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Why Norway Won’t Give Up On Oil & Gas

Why Norway Won’t Give Up On Oil & Gas

Norway doesn’t have any second thoughts about oil exploration and investment in light of the International Energy Agency’s (IEA) report suggesting that no new fossil fuel exploration would be needed for a net-zero world.

Western Europe’s biggest oil and gas producer is doubling down on oil development and continues to consider oil exploration and production a critical part of its economy and income for the state.

Norway, the country with the highest electric vehicle (EVs) share of new car sales anywhere in the world, is not giving up on one of its core industries. The oil and gas sector is a major employer and the key contributor to the so-called oil fund, the world’s largest sovereign wealth fund with US$1.3 trillion in assets and holdings of 1.4 percent of all of the world’s listed companies.

The Norwegian government believes that the industry could reduce emissions and reach net-zero operations on the Norwegian continental shelf, at the same time ensuring new oil developments to support the local supply chain and employment. Norway is also betting big on offshore wind and carbon capture technology, including with strong financial support from the government, but it believes that oil and gas can continue to create value in the long term.

Norway is betting on offshore wind, hydrogen, and electrification to meet its commitment under the Paris Agreement, but its oil and gas sector will continue to play a major role in long-term job creation, economic growth prospects, and value for the country, the government said in a White Paper last month.

“The main goal of the government’s petroleum policy – to facilitate profitable production in the oil and gas industry in a long term perspective – is firmly in place,” Norway’s Minister of Petroleum and Energy, Tina Bru, said.

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Iran Opens Export Terminal To Bypass World’s Biggest Oil Chokepoint

Iran Opens Export Terminal To Bypass World’s Biggest Oil Chokepoint

Iran says it has opened its first oil export terminal in the Gulf of Oman to allow Tehran to avoid using the strategic Strait of Hormuz shipping route that has long been a focus of regional tensions.

“Today, the first shipment of 100 tons of oil is loaded outside the Strait of Hormuz,” President Hassan Rohani said in a televised speech on July 22, calling it an “important step for Iran” that will “secure the continuation of our oil exports.”

The new terminal, located near the port city of Jask, will allow tankers headed into the Arabian Sea and beyond to avoid the Strait of Hormuz at the head of the Persian Gulf, through which one-fifth of world oil output passes.

Rohani said Iran aimed to export 1 million barrels per day of oil from the facility, which officials said will cost some $2 billion.

Oil Minister Zanganeh said that “82 percent of this project has been completed and so far more than $1.2 billion has been spent on this.”

Iran’s main oil export terminal is located at Kharg inside the narrow strait, which is patrolled by warships of its arch-foe, the United States.

There have been periodic confrontations between Iran’s Islamic Revolutionary Guards Corps (IRGC) and the U.S. military in the area.

Iran has often threatened to block the Strait of Hormuz if its crude exports were shut down by U.S. sanctions, which have heavily impacted Iranian energy exports.

Washington reimposed the sanctions more than three years ago when then-President Donald Trump withdrew the United States from the 2015 nuclear deal between Tehran and world powers.

Tehran and U.S. President Joe Biden’s administration have been in indirect talks in Vienna since April to try to revive the agreement, under which Iran agreed to curb its nuclear program in return for the lifting of most international sanctions.

Biomass: The EU’s Great ‘Clean Energy’ Fraud

Biomass: The EU’s Great ‘Clean Energy’ Fraud

The professionalization of the biomass industry is a problem that needs attention.”–Bas Eickhout, Dutch politician and member of the European Parliament.

When it comes to the global shift to low-carbon energy sources, Europe has traditionally been viewed as the world leader while the United States has frequently been regarded as an important, albeit grudging, participant. Over the past half-decade, China has also improved its stock in the fast-growing market through a plethora of heavy investments, especially in solar and wind.

For the most part, those views appear merited: Renewables rose to generate 38% of Europe’s electricity in 2020 (compared to 34.6% in 2019), marking the first time renewables overtook fossil-fired generation, which fell to 37%. In contrast, the IEA estimates that natural gas and coal generated a combined 61% of electricity in the United States in 2020, with renewables accounting for just 20%.

Earlier this year, the EU earned extra bragging rights after renewable energy surpassed the use of fossil fuels on the continent for the first time in history.

In contrast, the United States’ standing in the energy transition cycle took a significant hit after former president Donald Trump fulfilled a key campaign pledge by withdrawing the United States from the Paris climate agreement, joining the likes of Syria and Nicaragua as the only countries not party to the agreement.

But maybe Europe is not as clean as it has made the world believe—and the United States is not as dirty.

In 2009, the European Union issued a Renewable Energy Directive (RED), pledging to curb greenhouse gas emissions and urging its member states to shift from fossil fuels to renewables. But the fine print provided a major loophole: the EU classified biomass as a renewable energy source, on par with wind and solar power.

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World’s Recoverable Oil Resources Shrinks By 9%

World’s Recoverable Oil Resources Shrinks By 9%

Every year and following the publication of the BP Statistical Review, Rystad Energy releases its own assessment to provide an independent, solid and clear comparison of how the world’s energy landscape changed last year. Our 2021 review deals a major blow for the size of the world’s remaining recoverable oil resources – but it also shows that oil production and consumption can align with climate goals.

Rystad Energy now estimates total recoverable oil resources at 1,725 billion barrels, a significant reduction of last year’s estimate of 1,903 billion barrels. Out of this total, which shows our estimate of how much oil is technically recoverable in the future, about 1,300 billion barrels are sufficiently profitable to be produced before the year 2100 at a Brent real oil price of $50 per barrel.

“In this scenario, global production of oil and natural gas liquids will fall below 50 million barrels per day by 2050. Exploring, developing, processing and consuming this amount of commercially extractable oil will lead to gross greenhouse gas emissions of less than 450 gigatonnes of CO2 from now until 2100. This is compliant with IPCC’s carbon budget for global warming limited to 1.8?C by 2100,” says Rystad Energy’s Head of Analysis, Per Magnus Nysveen.

US and China take the largest hit by the revision:

This year’s review of global recoverable oil resources is based on resources modelled at well level rather than field level. This more detailed approach has removed 178 billion barrels from the expected accounts as the confidence level for decline rates has increased with the amount of new information gathered.

Our updated report also includes revisions for proved reserves. Here Rystad Energy applies a consistent set of conservative probabilities, as opposed to official reporting by authorities which is deemed less consistent. Among other findings, we see significant differences among OPEC members on the longevity of proved reserves, ranging from well below 10 years for some members to almost 20 years for Saudi Arabia and the UAE.

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Yellen Urges Development Banks To Stop Fossil Fuel Funding

Yellen Urges Development Banks To Stop Fossil Fuel Funding

U.S. Treasury Secretary Janet Yellen is prepared to gather together the heads of development banks to persuade them to stop fossil fuel project funding, according to Bloomberg.

The Treasury Secretary intends to “articulate our expectations that the MDBs align their portfolios with the Paris Agreement and net-zero goals as urgently as possible,” according to a written speech she is set to deliver at a climate conference in Italy.

The speech, soon to be delivered, follows just days behind a similar message that the financial community received at the G20, where financial leaders for the first time every acknowledged that carbon pricing was at least a potential tool in addressing climate change.

While Bloomberg notes that while development banks have never been responsible for the big bucks behind most fossil fuel projects, those funds are largely seen as a stepping stone for the projects to secure hefty commercial funding.

Since the pandemic began, development banks have thrown just $3 billion into oil and nat gas, with $0 going towards coal projects for the first time ever.

Meanwhile, development banks have funded $12 billion in clean energy projects.

But it is precisely these natural gas projects that will allow many countries to quickly and efficiently transition away from coal.

Prior to her appointment as Treasury Secretary, Yellen was criticized for her fossil fuel stock holdings. The Secretary vowed to divest her holdings in all fossil fuel companies as well as any companies that support fossil fuels.

Nevertheless, even before her time as Treasury Secretary and the chairman of the Financial Stability Oversight Council (FSOC), Yellen has been a staunch supporter of the environment and highly critical of the role fossil fuels have played in greenhouse gas emissions.

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European Bank For Reconstruction And Development Ends All Upstream Oil Financing

European Bank For Reconstruction And Development Ends All Upstream Oil Financing

The European Bank for Reconstruction and Development (EBRD) will no longer invest in oil and gas exploration and production, the bank’s Managing Director Harry Boyd-Carpenter told Reuters as the institution pledged to align all its activities to the Paris Agreement goals from the end of next year.

“We will no longer invest in upstream oil and gas projects,” Boyd-Carpenter told Reuters on Thursday.

On the same day, the bank announced that its Board of Governors decided at the Annual Meeting 2021 to accelerate decarbonization across the regions it operates, supporting them to reach net-zero emissions by 2050.

The EBRD invests in projects in central and eastern Europe, Central Asia, and the Southern and Eastern Mediterranean.

The EBRD, however, will continue to invest in selected oil and gas projects in the downstream and midstream that are aligned to or contribute to the Paris Agreement goals, EBRD’s Boyd-Carpenter told Reuters.

“The low carbon transition requires the world economy to move in less than 30 years from a more than 80 per cent reliance on fossil fuels to a net-zero model. This is a challenge that is unprecedented in economic history. Similarly, the associated opportunity is enormous,” the EBRD’s First Vice-President Jürgen Rigterink said in a statement.

The EBRD is the latest bank to announce it would halt financing for one or other form of oil and gas.

Last year, Deutsche Bank ended financing for new oil and gas projects in the oil sands and the Arctic region effective immediately.

In the United States, Goldman Sachs said in December 2019 that it would decline to finance new Arctic oil exploration and production and new thermal coal mine development or strip mining. Wells Fargo and JPMorgan have also said they would stop financing new oil and gas projects in the Arctic.

Earlier this year, UN Secretary-General António Guterres’ said that banks should finance low-carbon climate-resilient projects, not big fossil fuel infrastructure that is not even cost-effective anymore.

Oil Prices Set To Head Even Higher As Market Tightens

Oil Prices Set To Head Even Higher As Market Tightens

Solid oil demand is driving up the spot crude prices in every part of the world. This is a clear indication that the physical oil market is finally catching up with the recent rally in the paper market.

The strengthening appetite for crude in Asia and tightening regional markets due to changed differentials between regional benchmarks are, in turn, supportive of the oil futures rally, analysts and traders tell Reuters.

The surging premium of Brent over the Middle Eastern benchmark Dubai now makes shipping crude grades from the Atlantic Basin to Asia uneconomic because they are priced off the Brent benchmark. So Asian demand for Middle Eastern and Russian grades priced off the Dubai benchmark is high, driving the spot premiums for Omani crude and Russia’s ESPO and Sokol grades close to a one-year high.

At the same time, the narrowing discount of WTI Crude to Brent Crude is effectively shutting the arbitrage for U.S. crude to go to Europe and Asia as the less-than-$2 a barrel spread makes shipping American oil to the major import markets uneconomical.

As a result of these dynamics in spreads between regional benchmarks, physical crude supply in each of the regions is tightening. First, because it’s uneconomical to import crude from other regions. Second, because oil demand is rebounding as the summer driving season begins and economies reopen from restrictions in mobility.

In the paper market, Brent Crude prices already hit $75 a barrel this week, for the first time in over two years. WTI Crude was above $73 early on Wednesday as demand strengthened and as U.S. crude oil inventories were estimated by the American Petroleum Institute (API) to have shrunk by 7.199 million barrels for the week ending June 18.

Backwardation in the WTI futures continues to tighten—a sign of a tighter market.

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How Much Oil Can Saudi Arabia Really Produce?

How Much Oil Can Saudi Arabia Really Produce?

For decades, the true numbers relating to Saudi Arabia’s level of crude oil reserves and production have been a subject of much debate and confusion, not helped by the obfuscation from the Saudis over precisely what these numbers are. The reason for obfuscation is that Saudi Arabia’s only source of real power in the world begins and ends with its oil reserves and production, so the higher these numbers, the more the power, and the lower the number the less the power. In recent weeks this debate has become even more pronounced in the run-up to Saudi Arabia’s latest bond offering and in the debate oversupply and demand in the oil market over the remainder of this year and beyond. As detailed below, much of what Saudi Arabia has said about its oil reserves, current production, and likely future production is an exaggeration made for the purposes of self-aggrandizement but despite that, the numbers have increased somewhat compared to where they were 10 years ago.  To begin with the claimed crude oil reserves numbers: these have been a work of stunning bravado and almost complete fiction since 1990 when the Kingdom suddenly increased the official number from 170 billion barrels to 257 billion barrels, despite absolutely no new oil discoveries or improvements in recovery rates being made, as highlighted in my last book on the oil markets. Shortly thereafter, Saudi Arabia increased its official crude oil reserves numbers again, to 266.4 billion barrels, a level that persisted until a slight increase in 2017, to 268.5 billion barrels. Over the same period – in fact, from 1973 to last month – Saudi Arabia has pumped an average of 8.162 million barrels per day (bpd)…

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The Unmistakable Impact Of The IEA’s ‘Fantasy’ Report

The Unmistakable Impact Of The IEA’s ‘Fantasy’ Report

In an effort to adapt to Trudeau’s recent green policies and owing to pressure from the International Energy Agency (IEA), Canadian oil sand producers have formed an alliance to achieve net-zero emissions by 2050. This would see a huge shift from current practices as, at present, oil sands producers extract some of the most carbon-intense crude oil. However, as the cost of carbon increases to meet environmental objectives in Canada, oil companies face increasing pressure to shift practices towards achieving net-zero.

The alliance will include Canadian Natural Resources (-1.77%)Cenovus Energy (-0.10%)Imperial Oil (-1.91%), MEG Energy, and Suncor Energy (-2.58%), which together operate around 90 percent of the country’s oil sands production. They will be working alongside both the federal and Alberta governments to make operations less carbon-intensive.

The companies are expected to invest in several areas in order to reduce their carbon emissions including, carbon capture and storage (CCS) technology, repurposing waste into hydrogen energy, fuel switching, as well as innovative technologies such as direct air capture and small modular nuclear reactors.

The alliance aims to maintain its oil production, which will contribute an estimated $3 trillion to Canada’s GDP over the next 30 years while creating jobs and advancing clean energy practices.

Significant actions towards achieving net-zero have been taken across the oil and gas sector over the last month, as companies have felt the mounting pressure from governments, regulators, and stakeholder activists.

Last month, an activist investor managed to oust two Exxon (-2.56%) directors from its board in a push for a greater response to climate change. The small hedge fund, Engine No. 1, demonstrated its dissatisfaction with the poor financial performance of Exxon during the pandemic, as well as its limited effort to introduce climate change initiatives.

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Depleted Gas Stocks Force Europe To Use More Coal

Depleted Gas Stocks Force Europe To Use More Coal

With power demand recovering from the pandemic, European utilities are using more coal as natural gas inventories are unusually low for this time of the year due to a cold snap in late winter and early spring.

This year, despite the record-high carbon price in Europe, the use of coal for power generation has jumped by up to 15 percent, Andy Sommer, team leader of fundamental analysis and modeling at Swiss trader Axpo Solutions, told Bloomberg in an interview published on Tuesday.

“Gas storage is so low now that Europe cannot afford to run extra power generation with the fuel,” Sommer told Bloomberg.

Natural gas stockpiles are some 25 percent below the five-year average, and with such a right gas market, utilities run more coal-fired power generation, analysts say.

Europe had already started to restock with natural gas following a harsh winter that drained inventories when a cold snap in April caused unusual additional withdrawals from storage.

“A cold snap in April caused a counter-seasonal net withdrawal of inventory, worsening the storage situation which for several months has been running below seasonal averages,” Wood Mackenzie said in its Q2 LNG short-term trade and price outlook at the end of May.

As a result of the low levels of natural gas in storage, the price of the Dutch TTF gas, the European benchmark, has rallied by over 50 percent so far in 2021. Prices are close to the highest level for late spring since 2008, according to Bloomberg estimates.

With the ultra-tight gas market, power generation from coal is rising in Europe, despite the record-high EU carbon price, which exceeded US$60.50 (50 euro) per ton in early May.

The current situation with the power mix in Europe is indicative of the challenges the continent and the European Union face in their push to make the grids greener.

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It’s Too Late To Avoid A Major Oil Supply Crisis

It’s Too Late To Avoid A Major Oil Supply Crisis

There are a number of observable trends in oil supplies and by extension prices, presently. I am going to discuss one of them in this article. A lack of capital investment in finding new supplies of oil and gas. A favorite analogy of mine comes to mind, the ship is nearing the dock. In nautical parlance that means the time for course corrections is at an end. So we shall see if that is the case for oil. The massive “ship” that is world oil demand is on an unalterable collision with supplies that will have profound implications for consumers. This key metric reveals what the future is likely to hold for our energy security as the world continues to recover from the virus to those who will listen. The level of drilling and by extension capital investment is insufficient and has been for a number of years to sustain oil production at current levels. It’s no secret that even with the lower break-even costs for new projects thanks to cost-cutting by the industry the last few years, oil extraction is a capital-intensive business. The chart below from WoodMac, an energy consultancy, shows just how severe the decline in capex has been.

WSJ

The message to oil and gas companies has been pretty clear from the market, investment funds like Blackrock seeking green “purity” in the allocation of financing of new energy sources, and government edicts mandating carbon intensity reduction across the entire swath of society, and a transformation to renewable energy, that new supplies of oil and gas are not wanted.

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Leak Reported At Chinese Nuclear Power Plant

Leak Reported At Chinese Nuclear Power Plant

A nuclear power plant in southeastern China could turn into an “imminent radiological threat,” the part owner of the facility, a French company, has told the United States, CNN reported on Monday, citing U.S. officials and a letter of the French firm it had obtained.

The U.S. has been assessing the report of the fission gas leak over the past week, CNN reports, quoting the warning from the French firm that China’s authorities had raised the limits of acceptable radiation levels at and around the plant to avoid a shutdown.

The Taishan Nuclear Power Plant in the Chinese province of Guangdong is being operated by a joint venture in which French energy giant EDF and its subsidiary Framatome hold 30 percent. The EDF Group and its subsidiary Framatome supplied the EPR pressurized reactor technology for the plant.

According to officials in the U.S. Administration who spoke to CNN, the situation with the Chinese nuclear power plant has not reached a “crisis level.”

The French company has reached out to the United States to obtain a waiver that would allow them to share U.S. technical assistance to resolve the issue at the plant.

China has yet to acknowledge that there is a problem, CNN reports.

The U.S. administration has been in contact with the French government to discuss the situation, sources told CNN. Contact has been made with China, too, although it is not clear to what extent.

Following the report from CNN, the French company Framatome issued a statement on Monday related to Taishan’s reactor number 1, saying that it “is supporting resolution of a performance issue with the Taishan Nuclear Power Plant.”

“According to the data available, the plant is operating within the safety parameters,” the company said.

“Our team is working with relevant experts to assess the situation and propose solutions to address any potential issue,” Framatome added.

Oil Markets Baffled As The IEA Calls For More Production

Oil Markets Baffled As The IEA Calls For More Production

In its latest Monthly Oil Report, the IEA called on OPEC+ to increase production in order to counter higher demand in 2022.

The agency claimed that, based on current global economic growth expectations, demand for crude oil and petroleum products will be reaching pre-COVID levels by 2022. The Paris-based energy watchdog, which has come under fire after its shocking Net-Zero by 2050 report called for no more investments in oil and gas, stated that “OPEC+ needs to open the taps to keep the world oil markets adequately supplied”.  At the same time, the IEA has also reiterated that market realities are at odds with its proposed strategies to reach net zero-emission levels by 2050. Criticism will likely be harsh for the “former” leading oil and gas agency, as the agency has called upon the world to double down on renewables and commit to the Paris Agreement while admitting that the global economy continues to demand vast amounts of hydrocarbons.

The relevance of some of these reports will have to be reassessed, especially when looking at the high-profile “Golden Age of Gas” report and the “Net Zero by 2050” roadmap. When asked what needs to be done, the IEA indicated that the call on OPEC+ will be very strong, as the international oil and gas producers group will need to increase crude oil supply to the market by 1.4 million bpd in 2022. Which would mean a significant increase over its current July 2021-March 2022 targets.

The demand expectations of the IEA fall in line with some others, as OPEC, the EIA, and independent consultants, have stated before that demand for oil is going to increase substantially. Some even expect volumes in 2022 to be higher than 2019 levels, even as prices are increasing substantially.

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Saudi Arabia And Russia Warn Of Major Oil Supply Crunch

Saudi Arabia And Russia Warn Of Major Oil Supply Crunch

The debate about emissions reduction and the path forward for oil companies moved to a whole new level since the International Energy Agency (IEA) dropped last month the bombshell report suggesting no new investment in oil and gas would be needed if the world is to reach net-zero emissions by 2050.

Environmentalists and activist shareholders intensified pressure on large public oil firms to align their businesses with a net-zero scenario, while some of the international majors acknowledged they have a part to play in the energy transition.

But the leaders of the OPEC+ group, Saudi Arabia and Russia, will continue to invest in oil and gas because, they say, the world will still need those resources for decades, despite the growing push against fossil fuels and investment in new supply.

Chronic underinvestment in oil and gas supply while operational oilfields mature would lead to a supply crunch and a spike in oil prices down the road, analysts and Big Oil top executives such as TotalEnergies’ Patrick Pouyanné say.

While international oil majors were somewhat more contained in their views on the IEA report—those that commented on it anyway—Saudi Arabia and Russia didn’t beat around the bush and said outright that the suggestion of no new oil and gas investments ever is “unrealistic,” “simplistic,” and taken out of a “La La Land” script.

BP’s chief executive Bernard Looney wrote that forecasts of much lower investments in oil and gas were “in many ways consistent with our approach – to reduce our oil and gas production by 40% in the next decade.” Eni’s CEO Claudio Descalzi commented on Looney’s post that “We are now at a historic turning point, where each of us needs to play an active role.”

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Extreme Drought Puts California’s Power Supply At Risk

Extreme Drought Puts California’s Power Supply At Risk

A more severe than usual drought in California has depleted reservoirs and lakes, including the ones feeding some of the largest hydropower facilities, putting the state again at risk of power outages during heat waves this summer.

Last year, residents in California went through rolling outages as there was insufficient energy to meet the high demand during the heatwave.

This year, the drought in California has reduced output of hydropower stations and could force the state with ambitious emission-reduction targets to rely more on its remaining natural gas-powered plants for baseload electricity supply.

Water levels at Lake Oroville, for example, are much lower than usual and could fall to below a threshold by August—one that could prompt state officials to shut down the Edward Hyatt Power Plant, the Associated Press reports.

The Hyatt power plant is the fourth largest energy producer of all the hydroelectric facilities in California.

North American Electric Reliability Corporation (NERC) warned last month in its 2021 Summer Reliability Assessment that parts of North America are at elevated or high risk of energy shortfalls this summer during above-normal peak temperatures. California falls in the “high risk” category, as it relies on large energy imports during peak demand and when solar resource output retreats in the evening hours, according to NERC.

“California is at risk of energy emergencies during periods of normal peak summer demand and high risk when above-normal demand is widespread in the west,” NERC says.

California needs imports to the area to “maintain reliability when demand peaks in the afternoon and to ramp up even further for several hours as internal resources draw down,” the assessment notes, despite the fact that the state will have 675 megawatts (MW) of new battery energy storage systems online at the start of the summer that can continue to supply stored energy for periods when needed.

 

Olduvai IV: Courage
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