Geopolitics & Conflict
- Norway—the world’s North Sea offshore oil giant—has voted in critical parliamentary elections that will largely decide the fate of oil exploration. The left-wing opposition led by the Labour Party appears to have secured a stunning victory, with early results showing that they likely have won 99 of the 169 seats and could end up forming an absolute majority. With these numbers, it is possible that the new government will not have to join a coalition with the Greens, who would only support them if they moved to immediately end oil exploration—for good. Labour leader and millionaire Jonas Gahr Store has indicated his intentions to seek a compromise between pro-oil factions and those who would abruptly end oil exploration. Shore’s vision would be to continue to allow drilling, but only in areas already developed. At the same time, Norway’s newest offshore mature area licensing round has managed to attract over companies, who will now be slightly more at ease.
- The protests in Libya that closed Ras Lanuf and Es Sider earlier this week are now over, and oil exports have now resumed. But Libya’s crude problems are far from over. On Monday, protests calling for jobs and for Mustafa Sanalla to be ousted closed the 300,000 bpd Es Sider terminal and the Ras Lanuf, halting loadings. Despite the chronic disruptions to oil exports and production, Libya’s crude production has held fairly steady over the summer, at 1.163 million bpd in June, 1.158…
Geopolitics & Conflict
- Norway—the world’s North Sea offshore oil giant—has voted in critical parliamentary elections that will largely decide the fate of oil exploration. The left-wing opposition led by the Labour Party appears to have secured a stunning victory, with early results showing that they likely have won 99 of the 169 seats and could end up forming an absolute majority. With these numbers, it is possible that the new government will not have to join a coalition with the Greens, who would only support them if they moved to immediately end oil exploration—for good. Labour leader and millionaire Jonas Gahr Store has indicated his intentions to seek a compromise between pro-oil factions and those who would abruptly end oil exploration. Shore’s vision would be to continue to allow drilling, but only in areas already developed. At the same time, Norway’s newest offshore mature area licensing round has managed to attract over companies, who will now be slightly more at ease.
- The protests in Libya that closed Ras Lanuf and Es Sider earlier this week are now over, and oil exports have now resumed. But Libya’s crude problems are far from over. On Monday, protests calling for jobs and for Mustafa Sanalla to be ousted closed the 300,000 bpd Es Sider terminal and the Ras Lanuf, halting loadings. Despite the chronic disruptions to oil exports and production, Libya’s crude production has held fairly steady over the summer, at 1.163 million bpd in June, 1.158 million bpd in July, and 1.163 in August. However, Libya has expressed its ambition for increasing that production to 1.45 million bpd by the end of this year--but political infighting and battles over oil revenues continues to make this plan seem overly ambitious, despite Libya’s sufficient technical capacity to do so.
- Colombian state-owned Ecopetrol saw two of its pipelines attacked on Sunday by what military officials say was the National Liberation Army (ELN). The attack follows a Saturday squirmish between ELN guerrillas and the military that left five Colombian soldiers dead and six others wounded in the attack. The attack also led to oil spills.
Markets
- The markets are now focused on an oil supply tightening that is already pressuring prices upward. China will auction off some of its oil reserves in an unprecedented action to better manage the price of oil that is contributing to inflation. The amount of oil released was quite small, but the very notion that China was willing to tap into its reserves at all helped to put a cap on the price rises by adding a bit of jitter into the markets as it mulls the possibility that the release could just be a test run for future releases should it wish to manipulate oil prices to some degree. But even China breaking new ground with an SPR release couldn’t keep oil prices from trending upward this week. Prices rose earlier in the week and flattened out on Thursday. U.S. oil production isn’t expected to fully rebound from Ida until sometime in October--28% of all Gulf of Mexico oil production remains offline.
- The mad dash to ditch coal completely has hit a barricade. Natural gas is in short supply in both Europe and Asia--and power outages are anticipated this winter. Coal power--additional coal power, that is--could be the only way forward to stave off disaster. Thermal coal plants in Europe that have been retired may be fired back up. The pressure for this will be severe, with European energy prices reaching unprecedented highs as natural gas storage simply isn’t sufficient to carry Europe through winter unscathed. And Asia and Europe will be competing for LNG which will be in short supply. Goldman has recently doubled its projection for Asian coal prices.
Deals & Discoveries
- The U.S. will sell crude oil from the SPR to Chevron, Exxon, Marathon, Motiva, Phillips 66, Total, Unipec, and Valero. The contracts were awarded through an auction, and are part of the release mandated by legislation for the purposes of raising money for the budget. In addition to this planned release, the DoE has also loaned some crude out of the SPR to make up for shortages due to Hurricane Ida.
- Iraq has made a deal with Swedish SEAB and Turkey’s Limak to build a 70,000 bpd refinery in Mosul. The refinery will use heavy crude from Qayyara to produce fuels. Iraq has long struggled to produce enough fuel for domestic use, but its previous plans to get investors on board to build new refineries to replace aging and shuttered refineries (like the refinery in Qayyara) have failed. Iraq did manage to get Chinese state-owned companies to sign on to a new refinery this summer, to be built in Dhi-Qar. But Iraq’s last refinery deal with China--in the Al Faq peninsula--ultimately fell through after signing on in 2018.
- In addition to that deal, Iraq has signed another energy deal with TotalEnergies for oil, gas, and solar projects in the Basra region valued at $27B over 25 years. Part of that deal will see TotalEnergies build a new gas-gathering network, along with expanding the Ratawi field from 85,000 bpd to 210,000 bpd. The deal also includes a sea water treatment unit to be used in Iraqi oilfields without tapping into Iraq’s scarce water supplies.
Policy & Regulation
- Despite calls from the IEA to stop all oil and gas investments that are not already on the books, OPEC’s Algeria will increase its investment in the oil and gas sector by $2.6 billion--to $10 billion--in 2022 to boost production by nearly 5%. Algeria had to cut its oil spend for this year due to the low oil prices.
- Another climate lawsuit is breathing down Big Oil’s neck. This time, it is Vermont, which is suing ExxonMobil, Shell, Citgo, Sunoco, and others for allegedly misleading the public about the impact that oil and gas has on climate change. The lawsuit is requesting that the oil companies named in the suit inform the public that their products harm the environment. Vermont said the goal is not to prevent Big Oil from selling fossil fuels.
New Energy Money
-Renewable company Energy Vault Inc. will go public after cutting a $1.6-billion SPAC merger deal. Energy Vault is a gravity-based energy storage company that uses a block tower system to store energy from solar and wind generation.
- Chevron, which also made headlines this week saying oil prices would stay higher for longer, has stated that it expects to see double digit returns from its $10 billion in investments in low-carbon tech. In other words, it’s telling investors that low-carbon plays will compete with oil and gas for this super major.
- Royal Dutch Shell plans to build a low-carbon fuel factory in Europe, which it is billing as potentially the biggest on the continent. The factory would produce low-carbon diesel and aviation fuel from waste on the site of a decommissioned oil refinery near Rotterdam. Ultimately, Shell plans for the facility to produce 820,000 tonnes per year of low-carbon fuel.
- Toyota will invest $13.6 billion in new battery technology, including solid-state batteries, in a move that we expect could boost other stocks in this burgeoning space.
