Saudis Take The Lead In New Round Of OPEC+ Cuts

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. Saudi Arabia Leads OPEC+ by Example

• According to Kpler vessel tracking data, Saudi oil exports are down almost 0.5 million b/d this month compared with the previous month, dropping back to June-July levels of production.
• At the same time, UAE exports are going up instead of declining, implying that Saudi Arabia is the main driver behind OPEC+’s production-cutting commitment.
• The assertiveness of Saudi policy could also be seen in its energy minister’s speech at COP27, saying the world was hoping to crucify Saudi Arabia and that Riyadh would be monitoring other countries’ renewable plans to see if they match theirs.
• Following a one-month hiatus OPEC+ is set to meet again in two weeks in Vienna, with Saudi Arabia warning that the oil group will remain cautious on production discipline.

2. Renewable Energy Investment in Africa Collapses

• COP27 reports were mostly disappointing, and Africa’s energy hunger has become a key talking point as endless debates over the continent’s rights to develop its natural gas resources have soured the mood.
• According to Bloomberg, global investment into Africa’s renewable energy projects fell to an 11-year low last year, totaling only $2.6 billion of capital deployed, contrary to trends in Europe and North America.
• Moreover, 75% of all clean energy investments in Africa are concentrated in four countries, namely South Africa, Egypt, Morocco and Kenya.
• The European Union, a long-time advocate of Africa’s turning away from fossil fuels, remains torn as it concurrently started to promote new natural gas projects there as a prospective way of substituting Russian imports.

3. European Gas Stocks Face Their First Test

• Europe saw its warmest October in 113 years, allowing gas buyers to build sizable gas inventories that already stand at more than 95% of available capacity.
• With next week seeing a string of colder-than-usual weather across the continent, it seems that heating season has finally started after a more than month-long delay, triggering the first daily net draws.
• Front-month Dec ’22 spot TTF prices have been trading in the €110-120 per MWh bandwidth, bouncing back after months of declines.
• At the same time, the European Commission has been warning of a potential 30 bcm supply shortfall next summer amidst still-low Russian supplies and competition from Asia for LNG cargoes.

4. The Silver Market Is Set for A Huge Deficit

• According to the Silver Institute, global demand for silver has been increasing across all segments – be it industrial use, retail or hedging – setting the market for a 16% year-on-year increase in 2022.
• India in particular has been driving silver buying globally, with demand doubling from 2021 as buyers took advantage of relatively low prices.
• With new demand coming from solar panel producers and carmakers, the overall deficit in silver is expected to reach 194 million ounces, the highest in decades.
• The combination of high demand yet still low prices – still around $21-22 per ounce – has been depleting inventories, with vaults monitored by COMEX/LBMA declining by 370 million ounces (or 25%) this year.

5. Coal Stocks Top U.S. Profitability List

• US coal producers are projected to be the most generous dividend payers this year, with an average return of some 6% as the industry confronts its bleak long-term prospects.
• Arch Resources (NYSE:ARCH) is spearheading the drive with an upcoming $10.75/share pay-out that would elevate to the top dividend-paying spot of the entire Russell 2000 index.
• The EIA expects US coal-fired generation to drop 6% year-on-year in 2022 on the back of constrained coal supply, however, this is coming after a huge 16% increase in 2021.
• Since most coal is delivered by rail to US power plants, rail disruptions as well as limitations on storage have weighed on coal inventories which have averaged some 20% lower this year so far.

6. Britain’s Oil Industry Might be In Its Final Throes

• As the recently sworn-in British government hiked the windfall tax on profits of oil and gas operators in the North Sea from 25% to 35%, tensions mount over the long-term viability of UK oil production.
• Industry associations have already warned that the levy is extremely punitive on smaller companies that do not have the deep pockets to offset the tax by higher investments into the UKCS.
• In the post-pandemic years, UK oil output has seen a spectacular decline, falling 17% last year alone to 900,000 b/d and hitting an eight-year monthly low of 650,000 b/d in August 2022.
• As many international majors seek to leave the UKCS for being a mature basin, ensuring stable investment into new projects will be paramount as drilling rates next year have fallen to roughly 50% of pre-pandemic levels.

7. Scandinavia Becoming the New Energy Powerhouse

• Rystad Energy believes Sweden, Finland, and Denmark will lead Europe’s green energy revolution, accounting for a combined 18% of the continent’s electrolyzer capacity.
• Traditionally relying on nuclear and hydropower for electricity generation, Sweden is making impressive headway in onshore wind, installing some 30GW of capacity by 2030.
• Considering Sweden’s ambitious nuclear reactor renewal program, the Nordic country that has already become Europe’s largest power exports in January-September 2022 is set to export more in the future.
• Denmark will lead the pack in offshore wind, reaching some 9 GW in total capacity by the end of the decade and using a lot of that energy for green hydrogen production.

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