31st October 2023

Good morning team. This is Both Barrels. Here’s what’s what in all things oil, gas, and energy today:

• 💤 The 1.5° pipe dream

• 😡 “This is a time for war”

• 🤷‍♀️ If my aunt had balls…

• ➕ plus: BP partnering not buying, Origin takeover in doubt, LNG oil price link is breaking, Venezuela already flouting sanctions deal?

📈 THE NUMBERS

Oil prices continued their slide yesterday as hopes increase that Israel’s conflict with Hamas doesn’t spill over into regional war.

🗞️ WELL-HEADLINES

 🗽 North America

• BP looking for US onshore partnerships - while its US rivals make big moves, BP is planning to expand its US shale operations through JVs. Rumors are that the company is having conversations with possible partners in the Eagle Ford and Haynesville basins as it chases its target to double its shale production to 650 kboe/d by 2030.

• Japan eyes up Lake Charles - the Kyushu Electric Power Company is considering an investment into and a long-term supply deal from Energy Transfer’s Lake Charles LNG project in Louisiana. The huge 16.5 mtpa project is due online in the late 2020s.

• Gas pipeline complete to the flagship LNG Canada project - the final “golden weld” has been made on the 670 km Coastal GasLink pipeline that will supply Shell’s giant 14 mtpa LNG Canada plant in British Columbia. The project is due onstream in 2025 and will turn Canada into an LNG exporter for the first time.

• China’s Foren Energy signs LNG deal with Cheniere - the 20-year 0.9 mtpa supply deal will start in 2028.

🏰 Europe

• Germany’s struggling economy hits oil demand - the IEA forecasts that the EU’s largest economy will see a major decline of oil demand in 2023, driven by falling consumption of industrial fuels. Only Pakistan’s demand will fall more this year.

• Russia fuel exports to climb as diesel markets cool - following the lifting of an export ban which helped stabilize domestic prices, exports are set to bounce back by ~50% in November.

• Norway’s gas to the rescue - Equinor has signed a 5-year gas supply deal with Germany’s RWE.

• Some Q3 earnings highlights: BP misses as it books $540m windfarm writedown; Eni profit down 67% year-on-year, John Sverdrup drives Equinor output growth; bailed-out Uniper’s strong recovery.

🕌 The Middle East

• Qatar’s Europe LNG deals herald pricing shift - the large supply deals with Shell, Total, and Eni are all believed to be linked to TTF natural gas prices. Traditionally, LNG contracts have usually been linked to the price of oil. But, as the LNG market matures and LNG becomes a major global commodity in its own right, this link looks to be breaking.

• Lebanon urges Total to keep looking - after disappointing exploration results on Block 9, the Lebanese government is asking Total to try again as the country seeks to kick-start its offshore gas industry in the East Med.

⛩️ Asia & Oceania

• Top shareholder opposes Origin Energy takeover - Brookfield’s $9.8bn offer for Australia’s largest energy retailer is “substantially below” what AustralianSuper - the country's largest pension fund and 13.68% owner in Origin - values the company at.

🦁 Africa

• First gas at East Damanhur - Wintershall DEA and partners have started production from the gasfield, onshore Nile Delta, Egypt. It comes at a good time as the country is suffering from energy shortages and blackouts.

🌍 GEOPOLITICS & MACRO

• “This is a time for war” - Israel’s PM has resoundingly rejected calls for a ceasefire as its ground offensive stretches deeper into Gaza. The operation has successfully rescued some hostages, and Israeli tanks were seen firing on vehicles on the main highways in Gaza.

• Renewed Saudi / Houthi clashes - Saudi forces are on high alert after clashes with Iranian-backed Houthi militants in Yemen left several Saudi troops dead. Saudi said it also intercepted a missile fired from Yemen towards Israel.

• World Bank’s $150/bbl fear-mongering - the bank has released a report warning that oil prices would spike if the conflict in Middle East escalated. No shit. And, in other blindingly-obvious scenario forecasting, if my aunt had balls she’d be my uncle.

• Venezuela already flouting the US deal? - a top court in the country has suspended the result of an opposition presidential primary. As part of the US sanctions agreement, President Maduro has to allow free elections.

💨 CARBON, CLIMATE, & OTHER ENERGY STUFF

• Repsol suspends hydrogen project - the $200m green hydrogen development in northern Spain has been put on hold due to uncertainty around a windfall tax on energy companies.

🛢️ BOTTOM OF THE BARREL

It’s nearly November, which means that COP28, the latest UN climate jamboree in the UAE, is just around the corner.

With every passing installment of the talk-fest, the elephant in the room gets larger:

There is no chance of us, the world, hitting our 1.5°C warming target. Zero. Zilch. There we go, I said it.

If the models are to be believed, we need to reduce emissions by ~10% every single year for the next 27 years to 2050.

To put that in context, emissions fell by 6.5% in 2020 during COVID when most of the global economy was shut down. Emissions are still climbing, let alone leveling off, let alone falling at 10%.

Yet the legions of diplomats and climate envoys can’t quite bring themselves to publicly admit it. They still talk of “last chances” and “willpower”.

I get it. It’s unpalatable to accept that 1.5°/2°/2.5° and its uncertain consequences are coming. But coming they are.

So we might as well face up to it and start talking about mitigation efforts.

Don’t expect much from this COP though. With energy security and affordability in the spotlight, climate is taking a backseat for many.

This summit has all the hallmarks of a dead rubber.

👋 BEFORE YOU GO 

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