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The Dutch government plans to close the Groningen gas field this year despite Europe’s precarious supply position. Groningen is the largest gas field in Europe.

The field is dangerous, a government official from the Hague told the Financial Times, and the government has no plans to boost production from it.

“We won’t open up more because of the safety issues,” Hans Vijbrief told the FT. “It is politically totally unviable. But apart from that, I’m not going to do it because it means that you increase the chances of earthquakes, which I don’t want to be responsible for.”

Production from Groningen has been curtailed substantially, and there were plans in place to phase out production altogether because of increased seismic activity in the vicinity of the field even before the energy crisis began in 2021.

As gas prices began to climb in the autumn of 2021 and then took off in the spring of 2022, some began speculating that the Netherlands could keep the field operating to contribute to filling the gap in gas supply left by Russian pipeline deliveries.

The Dutch government was skeptical about that from the start and instead suggested production be extended, although at a minimum rate of some 2.8 billion cu m. Now, this, too, is being reconsidered.

“It’s very, very simple: everybody who has some knowledge of earthquake danger tells me that it’s really very dangerous to keep on producing there. I’m quite convinced it’s wise to close it down,” Vijbrief told the FT.

Since the 1980s, the FT notes, there have been some 100 earthquakes annually around Groningen, resulting in more than 150,000 claims for property damage. The operator of the field, a Shell-Exxon joint venture, was ordered to start reducing output in 2013 with a view to shutting the field down eventually.

China’s Oil Demand Is Set To Hit A Record High In 2023

January 13, 2023

China’s Oil Demand Is Set To Hit A Record High In 2023

China’s oil demand is expected to hit a record high 16 million bpd this year, an increase of 800,000 bpd.
Having lifted its zero-Covid policy, China is currently suffering through an exit wave of Covid but should recover in the second quarter.
China is preparing for its reopening already, with the government issuing a huge batch of oil import quotas for its private refiners.

China’s oil consumption is expected to jump by 800,000 barrels per day (bpd) this year to a record 16 million bpd, after Beijing abandoned the strict ‘zero Covid’ policy and re-opened its borders, a median estimate of 11 China-focused consultants polled by Bloomberg News showed.

Following the initial exit Covid wave after the strictest curbs were lifted, Chinese oil demand is set to rebound from the second quarter onwards, also raising global oil demand for this year, many analysts say.

Despite the fact that China’s crude oil imports in 2022 were slightly lower than the previous year, for a second consecutive year, crude imports in December rose by 4% annually for the third highest monthly purchases in 2022, data showed on Friday.

Despite the current Covid wave, China is preparing for the re-opening with the issuance of a huge batch of oil import quotas for its private refiners.

“Higher quotas support the view of recovering Chinese demand this year and the quicker-than-expected change in Covid policy means that the demand recovery could be more robust than initially expected,” ING strategists Warren Patterson and Ewa Manthey said this week.

Global oil demand in 2023 is expected to grow by around 1.7 million bpd, of which 50% will be driven by China, according to ING, which says “There could be some upside risk to this” forecast.

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Washington Has Trouble Refilling The SPR After 220 Million Barrel Draw

January 10, 2023

Washington Has Trouble Refilling The SPR After 220 Million Barrel Draw

The DoE has received several offers for February purchases to refill the SPR.
For February, the plan was to purchase 3 million barrels, ideally when oil dropped to around $70 per barrel.
The rejected bids are prompting speculation that refilling the SPR will be challenging, at best.

After drawing over 221 million barrels of oil from the Strategic Petroleum Reserve (SPR) in 2022, Washington is having a tough time refilling it in the New Year, with the Department of Energy (DoE) rejecting the first offers on the grounds that they failed to benefit taxpayers.

The DoE has by now received several offers for February purchases to refill the SPR, according to both Bloomberg and Reuters. However, those offers have been rejected as too expensive or failing to meet other requirements.

For February, the plan was to purchase 3 million barrels, ideally when oil dropped to around $70 per barrel. This 3-million-barrel pilot program would have given sellers a fixed price for future deliveries and is in contrast to the DoE’s normal operating procedure, which had seen it purchase oil for faster delivery without fixed-price contracts.

Right now, WTI is trading around $75/$76 per barrel, and new data from the Energy Information Administration (EIA) released on Monday shows another 0.8 million barrel draw from the SPR.

According to Bloomberg, citing unnamed sources “familiar with the matter”, the DoE will now postpone its originally planned February purchases and embark on a new approach for fixed-price offers.

“DOE will only select bids that meet the required crude specifications and that are at a price that is a good deal for taxpayers,” the DoE said in a Friday statement carried by news agencies. “Following review of the initial submission, DOE will not be making any award selections for the February delivery window.”

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Andurand: Oil Prices Could Exceed $140 If China’s Economy Fully Reopens

January 10, 2023

Andurand: Oil Prices Could Exceed $140 If China’s Economy Fully Reopens

Hedge fund manager Andurand: full reopening of Chinese economy could send oil prices past $140 per barrel.
Andurand: The market is underestimating the scale of the demand boost.
Andurand did say last week that oil demand will be limited somewhat by a growth in the EV sector.

Crude oil prices could exceed $140 per barrel yet this year if China’s economy fully reopens, hedge fund manager Pierre Andurand said on Friday.

Andurand sees the possibility of crude oil demand growing by more than 4 million barrels per day this year—a 4% increase over last year. This far exceeds crude demand growth set out for 2023 by other oil market forecasters.

“I think oil will go upwards of $140 a barrel once Asia fully reopens, assuming there will be no more lockdowns, Andurand said, adding that the “market is underestimating the scale of the demand boost that it will bring.”

Andurand’s forecast goes against the trend that crude oil prices set so far this year. During the first week of the year, crude oil prices tumbled by 9% in the first two trading days in what was the worst start to a year since 1991.

Last week, Andurand said in a tweet that oil demand could increase between 3 and 4 million bpd this year, aided by the switch from oil to gas.

China’s reopening has been on the oil industry’s radar ever since it employed its zero-covid policies and locked down much of its economy. China only recently made significant changes to its covid policies, abandoning its strict measures in favor of relaxed testing requirements and travel restrictions. But China’s reopening has been plagued with a new wave of Covid, spooking many oil bulls off what would be their rejoicing at what should be a significant bump in demand.

Andurand did say last week that oil demand will be limited somewhat by a growth in the EV sector, as EVs have the potential to displace 600,000 bpd of oil demand.

Texas Refineries Could Take Two Weeks To Fully Restore Operations After Storm

December 29, 2022

Texas Refineries Could Take Two Weeks To Fully Restore Operations After Storm

Most refineries on the U.S. Gulf Coast have begun procedures to restart operations that were disrupted by the massive winter storm late last week, but a full return to normal output of motor fuels could take up to two weeks for some facilities.

The freezing temperatures affected refinery equipment and caused issues at the steam and co-generation units at some refineries, sources with knowledge of the situation told Reuters on Wednesday.

Pemex’s Deer Park refinery and Motiva Enterprises’ Port Arthur, the biggest refinery in the United States, could see their restart stretched out to the first or second week of January, sources familiar with the refineries’ operations and schedules told Reuters.

Winter Storm Elliott led to hard-freeze warnings issued for all the states along the U.S. Gulf Coast, where most of the U.S. refining capacity is located.

As of Friday, December 23, as much as 1.5 million bpd of the Gulf Coast’s refining capacity was shut down due to the freezing temperatures, per Reuters estimates.

Refineries run by Motiva Enterprises, Marathon Petroleum, and TotalEnergies outside Houston were shut late last week. Operations at other refineries in Texas, run by ExxonMobil, Valero Energy, and LyondellBasell, were also disrupted by the severe winter storm.

In total, the extreme winter weather affected some of the output at refineries along the Gulf Coast that process a combined 3.58 million barrels per day (bpd) and deliver around 20% of U.S. motor fuels.

Last week, the national average gasoline price dropped for a seventh consecutive week, but it’s not certain this week will bring another decline in gasoline prices, due to the rally in oil prices and the refinery outages due to the storm, according to fuel savings app GasBuddy.

…click on the above link to read the rest…

Europe’s Energy Crisis Is Just Getting Started

December 23, 2022

Europe’s Energy Crisis Is Just Getting Started

While Europe managed to fill its gas storage ahead of winter this year, it will have to import huge amounts of LNG in a competitive market to survive next winter.
The next 12 to 24 months will be critical in establishing whether Europe can stave off a long-term energy crisis.
According to the IEA, if Russian gas supply drops to zero and Chinese LNG demand hits 2021 levels, the EU could have a supply-demand gap of 27 billion cubic meters in 2023.

Despite successfully filling its gas storage ahead of winter this year, Europe’s energy crisis is far from over. The situation for Europe could, in fact, be worse next winter when Russian pipeline gas supply will be down to a trickle, at best.

European households and businesses have already seen a rise in total energy costs by $1.06 trillion (1 trillion euros), according to estimates by European economic think-tank Bruegel published by the International Monetary Fund (IMF). According to Bruegel’s analysts, if governments in Europe do nothing except offer financial support, and if they cover the price increases, this sum would represent a massive 6% of the annual GDP of the EU.

“Massive government support could delay adjustment to a new price equilibrium and create the need for even more support,” Bruegel’s experts say.

Instead, the EU needs a “grand bargain” to encourage savings and increase supply at the same time.

The next 12 to 24 months will determine whether Europe will be able to cope with the energy crisis without having to resort to mandatory rationing or without losing too much industry competitiveness.

Europe’s energy systems were already put to the first real test this month amid an Arctic blast that swept through most of northwestern Europe, bringing freezing temperatures, snow in the UK, and depressing wind speeds in Germany.

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Central Asia’s ’Water Wars” Are Heating Up

December 17, 2022

Central Asia’s ’Water Wars” Are Heating Up

Access to water has been a point of conflict in Central Asia for years.
Environmental changes have raised temperatures in Central Asia faster than the global average.
While the upstream Kyrgyzstanis and Tajikistanis have plenty of water, Uzbekistan wholly relies on a steady supply of water for its food security.

On November 3, Uzbekistani Foreign Minister Vladimir Norov and his Kyrgyzstani counterpart Jeenbek Kulubaev signed a bilateral deal in Bishkek, under which Kyrgyzstan agreed to cede to Tashkent the territory surrounding the Kempir-Abad Reservoir, covering 4,485 hectares, in exchange for over 19,000 hectares elsewhere (Radio Free Europe/Radio Liberty, November 3). The deal effectively grants Uzbekistan control over the reservoir, a burning issue that has contributed to rising tensions between the two Central Asian neighbors (Eurasianet.org, November 17). On November 17, the Kyrgyzstani parliament approved a contentious border deal, and on November 29, Kyrgyzstani President Sadyr Japarov ratified the agreement, allowing for joint management of the reservoir (Asia Plus, November 29).

Central Asia has been historically plagued by tension over access to water resources. Even the administrative divisions under the Soviet Union constantly fought over the allocation of water and pastures (Tnu.tj, May 6, 2021). In this, with the introduction of private land ownership in Kyrgyzstan, some rented Tajikistani pastures have declared the property of Kyrgyzstani citizens. Although multiple factors (e.g., strategic, political and ethnic) contribute to the escalation of border tensions among the Central Asian neighbors, the management of water resources has been a perennial issue, frequently sparking conflict. Over the past decade, more than 150 conflicts have occurred on the shared Kyrgyzstani-Tajikistani borders, with victims on both sides (Cabar.asia, February 15, 2021). In September 2022, 24 Kyrgyzstanis died as a result of the escalation of armed conflict on the border (Novosti.kg, September 17)…

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OPEC Production Fell In November, But 3 Members Actually Boosted Output

December 13, 2022

OPEC Production Fell In November, But 3 Members Actually Boosted Output

OPEC’s crude oil production fell by an average of 744,000 barrels per day, according to OPEC’s Monthly Oil Market Report released on Tuesday.

Saudi Arabia’s November production fell by the most among its members, by 404,000 bpd, to 10.474 million bpd—Saudi Arabia’s lowest monthly average since May 2022.

Other significant production decreases were realized by the United Arab Emirates, which saw a decrease of 149,000 bpd in November, landing at 3.037 million bpd; Kuwait, which saw a dip of 121,000 bpd to 2.685 million bpd; and Iraq with a loss of 117,000 bpd to 4.465 million bpd.

Overall, OPEC’s average production for November fell to 28.826 million bpd—the lowest average production level since June.

While the overall production was significantly lower for November and largely in line with OPEC’s plan to reduce output in response to market conditions, a handful of members increased their production.

Libya’s production also decreased by 32,000 bpd, to 1.133 million bpd. Earlier this week, Libya’s oil minister said its oil production was 1.2 million bpd. “We hope to return to 2010 levels, which was 1.6 million bpd, within two or three years,” Oil Minister Mohamed Oun told reporters on Monday.

Libya lifted its force majeure on oil and gas last exploration last week in hopes of luring foreign oil companies back into the country that has seen significant unrest in recent years.

Angola, Gabon, and Nigeria went the other way, increasing their production by a collective 132,000 bpd.

While OPEC saw its overall crude production fall, non-OPEC liquids production, according to OPEC’s latest report, increased month on month in November by 800,000 bpd to 72.7 million bpd. This figure is also 2.1 million bpd higher than the same month last year.

This means that OPEC’s share of crude oil in the global production mix slipped by 0.7%, to 28.4% in November from the month prior.

Europe’s Energy Crisis Is Reshaping Geopolitics

December 7, 2022

Europe’s Energy Crisis Is Reshaping Geopolitics

Europe’s energy crisis is fueling a major geopolitical reconfiguration.
The IEA is warning that we are currently living through a “global energy crisis of unprecedented depth and complexity,” and that “there is no going back to the way things were.”
The financial vulnerabilities emanating out of Europe threaten to destabilize not only some of the more indebted European countries, but also developing nations and net energy importers around the world.

Europe’s energy crisis is about far more than just energy. It’s also the impetus for a major geopolitical reconfiguration at a global scale. No one knows exactly what the world’s energy and political landscapes will look like when the dust settles (which, by the way, will be years from now) but it’s guaranteed that it will be markedly different than it was the day before Russia – historically the largest exporter of oil and natural gas to the European Union by a long shot – illegally invaded Ukraine.

This year’s annual energy outlook from the International Energy Agency (IEA) warns that we are currently living through a “global energy crisis of unprecedented depth and complexity,” and that “there is no going back to the way things were” before the unprecedented dual shocks of the novel coronavirus pandemic and Russia’s war in Ukraine. Together, these events have already reconfigured the energy trade worldwide, but the shockwaves to the global economy are just getting started.

Many look at Europe’s current energy deficit as a kind of heroism, as the European Union has taken a huge economic hit in order to impose energy sanctions on the Kremlin – the one kind of sanction that could really cripple the Russian economy in the hopes of ending the war in Ukraine. “In the struggle to help Ukraine and resist Russian aggression, Europe has displayed unity, grit and a principled willingness to bear enormous costs,” the Economist recently reported.

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Canadian Banks Slammed For Continued Fossil Fuel Investments

November 29, 2022

Canadian Banks Slammed For Continued Fossil Fuel Investments

Canadian banks are receiving backlash from investors for their continued investments in fossil fuels.
All Canadian banks were revealed to have increased their exposure to fossil fuels between 2020 and 2021, by between 25 percent—TD and BMO—and 132 percent for CIBC.
The report is the latest example of investor pressure on financial institutions to reduce their lending to fossil fuel companies.

An investor group has criticized Canadian lenders for investing heavily in fossil fuels despite the Paris Agreement, noting that all of the largest Canadian banks still need to be ready for net zero.

In a report titled Net Zero Policy Report Card, Investors for Paris Compliance graded Canada’s largest banks on several indicators, including fossil fuel investments, climate targets, and emissions reporting.

In fossil fuel investments, all banks were revealed to have increased their exposure between 2020 and 2021, by between 25 percent—TD and BMO—and 132 percent for CIBC.

According to the report, RBC invested $48.5 billion in fossil fuels last year, up 101 percent on 2020, and Scotiabank increased its exposure to the sector by 87 percent to $38 billion.

TD’s fossil fuel investments rose to $26.4 billion, and BMO’s went up to$23.5 billion. CIBC invested $27.8 billion in fossil fuels in 2021, Investors for Paris Compliance said, noting that the sixth bank under review, National Bank, had no data published on its fossil fuel industry exposure.

The report is the latest example of investor pressure on financial institutions to reduce their lending to the fossil fuel sector and focus on emission reporting and reducing measures in line with international Paris Agreement commitments.

This, however, stands in stark contrast with warnings, including from the IEA, that not enough is being invested in the new supply of fossil fuels, including coal, which this year saw a real renaissance.

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The Diesel Crunch Is Finally Causing Demand Destruction

November 26, 2022

The Diesel Crunch Is Finally Causing Demand Destruction

Diesel inventories slumped to their lowest level for the time of the year since 1951.
signs have emerged that weaker demand in the past weeks may have slowly started to rebuild diesel inventories.
Refiners are processing more crude oil to capture the still high refining margins.

High prices seem to have started to weigh on diesel demand in the United States, where distillate inventories – comprising diesel and heating oil – have been slowly rising over the past few weeks. American distillate inventories are still below the five-year average, but the gap in stocks compared to previous years has slowly started to narrow, suggesting that high prices are hitting demand, while encouraging more refinery output thanks to solid refining margins.

In this week’s inventory report, the U.S. Energy Information Administration said that distillate stocks rose by 1.7 million barrels in the week to November 18, with production rising to an average of 5.1 million barrels per day (bpd). Distillate fuel inventories are still about 13% below the five-year average for this time of year, but two months ago, they were more than 20% below the five-year average for that time of the year.

Earlier this autumn, U.S. distillate stocks slumped to their lowest level for this time of the year since 1951, just as the heating season started and a few months ahead of the EU embargo on Russian oil product imports, which goes into effect in February.

Now signs have emerged that weaker demand in the past weeks may have slowly started to rebuild diesel inventories, contrary to seasonal trends. Distillate inventories in the U.S. rose by 3 million barrels in the six weeks to November 18, according to estimates by Reuters’ senior market analyst John Kemp based on EIA data.

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How Europe’s Energy Crisis Could Turn Into A Food Crisis

November 22, 2022

How Europe’s Energy Crisis Could Turn Into A Food Crisis

Runaway energy inflation has taken a toll on European industry, but another threat is looming.

Europe’s two biggest fertilizer suppliers, Russia and Belarus have retaliated against European sanctions by cutting off fertilizer exports.
The fact remains that the global food chain, especially its European links, is not in a good place right now.

Runaway energy price inflation has wreaked havoc on European industrial activity, with the heaviest consumers taking the brunt. Aluminum and steel smelters are shutting down because of energy costs. Chemical producers are moving to the United States. BASF is planning a permanent downsizing.

There is, however, a bigger problem than all these would constitute for their respective industries. Fertilizer makers are also shutting down their plants. And fertilizer imports are down because the biggest suppliers of fertilizers for Europe were Russia and Belarus, both currently under sanctions.

Both countries have retaliated against the sanctions by cutting off exports of fertilizers to Europe, and European officials repeating that fertilizer exports are not sanctioned is not really helping.

Russia accounts for 45 percent of the global ammonia nitrate supply, according to figures from the Institute for Agriculture and Trade Policy cited by the FT. But it also accounts for 18 percent of the supply of potash—potassium-containing salts that are one of the main gradients of fertilizers—and 14 percent of phosphate exports.

Belarus is a major exporter of fertilizers, too, especially potash. But Belarus has been under EU sanctions since 2021 on human rights allegations, and unlike Russia, it has seen its fertilizer industry targeted by these sanctions. This has made for an unfortunate coincidence for Europe and its food security.

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Pakistan ‘Has No Option But To Ration’ Natural Gas Supply This Winter

November 14, 2022

Pakistan ‘Has No Option But To Ration’ Natural Gas Supply This Winter

The energy crisis in Pakistan has deepened this year.
Gas supplies available for households will be very limited this winter.
Pakistani households will have gas available for three hours in the morning, two hours in the afternoon, and three hours in the evening.

Pakistan has no other option but to ration natural gas supply this winter, with gas provided three times a day for cooking to households, amid acute shortages and a forex crisis in the world’s fifth most populous country, an official from the petroleum ministry told a Parliament panel this week.

The energy crisis in Pakistan has deepened this year, and now, natural gas supplies will be very limited for households, according to officials.

“There would be no gas supply (to household consumers) for 16 hours” a day, Muhammad Mahmood told the Parliament’s Standing Committee on Petroleum, as carried by the local outlet Dawn.

Pakistani households will have gas available for three hours in the morning, two hours in the afternoon, and three hours in the evening, Mahmood added.

Pakistan—whose population is the fifth largest in the world after China, India, the United States, and Indonesia—has been experiencing an energy crisis as the country cannot afford to import a lot of energy products at the current high prices. The stronger U.S. dollar and the sky-high LNG prices have worsened the country’s finances, with foreign exchange reserves down in October to their lowest level in three years.

In April, soaring prices of LNG and coal on the international markets left Pakistan with having to cut electricity supply to households and industry as the country, in a deep political and economic crisis, could not afford to buy more of the expensive fossil fuels.

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Europe May See Forced De-Industrialization As Result Of Energy Crisis

November 14, 2022

Europe May See Forced De-Industrialization As Result Of Energy Crisis

European industries including ferroalloys, fertilizer plants and specialty chemicals are shutting down as a result of the ongoing energy crisis.
Certain industries may not come back, even if the energy crisis eases.
An increasingly tight regulatory environment is another reason for de-industrialization in Europe.

The European Union has been quietly celebrating a consistent decline in gas and electricity consumption this year amid record-breaking prices, a cutoff of much of the Russian gas supply, and a liquidity crisis in the energy market.

Yet the cause for celebration is dubious: businesses are not just curbing their energy use and continuing on a business-as-usual basis. They are shutting down factories, downsizing, or relocating. Europe may well be on the way to deindustrialization.

That the European Union is heading for a recession is now quite clear to anyone watching the indicators. The latest there—eurozone manufacturing activity—fell to the lowest since May 2020.

The October reading for S&P Global’s PMI also signaled a looming recession, falling on the month and being the fourth monthly reading below 50—an indication of an economic contraction.

In perhaps worse news, however, German conglomerate BASF said last month it would permanently downside in its home country and expand in China. The announcement served as a blow to a government trying to juggle energy shortages with climate goals without extending the lives of nuclear power plants.

“The European chemical market has been growing only weakly for about a decade [and] the significant increase in natural gas and power prices over the course of this year is putting pressure on chemical value chains,” said BASF’s chief executive, Martin Brudermueller, as quoted by the FT, in late October.

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Energy Bills In Europe Are 90% Higher Than Last Year

November 10, 2022

Energy Bills In Europe Are 90% Higher Than Last Year

Electricity and gas prices are soaring across Europe, with bills close to double from last year in most European capitals, according to new data from the Household Energy Price Index—a monthly tracker of energy prices for households across 33 European capitals, including the 27 EU member states and several non-members.

According to the data collected for the HEPI, natural gas bills in Europe have gone up by as much as 111 percent over the past year, with electricity prices up by an average of 69 percent. Taken together, Euronews calculates these two make for a total 90-percent increase in household energy bills over the past year.

“Significantly higher [energy prices] compared to one year ago … can be attributed to a combination of factors, such as increased demand connected to post-pandemic economic recovery and extraordinary weather conditions, the record-high prices for natural gas, and high CO2 emissions allowances,” the authors of the latest HEPI report noted.

The high energy bills are creating headaches for European governments: strikes and protests are multiplying and disgruntlement with energy policies is growing. The cost of living in most of Europe is already exorbitant because of the energy crisis and this crisis is only going to get worse after the EU embargoes on Russian oil and then fuels come into effect.

In some parts of Europe, according to the latest HEPI report, energy prices have reached record highs but in others, prices have actually fallen, at least in October. The news is not as good as it looks at first glance: the decline was a result of government intervention, i.e. energy subsidies.

There have been a lot of subsidies as European governments try to alleviate the financial pain on households and businesses to avoid further disgruntlement. Germany alone will be spending some $200 billion on such coping measures, including a cap on energy prices up to a certain level of consumption.

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