buy OPEC’s claims that it isn’t political, but they’re far too smart to wield the oil weapon so bluntly as they have in the past.

👋 BEFORE YOU GO 

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