So President Trump has pulled America out of the shackles of the Paris Agreement. Back in December 2015, 196 countries of the United Nations adopted the agreement, requiring them to tackle climate change through emissions cuts. Under the previous administration, the US was an enthusiastic proponent of the measure, aiming to reduce its emissions by 23-25% through 2025. This week, President Trump, joins Syria and Nicaragua as the three lone holdouts. Syria is in the middle of a civil war. Nicaragua didn’t think the agreement went far enough. Russia supports the agreement. Even North Korea has adopted it!
The logic behind Trump’s decision can be debated ad infinium. In the dramatic ebb and flow of his administration, it now appears that the right-wing led faction has asserted itself over the argument for what is best for America. There have been observations that Trump’s decision was a petulant one in the wake of what he perceived as disrespect as he met the leaders of the European Union and the G7 last week. But whatever the actual reasons, the reality is that the US no longer wants to be bound to the (voluntary) targets.
President Trump wants to free the US to drill for oil anywhere and burn coal as much as it wants, to grow its economy and create jobs. Good news for medium and small-sized drillers, who may now face fewer costly environmental regulations. It is also nectar to the ears of American mining towns, hoping for a return for coal, his strong voter base. The mining towns of the Appalachia were instrumental in handing Trump the Presidency.
“I was elected to represent the citizens of Pittsburgh, not Paris,” Mr. Trump said, on Thursday, calling the decision a “reassertion of our sovereignty.” Mr. Trump cited disadvantages to US workers and the blocking of the development of “clean coal” technologies as reasons for pulling the out of the agreement, which is aimed at curbing greenhouse-gas emissions, believed to be a key driver of climate change, the Wall Street Journal reports.
But there are some risks associated with this new freedom. What Trump has done will unleash market forces that may minimise any clear economic advantage in the long term. Amongst other things, further increased oil and gas supply in the US, will push crude prices down. OPEC may just decide that it is futile to continue their supply cuts, and revert to a war for market share, driving prices further down again. And there will be so much gas sloshing around America that coal will continue to decline; not because it is a dirty fuel, but because burning it is too expensive.
Ironically, the heads of America’s largest energy firms (including ExxonMobil and ConocoPhillips) are all committed to it – recognising that energy now needs to include clean energy. American states are in rebellion. California, New York and Washington states – collectively the fourth largest economy in the world – have formed a pact to adhere to the Paris targets within their states. Some 11 American state governors and 71 city mayors - including Republicans – are defying their President to stick to the Paris climate accord emission standards. Across the pond, the EU has agreed closer cooperation with China to ensure the Paris Agreement does not collapse. However it is worth noting that it will take the US four years to pull out from the already implemented framework, so any effect will be in the long term.
Will the US be no longer a partner in global climate initiatives? It is worth noting that the US is not totally against any future climate accords but just a better deal (for itself). “President Trump said he would begin negotiations to either re-enter the Paris agreement under new terms or craft a new deal that he judges fair to the U.S. and its workers,” the Wall Street Journal reports. In response to the announcement from the White House, recently elected President Emmanuel Macron of France issued a joint statement with the leaders of Germany and Italy saying the accord “cannot be renegotiated, and there is no plan B, as there is no planet B”. This will be a mistake. The US is currently the world’s second largest greenhouse gas emitter, and to exclude it from any future climate discussion would be like ignoring the elephant in room. The world needs real leadership on how it can save itself.
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According to the Nigeria National Petroleum Corporation (NNPC), Nigeria has the world’s 9th largest natural gas reserves (192 TCF of gas reserves). As at 2018, Nigeria exported over 1tcf of gas as Liquefied Natural Gas (LNG) to several countries. However domestically, we produce less than 4,000MW of power for over 180million people.
Think about this – imagine every Nigerian holding a 20W light bulb, that’s how much power we generate in Nigeria. In comparison, South Africa generates 42,000MW of power for a population of 57 million. We have the capacity to produce over 2 million Metric Tonnes of fertilizer (primarily urea) per year but we still import fertilizer. The Federal Government’s initiative to rejuvenate the agriculture sector is definitely the right thing to do for our economy, but fertilizer must be readily available to support the industry. Why do we import fertilizer when we have so much gas?
I could go on and on with these statistics, but you can see where I’m going with this so I won’t belabor the point. I will leave you with this mental image: imagine a man that lives with his family on the banks of a river that has fresh, clean water. Rather than collect and use this water directly from the river, he treks over 20km each day to buy bottled water from a company that collects the same water, bottles it and sells to him at a profit. This is the tragedy on Nigeria and it should make us all very sad.
Several indigenous companies like Nestoil were born and grown by the opportunities created by the local and international oil majors – NNPC and its subsidiaries – NGC, NAPIMS, Shell, Mobil, Agip, NDPHC. Nestoil’s main focus is the Engineering Procurement Construction and Commissioning of oil and gas pipelines and flowstations, essentially, infrastructure that supports upstream companies to produce and transport oil and natural gas, as well as and downstream companies to store and move their product. In our 28 years of doing business, we have built over 300km of pipelines of various sizes through the harshest terrain, ranging from dry land to seasonal swamp, to pure swamps, as well as some of the toughest and most volatile and hostile communities in Nigeria. I would be remiss if I do not use this opportunity to say a big thank you to those companies that gave us the opportunity to serve you. The over 2,000 direct staff and over 50,000 indirect staff we employ thank you. We are very grateful for the past opportunities given to us, and look forward to future opportunities that we can get.
Headline crude prices for the week beginning 15 July 2019 – Brent: US$66/b; WTI: US$59/b
Headlines of the week
Unplanned crude oil production outages for the Organization of the Petroleum Exporting Countries (OPEC) averaged 2.5 million barrels per day (b/d) in the first half of 2019, the highest six-month average since the end of 2015. EIA estimates that in June, Iran alone accounted for more than 60% (1.7 million b/d) of all OPEC unplanned outages.
EIA differentiates among declines in production resulting from unplanned production outages, permanent losses of production capacity, and voluntary production cutbacks for OPEC members. Only the first of those categories is included in the historical unplanned production outage estimates that EIA publishes in its monthly Short-Term Energy Outlook (STEO).
Unplanned production outages include, but are not limited to, sanctions, armed conflicts, political disputes, labor actions, natural disasters, and unplanned maintenance. Unplanned outages can be short-lived or last for a number of years, but as long as the production capacity is not lost, EIA tracks these disruptions as outages rather than lost capacity.
Loss of production capacity includes natural capacity declines and declines resulting from irreparable damage that are unlikely to return within one year. This lost capacity cannot contribute to global supply without significant investment and lead time.
Voluntary cutbacks are associated with OPEC production agreements and only apply to OPEC members. Voluntary cutbacks count toward the country’s spare capacity but are not counted as unplanned production outages.
EIA defines spare crude oil production capacity—which only applies to OPEC members adhering to OPEC production agreements—as potential oil production that could be brought online within 30 days and sustained for at least 90 days, consistent with sound business practices. EIA does not include unplanned crude oil production outages in its assessment of spare production capacity.
As an example, EIA considers Iranian production declines that result from U.S. sanctions to be unplanned production outages, making Iran a significant contributor to the total OPEC unplanned crude oil production outages. During the fourth quarter of 2015, before the Joint Comprehensive Plan of Action became effective in January 2016, EIA estimated that an average 800,000 b/d of Iranian production was disrupted. In the first quarter of 2019, the first full quarter since U.S. sanctions on Iran were re-imposed in November 2018, Iranian disruptions averaged 1.2 million b/d.
Another long-term contributor to EIA’s estimate of OPEC unplanned crude oil production outages is the Partitioned Neutral Zone (PNZ) between Kuwait and Saudi Arabia. Production halted there in 2014 because of a political dispute between the two countries. EIA attributes half of the PNZ’s estimated 500,000 b/d production capacity to each country.
In the July 2019 STEO, EIA only considered about 100,000 b/d of Venezuela’s 130,000 b/d production decline from January to February as an unplanned crude oil production outage. After a series of ongoing nationwide power outages in Venezuela that began on March 7 and cut electricity to the country's oil-producing areas, EIA estimates that PdVSA, Venezuela’s national oil company, could not restart the disrupted production because of deteriorating infrastructure, and the previously disrupted 100,000 b/d became lost capacity.