Despite presiding over a period when the Venezuelan economy has been imploding – with skyrocketing inflation, rampant corruption and massive food shortages – Nicolas Maduro was re-elected as President last week. In an election branded as a ‘sham’ by many in the international community, the result does nothing to address the chronic issues that are plaguing the country. In fact, they are set to prolong even further now.
In the wake of the election, the US unveiled fresh sanctions against Venezuela. These include measures to prevent US companies from purchasing Venezuelan government debt, crippling its financial system even further. Targeted sanctions at crude oil – the country’s main source of income – have thus far not been mooted, but even the general sanctions are making it very difficult for the country to do business. In response, Venezuela is depending on the generosity of its buyers, negotiating to have shipments paid for in currencies other than the US dollar or in barter. It already has such agreements in place with Turkey, China and Russia, and last week raised the possibility of accepting payment in Indian rupees. India remains a significant importer of Venezuelan crude, but there have also been signs that it is growing impatient with the situation.
Such moves are mere band aids. PDVSA is in a lot of trouble, being debt-stricken. ConocoPhillips has already moved to seize oil products produced by PDVSA at the Isla refinery in Curacao, demanding it as payment for the nationalisation of its assets. The Isla refinery itself is the centre of another drama – with Curacao wanting to move away from PDVSA to courting a Chinese investor, though the latter has faced trouble raising cash as well. Forget about raising cash to explore new fields; PDVSA can barely even cover the costs of running its existing ones.
But the main impact of the Venezuelan implosion has been on the oil markets. Already jittery with the new sanctions on Iran, the situation in Venezuela has raised nerves even more. With the two key political sanctions in play, oil prices are now at four year highs. The IEA has already started discussions with major oil producing nations on their ability to cover the Venezuelan shortfall. Venezuela’s crude production has already fallen by some 400,000 b/d so far in 2018 and there are worries that this could dip below 1 mmb/d in the near future. This puts the OPEC supply freeze deal under pressure, with key OPEC producers worrying about the creation an unwanted spikes in crude prices that are not based on fundamentals. OPEC members and Russia are readying to fill the gap, driven by the long standing swing producer, Saudi Arabia stepping-in once again.
President Maduro claims that he will double Venezuela’s oil production by the end of the year, with the help of OPEC. That will be the latest, but certainly not the last, of his broken promises. As Venezuela's oil industry is on the verge of collapse, the world is preparing for the worst case scenario right now.
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In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.
Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.
Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.
This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.
But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.
In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.
But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.
Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.
Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.
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