Seven EU Countries Oppose ‘Radical’ Changes To The Energy Market
A group of seven EU member states is calling on the European Commission to think twice before proposing a major overhaul in the EU energy and power market systems, citing concerns that “crisis mode” changes could weaken the single market and deter investments in renewables. “Any reform going beyond targeted adjustments to the existing framework should be underpinned by an in-depth impact assessment and should not be adopted in crisis mode,” Denmark, Germany, the Netherlands, Estonia, Finland, Luxembourg, and Latvia wrote in a letter to the European Commission seen by Reuters. Last month, the European Commission launched a public consultation on the reform of the EU’s electricity market design with the aim “to better protect consumers from excessive price volatility, support their access to secure energy from clean sources, and make the market more resilient.” The seven EU member states opposing “crisis mode” legislation for the long term argue that the system and the EU market need to continue to incentivize investment in renewables, which the bloc considers crucial for reducing dependence on imported fossil fuels and their impact on energy bills. The idea of extending a temporary windfall tax on non-gas generators could undermine investments in renewables, the countries said. Electricity industry group Eurelectric has also voiced concerns over rushed crisis interventions that could have long-term implications on the EU market. “Radical design changes in the midst of a crisis would be detrimental in the long run. Potentially for security of supply, and most definitely for investor confidence. A poorly designed reform could cause a multi-year slump at a time where investments are needed more than ever. Therefore, we suggest to make targeted additions to the current market design,” Eurelectric said in December in a letter to the European Council on energy supply and prices in Europe. “It is of paramount importance to distinguish between emergency measures and a structural reform of the market,” the group said.
Why Russia Finally Decided To Cut Its Oil Production
Just before announcing a 500,000 bpd production cut, Russia’s Deputy Prime Minister Alexander Novak had warned that there was a risk of lower oil production this year. That risk, Novak said, was due to the EU import bans and the price caps on Russian crude and petroleum products. “Yes, there are such risks. But we will assess them in the near future,” Novak told reporters, as carried by Russian news agency TASS. Until today’s announcement, Russia’s oil production and exports had held resilient, defying early expectations of a plunge in supply after the West agreed to impose sanctions on Russian oil in an effort to cut Vladimir Putin’s revenues from energy sales. Novak had said earlier that Russian oil production held at 9.8-9.9 million barrels per day (bpd) in January 2023, close to the levels from November and December 2022, just ahead of the EU embargo and the price cap on crude imports. Russia maintained output in the first week of February, too. Meanwhile, Russia’s budget revenues are sinking due to the low prices of its flagship Urals blend. The discounts at which Russian oil is being offered have led to the price of Urals dropping to around $30 per barrel below the international benchmark, Brent Crude. Due to the low price of Urals in January, Russia’s budget was $24.7 billion (1.76 trillion rubles) into deficit in January, compared to a surplus for January 2022, as state revenues from oil and gas plunged by 46.4% due to the low price of Urals and lower natural gas exports, the Russian Finance Ministry said in preliminary estimates this week. Russia is considering taxing its oil firms based on the price of Brent – instead of Urals – to limit the fallout on the budget revenues due to the widening discount of Urals to Brent, Russian daily Kommersant reported last week, quoting sources. In the budget estimate for January this week, the Finance Ministry confirmed parts of this report, saying that “considering the fact that the relevance of the price of Urals in calculating export prices has diminished, various other approaches are currently being studied to switch to alternative price indicators for tax purposes.” There are, of course, plenty of reasons for Russia to want to boost oil prices, and it appears OPEC+ isn’t going to resist those efforts. But regardless of what other factors are at play, it certainly seems that sanctions, embargoes, and price caps are finally pushing Russian production lower.
India’s solar boom reverses gas momentum, cements coal use: Maquire
India’s rapid advances in solar power production have been widely celebrated for showing how fast-developing economies can accelerate the decarbonisation of their energy systems without jeopardising economic growth. But while the pace of India’s solar rollout has been impressive, the advances have come mainly at the expense of natural gas – they have had little impact on the country’s use of coal as the primary source of electricity. Indeed, India increased the amount of electricity generated from coal in the opening 10 months of 2022 compared with the same period in 2021, and slashed gas-powered generation by nearly 40%, according to data from Ember. This has resulted in a continuing climb in India’s power sector emissions, even as solar’s share of the country’s electricity generation mix has more than doubled since 2019. SOLAR SURGE Between 2017 and 2021, India’s solar power production capacity more than tripled, ranking third globally in terms of solar capacity additions during that window, according to the BP Statistical Review of World Energy. And the country plans to more than double that solar capacity base again by 2025, leaving it highlighted by the International Energy Agency (IEA) as a key driver behind its recent dramatic upward revision to its global renewable energy supply outlook. On paper, such rapid advances in green energy supplies should result in reduced pollution from the country’s energy producers. However, cumulative emissions from India’s power sector have scaled new highs in the opening 10 months of 2022, topping 818 million tonnes of carbon dioxide and equivalent gases. That’s up nearly 7% from the same period in 2021. The main driver of the climb in power pollution has been a 7.7% climb in discharges from coal-fired generation, which accounted for 72% of the country’s electricity and 97% of power sector emissions through October, Ember data shows. GAS SQUEEZE While coal’s share of India’s electricity mix has remained fairly flat at that elevated level, the share of gas-fired electricity has fallen sharply in 2022 to just 1.6%, the lowest since at least 2019. Record high liquefied natural gas (LNG) prices were the main reason behind this downturn in gas use, as cost-conscious utilities balked at paying more than twice as much for spot LNG cargoes in 2022 as the 2021 average. Reduced demand for LNG was also reflected in India’s LNG import totals. These dropped by 16% through November from the same period in 2021, according to ship-tracking data by Kpler. Those sharply lower LNG imports by India – the fourth largest importer in 2021 – freed up LNG cargoes for others in 2022, and helped alleviate the power crisis in Europe resulting from sharply lower Russian pipelined natural gas supplies amid the war in Ukraine. However, for India’s power producers, with limited options for generating base load electricity, less gas simply meant they have had to burn more coal in 2022. This is because while non-emitting solar power adds to overall electricity supplies during the day, India’s overall grid requires a steady supply of base load power at all times, and especially at night. This can be produced effectively by burning fossil fuels. Natural gas had been expected to displace coal as that preferred base load fuel over time in India, thanks to planned investments in gas import infrastructure and pipelines, as well as policy support to scale back use of high-polluting coal in power generation. But the recent surge in gas prices is now threatening to not just stall, but reverse those trends, halting gas-related investments and supporting continuing reliance on coal. Solar will remain the new fuel of choice for utilities developing additional power generation capacity in India, thanks to government subsidies and widespread support for green energy expansions. But if global gas prices remain elevated throughout 2023, Indian electricity producers will continue to burn more coal than ever to generate base load power, undermining the environmental benefits of record-setting renewable supply expansions.
Big Oil’s Back In Fashion
Over the past couple of weeks, Big Oil majors reported a string of record profits for 2022. This was no surprise after an even longer string of record quarterly income reports as oil and gas prices soared during much of the year. What was a surprise was an apparent change in investors’ sentiment towards their industry. Energy industry vet and market analyst David Blackmon last week noted in a podcast that U.S. oil companies have been outperforming their European peers consistently thanks to their greater focus on their core business. Meanwhile, their European counterparts strived to respond to certain shareholders’ expectations of a transition in tune with the greater, government-led transition to low-carbon energy. Certainly, pressure from governments and activist groups is a lot stronger on European oil companies than American ones, but when it comes to share prices, it’s usually pragmatism that leads investors. It was this pragmatism that led to the divergence between the valuations of U.S. and European oil majors, according to Bloomberg. It is this pragmatism that is now rewarding European Big Oil with higher market caps, after their record 2022. And this pragmatism was invoked when the Europeans had a change of heart with regard to their transition plans. The three biggest European oil and gas companies—BP, Shell, and TotalEnergies—all announced plans that involve a sort of return to their core business and an easing back on their transition plans. The move is subtle, it is far from a U-turn, but it is a pretty clear one. BP said it would continue to work towards reducing its emissions footprint by cutting oil and gas production, but it revised its target for these production cuts by as much as 25 percent. Its earlier target was an output reduction of 40 percent from 2019 by 2030. Related: Climate Crisis Tide Turns For Big Oil Shell is planning to leave its investments in renewable energy where they are and spend more on expanding gas operations. “Our philosophy has been a real pivot toward energy transition investments,” new CEO Wael Sawan said. “But we will make sure that those investments go into the areas where we can see line of sight toward attractive returns to be able to reward our shareholders.” TotalEnergy, meanwhile, will be focusing on liquefied natural gas after a stellar year for that commodity amid the European energy crunch that began in the autumn of 2021 but flourished in 2022. CEO Patrick Pouyanne referred to LNG as a pillar of TotalEnergies’ growth in the future. Given these companies’ efforts in the past few years to make themselves more attractive for investors by demonstrating their determination to move beyond fossil fuels, such a change may seem strange at first. But the stock performance of all three tells a different story. It is the story of investors who buy into a company not because of its transition plans but because of its shareholder returns plans. It is the story of a reality check that overrides the shareholder resolutions used by environmental activists with the means to build large shareholdings in Big Oil companies as a tool to pressure these companies into essentially giving up the business that made them big. The stock prices tell the story: the shares of BP, Shell, and TotalEnergies all rose after they reported on their 2022 performance and future plans. The jump was particularly marked for BP. It could be because of the revised production cut plans of the supermajor. After years of diverging, the valuations of European and American supermajors are moving in the same direction because their strategies are realigning. Of course, not everyone is happy with this. Climate change activists certainly aren’t. As the Bloomberg report noted, even a short-term refocusing on returns over the climate could be detrimental to climate change mitigation efforts. Yet Big Oil companies or any company really are not activists. They are not in the business of mitigating climate change, even if their stated net-zero plans have this as their ultimate goal. Like every other company, Big Oil is in the business of making a profit from selling products and services and sharing it with its owners—also known as shareholders. It is this simple truth that drives corporate decisions on spending and production growth or de-growth. It’s the most fundamental rule of economics, and that’s the rule of supply and demand. As Shell’s former chief executive Ben van Beurden once put it, while the world needs oil, we will continue to supply it with oil. The other pretty simple truth that prompted Big Oil majors to step back from their transition path may well have been the subpar performance of low-carbon energy lately. Cost inflation, component failures, and trade tensions with China, the undisputed leader in the manufacturing segment of the renewable energy industry, have all combined to push returns from these ventures lower. Government subsidies seem to have not been enough to motivate Big Oil to stick to that path without even looking at alternative routes to its promised net-zero future.
Kazakhstan Delays Oil Pipeline Restart
Kazakhstan has delayed the startup of crude oil exports from its giant Tengiz oilfield by way of the Baku-Tbilisi-Ceyhan pipeline, four sources told Reuters on Friday. Kazakhstan energy company Kazmunaigaz (KMG) has pushed back the restart of crude oil exports from the giant Tengiz oilfield after BP declared force majeure on crude oil loadings from the Ceyhan port. “Force majeure was declared in Ceyhan, and (Tengiz) crude supplies to BTC were put on hold,” a market source told Reuters. Kazakhstan has banned the export of fuels, including gasoline, diesel, and other oil products, for four months beginning on February 18, the country’s Finance Ministry said earlier in the week, in order to ensure enough domestic supply. Operations at Turkey’s Ceyhan crude oil port were first disrupted by the dual earthquakes in the country earlier in the week, then by seasonal inclement weather. The BTC pipeline has the capacity to move 1.2 million barrels of oil per day, according to BP’s website. This year, KMG was hoping to send 1.5 million tons of crude oil through the BTC pipeline as a way of bypassing Russia, with KMG planning on beginning oil shipments this month from its Tengiz oilfield, which it co-owns in part with Chevron. Damage assessments and repairs are currently still in progress at the Ceyhan terminal, sources told Reuters on Friday, with exports from the BTC pipeline possibly resuming on Sunday unless issues are found. The Ceyhan port was damaged and a fire broke out after a 7.7 magnitude earthquake hit Turkey, killing thousands. Bloomberg sources estimated on Thursday that shipments of Azeri crude oil through the Ceyhan port wouldn’t resume until late next week.
Russian Oil Price Cap Is Meeting Objectives: G7
The Russian oil price cap mechanism is still meeting its objectives, a G7 price cap coalition official told Reuters on Friday. Any Russian production cuts that may be forthcoming will disproportionately hurt developing countries, the G7 official added. Earlier on Friday, Russia announced a 500,000 bpd crude oil production cut—crude oil production, not crude oil and condensate production—with Russia’s Deputy Prime Minister Alexander Novak preceeding that with a warning that there was a risk of reduced crude oil production yet this year directly as a result of the EU import bans and the G7 price caps on its crude oil and crude oil products. The G7 official cautioned, however, against the veracity of Russia’s reports of oil production cuts. Up until this week, it had been widely reported that Russia’s crude oil production and exports were holding fast in the fact of the bans and price caps, with the Russian Ministry reporting 9.8-9.9 million bpd last month—a close match to November and December figures despite the new measures designed to punish Russia for its military operations in Ukraine. The discount for Russian Urals crude oil has dropped to $30 per barrel below the international Brent crude oil benchmark, with Russia’s budget sinking into a deficit in January. An oil production cut on behalf of Russia could boost the Brent benchmark, inadvertently boosting Urals pricing too. The Kremlin said that it had talked with some OPEC+ members regarding its decision to cut oil production, but two OPEC+ delegates told Reuters that OPEC+ had no plans to cut production. So far, Russia has been able to find willing buyers in the Asian market for its crude oil, largely in defiance of Western sanctions.
IndianOil Adani Gas Private Ltd could provide only over 9,000 PNG connections in Kochi
The IndianOil Adani Gas Private Ltd (IOAGPL), the implementing agency of the city gas project, has managed to provide only around 10,000 piped natural gas (PNG) connections to city residents in seven years This is despite Petroleum and Natural Gas Regulatory Board (PNGRB) giving extension for the project twice. The new deadline is set to be over by May 31, 2023. The project, inaugurated in 2016, was aimed at providing 40,000 PNG connections within five years of the launch. According to IOAGPL officials, they are confident of completing the work before the May 2023 deadline. “We are focusing on providing infrastructure for our project. We have completed plumping in more than 40,000 households so far,” said an official with IOAGPL. “We have given more than 9,000 PNG connections so far. Majority connections are given in Thrikkakara and Kalamassery municipalities,” the official said.