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Last Updated: December 19, 2019
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Headline crude prices for the week beginning 16 December 2019 – Brent: US$65/b; WTI: US$60/b

  • Oil prices have stayed their recent gains, as cautious hope from the new OPEC+ deal mingles with the announcement of a phase 1 trade deal between the US and China, providing some optimism for the immediate future
  • The partial trade deal – which has not yet been signed – does not reverse any of the existing tariffs placed on US and Chinese goods by either country, but it did prevent new tariffs from kicking in on December 15; tariffs on US crude and LNG entering China, however, still remain in place
  • The deal is expected to be signed in January, provided an armistice to the trade war, but a more comprehensive trade deal probably remains further off as there are key disagreements between the two countries left unresolved
  • In response, the EIA raised its crude price forecast for the second time in a row, averaging at around US$60/b in 2020, but warns of increases in global oil inventories ‘particularly in the first half of 2020’
  • In Saudi Arabia, the Aramco IPO has proven to be a wild success; the first day of trading valued the world’s most profitable oil firm at a record US$18.8 trillion, bursting past the target US$2 trillion mark on its second day of trading
  • The valuation will underscore Saudi Arabia’s more aggressive stance at the recent OPEC meeting, balancing a need to ensure compliance with the group’s targets with keeping oil prices at an acceptable level
  • The US active rig count broke a long streak of declines, staying flat last week as a gain of 4 oil rigs was offset by the loss of 4 gas rigs; the overall rig count remained at a 32-month low at 799
  • Optimism over the trade deal will keep crude prices firm, although a lack of details on the deal’s specifics may hold back the market; Brent will remain in the US$64-66/b range, while WTI will trade at US$60-62/b levels

 

Headlines of the week

Upstream

  • Total is deepening its foothold in Libya, with the National Oil Corp approving the French supermajor’s acquisition of Marathon Oil’s assets – including a minority stake in the Waha concessions – for some US$450 million
  • Mexico’s Quesqui deposit – touted as Pemex’s most important find in three decades – might be smaller than expected, with estimates of 500 million barrels of light oil, condensate and gas in place, and output levels of 69,000 b/d
  • Ghana National Petroleum Company and Springfield E&P have announced a ‘significant’ oil discovery offshore Ghana, at the Afina-1 well in the West Cape Three Points Block 2, with some 1.5 billion barrels of oil in place
  • Chevron has sanctioned development on its US$5.7 billion Anchor project in the US Gulf of Mexico – the first deepwater high-pressure development in the industry, capable of handling pressures of up to 20,000 psi – with capacity for 75,000 b/d of crude and 28 mcf/d of natural gas
  • Guyana’s first crude oil exports are expected to begin in January or February 2020, a remarkable turnaround for a country where first oil was only discovered in 2015, with discoveries indicating a potential for 750,000 b/d of production
  • Talos Energy has acquired a portfolio of US Gulf of Mexico assets – from ILX Holdings, Castex Energy and Venari Resources – for some US$640 million, with a current production rate of 19,000 boe/d
  • Malaysian state giant Petronas has raised some US$1.4 billion through block trading of stakes in its subsidiaries Petronas Dagangan, Petronas Gas and MISC in order to raise capital to fund further overseas expansion in the Americas
  • ExxonMobil’s exit from Norwegian upstream is now official, with Var Energi confirming that its acquisition of ExxonMobil’s NCS assets has been completed
  • Equinor has started up its third UK crude project in 2019, with the Barnacle field starting up recently with estimated peak production levels of 4,300 b/d

Midstream/Downstream

  • China has announced the creation of a national oil and gas pipeline company, which will merge the pipeline networks of PetroChina, Sinopec and CNPC into a single firm that aims to streamline infrastructure and drive demand
  • China’s Zhejiang Petroleum & Chemical has launched its 3.8 million tpa reformer unit at its 200,000 b/d Zhoushan refinery, processing naphtha into aromatics alongside existing 1.4 mtpa ethylene and 4 mtpa paraxylene plants
  • Indonesia’s beleaguered drive to improve its refineries might clinch a concrete deal soon, as Pertamina and Saudi Aramco are reportedly ready to sign a deal to upgrade capacity at the Cilacap refinery by 50 kb/d to 400 kb/d in Q1 2020
  • Even as it is finalising the sale of four refineries in Brazil, Petrobras is looking to expand its Comperj refinery with a lubricant plant that will raise blending capacity there to 225,000 cubic metres through a US$400 million investment

Natural Gas/LNG

  • Milestone after milestone is being hit in the US Gulf LNG sector, with Freeport LNG’s Train 1 in Texas starting up commercial production; Freeport LNG Train 2 is expected in January 2020 and Train 3 in May for a total of 15 mtpa
  • Pakistan Energas is aiming to start up the country’s largest LNG import terminal in 2021 pending regulatory approval, with ExxonMobil supporting the project
  • Shell and Husky Energy have reached separate deals with CNOOC to take significant stakes in the giant Lingshui deepwater gas play near Hainan

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Libya & OPEC’s Quota

The constant domestic fighting in Libya – a civil war, to call a spade a spade, has taken a toll on the once-prolific oil production in the North African country. After nearly a decade of turmoil, it appears now that the violent clash between the UN-recognised government in Tripoli and the upstart insurgent Libyan National Army (LNA) forces could be ameliorating into something less destructive with the announcement of a pact between the two sides that would to some normalisation of oil production and exports.

A quick recap. Since the 2011 uprising that ended the rule of dictator Muammar Gaddafi, Libya has been in a state of perpetual turmoil. Led by General Khalifa Haftar and the remnants of loyalists that fought under Gaddafi’s full-green flag, the Libyan National Army stands in direct opposition to the UN-backed Government of National Accord (GNA) that was formed in 2015. Caught between the two sides are the Libyan people and Libya’s oilfields. Access to key oilfields and key port facilities has changed hands constantly over the past few years, resulting in a start-stop rhythm that has sapped productivity and, more than once, forced Libya’s National Oil Corporation (NOC) to issue force majeure on its exports. Libya’s largest producing field, El Sharara, has had to stop production because of Haftar’s militia aggression no fewer than four times in the past four years. At one point, all seven of Libya’s oil ports – including Zawiyah (350 kb/d), Es Sider (360 kb/d) and Ras Lanuf (230 kb/d) were blockaded as pipelines ran dry. For a country that used to produce an average of 1.2 mmb/d of crude oil, currently output stands at only 80,000 b/d and exports considerably less. Gaddafi might have been an abhorrent strongman, but political stability can have its pros.

This mutually-destructive impasse, economically, at least might be lifted, at least partially, if the GNA and LNA follow through with their agreement to let Libyan oil flow again. The deal, brokered in Moscow between the warlord Haftar and Vice President of the Libyan Presidential Council Ahmed Maiteeq calls for the ‘unrestrained’ resumption of crude oil production that has been at a near standstill since January 2020. The caveat because there always is one, is that Haftar demanded that oil revenues be ‘distributed fairly’ in order to lift the blockade he has initiated across most of the country’s upstream infrastructure.

Shortly after the announcement of the deal, the NOC announced that it would kick off restarting oil production and exports, lifting an 8-month force majeure situation, but only at ‘secure terminals and facilities’. ‘Secure’ in this cases means facilities and fields where NOC has full control, but will exclude areas and assets that the LNA rebels still have control. That’s a significant limitation, since the LNA, which includes support from local tribal groups and Russian mercenaries still controls key oilfields and terminals. But it is also a softening from the NOC, which had previously stated that it would only return to operations when all rebels had left all facilities, citing safety of its staff.

If the deal moves forward, it would certainly be an improvement to the major economic crisis faced by Libya, where cash flow has dried up and basic utilities face severe cutbacks. But it is still an ‘if’. Many within the GNA sphere are critical of the deal struck by Maiteeq, claiming that it did not involve the consultation or input of his allies. The current GNA leader, Prime Minister Fayyaz al Sarraj is also stepping down at the end of October, ushering in another political sea change that could affect the deal. Haftar is a mercurial beast, so predictions are difficult, but what is certain is that depriving a country of its chief moneymaker is a recipe for disaster on all sides. Which is why the deal will probably go ahead.

Which is bad news for the OPEC+ club. Because of its precarious situation, Libya has been exempt for the current OPEC+ supply deal. Even the best case scenarios within OPEC+ had factored out Libya, given the severe uncertainty of the situation there. But if the deal goes through and holds, it could potentially add a significant amount of restored crude supply to global markets at a time when OPEC+ itself is struggling to manage the quotas within its own, from recalcitrant members like Iraq to surprising flouters like the UAE.

Mathematically at least, the ceiling for restored Libyan production is likely in the 300-400,000 b/d range, given that Haftar is still in control of the main fields and ports. That does not seem like much, but it will give cause for dissent within OPEC on the exemption of Libya from the supply deal. Libya will resist being roped into the supply deal, and it has justification to do so. But freeing those Libyan volumes into a world market that is already suffering from oversupply and weak prices will be undermining in nature. The equation has changed, and the Libyan situation can no longer be taken for granted.

Market Outlook:

  •  Crude price trading range: Brent – US$41-43/b, WTI – US$39-41/b
  • While a resurgence in Covid-19 cases globally is undermining faith that the ongoing oil demand recovery will continue unabated, crude markets have been buoyed by a show of force by Saudi Arabia and US supply disruptions from Tropical Storm Sally
  • In a week when Iraq’s OPEC+ commitments seem even more distant with signs of its crude exports rising and key Saudi ally the UAE admitting it had ‘pumped too much recently’, the Saudi Energy Minister issued a force condemnation on breaking quotas
  • On the demand side, the IEA revised its forecast for oil demand in 2020 to an annual decline of 8.4 mmb/d, up from 8.1 mmb/d in August, citing Covid resurgences
  • In a possible preview of the future, BP issued a report stating that the ‘relentless growth of oil demand is over’, offering its own vision of future energy requirements that splits the oil world into the pro-clean lobby led by Europeans and the prevailing oil/gas orthodoxy that remains in place across North America and the rest of the world

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September, 22 2020
Average U.S. construction costs for solar and wind generation continue to fall

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.

Solar
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.

average construction costs for solar photovoltaic electricity generators

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

Wind
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.

average construction costs for wind farms

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

Natural gas
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.

average construction costs for natural gas-fired electricity generators

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

September, 17 2020
Fossil fuels account for the largest share of U.S. energy production and consumption

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.

U.S. primary energy production by source

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.

U.S. primary energy overview and net imports share of consumption

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.

U.S. primary energy consumption by source

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

September, 15 2020