21st November 2023

Morning team. Here’s Both Barrels with your roundup of what’s what today in all things oil, gas, and energy:

• 🤑 Shell’s trading goldmine

• 🇯🇵 Japan eager for more LNG

• 💱 China and Saudi’s de-dollaring

• 🎩 The renewable cost delusion

• ➕ plus real life Call of Duty in the Red Sea; China’s magic imports; Iran’s output ambitions.

Here goes.

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• Louisiana oil leak - authorities are still hunting for the source of a leak that has spilled 26 kbbls of crude into the Gulf of Mexico, southeast of New Orleans. The leak is near a pipeline operated by Main Pass Oil Gathering Company and was first discovered on Thursday.

• Big investor backs Chesapeake-Southwestern merger - activist investor Kimmeridge, which owns a stake in Chesapeake, said the rumoured deal would create a “must own stock in the sector”. Kimmeridge is optimistic the merger will happen.

• Fire at Marathon’s Martinez refinery - the fire at the facility in California was quickly extinguished but not before an employee was injured.

• Virginia’s pipeline upgrade gets approval - regulators have given the green light to TC Energy’s plans to upgrade and expand gas pipelines that will provide “reliable and abundant natural gas supply” to the region.

🏰 Europe

• Shell’s trading goldmine - in its annual tax report, the major reveals that it made $1.55bn in tax-free profits at its Bahamas-based trading unit, with just 37 employees! Not bad work if you can get it.

• Ukraine’s promising new gas deposit - wells in the Carpathians region in the west of the country have flowed at rates not seen for two decades. The area was previously thought to be exhausted but the results have given hope that it could grow into a significant gas producing region.

• The UK’s incoming decommissioning wave - decom costs in the mature North Sea basin are expected to surpass capex by 2040 as the province deals with aging assets. This is expected to cause a supply chain challenge with the offshore wind industry which uses much of the same infrastructure and workforce.

🕌 The Middle East

• Iraq wants an LNG import terminal - the president is pushing for the project, which would be Iraq’s first, to help diversify its energy supply. Iraq is currently reliant on Iran for lots of its gas.

• Iran keeps ramping up - crude output is at 3.4 mmb/d today, will hit 3.6 mmb/d by March 2024, and then 4 mmb/d in the year after that, according to Iran’s oil minister.

• ADNOC and Santos teaming up on carbon capture - details of the agreement are scarce but earlier this year ADNOC announced plans to develop a major gas field off the UAE coast, which will include carbon capture.

⛩️ Asia & Oceania

• Japan eager for more long-term LNG - the country’s government has urged its LNG importers to sign more long term supply deals to ensure energy security. Competition for LNG is hotting up after Russia’s invasion of Ukraine pushed more European buyers to LNG.

• Dodgy Chinese import data - China’s official crude imports from Malaysia were at 1.39 mmb/d in October, which is strange given Malaysia only produces ~0.5 mmb/d. Meanwhile, imports from Iran and Venezuela were apparently zero. Hmmm. OK.

🦁 Africa

• All eyes on Galp - Galp has started drilling an exploration well at the Mopane prospect in Namibia’s prolific offshore Orange Basin. The well is targeting a 10 bnboe structure.

🗿 Central & South America

• Colombia joining Venezuela’s party - Colombia is considering a partnership with PDVSA that could include imports and joint E&P in Venezuela. Only recently has the Colombian government said it was looking to reduce its reliance on hydrocarbons and was not considering imports from Venezuela. Looks like energy reality is kicking in.

• YPF shares fly after election - shares of Argentina’s largest oil company rose by as much as 40% yesterday after Javier Milei won the presidential election. Mr Milei says he plans to privatize the company.

🌍 GEOPOLITICS & MACRO

• Cargo ships avoiding the Red Sea - two vessels that were linked to the ship that was seized by Houthi militants from Yemen have rerouted to avoid the area. The Houthis claim the ship they hijacked was Israeli but reports suggest it’s British-owned and Japan-chartered. Japan is working with Saudi, Oman, and Iran to try and secured the release of the ship and its crew.

• China and Saudi’s de-dollaring - the two countries have signed a currency swap deal worth 50 billion yuan (~$7bn) that will enable them to increase trade and investments in their own currencies. Saudi has, however, played down suggestions that it would sell oil in any currency other than the US dollar.

• Panama getting worse before it gets better - the canal usually handles 40 vessels per day. Today that capacity has been reduced to 24. It will drop to 22 in December and just 18 in February. A drought and low water levels are to blame, forcing many boats to take the long route around South America.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Bank of America exposes renewable cost nonsense - “solar and wind look more expensive than almost any alternative on an un-subsidized basis when accounting for those external factors (storage needs, transmission, curtailment etc)”, the bank wrote in a report. The misconception (lie?) that wind and solar are the cheapest form of power generation is finally being exposed.

• China prepares mega renewable project - the proposed 11GW, $420m project in the Gansu province will be the second largest in the world and include solar generation, battery storage, and hydrocarbon plants as back-up. The world’s largest project is a 20GW wind farm consisting of 7,000 turbines, also in Gansu.

🛢️ BOTTOM OF THE BARREL

This is like Call of Duty but in real life. Wild:

If you work in energy or ever read the news, you’ve probably heard someone parrot the line “renewables are the cheapest form of power”.

This widely held but incorrect belief can be traced back to Lazard and its rudimentary LCOE cost analysis.

In a nutshell, LCOE simply takes the total cost of power generation for an energy source and divides it by the total power it produces over its life. These results can then be used to compare one power source to another.

But, and its a HUGE but, LCOE fails to take into account any of the system costs of each technology.

What are system costs?

• The costs of back-up like batteries and gas power stations that are needed for when the weather doesn’t cooperate.

• The costs of all the additional transmission infrastructure needed to transport power from far flung wind and solar farms.

• The costs of paying renewable projects not to produce when there’s too much sun or wind (known as curtailment).

And these costs are massive for intermittent, diffuse, wind and solar. Yet they are conveniently ignored by the industry and their useful idiots in government.

When all these additional system costs are included, the story is very different to the ones that Greenpeace likes to tell you.

Bank of America’s analysis suggests the true cost of wind in Germany is 43x higher than what the commonly quoted LCOE metric suggests.

43 times higher. Let that sink in.

Thankfully, the LCOE delusion is finally being revealed for what it is.

👋 BEFORE YOU GO 

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