Oil prices down even as Russian ban looms
Despite plenty of concerns for supply, and Opec+ actions to cut output, prices keep falling. Last week they touched the lowest levels since the outbreak of Russia’s war in Ukraine (see chart above).
Demand is the main culprit. Chinese protests against Covid-19 lockdowns encouraged oil prices to fall on Monday, with fears either of renewed restrictive measures or a further economic downturn hitting consumption.
But perhaps logic should go the other way. If Covid-19 cases or anti-lockdown protests get out of control in China, the government may have to ease restrictions, at least tacitly. And even though this would result in a surge of cases that might overwhelm health care, it would lead to higher mobility and more oil demand.
Prices had dropped last Monday on rumours of a Saudi Arabia-backed production increase, and were down over the week. It also appears that the G7 price cap on Russian oil will take longer to agree and be less stringent than initially proposed. Yet the next Opec+ meeting on December 4 is unlikely to boost production given the recent price slump, and could even go the other way with deeper cuts following last month’s 2 millions barrel per day drop.
Brent crude recovered slightly on Tuesday on such thoughts. Europe’s diesel demand could also drive prices up. Its ban on imports of Russian refined products comes into force on February 5.
Focus on energy security in the liquefied natural gas market
China and Europe are now in a race for gas supply. On Friday, Shenzhen Energy Group signed a long-term deal with BP for liquefied natural gas (LNG). Last week, Sinopec agreed to buy 4 million tonnes of LNG per year from QatarEnergy over 27 years - a large and long-duration contract. The EU wants to introduce a cap on gas prices, but its current proposal would have no practical impact. Germany, though, did sign up for its first ever long-term LNG supply, with ConocoPhillips, to supply 2 million tonnes annually over 15 years from Qatar.
Ukraine continues to suffer from countrywide blackouts after repeated Russian attacks on its electricity grid, but the head of its nuclear energy company says there are signs Russian troops may be preparing to leave the huge Zaporizhzhia nuclear power plant. Still, it would likely take months to bring part of its capacity back into action.
Iran's political turmoil threatens energy supplies
Massive protests continue to wrack Iran after the death of a young woman in policy custody on September 16. So far, the demonstrations have not affected energy output. But they make it very unlikely the nuclear deal with the US, and other world powers, will be resumed, keeping Iranian oil exports locked up by sanctions. There might be a risk it would lash out internationally, hitting its neighbours’ energy assets. Its allies, the rebel Houthis in Yemen, also threaten oil and gas supply routes. In the most extreme case, a change of regime in Tehran — more moderate or even more hardline — would again shift the path of its oil and gas industry.
The protests have led Iran to strike targets within Iraq, where it blames Kurdish groups for supporting unrest. Turkey too has launched attacks on Iraq’s Kurdistan region. The new government in Baghdad is too weak and divided to defend the country’s sovereignty effectively, and the divisions threaten oil and gas exports from Kurdistan while making it impossible to tackle Iraq’s perennial electricity shortages.
Iran also backs Bashar Al Assad in Syria. But a US-brokered deal to supply electricity and gas from Egypt and Jordan through Syria to crisis-hit Lebanon is foundering on the back of problems in Damascus and Beirut.
Adnoc Gas the next step in the company’s evolution
Abu Dhabi National Oil Company will unite its gas processing and LNG units to form Adnoc Gas, and list its shares on the Abu Dhabi Securities Exchange next year. It’s an interesting and complex deal as the two subsidiaries count Shell, BP, TotalEnergies, Mitsui and Thailand’s PTT as minority shareholders.
Adnoc’s board also approved a $150 billion budget for the next five years, part of which goes to bring forward its target of 5 million barrels per day oil production capacity to 2027 from 2030. Its petrochemical joint venture Borealis will use Etihad Rail to export its products, saving costs and emissions.
Saudi Aramco also continues its oil and gas expansion. Its subsidiary Saudi Basic Industries Corporation will build a direct crude oil to chemicals plant at Ras Al Khair with 400,000 barrels per day of capacity, part of its plans to future-proof demand. Aramco’s lubricants refining unit is planning to IPO on the Tadawul, selling 29.7 per cent of its shares.
Climate restoration – the only way forward?
Peter Fiekowsky, who set up the Foundation for Climate Restoration in 2018, wants to go beyond net-zero. He campaigns for large-scale plans to remove carbon dioxide and methane from the atmosphere to avert disastrous climate change. Severe climate change could bring water shortages to five billion people by 2050, with Iraq, Syria, Iran and the Horn of Africa already badly affected.
The global tourism business accounts for 8.1 per cent of greenhouse gas emissions. The sector needs to decarbonise to grow, especially in turning to sustainable aviation fuel.
Huge piles of rock left over from mining oil shale scatter the Estonian county of Ida-Viru. The country has launched a “just transition” plan to safeguard employment as it moves to clean energy.
Despite the desperate need for low-carbon power to offset the loss of Russian gas, two large hydroelectric storage projects in Scotland will be caught up in bureaucracy until at least 2024, and won’t be available until 2030.
Emirates Global Aluminium, the world’s first company to make the metal using solar power, has certified 80,000 tonnes of green aluminium by purchasing renewable energy certificates.
India is seeking to develop biofuels to decarbonise aviation, but faces challenges over costs, the supply chain and concerns over land use. The UAE is exploring renewable energy opportunities in Cameroon. And a 15-year-old Scottish pupil has designed a flat-pack wind turbine with solar panels that could power refugee camps and help survivors of natural disasters.