Upstream & Midstream
Weak oil prices have caused China’s domestic crude oil production to fall, settling at 16.76 million tons in May, as the major producers cut back on output. Most of Chinese’s production comes from mature oilfields in the north that were already declining, and with oil prices weak, there has been little appetite to invest in expanding production.
With domestic output dwindling, China has always looked abroad to secure crude supplies in the form of bilateral investment deals. The latest is with Nigeria, beset by saboteurs, which signed US$80 billion worth of oil and gas infrastructure deals with Chinese companies that will see China pouring money into beefing up the country’s entire energy grid, including pipelines, refineries and power facilities.
Saudi Arabia has cut its official selling price for crude in Asia, as well as the US, as it moves to compete with a growing supply of crude destined for Asia, particularly from Iran.
Indonesia and Iran will collaborate on the development of Iranian oil and gas fields, with two identified blocks as top priority, as Iran looks to stimulate foreign investment and Pertamina keen to secure more overseas upstream assets as part of its goal to expand its upstream output.
India has a mammoth new refinery planned on its west coast, a joint venture between the country’s big four state-run fuel companies – IOC, BPCL, HPCL and EIL. The US$30 billion project will include a massive petrochemical complex and unfold over several phases, aimed at easing the refining and distribution bottlenecks for the state companies in the populous west and south, where demand is strong.
The Balochistan refinery project in Pakistan appears to be back on track, as Pak-Arab Oil Refinery (PARCO) moves ahead with the US$5 billion, 250 kb/d project. a joint venture between Pakistan and the UAE governments.
Vietnam’s ambition to expand its domestic refining base from the sole Dung Quat site took another setback last week, as Thailand PTT indefinitely postponed its plans to build a US$20 billion, 400 kb/d refinery and petrochemical complex in central Vietnam, citing a need for ‘prudence in these challenging times.’
Middle East tensions are threatening to derail a planned US$4 billion merger of Japanese oil giants. Idemitsu and Showa Shell have been in talks to tie the knot, but their allegiances with crude suppliers may be too ‘inappropriate’ for the merger to go ahead; Idemitsu has close ties with Iran dating back to the 1950s, while Showa Shell is 15% owned by Saudi Aramco. The merger is planned to be completed by 2017, but could be derailed by the geopolitical tensions.
Trafigura is reportedly in talks to acquire a minority stake in Essar Oil, the second-largest private refiner in India. The deal is looking at a 15% stake in the Indian company, which would give the trader a foothold in India’s growing downstream market.
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According to 2018 data from the U.S. Energy Information Administration (EIA) for newly constructed utility-scale electric generators in the United States, annual capacity-weighted average construction costs for solar photovoltaic systems and onshore wind turbines have continued to decrease. Natural gas generator costs also decreased slightly in 2018.
From 2013 to 2018, costs for solar fell 50%, costs for wind fell 27%, and costs for natural gas fell 13%. Together, these three generation technologies accounted for more than 98% of total capacity added to the electricity grid in the United States in 2018. Investment in U.S. electric-generating capacity in 2018 increased by 9.3% from 2017, driven by natural gas capacity additions.
The average construction cost for solar photovoltaic generators is higher than wind and natural gas generators on a dollar-per-kilowatt basis, although the gap is narrowing as the cost of solar falls rapidly. From 2017 to 2018, the average construction cost of solar in the United States fell 21% to $1,848 per kilowatt (kW). The decrease was driven by falling costs for crystalline silicon fixed-tilt panels, which were at their lowest average construction cost of $1,767 per kW in 2018.
Crystalline silicon fixed-tilt panels—which accounted for more than one-third of the solar capacity added in the United States in 2018, at 1.7 gigawatts (GW)—had the second-highest share of solar capacity additions by technology. Crystalline silicon axis-based tracking panels had the highest share, with 2.0 GW (41% of total solar capacity additions) of added generating capacity at an average cost of $1,834 per kW.
Total U.S. wind capacity additions increased 18% from 2017 to 2018 as the average construction cost for wind turbines dropped 16% to $1,382 per kW. All wind farm size classes had lower average construction costs in 2018. The largest decreases were at wind farms with 1 megawatt (MW) to 25 MW of capacity; construction costs at these farms decreased by 22.6% to $1,790 per kW.
Compared with other generation technologies, natural gas technologies received the highest U.S. investment in 2018, accounting for 46% of total capacity additions for all energy sources. Growth in natural gas electric-generating capacity was led by significant additions in new capacity from combined-cycle facilities, which almost doubled the previous year’s additions for that technology. Combined-cycle technology construction costs dropped by 4% in 2018 to $858 per kW.
Fossil fuels, or energy sources formed in the Earth’s crust from decayed organic material, including petroleum, natural gas, and coal, continue to account for the largest share of energy production and consumption in the United States. In 2019, 80% of domestic energy production was from fossil fuels, and 80% of domestic energy consumption originated from fossil fuels.
The U.S. Energy Information Administration (EIA) publishes the U.S. total energy flow diagram to visualize U.S. energy from primary energy supply (production and imports) to disposition (consumption, exports, and net stock additions). In this diagram, losses that take place when primary energy sources are converted into electricity are allocated proportionally to the end-use sectors. The result is a visualization that associates the primary energy consumed to generate electricity with the end-use sectors of the retail electricity sales customers, even though the amount of electric energy end users directly consumed was significantly less.
Source: U.S. Energy Information Administration, Monthly Energy Review
The share of U.S. total energy production from fossil fuels peaked in 1966 at 93%. Total fossil fuel production has continued to rise, but production has also risen for non-fossil fuel sources such as nuclear power and renewables. As a result, fossil fuels have accounted for about 80% of U.S. energy production in the past decade.
Since 2008, U.S. production of crude oil, dry natural gas, and natural gas plant liquids (NGPL) has increased by 15 quadrillion British thermal units (quads), 14 quads, and 4 quads, respectively. These increases have more than offset decreasing coal production, which has fallen 10 quads since its peak in 2008.
Source: U.S. Energy Information Administration, Monthly Energy Review
In 2019, U.S. energy production exceeded energy consumption for the first time since 1957, and U.S. energy exports exceeded energy imports for the first time since 1952. U.S. energy net imports as a share of consumption peaked in 2005 at 30%. Although energy net imports fell below zero in 2019, many regions of the United States still import significant amounts of energy.
Most U.S. energy trade is from petroleum (crude oil and petroleum products), which accounted for 69% of energy exports and 86% of energy imports in 2019. Much of the imported crude oil is processed by U.S. refineries and is then exported as petroleum products. Petroleum products accounted for 42% of total U.S. energy exports in 2019.
Source: U.S. Energy Information Administration, Monthly Energy Review
The share of U.S. total energy consumption that originated from fossil fuels has fallen from its peak of 94% in 1966 to 80% in 2019. The total amount of fossil fuels consumed in the United States has also fallen from its peak of 86 quads in 2007. Since then, coal consumption has decreased by 11 quads. In 2019, renewable energy consumption in the United States surpassed coal consumption for the first time. The decrease in coal consumption, along with a 3-quad decrease in petroleum consumption, more than offset an 8-quad increase in natural gas consumption.
EIA previously published articles explaining the energy flows of petroleum, natural gas, coal, and electricity. More information about total energy consumption, production, trade, and emissions is available in EIA’s Monthly Energy Review.
Principal contributor: Bill Sanchez
It was an innocuous set of words published in a newspaper in Germany on Sunday. “I hope the Russian do not force us to change our position on Nord Stream 2”, the German Foreign Minister Heiko Maas was quoted as saying. A day after that, Angela Merkel also issued a single sentence: “The German Chancellor agrees with the Foreign Minister’s comments from the weekend.” Simple words with a bold message. And potentially devastating consequences.
The incident that hardened the hearts of Germany , which had become increasingly isolated over the issue of the Nord Stream 2 natural gas pipeline that connects Russia to Germany through the Baltic Sea, was the hospitalisation of Russian opposition leader Alexei Navalny. Airlifted to Berlin following a medically-induced coma, German doctors concluded that Navalny, who is no stranger to intimidation tactics by the Putin government, was the victim of the Novichok nerve agent. If that name sounds familiar, that’s because it made headlines in 2018 over the attempted assassination of former Russian spy Sergei Skripal and his daughter Yulia in Salisbury, UK. A lethal nerve agent developed in the 1970s in Soviet Russia, Novichok is among the deadliest poisons ever developed and is banned under the Organisation for the Prohibition of Chemical Weapons. The Kremlin, predictably, denies involvement in the alleged poisoning, dismissing the German allegations as untrue.
That this could be the straw that broke the Nord Stream 2 back is perhaps surprising. The Nord Stream 2 natural gas pipeline has survived many obstacles. Many, many obstacles. The sequel to the original 1,222km Nord Stream that was inaugurated in November 2011, Nord Stream 2 will add 1,230km more pipeline between Vyborg in Russia and Lubin in Germany, with nearly all of the entire 2,452km length already being laid. Championed by former German Chancellor Gerhard Schröder and inherited by Merkel, the Nord Stream pipelines were developed to meet Germany’s growing energy demand, as it moved away from burning coal and nuclear fission. However, it has attracted criticism from many quarters. From Germany’s neighbours including Poland, Denmark and Estonia concerned over the pipeline that passes through their waters. From the EU, concerned about making Germany too energy dependent from a ‘politically unreliable’ country. From the US, which has threatened and, indeed, imposed sanctions on companies involved in the project. Some would argue that the vociferous US involvement, championed by President Donald Trump is self-serving, meant to allow US energy exports to muscle in, but it still fits neatly into Germany’s Russian dependence issue.
Throughout all this drama, Angela Merkel has stood firm. She, and her centre-right party CDU, have supported Nord Stream somewhat unenthusiastically with the primary concerns being the business element. It will unravel Germany’s plans to become a natural gas hub, as it tries to drive an EU movement towards cleaner energy. Many of Germany’s largest companies, include petrochemicals giant BASF and its energy arm Wintershall are also heavily invested in Nord Stream and the raw gas it will bring. It would also be a reputational risk to pull the plug on a project that is almost complete and set to be launched by the year’s end, and still leaves the critical question on how Germany will be able to address its energy deficit.
The business argument has overridden political concerns so far. But now a moral imperative has arisen through the attempted murder of Alexei Navalny, with his subsequent medical treatment in Berlin. This resonates in Germany particularly, since the country understands the historical consequences of authoritarian governments and the dangers it bring. The shifting of the political landscape, especially the rise of the Green Party has triggered a ferocious debate with high-ranking politicians from both the left and right calling for the project to be scrapped. Some are even arguing that Nord Stream 2 gas supply is no longer necessary, as the country’s energy requirements are now fundamentally shifting in a post-Covid 19 world.
If, and that is a very big if, the Nord Stream 2 is scrapped, that is at least US$9.4 billion down the drain and plenty more in collateral damage from peripheral activities. It will rock the boat when the usual Merkel instinct is to steady it. But the furore over an attempted assassination by one of the world’s deadliest methods no less, might be a stand that Germany is willing to take. After all, it knows first-hand the effects of an iron fist. Berlin has so far stood alone in advancing Nord Stream 2, even after the chorus of critics surrounding it grow louder and louder. If it were to kill the project, Germany could find plenty of supporters for that move and would be more than happy to offer themselves up as a role to scupper this ship. The options are varied, but one question remains that will influence the whole issue: how is Angela Merkel willing to go to take a stand over democratic ideals or business reality?
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