20th September 2024

Here to usher in your weekend is Both Barrels, with all things oil, gas, and energy. Here’s what hit the wires today:

• 🤝 Gas deals aplenty 

• ⛐ Europe’s EV car crash

• 🚩 Virtue signalling banks

• 📉 Crude inventories are tumbling

• ➕ plus evil genius from Israel; Saudi crude exports falling; markets pop on rate cut; Henry Hub stubbornly low; a true American hero; 400 LNG tankers needed; offshore electrification hopes and headwinds.

Behave badly this weekend. See you Monday.

📈 THE NUMBERS

The rot seems to have stopped in oil prices, for now, as a cut in US interest rates bolsters economic sentiment.

In theory, lower interest rates → heightened economic activity → more oil demand → higher oil prices.

🗞️ WELL-HEADLINES

 🗽 North America

• LNG Canada inching closer - Shell’s LNG Canada project in British Columbia has started receiving gas and its first cargo will set sail mid-2025. The two-train, 14 mtpa facility is rumoured to have cost ~$18bn (excluding another $15bn for the pipeline that supplies it with gas) and will be Canada’s first major LNG export terminal.

• Crude stocks keep falling - US inventories declined by another 1.6 mmbbls last week, surpassing an expectation of a 0.5 mmbbls decline, to their lowest levels in a year. While broader market sentiment is dire, continually declining crude inventories point to clear tightness in the near term.

• Henry Hub stuck below $3 - the CEO of EQT, the US’ largest gas producer, thinks US gas prices are unlikely to recover above $3/mmBtu in the near term. Don’t worry gas bulls, he expects more price support next year though as US LNG export capacity ramps up. EQT is currently curtailing ~1 bcf/d of production due to low prices.

• Chevron steering clear of building LNG terminals - the US major says it has no problem marketing its gas and that capital-intensive LNG terminals are not the best use of its investment dollars. Right on cue, one of the largest US LNG plant contractors, Kiewit Energy, has warned that equipment shortages are pushing up costs and increasing delays at LNG terminals. The cost of constructing new LNG plants has risen by 25%-30% over the last five years.

🏰 Europe

• “Tighten the screws against Novatek” - speaking at Gastech (the annual gas shindig being hosted in Houston), a US official said the US will not ease up its sanctions against Russian LNG. Funny how the US is going hard at Russian LNG (which competes with its own LNG) while turning a blind eye to sanctioned Iranian oil (which it is happy to see come to the market to keep oil prices low ahead of an election…).

• Some more virtue signalling from European banks - ING, a sanctimonious Dutch bank, has said it will stop financing pure E&P companies that are developing new oil and gas fields. Presumably ING will also stop using oil & gas products then? You’ll have to contact them via carrier pigeon.

• Conoco and Uniper sign gas supply deal - Conoco will supply the German utility with 10bcm of natural gas over the next 10 years, piped into North West Europe (presumably from Conoco’s gas fields in Norway).

🕌 The Middle East

• Saudi crude exports fall to year low - the world’s largest exporter sold 5.74 mmb/d of crude in July, a 5% decline from June. Meanwhile, the kingdom’s crude production stood at 8.9 mmb/d (the difference is refined domestically and exported as products or consumed in Saudi, including in power stations). Saudi’s crude exports are usually lower in the scorching summer as it uses more domestically to generate power for air conditioning.

⛩️ Asia & Oceania

• Total lands big China gas deal - the French IOC has signed a five-year extension of an agreement to supply 1.25 mtpa of LNG to China until 2034. China is the world’s largest LNG importer and majors like Total have been betting big on LNG as a cornerstone of their businesses in the coming decades.

• BP set to sign ACG deep gas contract - an agreement is rumoured to be imminent for BP to develop the huge gas reserves that lie under the prolific Azeri-Chirag-Guneshli (ACG) oil reservoir in the Caspian Sea. The field could produce as much as 5 bmcpa of gas and would utilize much of the infrastructure at the existing oil development.

🦁 Africa

• Egypt ready to settle its debts and ramp up output - due to a lack of US dollars, Egypt is in heavy arrears to international E&Ps operating in the country, and this has meant that gas production has declined as those companies withhold further investment. The PM has promised though, without specifying when, that these debts will be paid and production will recover.

🗿 Central & South America

• Colombia facing blackouts - the country must decide to either focus on LNG imports or encourage domestic gas production if it wants to avoid the lights going out, according to Wood Mackenzie.

• First gas at Fenix - Total has started production at its gasfield, offshore southern Argentina, which has a production capacity of 10 mcm/d.

🌍 GEOPOLITICS & MACRO

• Markets pop on interest rate cut - the US cut interest rates for the first time in over four years. The reduction of 0.5% to 4.75%-5% was larger than expected and gave a shot in the arm to markets, with the S&P 500 hitting record highs.

• Exploding pager and walkie-talkies a “declaration of war” - Hezbollah has said that the extraordinary Israeli attacks via exploding devices were “a declaration of war”. Some are concerned that the attacks are a prelude to a ground invasion by Israel…Whatever you think of Israel, that operation is some next level evil genius stuff. The psychological impact of an attack like that would do more damage than any airstrike…what’s going to go bang next?

• 400 LNG tankers needed - Rystad Energy estimates this amount of new LNG vessels are needed in the coming years to meet the needs of the booming LNG liquefaction capacity in the US. For context, there are currently ~700 LNG tankers in the global fleet. Great time to be in the shipbuilding business.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Carnage in Europe’s auto industry - EV sales in the EU fell by 44% in August, year-on-year, driven by Germany where they declined by an eye-watering 69%. Is Europe’s EV market already saturated? Meanwhile, VW has had to deny rumors that it’s planning to cut 30,000 jobs in Germany.

• Electrification driving offshore decarbonisation - estimates suggest that offshore O&G platforms can reduce their CO2 emissions by 86% by electrifying the platforms. This is all well and good if the platforms are near-to-shore (so you can connect them to the grid with a long cable) and you have an abundance of low carbon power generation, a la Norway, but the jury is out on other options like floating offshore wind.

• $3bn for US battery projects - 25 projects across the US involved in processing of critical minerals, components, battery manufacturing, and recycling will receive the government funding. The US is desperate to compete with China which dominates the global battery supply chain.

🛢️ BOTTOM OF THE BARREL

Not all heroes wear capes:

👋 BEFORE YOU GO 

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

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