26th February 2024

Good morning team. This is what wen’t down in all things oil, gas, and energy over the weekend:

• 🇭 Hydrogen: hopes & headwinds

• 🇶🇦 Qatar’s big is getting bigger

• 🏋️‍♀️ A new global gas heavyweight

• 🐮 Exxon giving up on the dead cow

• ➕ plus the “Rex Tillerson”, new sanctions on Russian LNG; Germany’s green steel plans; US oil rig count edges up; renewed disruption in Libya.

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📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• A slow news day in the US…

• Oil rig count up by 6 - another week, another fairly modest change in the US oil rig count. It’s now at 503, 97 lower than a year ago.

🕌 The Middle East

• Qatar’s LNG expansion gets even bigger - the gas-rich emirate has revealed new plans to raise its LNG capacity to 142 mtpa by 2030. Its previous target had been for 127 mtpa by 2027, from 77 mtpa today. The announcement comes hot on the heels of the US deciding to pause new LNG approvals, creating a potential gap in future supply that other producers like Qatar will be only too happy to fill.

• Saudi’s gas bonanza - the oil giant has announced a further 15 tcf of proven gas reserves at its huge unconventional Jafurah field. Jafurah now holds whopping reserves of 229 tcf of gas and 75 bnbbls of condensates. Developing the field will require an estimated $110bn! Saudi is swiftly turning into a global gas heavyweight.

• The “Rex Tillerson” - QatarEnergy has named the first LNG carrier to be delivered as part of its LNG expansion plans after the former Exxon boss. During his 10-year term as the helm of ExxonMobil, Tillerson oversaw mega investments and partnerships in Qatar’s LNG industry. I want one!

⛩️ Asia & Oceania

• CNOOC makes major offshore discovery - the Bozhong discovery in the Bohai Bay has confirmed reserves of over 1.2 bnboe. The Bohai Bay is becoming a crucial source of new resources for a country desperately trying to reduce its energy import reliance.

• Pakistan building gas pipeline to Iran - the fast growing south Asian nation is moving forward with long held plans to build a gas pipeline from Iran to allow it to import from its neighbor. The project has stalled for years due to US sanctions on Iran but clearly energy supply is moving up the list of priorities for the cost-sensitive Pakistan.

🦁 Africa

• Protests close Libyan gas pipeline to Italy - the subsea pipe carries ~200 mcm/d to Italy but has been closed after fresh protests in the restive Libya. Oil output at the 45 kb/d Wafa field was also temporarily down as the country’s Petroleum Facilities Guards protest against low salaries.

🗿 Central & South America

• Exxon giving up on the dead cow - the major is rumoured to be selling its interests in Argentina’s Vaca Muerta shale patch, which are worth ~$1bn. The region contains vast reserves but a lack of investment and economic malaise in the country has held back its growth.

• Guyana eases some non-fiscal contract terms - the emerging oil hotspot and IOCs have been squabbling over proposed terms for new production sharing agreements (PSAs). It appears like Guyana is now set to make some concessions on non-fiscal terms, like requirements on use of local workers, but is not budging when it comes to $$$, and has ramped up the royalty payments from 2% to 10% and introduced a new corporate tax.

🌍 GEOPOLITICS & MACRO

• New US sanctions target Russian LNG- over 500 more Russian individuals and businesses have been hit by a raft of new US sanctions. This batch seems to have zeroed in on shipbuilding, including companies that are involved in building LNG tankers and providing services to Russia’s LNG sector.

• Goldmans ups Brent forecast - regular readers will know that I think oil price predictions are a fools errand but they can be a helpful indicator of sentiment. Anyway, GS’ has increased its high case Brent forecast for 2024 by $2 to $87/bbl on continued disruptions in the Red Sea. The bank expects Brent to stay in the $70-90 range as ample OPEC+ spare capacity balances demand growth.

• OPEC cuts likely to continue - a Bloomberg survey has found that most analysts expect OPEC+ to continue its output cuts in Q2 this year. “The physical markets are telling us that actually markets have tightened…[but] we do believe that OPEC+ will extend its cuts in some form.” said Energy Aspects.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Germany’s green steel plans - an in-depth piece by the FT looks at how German steel producers are banking on hydrogen to replace coal in the production process for one of the world’s most manufactured metals. Steel production is responsible for ~20% of the country’s entire CO2 emissions. Take a look at Bottom of the Barrel for why hydrogen holds both great promise and heavy doubts.

• The “staggering” investment needed in US electricity - with a push for electrification, decarbonisation, and surging power demand from data centers, the US power grid will require huge quantities of capital to keep up with demand, according to Warren Buffet in Berkshire Hathaway’s annual shareholder letter.

• India’s insatiable appetite for power - the world’s most populous country is hungry for power, and the government has revised up demand forecasts in the coming years as expectations continue to be surpassed. India’s electricity demand is growing by 7-8% per year.

🛢️ BOTTOM OF THE BARREL

Hydrogen is the first element on the periodic table and the most abundant in the universe.

It also has the potential to to play a big role in decarbonising our economy.

When combined with oxygen in a fuel cell to release electricity, the only waste from hydrogen is water.

Hydrogen also has a high energy density, making it a suitable candidate for fueling heavy transport, shipping, and aviation, where weight and space constraints make current battery technologies non-viable.

It can also be “burnt” to release heat in industrial processes, creating the possibility of decarbonsing polluting sectors like steel and iron production (~9% of global CO2 emissions).

Sounds great. What’s the catch?

Well, for starters, hydrogen isn’t an energy source itself. It’s an energy store. The energy that hydrogen holds needs to come from elsewhere.

Secondly, the process of obtaining pure hydrogen is energy intensive.

Frustratingly, hydrogen has a habit of sticking to other elements (eg H2O, CH4), and to separate it into its pure form so it can be used requires a lot of energy (if done cleanly).

The most promising, zero-carbon means of obtaining hydrogen is via a process called electrolysis, which uses electricity to separate water into hydrogen and oxygen.

But, because of losses throughout the production, storage, and distribution of hydrogen, you only get out about 30% of the energy that you put in.

So, hydrogen is only justifiable from a position of energy abundance, when society has huge quantities of affordable electricity to spare.

Right now, in an era of high power prices and energy scarcity, hydrogen makes little sense.

If the world gets real about supporting nuclear energy and natural gas, then I can see a promising future for hydrogen.

But if we keep insisting that intermittent, expensive wind and solar are the answer, hydrogen’s potential will remain out of reach.

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