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Why The World Can’t Quit Fossil Fuels

Why The World Can’t Quit Fossil Fuels

Have the recent pronouncements of the death of oil and reigning renewables been more rhetoric than reality? Yes and no. It’s true that peak oil is now closer than ever, and globally we’re seeing a more earnest effort to decarbonize than ever before, in large part thanks to green stimulus packages for post-COVID economic recovery. But for all of the advances that green energy is making around the world, it’s just not enough to achieve the kind of greenhouse gas emissions reductions necessary to curb the impact of climate change. In fact, it’s not even close. This week Axios reported on the “chasm between CO2 goals and energy production,” saying that “projected and planned levels of global oil, natural gas and coal production are way out of step with the kind of emissions cuts needed to hold global warming significantly in check.” This reporting is based on a brand new study. The second annual “Production Gap Report” is the continuation of a project developed in collaboration with the United Nations Environment Programme (UNEP). The 2020 report was put together by the UN, the Stockholm Environment Institute, the International Institute for Sustainable Development, the Overseas Development Institute and the climate think tank E3G.

The purpose of the report, which is modelled after and alongside UNEP’s Emissions Gap Reports is to synthesize and communicate “the large discrepancy between countries’ planned fossil fuel production and the global production levels necessary to limit warming to 1.5°C and 2°C.” And, as it turns out, that discrepancy is still quite large, even after the COVID-19 pandemic took a huge bite out of fossil fuel demand and the oil and gas industry as a whole.

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Is The OPEC+ Alliance Coming To An End?

Is The OPEC+ Alliance Coming To An End?

It’s been a wild and bumpy ride for OPEC+ this year. The consortium, consisting of the traditional members of the Organization of the Petroleum Exporting Countries plus oil and gas superpower Russia, was largely responsible for the huge collapse in oil prices toward the end of April.  After a huge drop in oil demand corresponding with the devastating spread of the novel coronavirus around the world, an OPEC+ strategy meeting turned into a spat between Russia and Saudi Arabia which then turned into an all-out oil price war and massive global oil glut. The oil storage shortage created by this glut would go on to push the West Texas Intermediate crude benchmark into previously-unthinkable negative territory, closing out the day on April 30th at nearly $40 below zero per barrel.

OPEC+ has since reconciled and once again banded together to address the oil market crisis, making myriad pledges and severe production cuts to bolster crude oil prices. But many of the countries that made those pledges have fallen far short of their promises. “OPEC reached a historic deal to cut output by 9.7 million barrels per day in April, but a number of countries fell significantly short in meeting their production targets,” reports Markets Insider. 

But, just this week Iraq, OPEC’s second-biggest member just made a huge commitment to cut its oil production in the coming months. After a Thursday night conversation between Iraqi and Saudi leadership, Baghdad “made a commitment to cut oil production by 400,000 barrels per day in August and September,” a massive uptick from the nation’s relatively paltry July production cut of 11,000 barrels per day. 

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Permian Bankruptcies Could Fuel A Buying Spree For Big Oil

Permian Bankruptcies Could Fuel A Buying Spree For Big Oil

The United States shale revolution is over. Production in the Permian Basin, which spreads across West Texas and Southeast New Mexico, has been slowing for months, but the novel coronavirus took things from bad to much, much worse for U.S. shale. The oil price shock that followed the spread of the COVID-19 pandemic, combined with a massive global oil glut spurred by a spat between with learning OPEC+ member countries of Russia and Saudi Arabia, drove West Texas Intermediate oil prices down to a previously unthinkable -$37.63 a barrel earlier this month.  While shale prices have since moderately rebounded, the Permian Basin is still in bad shape. The oil fields that made the United States the biggest crude oil producer in the world is now seeing tens of thousands of fired and furloughed employees as the region is rocked by a sweep of bankruptcies across the shale sector. Last week CNBC reported that “the oil industry shakeout is just beginning with more production cuts and bankruptcies ahead,” detailing that “U.S. oil companies are already paring back spending and closing wells, but wild trading in the futures market was a warning to curb production now because the world at some point will not be able to store any more supply.”

Just because the U.S. oil industry has hit a rough patch, however, doesn’t necessarily mean that the West Texas shale play is all played out. In fact, it stands to reason that, as competition dries up and blows away like so many tumbleweeds, Big Oil may step in and buy up faltering shale independents. 

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How Oil Prices Could Go To $100

How Oil Prices Could Go To $100

Offshore

“We’re in a deflationary moment that surpasses anything seen in most people’s lifetimes,” proclaimed a New York Times byline on Tuesday, the morning after oil prices went negative. The West Texas Crude Intermediate benchmark plummeted to previously unimaginable depths, closing the day at negative $37.63 per barrel.  The novel coronavirus has wreaked unprecedented havoc on the global economy, shutting down entire industrial sectors and bringing countries across the world to a halt as the global community shelters in place to slow the spread of the COVID-19 pandemic. Economists have warned that the fallout is going to be the largest economic downturn that we have seen in our lifetimes, but few could have foreseen the absurdity of negative oil prices. 

Few, but not none. Three weeks ago, on April 1, CNBC published a report titled “Oil prices could soon turn negative as the world runs out of places to store crude, analysts warn,“ which predicted exactly what is happening now. “Global oil storage could reach maximum capacity within weeks, energy analysts have told CNBC, as the coronavirus crisis dramatically reduces consumption and some of the world’s most powerful crude producers start to ramp up their output.”

While the situation is totally unprecedented it’s impossible to say what will happen next for oil markets, some experts think that oil is poised for a major comeback. Even though oil prices are lower than they have ever been, “one energy fund thinks $100 a barrel is achievable,” reported the Midland Reporter-Telegram earlier this week. At the time of the report, oil was only at an 18-year low rather than an all-time low. The article intro continued:  “But first, prices need to fall even further.” Well, they got their wish. 

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Tumbling Yuan Sends Ripples Through Petrochemical Market

Tumbling Yuan Sends Ripples Through Petrochemical Market

Petrochemical industry

The trade war between China and the United States has triggered a global economic slowdown thanks to far-reaching tensions between the world’s two biggest economies. Last Friday China lobbed their most recent retaliation back at the United States by announcing tariffs on an additional $75 billion worth of goods. This is just the most recent counterattack in a now yearlong tit-for-tat spat that has seen both countries confront each other again and again with hard-hitting tariffs (you can see a detailed timeline here) and even culminated in Beijing allowing the Yuan reach its lowest value in years, making Chinese goods cheaper to export and, conversely, making U.S. goods more expensive and therefore less desirable in Chinese markets. 

Because of the far-reaching economic implications of the trade dispute, United States president Donald Trump has been put under a great deal of pressure from global leaders to de-escalate tensions with China. In response, Trump has announced that he will soon begin trade talks with Beijing in order to reach an accord and end the trade war, but the reality is not so simple, especially as the U.S. president seems to be talking out of both sides of his mouth. In a report titled “Trump sends mixed signals on China trade war as pressure mounts to de-escalate” the UK’s Independent points out that, “on Sunday, [President Trump] seemed to express regret over escalating the trade dispute, but the White House later said his only regret was that he didn’t impose even higher tariffs on China.”

Even if Trump does follow through on his public promises to make peace with China, in many sectors of the economy the damage is already done. One of the most recent casualties of the trade war is the Asian petrochemical market, which just hit its lowest profit margin in months.

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The “Polar Silk Road” Could Be A Gamechanger For Natural Gas

The “Polar Silk Road” Could Be A Gamechanger For Natural Gas

Pipeline

It’s been well over a year since the then-United States Secretary of Defense Jim Mattis accused Russia and China of being “revisionist powers” each working its way toward making a power grab on the world stage and announced that the U.S. would be shifting its international relations focus away from fighting terrorism and instead prioritize what Mattis referred to as a “great power competition.” Now, 17 months later, it looks like Mattis’ nightmares are coming true as Russia and China have increasingly worked together in defiance of the Trump administration in a kind of diplomatic ‘marriage of convenience’.

Just this month, Chinese President Xi Jinping made his eighth official visit to Russia in a trip highly publicized in both Russian and Chinese media. “This year marks the 70th anniversary of our diplomatic ties and China’s ties with Russia are deepening at a time of profound change in the global geopolitical landscape,” remarked former Chinese ambassador to Britain Ma Zhengang, as quoted by the South China Morning Post.

One of the most current examples of this newly strengthened relationship between Beijing and Moscow is a new joint venture between state-owned shipping corporations in Russia and China to create a “Polar Silk Road” in the Arctic Sea. a year ago, officials in Beijing announced that China would be pursuing investment across the Arctic Route to encourage commercial shipping through the northern passage as a part of the country’s Belt and Road Initiative. Belt and Road is a massive undertaking involving investments programs worth trillions of dollars, which will go toward connecting Asia and Europe by sea, rail, and road to promote more trade between the continents.

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Pipeline Bottlenecks Cost Canadian Producers $20 Billion

Pipeline Bottlenecks Cost Canadian Producers $20 Billion

Costing Money

Canada has plenty of oil, and demand is high, but the Canadian oil industry has nevertheless taken a major hit this year thanks to its persisting pipeline bottleneck. The Albertan oil industry has long been plagued by insufficient pipeline volumes but has not been able to fix the issue with any semblance of efficiency thanks to major bureaucratic and litigation-based delays on building new infrastructure like the long-delayed Trans Mountain pipeline expansion project.

With pipeline capacity maxed out, Canadian oil producers have run out of storage space, leading to a major glut in oil reserves with nowhere to go. This has forced Canada to sell their oil at a major discount. In fact, a new study released this week by conservative think tank the Fraser Institute calculates that Canadian oil producers missed out on a whopping $20.62 billion more than they earned this year thanks to their severely depressed prices. Compared to the West Texas Intermediate benchmark, in the last year Canadian heavy crude traded, on average, at a discount of $26.50 U.S. a barrel. This is a huge dive from the five-year preceding, when Canadian heavy crude traded at an average of just $11.90 U.S. a barrel less than West Texas Intermediate.

The pipeline capacity deficit has negatively impacted the Canadian economy in a number of ways. “Canada’s lack of adequate pipeline capacity has imposed a number of costly constraints on the country’s energy sector including overdependence on the US market and reliance on more costly modes of energy transportation,” states the Fraser Research Bulletin. “In 2018, these factors, coupled with the maintenance downtime at refineries in the US Midwest, resulted in significant depressed prices for Canadian heavy crude (Western Canada Select) relative to US crude (West Texas Intermediate) and other international benchmarks.”

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The Renewable Revolution Has A Lithium Problem

The Renewable Revolution Has A Lithium Problem

Lithium ponds

As the global middle class rapidly expands, so too does the worldwide demand for energy and its subsequent carbon footprint. Global climate change will be one of the greatest, if not the single greatest, challenges of this next century, and one of the few feasible solutions that is generally agreed upon by scientists and politicians alike is a wide-scale transition from the use of traditional fossil fuels to renewable energy resources.

Around the world, there is a race among researchers to more efficiently and cost-effectively implement renewable energy as a long-term solution to global climate change, and there is even a concerted effort to switch Europe’s energy consumption to 100 percent renewable energy as soon as the year 2050. However, even if Europe achieves this target and takes the lead as the rest of the world follows down a path toward 100 percent renewable energy, we still would not be living in a completely sustainable, green energy utopia–there is a considerable downside to this seemingly perfect plan.

Even renewable energy relies on certain decidedly non-renewable resources. Even the eco-friendliest solutions such as solar panels can’t be made without the use of finite rare earth elements. Batteries, too, are completely dependent on finite earth-sourced materials for their fabrication. What’s more, China currently has an overwhelming monopoly on a great number of these rare earth elements (although not all are as rare as this label implies). This means that in a renewable energy-based world, energy security could become a major issue. In addition to rare earth elements, there are myriad other non-renewable materials used in the production of renewable energy. Currently, the one that has everyone talking is lithium.

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The Overlooked Catalyst That Will Send Energy Demand Soaring

The Overlooked Catalyst That Will Send Energy Demand Soaring

Dalian China

As the earth gets hotter, energy demand will increase significantly along with global temperatures. Now a team of researchers in China has determined in a recent study that by the end of this century, peak energy demand in China will increase by a minimum of 72 percent. For every degree Celsius that the global mean surface temperature (GMST) increases, average Chinese residential energy use is projected to raise 9 percent, while peak electricity use will increase 36 percent per degree Celsius.

It is projected that the mean surface temperature of the earth will be 2-5 C hotter by 2099. Calculating based off of current consumption patterns in China, this means that the most conservative estimates show average Chinese residential electricity demand would rise by 18 percent. At the high end, average Chinese residential electricity demand would rise by a whopping 55 percent. Meanwhile peak usage, on the low end, would increase by at least 72 percent.

These findings will have major implications for energy grid planning and other infrastructure in China, where energy use has already been booming thanks to a rapidly expanding middle class. As Chinese incomes increase, even without the added impact of climate change, the electricity consumption of the average Chinese household is expected to double by 2040. Libo Wu, one of the authors of this recent study and professor and director of the Center for Energy Economics and Strategies Studies at Fudan University in China, says that his team’s findings “contribute solid evidence supporting China’s low-carbon policy by showing how important increasing demand from the residential sector will be.”

As part of the study, researchers examined how Chinese energy users responded to daily fluctuations in temperature by analyzing data gathered from more than 800,000 residential customers in the Pudong district of Shanghai between 2014 and 2016.

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Canada’s Crude Oil Production Cuts Are Unsustainable

Canada’s Crude Oil Production Cuts Are Unsustainable

Canada oil

In an attempt to combat a ballooning oil glut and dramatically plummeting prices, the premier of Alberta Rachel Notley introduced an unprecedented measure at the beginning of December when she is mandating that oil companies in her province cut production. This directive was particularly surprising in the context of Canada’s free market economy, where oil production is rarely so directly regulated.

Canada’s recent oil glut woes are not due to a lack of demand, but rather a severe lack of pipeline infrastructure. There is plenty of demand, and more than enough supply, but no way to get the oil flowing where it needs to go. Canada’s pipelines are running at maximum capacity, storage facilities are filled to bursting, and the pipeline bottleneck has only continued to worsen. Now, in an effort to alleviate the struggling industry, Alberta’s oil production has been cut 8.7 percent according to the mandate set by the province’s government under Rachel Notley with the objective of cutting out around 325,000 barrels per day from the Canadian market.

Even before the government stepped in, some private oil companies had already self-imposed production caps in order to combat the ever-expanding glut and bottomed-out oil prices. Cenovus Energy, Canadian Natural Resource, Devon Energy, Athabasca Oil, and others announced curtailments that totaled around 140,000 barrels a day and Cenovus Energy, one of Canada’s major producers, even went so far as to plead with the government to impose production caps late last year.

So far, the government-imposed productive caps have been extremely successful. In October Canadian oil prices were so depressed that the Canadian benchmark oil Western Canadian Select (WCS) was trading at a whopping $50 per barrel less than United States benchmark oil West Texas Intermediate (WTI). now, in the wake of production cuts, the price gap between WCS and WTI has diminished by a dramatic margin to a difference of just under $13 per barrel.

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The Real Implications Of The New Permian Estimates

The Real Implications Of The New Permian Estimates

oil rig

This week the United States Geological Survey (USGS) announced a groundbreaking oil and gas discovery in West Texas’ Permian Basin. According to the organization’s recent press release, a whopping 46.3 billion barrels of oil, 281 trillion cubic feet of natural gas, and 20 billion barrels of natural gas liquids are now believed to lie untapped in the Wolfcamp Shale and overlying Bone Spring Formation area of Texas and New Mexico’s Permian Basin.

Major players in the energy industry already have a significant presence in Wolfcamp and Bone Spring, including Occidental Petroleum Corp. and Pioneer Natural Resources Co. It was already well known and well documented that these fields were remarkably fertile grounds for oil extraction, but the jaw-dropping extent of the new figures released this week by the USGS has made the massive crude and shale reserves of the Permian Basin freshly headline-worthy. The figures in this week’s press release are in fact, in the case of Wolfcamp Shale, more than double the previous resource assessment.

(Click to enlarge)

Source: USGS

The USGS assessed the area more than two years ago in 2016, and has officially determined that it contained the largest estimated quantity of continuous oil in the entire United States. “Christmas came a few weeks early this year,” said U.S. Secretary of the Interior Ryan Zinke in response to these momentous figures. “American strength flows from American energy, and as it turns out, we have a lot of American energy. Before this assessment came down, I was bullish on oil and gas production in the United States. Now, I know for a fact that American energy dominance is within our grasp as a nation.”

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Canada’s Crude Crisis Is Accelerating

Canada’s Crude Crisis Is Accelerating

Enbridge pipeline

Canadian oil producers are in an increasingly tough predicament. With high and increasing oil demand around the globe over the last year, Canadian oil production has increased accordingly. All of this is simple and predictable economics, but now Canadian oil has hit a massive roadblock. Producers have the supply, and they have more than enough demand, but they don’t have the means to make the connection. Canadian export pipelines simply don’t have the capacity to keep up with either the supply or the demand.

Canadian oil producers have now maxed out their storage capacity, and the Canadian glut continues to grow while they wait for a solution to the pipeline problem to materialize. As pipeline space is at a premium and storage has hit maximum capacity, oil prices have fallen dramatically, and the differentials that had previously been hitting heavy oil hard in Canada (now at below $18 a barrel for the first time since 2016) have now spread to light oil and upgraded synthetic oil sands crude as well, leaving overall Canadian oil prices at record lows.

(Click to enlarge)

Now, adding to the problem, growth in oil demand has begun to slow in the wake of skyrocketing United States production and the weakening of U.S.-imposed sanctions on Iranian oil. Fist, the U.S. granted waivers to eight nations to continue buying Iranian oil despite strong rhetoric, and now the European Union has undermined the sanctions even further.

In an effort to correct the pricing drop, some Canadian drillers have been cutting production levels, turning to more expensive forms of transportation like railways to ship their oil, and in some cases even using trucks to move their product.

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World’s Cheapest Natural Gas Market Could Be Facing A Shortage

World’s Cheapest Natural Gas Market Could Be Facing A Shortage

Natural Gas

A natural gas shortage in Canada is expected to last through the winter months, forcing gas users ranging from industrial forces to local governments to seek alternative fuel sources and strategies for slashing consumption and conserving the gas they have. The shortage stems from this month’s pipeline explosion near Prince George, British Columbia.

In the aftermath of the explosion, FortisBC, one of British Columbia’s largest utilities, says that their supply of natural gas will be reduced by a whopping 50 to 80 percent throughout the coldest months of the year. This sudden squeeze will necessitate a lot of unforeseen expenditures on alternative fuel sources. This is a cost that will be passed directly onto consumers, affecting everything from the price of gas and heating to even the price of vegetables, among other subsequent price hikes.

Natural gas has service has already been restored to the province in the wake of the October 9th disaster, and pipeline owner Enbridge says that it will have the section of the pipeline that ruptured back online by the middle of November. The National Energy Board, however, has mandated that Enbridge limit pressure in the ruptured line, and a smaller line nearby will also remain running below capacity until the spring of next year. As a safety measure, pressure levels will be kept at 80 percent along the entire length of the damaged pipeline up to the United States border.

The shortage is occurring in what is one of the cheapest natural gas markets in the world. Canadian gas has been hit hard by competition from the United States and limited pipeline infrastructure, which has only been made worse by the Prince George explosion. After the announcement that FortisBC’s pipes would remain running under capacity through the winter, gas prices fell to a five-month low last week.

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U.S. Doubles Down On Ethanol Despite Glut

U.S. Doubles Down On Ethanol Despite Glut

Ethanol plant

Despite finding itself the midst of a massive glut, the United States ethanol industry is set to see three new plants come online over the next year, adding a combined annual production of 270 million gallons to the nation’s already ballooning ethanol oversupply. The industry has been plagued by overproduction and low demand since 2015.

Over the past 5 years, ethanol production has increased by 10.5 percent, rising from 14.3 billion gallons in 2014 to 15.8 billion gallons in 2017. This is despite the fact that only one new ethanol plant began production in the years between 2015 and 2018. The increase is in large part due to more efficient means of production, allowing producers to get more fuel out of each kernel of corn, and the expansion of existing plants in lieu of building new plants from the ground up.

Now there will be three new plants coming online all within a span of mere months. Atlantic, Iowa will be home to 120-million-gallon-a-year dry mill ethanol plant Elite Octane, LLC before the end of 2018. Ring-Neck Energy & Feed, LLC will go online in Onida, South Dakota in early 2019, and ELEMENT, Inc., a 70-million-gallon-a-year ethanol plant, is currently under construction in Colwich, Kansas.

In an effort to reduce the U.S. ethanol glut, which is undeniably about to skyrocket even higher, the industry has been strategizing aggressive campaigns to boost demand. It has become abundantly clear that in order to return to its strong profit margins of 2013-2014, the U.S. ethanol industry will need to look overseas. Part of the ethanol industry’s auto-resuscitation plan involves increasing its market share of liquid fuel in the U.S. by promoting higher ethanol blends like E15 (15 percent ethanol to a gallon of gas), E30 (30 percent), and E85 (85 percent), but this angle alone will not produce nearly enough demand to contend with supply.

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The Great Biofuel Swindle

The Great Biofuel Swindle

swindle

Over the past decade, “biofuel” has been a major buzz word in the world of clean energy and environmental science. As the topic of advanced biofuels continued to trend over the years, investments and studies ballooned accordingly. Now, however, with a bit of hindsight it has become clear that the vast majority of chatter and speculation about the “next big biofuel” set to change the energy landscape was just hot air.

Many claims made by energy startups, blogs, and think tanks were a bit short of credible, to put it lightly. A laundry list of companies over time claimed that they would be able to efficiently convert biomass like straw, wood chips, algae, and other organics into biofuel in an economically viable way. Some of these hopefuls even claimed to be able to do so for as little as a dollar per gallon.

Investors and taxpayers alike funneled money into ventures that had little to no chance of success. Investment went to technologies that had been abandoned decades before, due to economic impracticality. The most striking example can be found in the case of cellulosic ethanol. Converting straw into ethanol is a prohibitively expensive venture, but companies continued–and still continue–to try. What’s more, despite the fact that “commercial” cellulosic ethanol is only being produced at a very small fraction of the projected volumes, it’s currently being sold into the fuel supply, in large part thanks to heavy subsidization from the Renewable Fuel Standard.

Coming in second, only behind cellulosic ethanol, as the most overhyped biofuel is biomass sourced from algae. The concept is not nearly as far-fetched as producing fuel from straw. Some species of algae do produce oils that can be converted into fuel, and crude oil itself is essentially prehistoric algae and plankton.

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Olduvai IV: Courage
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Olduvai II: Exodus
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