28th November 2023

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

Here’s what’s up today:

• 🖕 Shots fired in the OPEC vs IEA feud

• ✂️ To cut or not to cut?

• 🌊 Kazakh output hit hard by storms

• 🗣️ Troubles already at COP28

• ➕ plus Russia’s rupee problem, happy days for US drivers; Europe still hooked on Russian fuel.

Let’s go.

📈 THE NUMBERS

🗞️ WELL-HEADLINES

 🗽 North America

• Happy days for US drivers - gasoline prices have fallen for 60 consecutive days to an average of $3.25/gal, $0.6 lower than the recent peak in mid-September.

• Returning borrowed barrels to the SPR - several O&G companies borrowed oil from the government stockpile as part of an exchange over the past two years. They were due to repay the crude this year and next but will instead return the 5 mmbbls in 2024 and 2025. The US gov is keen to refill the emergency stockpile after draining it of ~270 mmbbls (40%) since 2020.

• Terra Nova back onstream after 4 year hiatus - Suncor’s offshore Canadian field has been shut in since 2019 while renovations were made to its FPSO. The life extension project aims to top 70 mmbbls of additional oil and produce ~ 29 kb/d.

🏰 Europe

• Europe hooked on Russian fuel - despite banning most direct imports of Russian fuel last year, Europe is still effectively consuming plenty of the stuff via India. India has recently become a major buyer of Russian crude, which it refines and then exports to Europe. And European imports of “Indian” diesel are surging, hitting their highest level since 2017. Watertight energy sanctions are near impossible in today’s complex, multi-layered world.

• Russia’s rupee problem - since Russia’s invasion of Ukraine it has struggled to use the US dollar, it has also sharply increased oil sales to India. This combo has meant a frustrated Kremlin is amassing huge quantities of rupees, a currency which it says is “pointless” and doesn’t have much use for.

• Eni the recipient of Uniper’s $600m fine - yesterday we wrote about the large fine imposed on Uniper relating to a pricing dispute with an unknown supplier in an LNG contract. That supplier has been revealed as Eni.

• Italy and Saudi discuss joint investments - ministers and execs meeting in Riyadh lined up possible partnerships in raw materials, O&G, hydrogen, and other areas.

🕌 The Middle East

• North Field expansion progressing “impressively” - according to QatarEnergy’s CEO. The $50bn expansion of the world’s largest gas field in Qatar will help the country increase its LNG capacity to 126 mtpa by 2027, from 77 mtpa today.

⛩️ Asia & Oceania

• Severe storms hit Kazakhstan’s output - production declined by ~285 kb/d (~15% of the country’s total) in one day as deadly storms and high waves halted operations at Black Sea oil export terminals. The storm is due to last a few more days. The weather has left nearly 2 million people without electricity.

• Stuck LNG tanker disrupting APLNG - the vessel lost power while docked at the 9 mpta LNG export terminal in Australia and is unable to move, blocking the facility and preventing other ships from loading. Two cargoes have already been deferred and operator Origin expects there will be more.

• Prelude LNG to restart any minute - the world’s largest floating facility, which cost $12bn and displaces as much water as 6 large aircraft carriers, has been out of action since August for maintenance. Just in time for the winter gas demand spike.

• Good signs at Asia’s deepest onshore well - Sinopec achieved “sizeable” oil and gas flows at the its Project Deep Earth 1 in the Tarim Basin in China. The well was drilled to a depth of 9,432 meters!

🦁 Africa

• Libya’s oil plans need $17bn - Libya’s NOC has ambitious plans to increase crude output to 2 mmb/d in 3 to 5 years, from ~1.3 mmb/d today, but needs $17bn to do so. In particular, investment is needed to replace infrastructure like pipelines that were built back in the 1960s. Not even in the Gaddafi era did oil-rich Libya hit 2 mmb/d.

🌍 GEOPOLITICS & MACRO

• Whose “moment of truth?” - the spat between OPEC & the IEA is hotting up. The cartel has released a strongly worded public statement titled “Whose ‘moment of truth’?” taking aim at the IEA’s hypocrisy and its prescriptive anti oil & gas stance that would undermine energy security. A reminder that the IEA famously and dangerously called for no new O&G investments back in 2021.

• Deeper cuts possible - OPEC is considering deeper cuts when it finally meets on Thursday, with Saudi rumoured to be pushing for more but facing some resistance. The group is also said to be close to resolving the Angola and Nigeria quota issue that led to the delay of the meeting.

• To the highest bidder - the Panama Canal is auctioning more slots for transit through the parched passage. Low water levels have severely restricted transit numbers through the canal and some ships have paid millions to jump the long queue.

• US air travel busiest ever - on Sunday, over 2.9 million passengers hit the skies in the US. And it’s estimated that over 50 million people drove for Thanksgiving. That’s a lot of happy customers of oil & gas.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Trouble at COP before it’s even started - environmentalists are furious as leaked documents have shown the UAE planned to use its role as the host of COP28 to strike oil and gas deals. As we wrote yesterday, the outlook for this climate summit ain’t very rosy!

• EV and hybrids gaining ground in the US - 18% of light vehicle sales in the US in Q3 this year were hybrids or EVs, up from 8.5% in 2021. The growth has been helped by falling costs of EVs which are nearing the average cost of all types of light vehicles.

🛢️ BOTTOM OF THE BARREL

What a difference a few weeks make.

In October, warnings abound that oil could hit $100/bbl by the end of the year, possibly necessitating an easing of OPEC+ cuts that have taken ~5 mmb/d out of the market.

Fast forward to today and the pressure is back on OPEC as oil prices have gone sharply in the other direction thanks to fears over Chinese demand growth and ample new supply from producers like the US and Iran.

Saudi needs high oil prices to finance its expensive diversification plans but cutting could be seen as an admission that market fundamentals are not as strong as they have insisted.

Bearish signals if they cut, bearish signals if they don’t.

Either way, in the grand scheme of things, the outcome of the meeting will just be short term noise.

Longer term trends of lack of upstream investment and demand growth in developing economies will support prices and keep the good times rolling for Saudi and its producer pals.

👋 BEFORE YOU GO 

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