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Dubai. Abu Dhabi. Bahrain. And, of course, Saudi Arabia. The two emirates this year issued debt for the first time in years. So did Bahrain. Saudi Arabia stepped up its debt issuance. The moves are typical for the oil-dependent Gulf economies. When the going is good, the money flows. When oil prices crash, they issue debt to keep going until prices recover. This time, there is a problem. Nobody knows if prices will recover.

In August, Abu Dhabi announced plans for what Bloomberg called the longest bond ever issued by a Gulf government. The 50-year debt stood at $5 billion, and its issuance was completed in early September. The bond was oversubscribed as proof of the wealthiest Emirate’s continued good reputation among investors.

Dubai, another emirate, said it was preparing to issue debt for the first time since 2014 at the end of August. Despite the fact the UAE economy is relatively diversified when compared to other Gulf oil producers, it too suffered a hard blow from the latest oil price crash and needed to replenish its reserves urgently. Dubai raised $2 billion on international bond markets last week. Like Abu Dhabi’s bond, Dubai’s was oversubscribed.

Oversubscription is certainly a good sign. It means investors trust that the issuer of the debt is solid. But can the Gulf economies remain solid by issuing bond after bond with oil prices set to recover a lot more slowly than previously expected? Or could this crisis be the final straw that tips them into actual reforms?

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Peak Fuel Demand Will Occur Within 10 Years

June 28, 2020

Peak Fuel Demand Will Occur Within 10 Years

It has been a tough few months for the oil industry, and there’s more pain on the way as the industry struggles with disruptive forces that could completely transform it. Now, according to BloombergNEF, oil and gas companies have one more thing to worry about: peak fuel demand. In an outlook for road fuels published earlier this month, BloombergNEF forecasts that gasoline demand will peak in 2030, with diesel following three years later. As a result, demand for crude oil from the road transport sector is seen peaking in 2031, BloombergNEF said, at 47 million barrels daily. That’s higher than BloombergNEF’s 2019 projection, which saw oil demand from light and heavy-duty vehicles peaking at 45.1 million bpd.

To fully realize the implications of this trend, here is some context. As of 2019, road transport accounted for more than 40 percent of overall global oil demand. What’s more, road transport has accounted for more than half of total oil demand growth over the past two decades. Peak demand for road transport fuels, therefore, is a harbinger of peak oil demand.

The immediate outlook for fuel demand is also not rosy, with the lockdowns and international movement restrictions erasing ten years’ worth of demand growth, according to BloombergNEF. This effect will likely be temporary; as lockdowns ease, demand for fuels begins to recover, even though it remains doubtful whether it will recover fully to pre-pandemic levels.

So, what are the culprits behind this looming slump in fuel demand? First, there is fuel efficiency: a factor that, according to BP, will improve so much that energy consumption in the transport sector will only rise by 20 percent by 2040. BP made that forecast last year, long before the coronavirus. Now, those changes could accelerate.

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30% Of U.S. Shale Drillers Could Go Under

June 28, 2020

30% Of U.S. Shale Drillers Could Go Under

U.S. shale was one of the big losers of the Saudi-Russian price war that many saw as a war on U.S. shale. Producers scrambled to stay afloat as prices sank back to lows not seen since 2016, and they are still scrambling. Banks are giving them the cold shoulder, worried that many will not be able to pay their debts. Is there a way out? According to various forecasting agencies, there is, but it will take a while. A Bloomberg analysis of forecasts for the shale industry made by outlets such as the International Energy Agency, energy consultancy Rystad, IHS Markit, Genscape, and Enervus suggests shale will be back on its feet by 2023, with production back to over 12 million bpd.

This is not a long time for a full recovery, really, especially given the current circumstances, including shut-in wells, abandoned drilling plans, tight cash, and, for many, looming bankruptcies.

As much as 30 percent of shale drillers could go under if oil prices fail to move substantially higher, Deloitte said in a recent study, as quoted by CNN. These 30 percent, the firm said, are technically insolvent at oil prices of $35 a barrel. Right now, West Texas Intermediate is higher than $35 but not by much. Oil is now trading closer to $35 than to $50—the level at which most shale drillers will be making money.

And they need to make money: banks have started cutting credit lines for industry players as they reassess their assets and the production that they promised would be realized from these assets. According to calculations by Moody’s and JP Morgan, cited by the Wall Street Journal, banks could reduce asset-backed loan availability for the industry by as much as 30 percent, which translates into tens of billions of dollars.

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What’s Next For Big Oil?

June 22, 2020

What’s Next For Big Oil?

The global COVID-19 pandemic has had a significant role to play in Big Oil’s shift towards cleaner energy.
Three of the world’s biggest oil and gas companies are planning to become net-zero carbon emitters by 2050.
Tech will not only help Big Oil become more efficient–it may turn out to be instrumental for their net-zero ambitions.

Something unthinkable is happening in Big Oil, and it’s not the demand slump or the spending cuts or the layoffs. With the exception of the demand slump, we’ve seen all this before–more than once, in fact. No, what’s unthinkable is that Big Oil appears to be planning to stop being Big Oil.

It’s not a joke. Three of the world’s biggest oil and gas companies are planning to become net-zero carbon emitters by 2050. And, as Energy Intelligence noted recently in an industry analysis, there are only two ways to attain the net-zero state: reduce the production of oil and gas, and capture the already emitted carbon dioxide.

The three top performers in the field seem to be focusing on the first way. Shell, BP, and Total—along with Italy’s Eni and Spain’s Repsol—all plan to boost their output of renewable energy at the expense of oil significantly over the next few decades. And the U.S. supermajors, as reluctant as they have been to join the green wave in energy, might at some point simply be forced to do it by their shareholders and by the new, post-coronavirus world order.

It would be an understatement to say that the pandemic had some role to play in the transformation looming over the energy industry as we know it. The pandemic, and the oil demand slump it brought on the industry, had a significant role to play in that transformation. The extent and speed of this demand slump were literally unprecedented, but now that the precedent has been set, Big Oil is preparing for the future.

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Canadian Banks Hit Hard By Low Oil Prices

June 15, 2020

Canadian Banks Hit Hard By Low Oil Prices

Canada’s government has been perhaps surprisingly ready to help the country’s ailing oil industry. Interest-only loans, backstopping loans that troubled companies can’t pay have been among the steps taken so far. But they may not be enough. Canada’s oil industry has arguably suffered more than its peers across its southern border or even most producers around the world. Already cheap because of pipeline troubles, Canadian oil slumped to new lows amid the oil price war and the coronavirus pandemic earlier this year. While it has since improved in line with the international benchmarks, it hasn’t improved enough for the comfort of the local extractive industry. And it may drag banks down with it.

Bloomberg reported earlier this month that Canada’s largest banks reported an almost two-fold increase in impaired energy loans over their second quarter due to the oil price plunge and the pandemic. The increase amounted to more than US$1.47 billion (C$2 billion). What’s more, according to the report the country’s top six lenders had boosted their new lending to energy companies jumped by as much as 23 percent during that same quarter.

“Canadian banks’ energy exposure risks are increasing, with oil in a freefall and Canadian oil producers fighting to survive, as cash burn accelerates and liquidity dwindles,” a Bloomberg Intelligence analyst said in April when banks and companies were both bracing for this year’s renegotiation of borrowing bases amid the price plunge. According to Paul Gulberg, if just a tenth of the loans that Canadian banks had on their books at that time went bad, the lenders could lose a collective US$4.40 billion (C$6 billion).

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Petrobras Expects Permanent Damage to Oil Demand as It Writes Off Billions In As

May 15, 2020

Petrobras Expects Permanent Damage to Oil Demand as It Writes Off Billions In As

Petrobras has warned its shareholders that the coronavirus pandemic could leave a permanent mark on the global economy, including on consumer behaviors, as it reported a first-quarter loss and massive writeoffs on assets that have stopped being economical.

The company booked a $9.7 billion net loss for the first quarter, down from a profit of $1.98 billion a quarter earlier, mostly on an impairment charge of $13.4 billion related to shallow- and deepwater assets.

“The assets that had their values adjusted are mostly oil fields in shallow and deep waters, whose investment decision was made in the past and based on more optimistic expectations for long-term prices,” Petrobras said. “We are not surprised by its devaluation in a more challenging environment.”

The company noted that it has yet to feel the pandemic’s economic effects on its financial results, which it expects to happen in the current and subsequent quarters. For now, its free cash flow is strong, Petrobras said, and so is its overall position.Related: Goldman Sachs: Oil Market Headed For Deficit In June

The outlook for the future is not optimistic, however. The Brazilian company expects Brent prices to average just $25 a barrel this year and the rise by some $5 a barrel annually to reach $50 in 2025. This is an extremely unfavorable scenario for most oil producers.

But besides prices, Petrobras also said it expected permanent changes in consumer habits, resulting from the economic shock caused by the pandemic on a global scale. This reference to changed habits may imply changes in energy use and hence oil demand that would have a long-term effect on the industry.

Petrobras expects the overhang in global oil inventories to persist, with rebalancing taking a while, the company also said, noting that “oil consuming industries, given the new scenario, will not keep their previously projected demands in the long-term, reducing consumption levels.”

The Oil Crisis Puts The Entire U.S. Economy At Risk

May 12, 2020

The Oil Crisis Puts The Entire U.S. Economy At Risk

Job losses, well shut-ins, and bankruptcies have replaced the praise surrounding the shale oil boom that greatly enhanced America’s energy independence and gave President Trump a reason to tout energy dominance. Now, the federal government is mulling over ways to help the industry curb its losses amid historically low prices and little chances of their improvement anytime soon. And the crisis will have much wider repercussions.

The trough of the oil industry cycle always harms the broader economy, usually on a regional level. During the last crisis, for example, once-thriving towns in Texas and New Mexico shrunk as mass layoffs dealt a blow to the local economies. This is bound to repeat again and already is: the Wall Street Journal reports state economies from Wyoming to Alaska, Oklahoma, and North Dakota are taking a hit from the oil industry’s crisis.

According to the American Petroleum Institute, the oil and gas industry in the United States supports as many as 10.3 million jobs and generates close to 8 percent of gross domestic product. This is, of course, nowhere near the over 50 percent that oil makes up in the Saudi GDP, but it is a portion sizeable enough to suggest that a crisis in the oil industry could have a ripple effect on the national economy. The question is, how strong this ripple effect would be.

According to a Goldman Sachs analyst, it has the potential to be quite strong. “Typically, oil price fluctuations have a small aggregate impact on U.S. growth, with roughly offsetting effects from the energy capex and consumption channels,” Paul Choi wrote in a note cited by Axios. “However, the sharp rise in the likelihood of bankruptcies in the energy sector and spending constraints due to the virus suggest that the decline in oil prices might be a larger drag on growth this time.”

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Only 5 Shale Drillers Are Still Profitable At $31 Oil

March 10, 2020

Only 5 Shale Drillers Are Still Profitable At $31 Oil

Most shale oil wells drilled in the United States are unprofitable at current oil prices, Rystad Energy has warned. The Norwegian consultancy said, as quoted by Bloomberg, that drilling new wells would be loss-making for more than 100 companies.

Just five shale drillers—Exxon, Chevron, Occidental, and Crownquest—can drill new wells at a profit at $31 per barrel of West Texas Intermediate.

The problem is the nature of shale oil wells: while quick to start production and expand it, they are also quick to run out of oil, so drillers need to keep drilling new ones to maintain production, which is what U.S. shale patch players have been doing for years. However, this has affected investor returns, Bloomberg notes, and now it is affecting spending plans.

“Companies should not be burning capital to be keeping the production base at an unsustainable level,” Tom Loughrey from shale oil data company Friezo Loughrey Oil Well Partners LLC told Bloomberg. “This is swing production — and that means you’re going to have to swing down.”

The situation is more positive for drilled but uncompleted wells, according to Rystad. The consultancy said yesterday that as much as 80 percent of DUCs in the U.S. shale patch have a breakeven price of less than $25 per barrel of WTI. Yet this is dangerously close to current prices.

If nobody blinks in this supply war, prices may have to go this low in order to properly reduce production and get supply-demand back in balance,” Rystad’s head of shale research, Artem Abramov, said in the news release.

“This could turn out to be one of the greatest shocks ever faced by the oil industry, as coronavirus containment measures will add to the headache of producers fighting for market share. And OPEC has clearly stated that it won’t be coming to the rescue in the second quarter of 2020,” he also said.

Burning Trees For Heating Won’t Help With Climate Change: UK Think Tank

January 27, 2020

Burning Trees For Heating Won’t Help With Climate Change: UK Think Tank

A suggestion by the UK Committee on Climate Change to burn more wood and plant replacement trees as a sustainable alternative to fossil fuels has drawn criticism from think tank Chatham House, which says this is hardly the best approach to reducing emissions.

“Expanding forest cover is undoubtedly a good thing, if you’re leaving them standing,” energy expert Duncan Brack told the Daily Telegraph. However, Brack, who served as special adviser to the Department of Energy and Climate Change, suggested that burning wood for heating was not the most sustainable way forward. Calling wood burning a carbon neutral process is “highly dubious,” Brack added.

These claims, according to the Telegraph’s environment editor, Emma Gatten, rest on the assumption that the carbon footprint of chopping down trees and burning them is offset by planting new trees to replace them. This assumption excludes the fact that older trees absorb more carbon and that it takes time to replace a forest.

“You can leave trees standing and they will continue to absorb carbon for decades,” Brack says. “But the biomass industry implicitly assumes that forests at some point stop reach a saturation point for carbon intake and can be harvested and simply replaced.”

The benefit of planting trees to mitigate the effects of climate change has been put to the test on a wider scale as well. A study released last year found that reforestation could work, but it had to be done at a massive scale.

We need to plant 25 percent more trees than there are on Earth right now, or more than half a trillion in total, the study found. This would reduce the amount of carbon in the atmosphere by a quarter, erasing 20 years of emissions. Yet it would not solve the climate problem on its own, without a sustained effort to cut emissions, commentators on the study said.

The Fatal Flaw In A Perfect Energy Solution

December 1, 2019

The Fatal Flaw In A Perfect Energy Solution

More than thirty years ago a giant tower was built in Manzanares, Spain, to produce electricity in a way that at the time must have seen even more eccentric than it seems now, by harnessing the power of air movement. The Manzanares tower was, sadly, toppled by a storm. Decades ago, several other firms tried to replicate the idea, but none has succeeded. Why?

A simple idea

The idea behind the so-called solar wind towers is pretty straightforward. The more popular version is the solar updraft tower, which works as follows:

On the ground, around the hollow tower, there is a solar energy collector—a transparent surface suspended a little above ground—which heats the air underneath.

As the air heats up, it is drawn into the tower, also called a solar chimney, since hot air is lighter than cold air. It enters the tower and moves up it to escape through the top. In the process, it activates a number of wind turbines located around the base of the tower. The main benefit over other renewable technologies? Doing away with the intermittency of PV solar, since the air beneath the collector could stay hot even when the sun is not shining.

A more recent take on solar wind towers involved water as well. Dubbed the Solar Wind Downdraft Tower, this project first made headlines in 2014, but since then there have been few updates, and those have been far between. The latest was from last year, when the company behind it, Solar Wind Energy Tower, announced a letter of intent by an investment company to provide financing for the project. That financing was to come from investors that the company was yet to find.

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There’s No Stopping The World’s Most Politically Charged Pipeline

November 3, 2019

There’s No Stopping The World’s Most Politically Charged Pipeline

This week, Denmark granted Gazprom approval for its Nord Stream 2 gas pipeline project, a project that is set to bring 55 billion cubic meters of Russian gas into Europe annually. It is one of the most controversial pipeline projects in the world and is now moving ahead despite strong opposition from multiple EU members and the United States.

The geopolitical tensions surrounding the development of Nord Stream 2 are unprecedented. To begin with, Russia has very poor relations with the Baltic states and Poland, nations who will almost always fight against anything they see as empowering Russia geopolitically. Then there is Ukraine, a nation that is strongly against the pipeline due to its fear of losing the transit fees that it currently charges Russia for exporting gas to Europe. Finally, and perhaps most importantly, the United States sees this pipeline as a direct threat to its soft power in Europe as well as a threat to its growing LNG exports.

But for all the politics and attention that this pipeline is attracting, the simple truth of the matter is that Europe, and more specifically Germany, needs this natural gas. Germany plans to shut down all its nuclear reactors by 2022. Many have questioned the wisdom—and some even the sanity—of that decision, but it remains government policy. The generation capacity the is being lost in that sector will need to be replaced, in the short term at least, by natural gas.

Despite its green reputation, Germany is a country that generates a surprisingly large portion of its total energy from coal. Its total installed coal-fired capacity is close to its solar capacity, at 44.9 GW, versus 47.9 GW for solar. At today’s growth rates, it’s current solar and wind capacity will not be enough to replace the retired nuclear plants.

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Texas Hit Hard By Shale Slowdown

October 30, 2019

Texas Hit Hard By Shale Slowdown

Texas’ economy is perhaps the most vulnerable to oil price swings given its leading role in the country’s oil industry. Recently, as prices have remained low, talk has begun about the outlook for the state’s economy.

According to a recent Reuters report, for example, smaller independent oil and gas producers in the Lone Star State are struggling to get loans from banks as the latter become increasingly wary of the ability of the borrowers to return the money when the time comes.

Jobs in the Texas oil and gas industry are falling, too. The Houston Business Journal reported this month that September saw a 1,100 decline in the number of jobs in the mining and logging sector—the category that includes oil and gas jobs. Over the 12 months from September 2018, the state’s oil and gas industry added just 1,700 new jobs, which was the lowest number of new job additions to any Texas industry over the same period, data from the Texas Workforce Commission showed.

Yet not everyone is worried. The University of Houston Energy Fellows, for instance, wrote in an article for Forbes that “the alarm bells are premature.” While the experts that make up the group acknowledge there are plenty of reasons to be worried about the economy of Houston—the article focuses on the city—oil prices are not among them.

The trade war with China and the anticipation of a global economic slowdown caused by it is a top concern for any economy and Houston is no exception. Political economic problems in Europe are also a cause for worry. Yet, according to the University of Houston Energy Fellows, bankruptcies in the Houston oil and gas industry are only slightly higher this year than last, and the credit crunch energy independents are facing now is “far from comparable to 2015-16.”

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Solar Storms Can Devastate Entire Civilizations

October 15, 2019

Solar Storms Can Devastate Entire Civilizations

Climate has inarguably become a hot topic of discussion in developed economies over the last decade, and it is getting hotter by the day as study after study warn we are close to doomed if we don’t change our ways urgently. Yet climate on Earth is not the only problem that humankind faces. There is another climate we need to pay attention to, and there is nothing we can do to change that.

Solar storms, whose more scientific name is coronal mass ejections, were until recently believed to be a rare occurrence—only happening once every couple of centuries or so. However, there is reason to believe they may be a lot more frequent than that. In a world increasingly dependent on electricity, this is, to put it mildly, a problem.

In 1859 the Sun spewed concentrated plasma that broke through its magnetic fields in the direction of the Earth. Commonly referred to as the Carrington Event, that coronal mass ejection hit the Earth’s magnetic field, which warped it and caused telegraphs around the world to fail. For a long time, the scientific consensus was that solar storms of this magnitude were a rarity.

That was in the 19^th century where telegraphs were cutting-edge tech. Now, we have power grids, airplanes, satellites, and computers, and all of them are potentially susceptible to the effects of another solar storm. We also know that solar storms of the magnitude of the Carrington Event or even worse occur more frequently.

“The Carrington Event was considered to be the worst-case scenario for space weather events against the modern civilization… but if it comes several times a century, we have to reconsider how to prepare against and mitigate that kind of space weather hazard,” the lead research in a study that reached that conclusion, Hisashi Hayakawa, said after the release of the study earlier this month.

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China’s Renewable Boom Hits The Wall

September 30, 2019

China’s Renewable Boom Hits The Wall

When earlier this year China announced subsidies for 22.79 GW of new solar power capacity, those following the country’s renewable energy story must have started to worry. The capacity subsidized is half the amount approved in 2017, at 53 GW. And chances are that solar and wind additions will continue to fall.

Subsidies are one reason. In January, Beijing said it will only approve solar power projects if they are cost-competitive with coal. Judging by the size of subsidies announced in July, more than 22 GW in projects can boast cost-competitiveness with coal.

Yet there is another reason: curtailment. China-based journalist Michael Standaert wrote in a recent story for Yale Environment 360 that China’s solar and wind farms continue to produce electricity that is wasted because there is not enough transmission capacity.

Renewable energy is a top priority for China as it fights one of the worst air pollution levels in the world while subject to an uncomfortably high degree of reliance on energy imports, namely oil and gas. At the same time, it is one of the biggest—if not the single biggest—driver of global energy demand as its middle class grows fast and with it, energy demand. Now, it seems, energy demand is taking the upper hand.

China has substantially increased subsidies for shale gas exploration and methane separation from coal, Standaert writes. He also quotes a former IEA official as saying, “Though China is the largest clean energy market in the world, wind and solar only accounted for 5.2 percent and 2.5 percent of China’s national power generation in 2018.”

What’s more, Kevin Tu, now a fellow at the Center on Global Energy Policy at Columbia University, tells Standaert that “Against the backdrop of an ongoing U.S.-China trade war and a slowing Chinese economy, political priority of climate change in China is unlikely to become very high in the near future, indicating great difficulties for Beijing to further upgrade its climate ambitions.”

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A Perfect Storm Is Brewing For US LNG

August 27, 2019

A Perfect Storm Is Brewing For US LNG

That the U.S. energy industry would be among those hardest hit by a full-blown trade war between Washington and Beijing was a no-brainer. Yet the extent of the fallout as the war continues is only becoming evident now, as some companies find it hard to secure the funding for their ambitious LNG projects.

According to the Bank of America Merrill Lynch, a number of companies may delay their final investment decisions on new LNG capacity to next year because of U.S.-Chinese trade tensions. Bloomberg reports these include Tellurian and NextDecade, as well as other companies focused exclusively on LNG.

“We see delays as likely given current pricing headwinds, no resolution yet on the U.S.-China trade war, and minimal contract announcements in recent months,” BofA analysts wrote in a recent note to clients, referring to Tellurian’s US$28-billion Driftwood LNG project in Louisiana.

While the companies themselves are not too talkative when it comes to possible obstacles to the so-called second wave of LNG projects in the U.S., the facts are not encouraging: China has imported no U.S. LNG since March, according to data from ClipperData. Bloomberg data is even gloomier: it suggests no U.S. LNG has made its way into China since February. No wonder, since Beijing first imposed a 10-percent tariff on the commodity and then upped this to 25 percent in retaliation for U.S. tariffs.

Yet there is another aspect of the trade war that is more damaging to U.S. LNG producers. To secure funding for these projects that typically cost billions, U.S. companies need long-term commitments to convince banks the projects are viable. Chinese buyers were the natural choice for these long-term commitments but this is no longer the case as Chinese investors shun U.S. projects amid the war.

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