A Crucial Week For The Iran Nuclear Deal

In the latest edition of the Numbers Report, we will take a look at some of the most interesting figures put out this week in the energy and metals sectors. Each week we'll dig into some data and provide a bit of explanation on what drives the numbers.
Let's take a look.

1. Iran Nuclear Deal Has Never Been Closer

-Indirect talks between the United States and Iran are moving closer to a final stage as both Tehran and Washington have responded to the European Union's final draft, with further talks expected next week.
-It remains to be seen if the Iranian authorities would drop demands such as scrapping the IRGC from the US terrorist list or demanding written guarantees there would be no sudden US snapback on the JCPOA.
-Iranian crude exports have averaged approximately 800,000 b/d so far this year, the highest level since the Trump administration quit the JCPOA, as oversight turned laxer.
-There have been no exports to Europe since November 2018, whilst almost all of Asian demand is coming from China which takes in cargoes either directly or via ship-to-ship transfers in Malaysia.

2. European Electricity Insanity Rages On

-News of another three-day maintenance on the Nord Stream 1 gas pipeline have send shockwaves again through the European energy markets, with German 2023 power prices now trading at €780/MWh already (France is at €900/MWh).
-Front-month TTF futures have gone up by 25% just this week, currently trading around €310 per MWh, with the Q4 contract already soaring above the once-impossible $100 per mmBtu threshold.
-The ongoing drought in Europe keeps both hydro and wind generation at extremely low levels, whilst Russia's Gazprom continues to haggle with the German government about the whereabouts of Nord Stream 1 turbines.
-With half of France's nuclear fleet still out amidst a string of operational failures and unlikely to see quick returns, coal futures for 2023 soared to another all-time high of €332 per metric ton this week.

3. US Shale Industry Finally Turns Cash Positive

-According to a Deloitte report, US shale producers are set to make almost 200 billion this year, enough to make the shale industry debt-free by 2024 and fund a pivot towards more natural gas production.
-If prices remain elevated, global upstream will generate up to 1.5 trillion in surplus cash by 2030, after meeting all its cash priorities, though questions marks remain around the green pivots of oil majors.
-This is particularly noteworthy as the peculiarity of high oil prices in 2021-2022 is that they coincide with a period of exceptionally weak capital expenditure obligations, amplifying profits.
-Hence the shale industry, having burned through some 300 billion of cash in the 2010s, now has the lowest-ever leverage ratio (20%) and one of the highest-ever dividend yields, averaging at 6%.

4. LNG Investments to Boom in Next Three Years

-As every coming winter is confronting the energy markets with a structural dearth of natural gas projects, Rystad Energy expects that investments into new LNG infrastructure will surge and reach 42 billion per year by 2024.
-This is a sea change compared to the pandemic years, when in 2020 only 2 billion was invested into new LNG, however soaring prices and the restrictions placed on Russian gas exports are making greenfield projects a lot more attractive.
-Rystad expects 2024 to set the peak of LNG investments as the scaling up of low-carbon investments in the mid-to-long-term perspective will lower the investment level to 20 billion by 2030.
-American gas demand will be stagnating despite the US being a huge contributor in new LNG capacity, hence Asia and the Pacific is set to be the main driver of growth in the markets, growing 30% from 900 bcm currently to some 1.16 tcm by 2030.

5. European Diesel Shock Only Months Away

-Whilst fears of crude shortages have largely evaporated amidst recession fears, a perfect storm is brewing for diesel prices across the Atlantic Basin as both the US and Europe head into winter with exceptionally low inventories.
-With there being only 111 million barrels of distillates stocks in the US, some 20 million barrels below the 5-year average, the US is looking increasingly tight, however, Europe is looking even worse.
-The backwardation in European diesel futures doubled this week alone, with the six-month spread now at $165 per metric ton, the highest in almost three months, disincentivizing any kinds of storage.
-Meanwhile, gasoil/diesel stocks in the Amsterdam-Rotterdam-Antwerp hub remain 1 million tons below the 5-year average, at some 11 million barrels, whilst inventories held by refiners are 60 million barrels below the historical average.

6. China Mops Up Russian Coal Amid EU Ban

-Asian countries and Turkey have stepped up their purchases of Russian coal now that it is officially banned in the European Union, lured by its discounts and availability.
-According to Platts, the price of Russian Pacific 6,300 kcal/kg GAR coal is currently around $150 per metric ton, some $30/mt below benchmark Australian prices yet still some $50-60/mt above producers' breakeven levels.
-Russian seaborne coal exports have fallen some 3-4 million tons from the peak monthly levels witnessed over the summer months, coming in at 12-13 million tons.
-Wary of energy shortage-driven power curbs, China has been the single most notable factor in the Asia pivot of Russian crude flows - from 0.9 million tons in March, Chinese buyers have ramped up their buying to 5.3 million tons in July.

7. Awash with Windfall Cash, Norway Wants More Drilling

-The Norwegian Petroleum Directorate has been calling upon oil and gas companies active in the country to increase their exploration activity, including in places like the Arctic Barents Sea, long considered a taboo for its environmental fragility.
-Amidst undoubtedly profitable oil and gas prices, the NPD argues that only half the potential resources of Norway's continental shelf have been produced so far and about a quarter of remaining riches remains to be found.
-Norwegian producers have never had it this good, revenues from natural gas exports in July alone amounted to 13 billion, a 333% year-on-year increase.
-Europe's gas squeeze is softening Norway's stance on drilling in the Barents Sea, with its yet-untouched northern part reportedly holding 1.2 bcm undiscovered gas, regardless of some recent drilling disappointments there.

That's it for this week's Numbers Report. Thanks for reading, and we'll see you next week.