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Last Updated: June 21, 2018
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Headline crude prices for the week beginning 18 June 2018 – Brent: US$75/b; WTI: US$65/b

  • As OPEC prepares for its meeting in Vienna on June 22, oil prices are also facing a new challenge – the growing trade spat between the US and China
  • After China retaliated to the US’ imposition of tariffs on US$50 billion worth of imports last week, and the US mulls action on another US$200 billion, there is worry that China will reply with targets on US crude and LNG.
  • On the OPEC side, there is an emerging consensus that some form of output increase will be on the cards – supported by Saudi Arabia and Russia – though the size may be ‘modest’ to appease opposition from Iran and Iraq.
  • The figure being bandied about is some 300-600,000 b/d – smaller than Russia’s favoured increase of 1.5 mmb/d and far smaller than the 1.8 mmb/d cut agreed in November 2016.
  • Rosneft has expressed ‘comfort’ with the current price range of US$70-80/b, an indication that OPEC will aim to keep crude at this level even with an agreement on an output hike.
  • Beyond the June meeting, Saudi Arabia is said to be planning a leaders’ summit for the OPEC and NOPEC countries later this year, a step in formally institutionalising co-operation between the two oil blocks.
  • In the US, oil has seen some inventory drops, but the US active oil rig count continues to grow by one site last week, which was offset by the loss of three gas rigs, bringing the total active count to 1,059.
  • The standoff between the US and China over trade issues is uncharted territory. If the trade war continues to escalate, crude prices will continue to be affected by the vortex, placing additional pressure on prices and prompting investors to seek safe havens.
  • Crude price outlook: An output rise at OPEC is expected, and with trade issues dominating headlines, we expect some downward pressure on prices. Brent should stay at US$74-75/b while WTI may widen its discount to US$63-64/b as the infrastructure crunch persists in the Permian.

Headlines of the week

Upstream

  • Encouraged by mega-test finds in Guyana, ExxonMobil has begun developing drilling at three of its projects in Guyana, which should start producing some 500,000 b/d of oil by 2020.
  • As upstream in East Africa slowly but surely heats up, Kenya has approved a new petroleum law defining oil revenue sharing, with 75% going to the state.
  • Petrobras has sold 25% of the Roncador oil field in Brazil’s Campos basin to Equinor for US$2 billion, bringing Equinor’s equity output to 100,000 b/d.
  • ExxonMobil is reportedly taking ‘baby steps’ to create an in-house crude and fuels trading unit, though current plans call for an operation size that pales in comparison to the trading units of Shell, BP and Total.

Downstream

  • Fresh from mega-refinery deals in China, India and Malaysia, Saudi Aramco states that it will continue downstream investment with the goal of ‘8-10 mmb/d of participated refinery capacity and significant chemicals by 2040’
  • As the Chinese city of Tianjin gears up to be the pilot city in introducing an ethanol-gasoline fuel mix by September – part of a wider biofuels initiative by Beijing using local corn stock to reduce pollution – Sinopec’s Tianjin refinery says it is ready to produce some 120,000 tons of the biofuel by October.
  • New tax rules have clipped the wings of China’s independent oil refiners – the teapots – moving from a profit bonanza to shrinking margins and losses.
  • A massive blockade by farmers’ unions of refineries and depots in France has left some fuel stations dry, as the protest of imported biofuels continues.
  • Venezuela may refine foreign crude for the first time ever for domestic fuel demand and to fulfil exports, as the upstream sector buckles under pressure.
  • In a sign that China is looking to diversify its crude diet away from Russia and Saudi Arabia, chemical producer Hengli has purchased crude from Brazil to fuel startup at its new 400,000 b/d refinery in Dalian.

Natural Gas/LNG

  • Chevron has started up the second train of Wheatstone LNG, as it plays catch up with other Australian LNG projects after severe cost-blowouts and delays.  
  • Total, along with Sonatrach, Repsol and Alnaft, has signed a new concession contract for the Tin Fouyé Tabankort gas and condensate field in Algeria, extending the life of the current contract by 25 years.
  • Shell has sold its entire stake in the Petronas-operated MLNG Tiga LNG plant in Malaysia to the Sarawak state government for US$750 million.
  • Phillips 66 is planning a US$1.5 billion expansion of its NGL project in Sweeny, Texas, including two new 150,000 b/d fractionators.
  • Centrica and Tokyo Gas have signed non-binding agreements to purchase some 2.6 mtpa LNG from Anadarko’s Mozambique project, which should support the project’s upcoming FID.
  • The planned gas pipeline linking Israel to Egypt is one step closer to fruition, as Delek Drilling, Noble Energy and an Egyptian company agree to purchase 37% of East Mediterranean Gas, giving the partners control over the pipeline.

Corporate

  • Oasis Management has taken stakes in Japan’s Idemitsu Kosan and Show Shell Sekiyu, reviving the possibility of a merger between the two refiners that has been scuppered by Idemitsu’s founding family.

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The United States consumed a record amount of renewable energy in 2019

In 2019, consumption of renewable energy in the United States grew for the fourth year in a row, reaching a record 11.5 quadrillion British thermal units (Btu), or 11% of total U.S. energy consumption. The U.S. Energy Information Administration’s (EIA) new U.S. renewable energy consumption by source and sector chart published in the Monthly Energy Review shows how much renewable energy by source is consumed in each sector.

In its Monthly Energy Review, EIA converts sources of energy to common units of heat, called British thermal units (Btu), to compare different types of energy that are more commonly measured in units that are not directly comparable, such as gallons of biofuels compared with kilowatthours of wind energy. EIA uses a fossil fuel equivalence to calculate primary energy consumption of noncombustible renewables such as wind, hydro, solar, and geothermal.

U.S. renewable energy consumption by sector

Source: U.S. Energy Information Administration, Monthly Energy Review

Wind energy in the United States is almost exclusively used by wind-powered turbines to generate electricity in the electric power sector, and it accounted for about 24% of U.S. renewable energy consumption in 2019. Wind surpassed hydroelectricity to become the most-consumed source of renewable energy on an annual basis in 2019.

Wood and waste energy, including wood, wood pellets, and biomass waste from landfills, accounted for about 24% of U.S. renewable energy use in 2019. Industrial, commercial, and electric power facilities use wood and waste as fuel to generate electricity, to produce heat, and to manufacture goods. About 2% of U.S. households used wood as their primary source of heat in 2019.

Hydroelectric power is almost exclusively used by water-powered turbines to generate electricity in the electric power sector and accounted for about 22% of U.S. renewable energy consumption in 2019. U.S. hydropower consumption has remained relatively consistent since the 1960s, but it fluctuates with seasonal rainfall and drought conditions.

Biofuels, including fuel ethanol, biodiesel, and other renewable fuels, accounted for about 20% of U.S. renewable energy consumption in 2019. Biofuels usually are blended with petroleum-based motor gasoline and diesel and are consumed as liquid fuels in automobiles. Industrial consumption of biofuels accounts for about 36% of U.S. biofuel energy consumption.

Solar energy, consumed to generate electricity or directly as heat, accounted for about 9% of U.S. renewable energy consumption in 2019 and had the largest percentage growth among renewable sources in 2019. Solar photovoltaic (PV) cells, including rooftop panels, and solar thermal power plants use sunlight to generate electricity. Some residential and commercial buildings heat with solar heating systems.

October, 20 2020
Natural gas generators make up largest share of U.S. electricity generation capacity

operating natural-gas fired electric generating capacity by online year

Source: U.S. Energy Information Administration, Annual Electric Generator Inventory

Based on the U.S. Energy Information Administration's (EIA) annual survey of electric generators, natural gas-fired generators accounted for 43% of operating U.S. electricity generating capacity in 2019. These natural gas-fired generators provided 39% of electricity generation in 2019, more than any other source. Most of the natural gas-fired capacity added in recent decades uses combined-cycle technology, which surpassed coal-fired generators in 2018 to become the technology with the most electricity generating capacity in the United States.

Technological improvements have led to improved efficiency of natural gas generators since the mid-1980s, when combined-cycle plants began replacing older, less efficient steam turbines. For steam turbines, boilers combust fuel to generate steam that drives a turbine to generate electricity. Combustion turbines use a fuel-air mixture to spin a gas turbine. Combined-cycle units, as their name implies, combine these technologies: a fuel-air mixture spins gas turbines to generate electricity, and the excess heat from the gas turbine is used to generate steam for a steam turbine that generates additional electricity.

Combined-cycle generators generally operate for extended periods; combustion turbines and steam turbines are typically only used at times of peak load. Relatively few steam turbines have been installed since the late 1970s, and many steam turbines have been retired in recent years.

natural gas-fired electric gnerating capacity by retirement year

Source: U.S. Energy Information Administration, Annual Electric Generator Inventory

Not only are combined-cycle systems more efficient than steam or combustion turbines alone, the combined-cycle systems installed more recently are more efficient than the combined-cycle units installed more than a decade ago. These changes in efficiency have reduced the amount of natural gas needed to produce the same amount of electricity. Combined-cycle generators consume 80% of the natural gas used to generate electric power but provide 85% of total natural gas-fired electricity.

operating natural gas-fired electric generating capacity in selected states

Source: U.S. Energy Information Administration, Annual Electric Generator Inventory

Every U.S. state, except Vermont and Hawaii, has at least one utility-scale natural gas electric power plant. Texas, Florida, and California—the three states with the most electricity consumption in 2019—each have more than 35 gigawatts of natural gas-fired capacity. In many states, the majority of this capacity is combined-cycle technology, but 44% of New York’s natural gas capacity is steam turbines and 67% of Illinois’s natural gas capacity is combustion turbines.

October, 19 2020
EIA’s International Energy Outlook analyzes electricity markets in India, Africa, and Asia

Countries that are not members of the Organization for Economic Cooperation and Development (OECD) in Asia, including China and India, and in Africa are home to more than two-thirds of the world population. These regions accounted for 44% of primary energy consumed by the electric sector in 2019, and the U.S. Energy Information Administration (EIA) projected they will reach 56% by 2050 in the Reference case in the International Energy Outlook 2019 (IEO2019). Changes in these economies significantly affect global energy markets.

Today, EIA is releasing its International Energy Outlook 2020 (IEO2020), which analyzes generating technology, fuel price, and infrastructure uncertainty in the electricity markets of Africa, Asia, and India. A related webcast presentation will begin this morning at 9:00 a.m. Eastern Time from the Center for Strategic and International Studies.

global energy consumption for power generation

Source: U.S. Energy Information Administration, International Energy Outlook 2020 (IEO2020)

IEO2020 focuses on the electricity sector, which consumes a growing share of the world’s primary energy. The makeup of the electricity sector is changing rapidly. The use of cost-efficient wind and solar technologies is increasing, and, in many regions of the world, use of lower-cost liquefied natural gas is also increasing. In IEO2019, EIA projected renewables to rise from about 20% of total energy consumed for electricity generation in 2010 to the largest single energy source by 2050.

The following are some key findings of IEO2020:

  • As energy use grows in Asia, some cases indicate more than 50% of electricity could be generated from renewables by 2050.
    IEO2020 features cases that consider differing natural gas prices and renewable energy capital costs in Asia, showing how these costs could shift the fuel mix for generating electricity in the region either further toward fossil fuels or toward renewables.
  • Africa could meet its electricity growth needs in different ways depending on whether development comes as an expansion of the central grid or as off-grid systems.
    Falling costs for solar photovoltaic installations and increased use of off-grid distribution systems have opened up technology options for the development of electricity infrastructure in Africa. Africa’s power generation mix could shift away from current coal-fired and natural gas-fired technologies used in the existing central grid toward off-grid resources, including extensive use of non-hydroelectric renewable generation sources.
  • Transmission infrastructure affects options available to change the future fuel mix for electricity generation in India.
    IEO2020 cases demonstrate the ways that electricity grid interconnections influence fuel choices for electricity generation in India. In cases where India relies more on a unified grid that can transmit electricity across regions, the share of renewables significantly increases and the share of coal decreases between 2019 and 2050. More limited movement of electricity favors existing in-region generation, which is mostly fossil fuels.

IEO2020 builds on the Reference case presented in IEO2019. The models, economic assumptions, and input oil prices from the IEO2019 Reference case largely remained unchanged, but EIA adjusted specific elements or assumptions to explore areas of uncertainty such as the rapid growth of renewable energy.

Because IEO2020 is based on the IEO2019 modeling platform and because it focuses on long-term electricity market dynamics, it does not include the impacts of COVID-19 and related mitigation efforts. The Annual Energy Outlook 2021 (AEO2021) and IEO2021 will both feature analyses of the impact of COVID-19 mitigation efforts on energy markets.

Asia infographic, as described in the article text


Source: U.S. Energy Information Administration, International Energy Outlook 2020 (IEO2020)
Note: Click to enlarge.

With the IEO2020 release, EIA is publishing new Plain Language documentation of EIA’s World Energy Projection System (WEPS), the modeling system that EIA uses to produce IEO projections. EIA’s new Handbook of Energy Modeling Methods includes sections on most WEPS components, and EIA will release more sections in the coming months.

October, 16 2020