Big Oil Doubles Down on LNG as Renewables Falter
The LNG market is set to see a wave of new supply from 2026 and could be oversupplied from 2026-2027 until the end of the decade. Yet, Big Oil is confident that demand will be there and that their trading strategies and the moves to lock in customers from LNG projects will pay off. Renewables Commitment Falters At the same time, Europe’s top oil and gas firms haven’t seen improved market and business conditions to warrant the major push into renewables they had pledged before the energy crisis and skyrocketing prices in 2022 upended plans and shifted the focus onto energy security. BP, for example, booked a pre-tax impairment charge of $540 million in the third quarter last year related to U.S. offshore wind projects. BP and Equinor’s filing to renegotiate the power purchase agreements associated with the Empire Wind 1 and 2 and Beacon Wind 1 wind farms off the coast of New York was rejected. BP said in June that it was scaling back this year’s plans for the development of new sustainable aviation fuel (SAF) and renewable diesel biofuels projects at its existing sites, pausing planning for two potential projects while continuing to assess three for progression. “This is aligned with bp’s drive to simplify its portfolio, focusing on value and returns,” the UK-based supermajor said. Weeks later, the other UK-based giant, Shell, said it was pausing on-site construction work at a biofuels plant in Rotterdam amid weak market conditions, taking a $780-million impairment charge for the second quarter for this. The pause at the 820,000 tons-a-year biofuels facility at the Shell Energy and Chemicals Park Rotterdam in the Netherlands was needed “to address project delivery and ensure future competitiveness given current market conditions,” the company said. LNG Bet At the same time, both Shell and BP, as well as France’s TotalEnergies, are looking to further grow their LNG portfolios by raising their own liquefaction volumes and gaining access to additional third-party volumes. “In our Integrated Gas business, we said we would continue to grow our LNG portfolio by increasing both our liquefaction and access to third-party volumes,” Shell’s CEO Wael Sawan said last week when the company reported better-than-expected earnings for the second quarter. Shell has extended existing partnerships in Oman, invested in backfills in Manatee in Trinidad and Tobago, and agreed to acquire Pavilion Energy in Singapore to increase portfolio length, the executive of the world’s top LNG trader added. Shell also leads the LNG Canada joint venture project in Kitimat, British Columbia, where it is “working hard to achieve first production” by the middle of 2025, Sawan said. In addition, Shell, BP, TotalEnergies, and Japan’s Mitsui have just signed a deal with Abu Dhabi’s ADNOC to take 10% each in the Ruwais LNG project in the UAE as international partners. BP works towards building an LNG portfolio of 30 million tons by 2030, up from 23 million tons of long-term LNG portfolio last year. The company is looking at long-term contracts and at short-term market opportunities, Carol Howle, EVP, trading and shipping at BP, said on the earnings call last week. TotalEnergies has also been busy sanctioning LNG projects in recent months. The French group gave the green light to the Marsa plant in Oman, Marsa LNG, as well as the Ubeta gas project in Nigeria, which will supply Nigeria LNG. “These projects will not only contribute to the objective to grow our upstream by 2% to 3% per year in the next five years, but they will also boost the underlying free cash flow generation and ultimately shareholder distributions,” CEO Patrick Pouyanné said on TotalEnergies’ earnings call. “I think there is a fundamental structural demand coming from India, and we are convinced that the Indian market will take the relay I would say, for the traditional, Korea, Japan, and even China,” Pouyanné added. LNG demand in China is becoming more seasonal as Beijing is “moving very quickly on these renewables, continuing to increase its coal production,” the executive noted. Big Oil is positioning for a major boost in global LNG demand as a way to earn more money from their core business amid low or negative returns in the renewable energy industry.
Conflicting EIA Fuel Demand Data Confuses Oil Market Observers
The U.S. Energy Information Administration (EIA) has recently puzzled oil market watchers and participants with a considerable upward revision to America’s oil consumption and implied gasoline demand for May. EIA’s weekly data releases for that month painted a picture of tepid U.S. gasoline demand, which contributed to a decline in international oil prices and added to concerns about demand in the world’s largest oil consumer. However, the monthly update for May, published with a two-month lag compared to the weekly EIA inventory and supply reports, showed materially higher implied U.S. gasoline and overall oil demand. The traders and analysts who are closely tracking EIA’s weekly reports for trade signals and demand outlooks were left confused by the contradictory weekly-versus-monthly data. That’s nothing new; weekly data is more on the side of estimates and preliminary data, and there have always been discrepancies in these figures. But the latest monthly update for May shows a margin that is too wide. This could mean two U.S. oil demand narratives for each of the data points. According to the EIA, the weekly figures for May differed so much from the monthly data due to overestimated gasoline output and undercounted exports, Reuters’s Shariq Khan notes. The EIA seeks to show general trends in demand in weekly data. The administration always looks to align weekly and monthly data more closely, a spokesperson for the EIA told Reuters. The agency has made several changes to both data points in an effort to better reflect the state of the U.S. petroleum market, the spokesperson said. One may ask what the big deal is in some revisions to data. It’s that the weekly estimates showed a weak start to the summer driving season, with demand trailing last year’s levels, while the monthly status report suggested American oil demand set a seasonal record-high for May and gasoline demand was at its highest level since the pandemic—the most since August of 2019. The EIA’s Petroleum Supply Monthly showed that America’s total crude oil and petroleum product supplied, the proxy for oil demand, was at 20.8 million barrels per day (bpd) in May—the highest-ever for the month of May and highest since August 2023. The figure was 792,000 bpd higher compared to April. Supply of finished motor gasoline—the EIA’s proxy for gasoline demand—stood at 9.396 million bpd for May, the monthly data showed. This is a post-pandemic high, with the most gasoline supplied since August 2019. Yet, the weekly reports in May have shown that implied gasoline demand was 380,000 bpd lower than that figure. At just over 9 million bpd in May, the weekly reports back then showed weaker gasoline demand compared to more than 9.1 million for the same month in 2023. These large discrepancies are puzzling the market, although participants and analysts react more to the weekly data than to figures published with a two-month lag. Traders and analysts look at many other data releases from private firms tracking supply and demand to assess U.S. oil demand. Data from fuel-tracking platform GasBuddy has shown that May’s gasoline demand was 8.87 million bpd, which is closer to the EIA’s weekly estimates than the monthly status report. Patrick De Haan, head of petroleum analysis at GasBuddy, said last week, commenting on the EIA’s upward revision to oil and gasoline demand, “GasBuddy data suggests that gasoline demand is nowhere near what EIA is printing. Take that as you will.” But more recently, gasoline demand has been tracked as very strong in the past week, per GasBuddy’s data and analysis. GasBuddy data models U.S. gasoline demand last week at 9.28 million bpd, which is “the highest tally of 2024,” De Haan said on Monday. Traders and analysts will watch the next monthly reports from the EIA to see if the conflicting data suggests two very different demand pictures and outlooks for the U.S. summer oil and gasoline demand.
French imports of Russian LNG surge, Ukraine supporters call for halt
Shipments of Russian liquified natural gas to France more than doubled the first half of this year, according to new analyses of trade data, at a time when Europe has tried to pull back from energy purchases that help finance the Kremlin’s invasion of Ukraine. Europe has restricted oil imports from Russia, but natural gas is still allowed. And while companies in France are importing the most, one analysis found EU countries overall imported 7 per cent more Russian LNG, natural gas that has been chilled and liquified for easier ocean transport, in the first half of this year compared to the same period a year ago. Oleh Savytskyi, a founder of nonprofit Razom We Stand, which campaigns for tougher sanctions on Russian fossil fuels, said the EU’s goal of phasing out all Russian fossil fuels by 2027 was appallingly off track. He said countries buying Russian LNG are sabotaging the continent’s energy transition and contributing billions to Russia’s war effort. European governments have said banning Russian gas imports entirely would send energy and heating bills skyrocketing and industrial users of gas would suffer, too. The analysis first came from the Institute for Energy Economics and Financial Analysis (IEEFA), a U.S. nonprofit with a goal of speeding the world’s transition to more sustainable energy. IEEFA examined data from Kpler, a shipping tracker, and ICIS, a commodity data provider, both of which also provided their own analysis.
Parliament Introduces Bill for Oil and Gas Policy Stability
The Oilfields (Regulation and Development) Amendment Bill, 2024, was introduced in the Rajya Sabha to improve investment in the oil and gas sector. The Bill aims to stabilize policies, facilitate international arbitration, and extend lease durations to address long-standing concerns from investors. The Bill proposes that the terms of a petroleum lease will stay the same throughout the lease period, even if the lessee (the person or company leasing the land) is disadvantaged. This stability is meant to reassure both Indian and foreign oil and gas producers about their financial returns. Dispute Resolution Mechanism One key change introduced by the Bill is the option to resolve disputes through arbitration, which can be done either within India or internationally. This responds to requests from foreign companies for ways to handle disagreements outside of local courts. The Bill also introduces new regulations allowing the government to merge or combine petroleum exploration licenses and mining leases, leading to longer lease durations. This provides more certainty for companies exploring for oil and gas. Another important feature is “unitisation,” which allows for the joint development of connected oilfields. This means that production and processing facilities can be shared, making resource development more efficient. By changing the term “mining leases” to “petroleum leases,” the Bill aims to simplify regulatory processes. This change emphasizes that petroleum exploration has a lower environmental impact compared to other types of mineral extraction, which should speed up approvals. Additionally, the Bill seeks to replace criminal penalties for breaches of petroleum law with financial penalties. This change aims to create a more business-friendly environment. About Oilfields Regulation Oilfield regulation is often overlooked but is important. Many countries follow guidelines from the International Energy Agency. In the U.S., the Bureau of Land Management oversees federal lands, while state agencies manage onshore fields. Offshore drilling is regulated by the Bureau of Ocean Energy Management. Environmental Impact Assessments are required before drilling begins, and the National Environmental Policy Act (NEPA) is crucial in this regulation. Regulations also control flaring to reduce gas wastage, and advances in technology have improved safety in oil extraction.