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Last Updated: October 1, 2019
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The U.S. Energy Information Administration (EIA) projects that global carbon dioxide (CO2) emissions from energy-related sources will continue to grow in the coming decades. EIA’s International Energy Outlook 2019 (IEO2019) projects that global energy-related CO2 emissions will grow 0.6% per year from 2018 to 2050 in its Reference case. However, future growth in energy-related CO2 emissions is not evenly distributed across the world: relatively developed economies collectively have no emissions growth, so all of the future growth in energy-related CO2 emissions is among the group of countries outside the Organization for Economic Cooperation and Development (OECD).

Countries outside of the OECD collectively have more population, a larger gross domestic product, more energy consumption, and higher energy-related CO2 emissions compared with aggregated values from OECD countries. In IEO2019, growth rates for these data series are also higher for non-OECD countries than for OECD countries.

global economic, energy, and environmental metrics in IEO2019 reference case

Source: U.S. Energy Information Administration, International Energy Outlook 2019
Note: Gross domestic product values are expressed in 2010 U.S. dollars, converted based on purchasing power parity (PPP). OECD is the Organization for Economic Cooperation and Development.

As non-OECD countries continue to grow, so does their demand for air conditioning, electronics, personal vehicles, and other energy services. These countries also have relatively energy-intensive industries, primarily because energy-intensive industrial processes often shift to non-OECD countries. Energy consumption in non-OECD countries increases by 1.6% per year from 2018 to 2050, and energy-related CO2 emissions increase by 1.0% per year.

EIA projects that coal-related CO2 emissions in non-OECD countries, especially China, will grow at the slowest rate among fossil fuels as natural gas replaces coal in power generation and in industrial applications. China emits the most energy-related CO2 emissions in the world, and EIA projects that it will remain in that position through 2050. Although India’s coal-related CO2 emissions increase 2.8% annually from 2018 to 2050—the highest among the eight countries in EIA’s international outlook—China remains the single largest emitter of coal-related CO2 emissions in the world.

energy-related co2 emissions in IEO2019 reference case

Source: U.S. Energy Information Administration, International Energy Outlook 2019

By comparison, OECD economies are relatively mature, so many energy services such as air conditioning, electronics, and personal transportation are fairly saturated. Population and economic growth is relatively low compared with non-OECD countries, and technology improvements largely offset increases in energy demand in buildings and vehicles.

OECD economic activity continues to become less energy intensive as these economies shift from energy-intensive manufacturing to less energy-intensive manufacturing and commercial services. EIA projects that energy-related CO2 emissions from OECD countries will decrease slightly (-0.2%) from 2018 to 2050 in the IEO2019 Reference case. OECD CO2 emissions from petroleum liquids and coal consumption decline, but emissions from natural gas consumption increase.

EIA expects the United States to remain the largest emitter of energy-related CO2 emissions among OECD members and the largest emitter of natural gas-related emissions among all countries, regardless of OECD membership, through 2050. Petroleum liquids-related CO2 emissions from the United States and China—the top two petroleum liquids-related CO2 emitters—are relatively similar throughout the projection period. EIA’s IEO2019 Reference case projections for the United States are consistent with those in the Reference case of the Annual Energy Outlook 2019.

On a per capita basis, OECD countries emit far more energy-related CO2 than non-OECD countries: about 9.5 metric tons per person in OECD countries in 2018 compared with 3.6 metric tons per person in non-OECD countries. The gap between those groups is decreasing; by 2050, OECD countries will emit 8.2 metric tons per person compared with 3.8 metric tons per person in non-OECD countries.

Global energy intensities and carbon intensities also continue to decline. By 2032, non-OECD countries are expected to become less energy intensive than OECD countries, meaning they use less energy to generate economic activity. However, non-OECD countries are expected to remain more carbon intensive than OECD countries through 2050, meaning they generate more CO2 emissions per unit of energy consumed. Differences in energy and carbon intensities reflect the different mix of fuels used to provide energy in the two groups of countries. By 2050, non-OECD member economies are about as carbon intensive as OECD economies are today.

global energy and carbon intensities in IEO2019 reference case

Source: U.S. Energy Information Administration, International Energy Outlook 2019
Note: GDP is gross domestic product. OECD is the Organization for Economic Cooperation and Development.

IEO International Energy Outlook EIA emissions CO2 carbon dioxide
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Saudi Aramco Moves Into Russia’s Backyard

International expansions for Saudi Aramco – the largest oil company in the world – are not uncommon. But up to this point, those expansions have followed a certain logic: to create entrenched demand for Saudi crude in the world’s largest consuming markets. But Saudi champion’s latest expansion move defies, or perhaps, changes that logic, as Aramco returns to Europe. And not just any part of Europe, but Eastern Europe – an area of the world dominated by Russia – as Saudi Aramco acquires downstream assets from Poland’s PKN Orlen and signs quite a significant crude supply deal. How is this important? Let us examine.

First, the deal itself and its history. As part of the current Polish government’s plan to strengthen its national ‘crown jewels’ in line with its more nationalistic stance, state energy firm PKN Orlen announced plans to purchase its fellow Polish rival (and also state-owned) Grupa Lotos. The outright purchase fell afoul of EU anti-competition rules, which meant that PKN Orlen had to divest some Lotos assets in order to win approval of the deal. Some of the Lotos assets – including 417 fuel stations – are being sold to Hungary’s MOL, which will also sign a long-term fuel supply agreement with PKN Orlen for the newly-acquired sites, while PKN Orlen will gain fuel retail assets in Hungary and Slovakia as part of the deal. But, more interestingly, PKN Orlen has chosen to sell a 30% stake in the Lotos Gdansk refinery in Poland (with a crude processing capacity of 210,000 bd) to Saudi Aramco, alongside a stake in a fuel logistic subsidiary and jet fuel joint venture supply arrangement between Lotos and BP. In return, PKN Orlen will also sign a long-term contract to purchase between 200,000-337,000 b/d of crude from Aramco, which is an addition to the current contract for 100,000 b/d of Saudi crude that already exists. At a maximum, that figure will cover more than half of Poland’s crude oil requirements, but PKN Orlen has also said that it plans to direct some of that new supply to several of its other refineries elsewhere in Lithuania and the Czech Republic.

For Saudi Aramco, this is very interesting. While Aramco has always been a presence in Europe as a major crude supplier, its expansion plans over the past decade have been focused elsewhere. In the US, where it acquired full ownership of the Motiva joint venture from Shell in 2017. In doing so, it acquired control of Port Arthur, the largest refinery in North America, and has been on a petrochemicals-focused expansion since. In Asia, where Aramco has been busy creating significant nodes for its crude – in China, in India and in Malaysia (to serve the Southeast Asia and facilitate trade). And at home, where the focus has on expanding refining and petrochemical capacity, and strengthen its natural gas position. So this expansion in Europe – a mature market with a low ceiling for growth, even in Eastern Europe, is interesting. Why Poland, and not East or southern Africa? The answer seems fairly obvious: Russia.

The current era of relatively peaceful cooperation between Saudi Arabia and Russia in the oil sphere is recent. Very recent. It was not too long ago that Saudi Arabia and Russia were locked in a crude price war, which had devastating consequences, and ultimately led to the détente through OPEC+ that presaged an unprecedented supply control deal. That was through necessity, as the world faced the far ranging impact of the Covid-19 pandemic. But remove that lens of cooperation, and Saudi Arabia and Russia are actual rivals. With the current supply easing strategy through OPEC+ gradually coming to an end, this could remove the need for the that club (by say 2H 2022). And with Russia not being part of OPEC itself – where Saudi Arabia is the kingpin – cooperation is no longer necessary once the world returns to normality.

So the Polish deal is canny. In a statement, Aramco stated that ‘the investments will widen (our) presence in the European downstream sector and further expand (our) crude imports into Poland, which aligns with PKN Orlen’s strategy of diversifying its energy supplies’. Which hints at the other geopolitical aspect in play. Europe’s major reliance on Russia for its crude and natural gas has been a minefield – see the recent price chaos in the European natural gas markets – and countries that were formally under the Soviet sphere of influence have been trying to wean themselves off reliance from a politically unpredictable neighbour. Poland’s current disillusion with EU membership (at least from the ruling party) are well-documented, but its entanglement with Russia is existential. The Cold War is not more than 30 years gone.

For Saudi Aramco, the move aligns with its desire to optimise export sales from its Red Sea-facing terminals Yanbu, Jeddah, Shuqaiq and Rabigh, which have closer access to Europe through the Suez Canal. It is for the same reason that Aramco’s trading subsidiary ATC recently signed a deal with German refiner/trader Klesch Group for a 3-year supply of 110,000 b/d crude. It would seem that Saudi Arabia is anticipating an eventual end to the OPEC+ era of cooperative and a return to rivalry. And in a rivalry, that means having to make power moves. The PKN Orlen deal is a power move, since it brings Aramco squarely in Russia’s backyard, directly displacing Russian market share. Not just in Poland, but in other markets as well. And with a geopolitical situation that is fragile – see the recent tensions about Russian military build-up at the Ukrainian borders – that plays into Aramco’s hands. European sales make up only a fraction of the daily flotilla of Saudi crude to enters international markets, but even though European consumption is in structural decline, there are still volumes required.

How will Russia react? Politically, it is on the backfoot, but its entrenched positions in Europe allows it to hold plenty of sway. European reservations about the Putin administration and climate change goals do not detract from commercial reality that Europe needs energy now. The debate of the Nord Stream 2 pipeline is proof of that. Russian crude freed up from being directed to Eastern Europe means a surplus to sell elsewhere. Which means that Russia will be looking at deals with other countries and refiners, possibly in markets with Aramco is dominant. That level of tension won’t be seen for a while – these deals takes months and years to complete – but we can certainly expect that agitation to be reflected in upcoming OPEC+ discussions. The club recently endorsed another expected 400,000 b/d of supply easing for January. Reading the tea leaves – of which the PKN Orlen is one – makes it sound like there will not be much more cooperation beyond April, once the supply deal is anticipated to end.

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Market Outlook:

-       Crude price trading range: Brent – US$86-88/b, WTI – US$84-86/b

-       Crude oil benchmarks globally continue their gain streak for a fifth week, as the market bounces back from the lows seen in early December as the threat of the Omicron virus variant fades and signs point to tightening balances on strong consumption

-       This could set the stage for US$100/b oil by midyear – as predicted by several key analysts – as consumption rebounds ahead of summer travel and OPEC+ remains locked into its gradual consumption easing schedule 

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