27th September 2023

Hello Both Barrels crew. This is your daily dose of all things oil, gas, and energy, without the hot air.

Here’s what’s what today:

• 🌹 Rosebank gets the go ahead

• 📈 OPEC’s ample spare capacity

• 🇮🇷 Work to be done in Iran / US talks

plus a lot more. Let’s dive in…

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• Cheniere reduces gas intake - the US’ largest LNG producer has cut feed gas intake into its Sabine Pass and Corpus Christie facilities by a combined 1 bcf/d for undisclosed reasons. Gas flows to the seven big US LNG export plants have averaged 12.6 bcf/d in September, up from 12.3 bcf/d in August, and compared with a monthly record of 14 bcf/d in April.

• Centurion pipeline rupture - Energy Transfer's Centurion oil pipeline in Oklahoma City is back in service after being damaged by road workers and causing a small spill. Ooops.

• Pemex reaches deal with workers - the NOC, which is one of Mexico’s largest employers, has reached a “favourable” deal with workers over pay. The agreement comes amid Pemex’s mounting debts that totaled $108 billion by the end of last year.

• US Gulf of Mexico lease sale delayed - The US BOEM will now hold the 261 lease round no later than Nov. 8th to give it time to comply with a recent ruling that ordered it to increase the acreage on offer.

• US crude stocks rise - the API estimates that US crude inventories grew last week by 1.6 mmbbls, compared with a forecast decline of 1.3 mmbbls.

🏰 Europe

• Rosebank gets the go ahead - the UK’s regulator has given final approval for the $3.8 bn development of the giant offshore Rosebank field. The 500 mmbbls project has been the subject of much protest from corners of the population who don’t quite realize how crucial hydrocarbons are to the modern world. Rosebank is expected to account for 8% of the UK’s entire oil production at peak.

• Germany reveals its gas reliance - worried about gas shortages, Germany is beginning to push for delivery obligations for LNG cargoes from its suppliers to ensure they aren’t diverted elsewhere. Often LNG traders will re-divert cargoes in the spot market based on changing gas prices in Europe and Asia. It’s a little hypocritical given that last winter Germany hoovered up huge volumes of LNG that was destined for places like Pakistan and Bangladesh who couldn’t compete on price and subsequently suffered blackouts.

🕌 Middle East & North Africa

• Strong interest in Egypt exploration - the country’s latest lease bidding round has attracted exploration investment commitments of ~$280m into 4 offshore blocks in the Mediterranean and Nile Delta. Eni, BP, QatarEnergy, and Zarubezhneft make up the winning bidders.

⛩️ Asia

• Shale gas support in China - China is providing more tax incentives for shale gas development as it seeks to boost domestic gas production. China, which imports ~150 bcmpa, produced 24 bcm of shale gas in 2022, mostly from the southwestern Sichuan basin, accounting for 11% of total domestic gas output.

📍Everywhere else

• Brazil deepening ties with China - Chinese banks are increasingly financing the ongoing development of Brazil’s fast growing offshore oil & gas sector. Chinese institutions already account for ~25% of Petrobras’ loans and many of its FPSOs are assembled in Chinese shipyards.

• Vista Energy ramping up in the Vaca Muerta - the Mexican independent plans to invest $2.5 billion over the next 3 years in Argentina’s emerging shale play. The Vaca Muerta (Dead Cow) holds huge volumes of resources but lack of investment, particularly into pipeline and export capacity, has constrained its growth. Some analysts expect the province could reach output of ~ 1mmb/d of oil by 2030, up from ~300kb/d today.

• Nigeria’s oil for debt deal - NNPC is looking for a $3 bn loan from traders to help support the struggling naira and will pay back the financing with physical cargoes of crude. The naira hit an all-time low against the US dollar earlier this week on the black market.

🌍 GEOPOLITICS & MACRO

• US dollar hot streak - the US Dollar Index has reached a 10-month high on expectations that rates will keep rising. A stronger US dollar generally puts downwards pressure on oil prices as it makes dollar-denominated oil prices more expensive to buyers holding foreign currency, thus suppressing demand.

• JCPOA v2 is stalling - as Iran and the US attempt to revive a sanctions relief deal, the US has commented that Iran needs to take more “de-escalatory steps”, starting by cooperating with international nuclear inspectors, if it wants to “create space for diplomacy”. There’s clearly a long way to go and with US elections on the horizon, I wouldn’t bank on an official deal anytime soon. Unofficially, the US already seems to be turning a blind eye to Iranian crude exports.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• China’s nuclear ambitions - China expects to approve 6-8 new nuclear projects every single year for the foreseeable future, according to state media. Nuclear is expected to contribute ~10% of power generation in the country by 2035 and 18% by 2060. Meanwhile, in Europe, it takes us years just to approve a single reactor…Politics is the hurdle to nuclear, not technology.

• Chinese geothermal going global - Sinopec Green Energy, the world’s largest geothermal company which is a JV between Sinopec and Iceland’s Arctic Green Energy, is expanding its operations internationaally, having previously been focused on China.

• India’s wind and solar push - the world’s most populous country is on course to hit its target of 65% non-hydrocarbon power generation capacity (N.B. capacity, not generation) by 2030 after a rapid build out in solar and wind. It will maintain its large coal fleet however to “not compromise on energy security”, said its energy minister. India currently gets around 80% of its power from coal.

🛢️ BOTTOM OF THE BARREL

There’s been a chorus of warnings recently about $150/bbl oil from industry execs and commentators.

While we’d agree that the market is definitely vulnerable given the lack of investment into non-OPEC conventional supply in the last ~8 years, and the slowing growth in US shale, these concerns overlook the ~4.5 mmb/d of spare capacity currently sitting in OPEC.

Saudi et al know that oil much above $100/bbl isn’t great for business as it erodes demand and causes economic instability.

So it’s in their long term interests to ensure oil prices stays in the $80-$100/bbl sweet spot, and we believe they’ll use this spare capacity to do just that.

Demand growth will gradually erode this spare capacity in the coming years, but OPEC are using the huge amounts of $$$ they’re making in the current environment to invest in building out new capacity:

Your regular reminder of the almost magical engineering that goes on in the oil & gas industry:

👋 BEFORE YOU GO 

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