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.
The U.S. Won’t Sanction India For Buying Russian Oil
The United States will not enforce sanctions on India for its purchases of Russian crude oil despite the price cap that the G7, led by the U.S., imposed on Russian crude and oil derivatives last year. This is what Asia News International reported in a tweet, citing a U.S. Assistant Secretary of State. The U.S. official was commenting on calls from Ukraine to impose sanctions on India for continuing to buy Russian crude. “We’re not looking to sanction India. Our partnership with India is one of our most consequential relationships,” Karen Donfried, Assistant Secretary of State for European and Eurasian Affairs, said. Even so, according to Geoffrey Pyatt, Assistant Secretary for Energy Resources, the purposes of the price cap are being served. “Even though India isn’t a participant in the price cap, it has effectively used its negotiating leverage which it derives from the price cap and the fact that large portions of the global market are no longer accessible to Russia, to drive down the price of Russian crude,” he was quoted as saying by ANI. Following the sanction barrage that the EU and G7 leveled at Russia following its invasion of Ukraine, India and China became the biggest buyers of Russian crude, taking advantage of steep discounts for Russia’s flagship Urals blend. The change in Indian oil imports was particularly marked: while before the sanctions began Russia was a minor supplier of oil to the subcontinent, last year it became one of its biggest suppliers. “Today we feel confident that we’ll be able to use our market to source from wherever we have to, from wherever we get beneficial terms,” India’s energy minister, Hardeep Singh Puri, told CNBC this week. “We didn’t allow the geopolitical turbulence or the pandemic or anything else to come in the way of our ability to supply to our consumer,” he added.
Ghana seeks Indian investment in oil and gas sector to become petroleum hub
Ghana, which is struggling with its worst economic crisis in a generation, is seeking Indian investment in its oil and gas sector, William Owuraku Aidoo, its deputy minister of energy, said on Wednesday. Ghana has asked India to consider exploration of three blocks in the western basin and to build refineries as the African nation aims to construct a petroleum hub, Aidoo said. “There are some opportunities in Ghana specially in the oil and gas front. We have some oil blocks available and we came here hoping to attract Indian investments,” Aidoo told Reuters after a meeting with Indian oil minister Hardeep Singh Puri at India Energy Week. He said Ghana will award exploration licences through direct negotiations if Indian companies are interested. Ghana wants India to consider three blocks in the western basin, he said. Apart from offering exploration opportunities, Ghana is also seeking Indian support to build refineries of about 300,000 barrels per day. “We have space for three of them… we want to make a petroleum hub,” Aidoo said. Separately, he said Ghana’s oil production this year could average 120,000-150,000 bpd.
Reliance, BPCL Among Buyers Using UAE Currency for Russian Oil
Reliance Industries Ltd., Bharat Petroleum Corp Ltd. and Nayara Energy Ltd. are among Indian refiners using United Arab Emirates dirham to pay for some shipments of Russian crude as they navigate Western sanctions. Buyers have shifted some transactions to the currency, according to people with direct knowledge of the matter. Payments vary from cargo to cargo, depending in part on the demands of specific traders, said the people, who requested anonymity as the details are private. Reliance, BPCL and Nayara didn’t immediately respond to requests for comment. The European Union’s recent ban on imports of refined oil products from Russia has positioned India as an increasingly important customer for the shipments. Russia has been India’s top crude supplier since June as cargoes previously bound for Europe have been diverted to Asia — often sold at well below the $60-a-barrel cap The UAE dirham provides both Indian buyers and Russian sellers with a relatively predictable currency — pegged to the dollar — without the greenback’s potential sanctions complications. Even on deals that don’t directly violate US and EU restrictions, some intermediary banks often take additional steps to avoid any risks to other banking relationships abroad. India is the UAE’s second-largest trade partner and officials are working on a mechanism to boost trade in dirhams and rupees. Most oil deals are still being transacted in dollars. India’s oil minister said he was unaware of the use of dirham in oil purchases.
China Signs Its First-Ever LNG Deal With Oman
China’s Unipec has signed a contract with Oman LNG for the delivery of 1 million tons of the super-chilled fuel over a period of four years. This is the first contract with a Chinese buyer for Oman LNG and is part of its efforts to reach new markets, the Omani company said in a tweet. The deliveries will begin in 2025, it also said. The deal follows another that Oman LNG signed last month with Turkey’s BOTAS, for annual deliveries of 1.4 billion cubic meters of gas over a period of ten years. Earlier this year, the Omani company also sealed LNG delivery deals with French TotalEnergies and Thai PTT. Each of the companies will receive 800,000 tons of LNG annually, with French deliveries commencing in 2025 for a period of 10 years, and Tahi deliveries starting a year later for a period of nine years. Japanese energy majors JERA, Mitsui & Co, and Itochu Corp are also among the clients of Oman LNG and recently inked deals for the supply of a total of 2.35 million tons of LNG annually over 10 years, beginning in 2025. Rystad Energy four years ago forecast that gas production in the tiny Gulf country will this year surpass its oil production, in evidence of the growing attractiveness of natural gas as a source of energy. Since then, competition for gas has intensified, motivating production expansion plans in all the large producers of LNG—Qatar, the United States, and Australia. Yet even smaller producers such as Oman are expanding production in response to strong demand. China is a natural target for LNG producers given the size of its economy and levels of industrialization that requires massive energy inputs. Although it last year lost the crown of top LNG importer in the world to Japan, China remains one of the biggest buyers of the commodity and, unlike European countries, is willing to commit to long-term deals to secure precious supply and hedge against wild price fluctuations.
EIA Lowers 2023 Natural Gas Price Outlook By 30%
The U.S. Energy Information Administration lowered on Tuesday its 2023 natural gas Henry Hub price by 30.5%, according to its latest Short Term Energy Outlook (STEO). The EIA now sees the 2023 natural gas price at Henry Hub at $3.40 per MMBtu, down from $4.90 per MMBtu in its previous forecast. The Henry Hub natural gas price last year was $6.42 per MMBtu last year. The EIA said it revised its outlook for Henry Hub prices “as a result of significantly warmer-than-normal weather in January that led to less-than-normal consumption of natural gas for space heating and pushed inventories above the five-year average,” the agency said in its STEO. This lower than usual natural gas consumption in January saw inventories rise back above the five-year average. The EIA now sees inventories closing “the withdrawal season at the end of March at more than 1.8 trillion cubic feet, more than the five-year average.” The EIA estimated that this year will see the smallest amount of global LNG export capacity additions since 2013. On the oil side of things, the EIA revised its outlook on U.S. crude oil production for 2023 up to 12.5 million bpd, from its previous forecast of 12.4 million bpd. For comparison, U.S. crude oil production in 2022 averaged 11.9 million bpd, with 2021 U.S. crude oil production coming in at 11.25 million bpd. The oil industry has been criticized for its slow ramp up of production after it plummeted due to the pandemic, with companies returning money to shareholders, undertaking large buyback schemes, and reducing debt instead of investing in increasing production. The EIA’s Brent crude oil price forecast for this year is $83.63 per barrel.
Energy Transition Has To Ensure Surviving Present: Oil Minister Hardeep Singh Puri
India, the world’s third largest oil consumer, on Tuesday said it is committed to energy transition but surviving the present and cushioning the vulnerable from price volatilities is essential before moving to clean and green energy. India has committed to net zero carbon emission by 2070 and has repeatedly emphasised that ‘dirty’ fuels like oil and coal, on which the economy is two-thirds dependent, will have to continue to be in use in the foreseeable future. An immediate shift from low-priced coal and oil to expensive fuels of the future such as hydrogen will entail huge costs in a nation with low per capita income. “Unless we survive the present, we will not be able to go into the world of clean and green energy,” Oil Minister Hardeep Singh Puri said at India Energy Week here. “While affordable traditional energy resources are essential for meeting the base load requirements, new sources of energy which are cleaner, sustainable, and innovative, are critical for combating the menace of climate change.” Geopolitical situations last year led to a spike in prices of crude oil – raw material for petrol and diesel, and rates of natural gas – which is used to make CNG, electricity and fertilizer – shot up to record high. Countries in Europe switched back to coal-fired power plants as gas became unaffordable to many. “We have to make sure our transition entails surviving the present and cushioning vulnerable from volatility,” he said, adding the transition has to be affordable and sustainable particularly for vulnerable sections.