20th October 2023

Happy Friday Both Barrels crew. Here’s what’s up in oil, gas, and energy today:

• 🌊 A drop in the SPR ocean

• 🛑 Middle East’s oil chokepoints

• 🛒 Devon is going shopping

• ⬅️ The great green backpedaling

• ➕ plus: a flood of associated gas, reactions to Venezuela, Technip’s sanctions mishap, dangerous skies in the Middle East

Have a top weekend.

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• A drop in the SPR ocean - the US government is looking to purchase a whopping 6 mmbbls of crude for the Strategic Petroleum Reserve over the next few months at $79/bbl or less. For context, the Biden administration has drained ~70 mmbbls from the SPR since 2020 for largely political reasons.

• Devon is going shopping - amidst a trend of consolidation in the US shale patch, Devon Energy is rumoured to be hunting its own game-changing deal. It’s apparently in talks with targets including Marathon Oil and CrownRock.

• A flood of associated gas - associated gas (gas from oil wells) increased 9% last year in the US as shale oil drilling activity climbed. Traditionally, oil & gas prices would move in the same direction, but associated gas changes things: higher oil prices encourage more oil production which increases associated gas and pushes gas prices down.

🏰 Europe

• Technip shares sink - the European OFS’ shares fell by 14% yesterday on reports it failed to comply with EU sanctions by continuing to supply equipment to the Arctic LNG2 project in Russia. Technip denied the allegations.

• Dana strikes lucky - the UK E&P has discovered a gasfield at the Earn prospect in the southern North Sea.

🕌 The Middle East

• Petronas “almost there” at Garraf - the Malaysian NOC has nearly completed the long-delayed task of raising capacity at the Garraf field in Iraq to 230 kb/d. The project has been troubled by some of the inevitable challenges of doing business in Iraq, among other things.

⛩️ Asia & Oceania

• Vietnam looking for Saudi petchem investment - the southeast Asian country has clearly noticed Aramco’s international downstream spending spree and wants to get in on the action.

🦁 Africa

• More delays to Uganda’s landmark pipeline - the 210 kb/d EACOP pipeline that will unlock Uganda’s hydrocarbons and enable it to become an oil exporter for the first time is facing further delays. The extra wait is because Chinese companies involved in the construction are unable to get insurance until mid next year.

🗿 Central & South America

• Pemex and unions strike a deal - Pemex has reached a pay deal with its workers. As well as being one of the largest employers in Mexico, it is also one of the most indebted, with debt of over $100bn, equivalent to ~8% of Mexico's GDP.

🌍 GEOPOLITICS & MACRO

• US intercepts missiles from Yemen and drone attacks Syrian gasfield - the rocket were fired “potentially towards Israel”, the Pentagon said. Meanwhile, a Conoco gas field in Syria was hit by a drone laden with explosives. Details are sparse but it appears there were no injuries.

• Cracking down on Iranian oil - US policymakers are readying a new bill that will establish a $150m fund to improve the enforcement of sanctions on Iranian crude. Iran’s exports have grown ~500 kb/d in recent months as it has had little trouble evading the poorly enforced sanctions. Unofficially, the US is quite pleased to have Iranian barrels on the market so it remains to be seen if this initiative grows any teeth.

• Some reaction to the lifting of sanctions on Venezuelan oil:

  • Eni, which produces gas in Venezuela, is happy as it may be able to collect debts.

  • OPEC doesn’t expect major new volumes or the need for a policy change.

  • US senators think the administration should instead be encouraging domestic production. They need a lesson in crude types and fungibility: Venezuelan heavy crude, which many US refineries are designed to process, is very different from the light US shale oil which is mostly exported for refining.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• The great green backpedaling - as the public and government become aware of the true cost of net zero ambitions, we’re starting to see an unwinding of climate plans. Last month the UK ditched some of its key commitments, and several offshore wind projects have recently been cancelled around the world. Today, it’s the turn of the EU which looks set to postpone ESG reporting requirements for fear they will harm EU businesses’ competitiveness.
  

🛢️ BOTTOM OF THE BARREL

With conflict brewing in the Middle East, there’s plenty of the usual chatter about risks to oil exports.

Here’s a neat infographic from the chaps at S&P to help you get a lay of the land:

It’s an interesting / terrifying thought experiment to imagine what would happen if Iran tried to close the Strait of Hormuz, or if terrorists attacked the Suez Canal…

However, these waterways are so valuable to the global economy that any disruption wouldn’t last long and would be met with fire and brimstone from all corners, including the nearby US Navy.

Sure, oil supply is vulnerable to chokepoints in the Middle East, but there’s a lot of very powerful, very wealthy actors with a lot riding on keeping things running smoothly.

It would take something truly dramatic for those watch-the-world-burn types readying the popcorn to get their wish.

👋 BEFORE YOU GO 

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