28th September 2023

Good morning crew. This is Both Barrels, your daily update on all that matters in oil, gas, and energy.

Here’s what hit the wires today:

• 🚢 Qatar’s LNG armada

• ⬆️ Crude at 1-year highs

• 🇸🇦 Aramco entering LNG?

• 🇬🇧 UK’s “completely irresponsible” energy policy

plus a lot more. Let’s get to it…

📈 THE NUMBERS

Oil prices have hit 12-month highs following an unexpectedly large draw in US crude inventories. Triple digits around the corner?

🗞️ WELL-HEADLINES

 🗽 North America

• “Inflation pressures are not abating” - a survey of US oil execs show that most expect drilling costs to keep rising next year and for the rig count to stay flat. “Bottom line, inflation pressures are not abating and are far from transitory.” Some reports estimate a 50% cost inflation in the Permian since 2021.

• US crude stocks still falling - the official EIA crude inventory figures have contradicted the API’s estimate yesterday, showing that stocks in fact fell last week by 2.2 mmbbls. Gasoline stocks climbed by 1 mmbbls.

• Pipestone shareholders approve Strathcona sale - the all-stock deal will value the combined company at $6.4bn.

• Exxon denied use of trucks - a judge has rejected Exxon’s request to transport crude via trucks from coastal facilities to inland refineries in California while a ruptured pipeline is fixed. Exxon said the trucks are “essential” to restarting various facilities have been shut since the pipeline burst back in 2015, but the judge concluded that trucks create safety concerns on the highways.

🏰 Europe

• INEOS Chairman lashes out at UK energy policy - Jim Ratcliffe, understandably, ain’t happy: “The rest of the world has understood that we will need oil and gas for the next 30 years and is incentivizing production through sensible taxation. The UK is doing the opposite and seems intent on rapidly destroying North Sea production through a mixture of negative comments and punitive windfall taxes.”

• Total rewarding its shareholders - the French major is aiming to return 44% of cashflows to shareholders in 2023, up from 37% in 2022, through dividends and share buybacks. The company is also targeting oil & gas production growth of 2-3% per year over the next five years, and sees tight LNG markets for the next couple of years before an easing in ~ 2026.

• Protectionism or prices? - Total’s CEO believes Europe needs to choose between protecting its wind manufacturing base against cheaper Chinese rivals or lower power prices for consumers. Europe’s wind industry is in tatters as costs of materials and financing have surged in the past year or so (see Bottom of the Barrel) and the EU is expected to announce supportive measures next month.

• Dissent in Shell’s ranks - execs in Shell’s low carbon division wrote an open letter to the CEO saying they were “deeply concerned” about the company’s recent strategy update to slow investment into its low carbon business and put more emphasis on increasing shareholder returns.

🕌 The Middle East & North Africa

• Qatar’s LNG armada - QatarEnergy signed a deal with South Korea’s HD Hyundai Heavy Industries for 17 new “ultra modern” LNG carriers worth a combined $3.9 billion. This takes the total number of LNG vessels on order for Qatar to a huge 77 and the company said there’s more to come in its “historic” expansion. For context, at the end of 2022, the global fleet stood at 677 vessels.

• Aramco getting into LNG? - there are unconfirmed reports that Saudi Aramco is entering the LNG business by acquiring a stake in Mid Ocean Energy which is itself in the process of acquiring interests in four Australian LNG facilities.

• Iraq / Turkey pipeline restart remains “complicated” - a restart is blocked by financial issues, rather than logistical ones, according to a senior Iraqi official. The pipeline from the Kurdistan Region of Iraq transports 470 kb/d of crude into Turkey, and is a crucial source of revenue for the KRI, but has been shut in since March due to a dispute between the two countries over payments.

⛩️ Asia

• Japan rebuilding LNG stocks - Japan expects its LNG stocks to recover in time for winter after an unusually hot summer (which increases demand for power for air conditioning) meant that stocks are currently at their lowest levels since 2021. As a major buyer of LNG, a Japanese buying spree could put significant pressure on an already tight LNG market heading into the winter.

📍Everywhere else

• Total farms down Block 20 - Petronas has acquired a 40% interest in the Angola offshore block which contains the Cameia and Golfinho discoveries for $400m. Total retained operatorship and a 40% stake in the block.

🌍 GEOPOLITICS & MACRO

• Come a long way? - a UN review has shown that oil and grain are travelling further than ever before as traditional supply routes and buyer/seller relationships have been disrupted by Russia’s invasion of Ukraine.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• A Saudi / Greek interconnector - the two countries have formed a JV to explore linking up their power grids, apparently to provide Greece with “green” power. Today 100% of Saudi’s power generation comes from gas and oil.

• Shipping’s difficult route to decarbonisation - a UN agency has commented that uncertainty around clean fuels and regulation is making it difficult for the shipping industry to decarbonise. Over half of the world’s fleet is over 15 years old, so many shipowners will soon need to make difficult investment decisions about what new vessels to build in this uncertain environment.

• “Populism could derail the green transition” - this article from the FT is worth a read if you have an FT subscription (or a sneaky way to get around paywalls). But I’d swap the word “populism” for “The truth about costs and viability…”.

🛢️ BOTTOM OF THE BARREL

Please forgive a shameless plug, but I also write longer form pieces about the energy sector.

My latest, “Blown it?”, about offshore wind’s recent troubles seemed to go down well.

Check it out if you’re interested 🙏:

👋 BEFORE YOU GO 

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