China And Saudi Arabia Agree To Boost Oil Trade As Xi Visits Riyadh
China and Saudi Arabia agreed to expand crude oil trade as the world’s largest oil importer and the top global crude exporter upgraded their relations to a strategic partnership during the visit of Chinese President Xi Jinping in Riyadh. “China will increase communication and coordination with Saudi Arabia on energy policy, expand the scale of crude oil trade, enhance cooperation on exploration and development, and deliver on the Sino-Saudi Gulei Ethylene Complex Project and other large-scale energy cooperation projects,” China’s Xinhua news agency quoted Xi as saying. The Saudi Press Agency reported a joint statement at the end of the Saudi-Chinese summit, in which Xi met with King Salman and Crown Prince Mohammed bin Salman, “The two sides commended their oil trade volume and the great foundations of the cooperation due to the Kingdom’s ample oil resources and China’s broad markets.” China and Saudi Arabia also agreed to explore joint investment opportunities in petrochemicals sector and boost cooperation in hydrogen, electricity, PV energy, wind energy, and other sources of renewable energy. China—a major customer of Saudi Arabian crude—and the Kingdom have deepened ties in recent years, including in the energy sector. In October, Saudi Arabia and China jointly stressed the importance of stable long-term crude supply to the market. Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, and Zhang Jianhua, the director of China’s National Energy Administration (NEA), have also agreed to continue cooperation in their efforts to keep the global crude oil market stable. Xi’s visit to Saudi Arabia at a time of major turmoil in the oil market and geopolitics with the Russian invasion of Ukraine signals China’s intention to increase its influence in the Middle East, where the U.S. was, until recently, the world superpower with the biggest influence. The Chinese president’s visit also suggests that Saudi Arabia considers its relationship with China one of strategic importance. While the Chinese and the Saudis are strengthening their relations, U.S.-Saudi relations are at a low point, especially after the U.S. Administration slammed in October Saudi Arabia and the OPEC+ group for what it described as a “short-sighted” and “misguided” decision to reduce their target oil production by 2 million barrels per day (bpd) as of November.
India chases clean energy, but economic goals put coal first
In the shadow of a retired coal-fired power plant in India’s capital, Meena Devi tries to make her family home — four brick walls with a tin roof — a safe place to breathe. Although the smokestacks at the plant went dormant years ago under a court order, there is no shortage of hazards in her air, ranging from vehicular exhaust to construction dust to ash from crop stubble burning in adjacent states. Emissions from the dozen coal-fired power plants still operating around the New Delhi region feed a toxic smog that hangs over the city each winter, imperiling people of all backgrounds. Sometimes it is Devi adding to the smoke with wood fires she burns when her husband, a house painter, has no work and the family has no cash to refill the cooking gas cylinder. While the central government gives poor families a small subsidy for cooking gas as a cleaner alternative to firewood, the main energy subsidies go to consumers of gasoline and diesel, mainly benefiting the middle class, and to producers, transporters and processors of coal as well as utilities that burn coal. “My throat burns, and the kids are not able to breathe when I’m lighting the chulha,” Devi said, using the Hindi term for a wood stove. “What can I do? We’re not the only ones contributing to pollution.” Devi is in the crosshairs of a global challenge: how to bring power to the world’s poor and fight climate change at the same time. In India as in many other countries, political and economic considerations have yielded an energy strategy of simultaneously pursuing clean energy and burning fossil fuels, an approach that ultimately puts security ahead of climate. Despite pledges at climate conferences to lead the world’s transition toward green energy, Prime Minister Narendra Modi’s government is in full expansion mode on the fossil-fuel front. Cheap, reliable prices for electricity and gasoline are its priority. India’s subsidies for fossil fuels were nine times the size of clean energy subsidies in 2021, according to the International Institute for Sustainable Development. The investments have boggled advocates of green energy, but officials say India’s ambitious economic growth targets — reaching annual gross domestic product of $5 trillion before the end of the decade, up from $3.2 trillion in 2021 — can be met only by sharply increasing dirty and cleaner energy sources alike. “Energy security is my first priority,” India’s power minister, R.K. Singh, said at a recent forum, explaining the government’s commitment to burn more coal. “I will not compromise on the availability of power for this country’s development,” he added. India will soon have the largest population of any country, so its choices will be critical not only for the health of its citizens but also for the prospects of limiting global warming to a sustainable level. “India is pivotal to the future of global energy and climate policy,” said Amy Myers Jaffe, an energy and climate expert at the New York University School for Professional Studies. “Their emissions trajectory will be material on whether global emissions can reach net zero by midcentury.”
China Ignores Price Cap And Buys Russian Oil At Deep Discounts
It appears to be business as usual for Chinese refiners, who continue to buy Russian crude and are ignoring the price cap imposed by Western countries. Due to tepid demand, however, China’s independent refiners are seeing the steepest discounts in months for Russia’s ESPO crude, traders told Reuters on Wednesday. The price cap on Russian crude imposed by the EU, the G7, and Australia came into effect on Monday, but China hasn’t joined the so-called Price Cap Coalition, which bans maritime transportation services for Russian crude oil unless the oil is sold at or below $60 per barrel. At least one cargo of ESPO, the crude from Russia’s Far East which is preferred by China’s independent refiners, the so-called teapots, was sold last week at a discount of $6 per barrel to the February ICE Brent price on the delivery-ex-ship (DES) basis, traders familiar with the transaction told Reuters. At the current price of Brent, this means that the ESPO cargo was sold at around $68 per barrel. Chinese independent refiners don’t care much about the price cap, and their cargos are on a delivered basis, with insurance and shipping arranged by traders, Reuters’ sources said. A trading executive at one independent Chinese refiner told Reuters, “They don’t really care about the price cap. All they do is crunch the numbers to see if the delivered prices make good profit or not.” Currently, demand for crude in China is weak amid flip-flops on the Covid policy and many new daily Covid cases, with weak refining margins, too. While China hasn’t joined the Price Cap Coalition, the fact that a price cap now exists gives the world’s top crude oil importer, as well as other buyers of Russian crude such as India, more bargaining power to negotiate steep discounts for the Russian crude even outside the price cap mechanism, analysts say.
U.S. LNG Is Booming, But Who Supplies The Gas?
This year, the United States became the world’s biggest liquefied natural gas (LNG) exporter as deliveries to energy-starved buyers in Europe and Asia surged. In the current year, five developers have signed over 20 long-term deals to supply more than 30 million metric tons/year of LNG to energy-starved buyers in Europe and Asia. As energy analysts RBN Energy notes, the first wave of LNG export expansion has mostly gone smoothly thanks to fast-rising natural gas supplies in the Lower 48 and a slew of pipeline reversals and expansions that allowed low-cost Marcellus-Utica gas supplies to reach Gulf Coast markets. But with LNG demand already high and set to grow at a frenetic pace, the big question becomes how quickly can the United States ramp up production to meet future demand? There’s been no shortage of long-term offtake deals signed by multiple U.S. gas producers. In June, German utility EnBW announced that it had signed a 20-year deal for a substantial supply of LNG from U.S.-based exporter Venture Global. In the same month, Energy Transfer LP (NYSE: ET) signed an LNG sale and purchase agreement (SPA) with China Gas Holdings; Chevron Inc. (NYSE: CVX) signed a 4mtpa LNG offtake deal with Venture Global and Tellurian Inc. (NYSE: TELL) signed an LNG sales and purchase agreement (SPA) with commodity trader Vitol. In July, Cheniere Energy (NYSE: LNG) signed an offtake deal with Thailand’s state-owned energy company PTT. Finally, in September, Australian energy giant Woodside Energy Group Ltd finalized offtake agreements for U.S. supply from Commonwealth LNG. Overall, offtakers have committed to more than ~31 MMtpa of U.S. LNG supply, with term lengths ranging from 15 to 25 years. But a lot more than that is likely to be demanded over the next couple of years. RBN estimates that “…there’s another 100 MMtpa (14.3 Bcf/d) or so of proposed LNG export capacity with a medium-to-high chance of progressing in the next three years, including at least three projects totaling almost 19 MMtpa (2.5 Bcf/d) that we believe are highly likely to take FID within the next 12 months. That’s out of a universe of nearly 30 projects we track in the LNG Voyager Quarterly, representing over 280 MMtpa (38.3 Bcf/d) of potential export capacity, the bulk of it along the Texas and Louisiana coasts.” According to RBN, availability of feedgas supply where and when it is needed is going to be one of the major factors that will influence the timing and commercialization of future LNG projects. Where will all the gas come from? RBN notes that the Appalachia was, by far, the biggest contributor to U.S. natural gas growth over the last decade. During the timeframe, Lower 48 dry gas production climbed nearly 30 Bcf from an average 70 Bcf/d in 2014 to 99.6 Bcf/d currently, during which Appalachian output more than doubled and drove 18.5 Bcf/d of that overall growth. The Permian came in a distant second, growing production by 11.2 Bcf/d while the Eagle Ford saw production decline by 1 Bcf/d. Meanwhile, the Haynesville was the third-fastest-growing region on an absolute volume basis, up from 9.5 Bcf/d in 2014 to 15.3 Bcf/d currently. Finally, the Anadarko, Niobrara and Bakken rose by a combined 4.6 Bcf/d over the timeframe. However, the energy experts have predicted that the second wave of U.S. LNG growth will favor the southern basins. RBN estimates that Appalachia has the potential to ramp up production by almost 8 Bcf/d to 42 Bcf/d over the next 10 years if unconstrained by pipeline takeaway capacity. However, the analysts say that’s unlikely to happen given strong headwinds for midstream development in the region. The Appalachian Basin is the country’s largest gas-producing region, churning out more than 35 Bcf/d. Unfortunately, environmental groups have repeatedly stopped or slowed down pipeline projects and limited further growth in the Northeast. Indeed, EQT Corp. (NYSE: EQT) CEO Toby Rice recently acknowledged that Appalachian pipeline capacity has “hit a wall.” As a result, RBN says production growth in the basin is likely to be closer to just 3 Bcf/d, capping production at just under 38 Bcf/d on an annual average. Meanwhile, growth in the Anadarko, Niobrara and Bakken is likely to remain modest, altogether adding ~3.3 Bcf/d to reach almost 15.5 Bcf/d by 2032. In other words, the bulk of U.S. LNG growth in this post-shale-boom era will come from the Texas and Louisiana basins. RBN notes that both the Permian and Haynesville have been at the epicenter of midstream development in recent months while the Eagle Ford has been showing signs of a production recovery of late, after a decline in recent years. Analysts at East Daley Capital Inc. have projected that U.S. LNG exports will grow to 26.3 Bcf/d by 2030 from their current level of nearly 13 Bcf/d. For this to happen, the analysts say another 2-4 Bcf/d of takeaway capacity would need to come online between 2026 and 2030 in the Haynesville alone. “This assumes significant gas growth from the Permian and other associated gas plays. Any view where oil prices take enough of a dip to slow that activity in the Permian and you’re going to have even more of a call for gas from gassier basins,” the analysts have said. Either way, it’s going to be a real challenge for the United States to meet those targets because takeaway constraints including limited pipeline capacity are seen as the biggest hurdle to growth of the sector despite the country being home to the world’s largest backlog of near-shovel-ready LNG projects.
Oil Prices On Course For A 10% Loss This Week
Crude oil prices are about to book a week of sizeable losses, during which market movements erased all gains Brent and West Texas Intermediate had made since the start of the year. According to Bloomberg, the cumulative weekly loss for the benchmarks could reach 10 percent if today’s trade is in line with what we’ve seen so far this week, as demand concerns trumped the news of China reopening after massive Covid restrictions. At the same time, even though the price cap on Russian oil that G7 put into effect on December 5 was theoretically bullish for oil, traders figured out it was unlikely to have any immediate effect on physical oil supply and instead of buying began selling their positions. This could yet change once the dust from the cap’s implementation settles and the potential for supply disruption unfolds. For now, there have only been hints: Turkey’s new proof-of-insurance rules are one such hint, which has got some 20 million barrels of Kazakh crude stuck in the Turkish straits. At the same time, traders are sounding the alarm over confusion in the physical oil market where cargos have never been traded at fixed, unchangeable prices. Meanwhile, however, fears of a looming global recession fuel a bearish mood among traders, and this is getting reflected in prices. “Oil has been dragged lower by broader recession fears that accompany global monetary policy tightening,” Vishnu Varathan, the head of Asia economics and strategy at Mizuho Bank, told Bloomberg. “And given the lags in monetary policy, a ‘wall of tightening’ may hit the global economy yet.” The bearish factors are s strong right now that even the news of the Keystone pipeline spill and consequent shutdown did not have any substantial effect on oil prices. “I would tend to think that, any minute here, you’re going to see a headline hit the tape that’s going to say that Keystone is going to be back sooner rather than later,” Bob Yawger, director of energy futures at Mizuho, told Reuters.
India faces no immediate impact of oil tanker pileup in Turkey: Officials
An oil tanker pileup off the coast of Turkey is not expected to impact the flow of Russian crude to India for now, senior government officials told ‘Business Standard’ on Thursday. They said most of the tankers are not headed to India but the situation might become difficult if it persists beyond another week or so. Some 30 oil tankers have jammed up in front of Turkey’s Bosphorus Strait as Ankara’s demands insurance papers from them: an effect of the G7’s sanctions against Russian seaborne crude that went into effect this week. “The situation is not detrimental to the flow of Russian crude currently. We are keeping a tab on it,” an official said. International media reported on Thursday the ships held up in Turkish waters are mostly carrying crude designated for Turkey, Italy and Greece. Some ships were also headed for India and China, said officials. The Indian government has been monitoring the situation since Tuesday, diplomatic channels have not yet been engaged, they said. G7 nations begin implementing from December 5 a $60 per barrel price cap on seaborne crude oil. Russia and major buyers of its crude, such as India and China, can continue to trade in Russian oil at prices higher than the cap, but services such as insurance for freighters carrying the oil, or vessel clearances will not be available from Western nations.
Australia’s Oct LNG export receipts hit new record
Australia’s LNG export receipts hit a record high for the third successive month in October at A$10.54bn ($7.07bn) on record prices and a weaker Australian dollar against the US dollar. High energy prices helped underpin record Australian exports, with shipments in the first 10 months of this year already exceeding export receipts for any previous calendar year. The total value of energy and mineral exports was A$34.26 bn in October, relatively unchanged from the A$34.3bn received in September and up by almost 39pc from the A$24.71bn received in October 2021, according to latest trade data from the Australian Bureau of Statistics (ABS). Energy and mineral export receipts in January-October totalled A$323.46bn, up by 33pc from A$242.8bn in year-earlier period and already above the record high for a calendar year of A$295.19bn last year. The higher receipts were helped by a weaker Australian dollar that averaged $0.6361 against the US dollar in October, based on ABS data, and was the lowest value since April 2020. October marked the sixth consecutive month of record-high LNG export receipts and the second month that receipts topped A$10bn. LNG export receipts in January-October totalled A$73.69bn, exceeding the previous record for a calendar year of A$49.81bn last year. Australia is one of the world’s largest LNG exporters, the largest shipper of iron ore and coking coal and the second-largest exporter of thermal coal. Australia is also a significant exporter of base metals, including aluminium, copper and nickel, as well as other metals such as lithium.