It was barely a week into the year 2020 that crude markets got its first shake-up. On January 3 2020, upon touching down at Baghdad International Airport, Iranian Major General Qaseem Soleimani was targeted by a US MQ-9 Reaper drone. Once Soleimani’s convoy got on the road, the drone fired several missiles, killing 10 people in the convoy, including Soleimani.
US President Donald Trump said the airstrike was ordered to ‘stop a war’, and warned Iran not to retaliate. Reports from Washington D.C., however, suggest that the assassination had been planned for months, rather than to prevent ‘imminent and sinister attacks on American (citizens)’. No further details were provided regarding Soleimani’s alleged plans, but his killing has been called a ‘massive blow to the regime’ and ‘bigger than (the assassination of) Osama bin Laden’. Soleimani was a powerful figure within the Iranian Revolutionary Guards, respected for his strategic viewpoints and in charge of the extraterritorial military Quds Force. Iran – as it must – promised retribution, offering a US$80 million bounty for the killing of Donald Trump. It has also completely withdrawn from the 2015 nuclear deal (that the US pulled out of in 2018). With both sides sabre-rattling, the assassination has brought the US and Iran to the closest point of war since the 1979 revolution. The attacks on crude oil tankers in the Persian Gulf last year had plausible deniability; this move was brazen and blatant. Far from preventing a war, it could be the spark to ignite a new one.
There is an even bigger dimension to consider. The assassination happened not in Iran or international waters, but on foreign sovereign soil. The last time the US killed a major military leader in a foreign country was in 1943, when Japanese Admiral Isoroku Yamamoto’s plane was shot down over the Solomon Islands. The Iraqi government was incensed – particularly because Soleimani had flown to Baghdad to discuss moves to ease regional tensions between Iran and Saudi Arabia that has gripped the entire region in a series of conflicts, from the Qatar blockade to the Yemeni civil war. Iraqi Prime Minister Adil Abdul-Mahdi stopped short of accusing Trump to luring Soleimani into a trap, but stated pointedly that just hours before the attack, Trump had asked him to mediate following the recent Iranian-led attack on the US embassy in Baghdad. In an extraordinary session, the Iraqi parliament voted to expel all American troops from the country, with Abdul Mahdi saying that ‘Iraqi priorities and the US are increasingly at odds’. Predictably, Trump reacted aggressively – threatening sanctions and demanding compensation for bases. But for a country where the scars of war are still very fresh, Iraq does not want to be a stage for a proxy US-Iran war. And the security of the American forces themselves are in jeopardy, given the infuriated reaction by Iraqi citizens and politicians.
As news of the assassination broke, crude oil prices spiked. Brent prices went as high as US$70.60/b in the immediate aftermath, as the threat of war was assessed. Though prices have since abated slightly, they still remain some US$3/b higher than the pre-assassination levels. The question now is: how will Iran react, not when…and what will be the impact on crude prices? Given the slight thaw between Iran and Saudi Arabia, it seems unlikely that Iran would strike US-allies in the region – especially with Crown Prince Mohmmed bin Salman sending his deputy defence minister to Washington to urge restraint. However, a cornered Iran is a dangerous Iran. Still, Iran is more likely to target an explicit US asset for its revenge. And the tit-for-tat could continue until war breaks out. If the war stays contained within Iran, then there won’t be much impact on crude supply, given that Iranian crude exports are already at low levels from sanctions. But if the conflict spills over to neighbouring Iraq, up to 4 million b/d of crude could be affected. Avoiding a war is still the best option, but if war does break out in the Middle East, crude oil prices are in for a rollercoaster ride.
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In its latest Short-Term Energy Outlook (STEO), released on January 14, the U.S. Energy Information Administration (EIA) forecasts year-over-year decreases in energy-related carbon dioxide (CO2) emissions through 2021. After decreasing by 2.1% in 2019, energy-related CO2 emissions will decrease by 2.0% in 2020 and again by 1.5% in 2021 for a third consecutive year of declines.
These declines come after an increase in 2018 when weather-related factors caused energy-related CO2 emissions to rise by 2.9%. If this forecast holds, energy-related CO2 emissions will have declined in 7 of the 10 years from 2012 to 2021. With the forecast declines, the 2021 level of fewer than 5 billion metric tons would be the first time emissions have been at that level since 1991.
After a slight decline in 2019, EIA expects petroleum-related CO2 emissions to be flat in 2020 and decline slightly in 2021. The transportation sector uses more than two-thirds of total U.S. petroleum consumption. Vehicle miles traveled (VMT) grow nearly 1% annually during the forecast period. In the short term, increases in VMT are largely offset by increases in vehicle efficiency.
Winter temperatures in New England, which were colder than normal in 2019, led to increased petroleum consumption for heating. New England uses more petroleum as a heating fuel than other parts of the United States. EIA expects winter temperatures will revert to normal, contributing to a flattening in overall petroleum demand.
Natural gas-related CO2 increased by 4.2% in 2019, and EIA expects that it will rise by 1.4% in 2020. However, EIA expects a 1.7% decline in natural gas-related CO2 in 2021 because of warmer winter weather and less demand for natural gas for heating.
Changes in the relative prices of coal and natural gas can cause fuel switching in the electric power sector. Small price changes can yield relatively large shifts in generation shares between coal and natural gas. EIA expects coal-related CO2 will decline by 10.8% in 2020 after declining by 12.7% in 2019 because of low natural gas prices. EIA expects the rate of coal-related CO2 to decline to be less in 2021 at 2.7%.
The declines in CO2 emissions are driven by two factors that continue from recent historical trends. EIA expects that less carbon-intensive and more efficient natural gas-fired generation will replace coal-fired generation and that generation from renewable energy—especially wind and solar—will increase.
As total generation declines during the forecast period, increases in renewable generation decrease the share of fossil-fueled generation. EIA estimates that coal and natural gas electric generation combined, which had a 63% share of generation in 2018, fell to 62% in 2019 and will drop to 59% in 2020 and 58% in 2021.
Coal-fired generation alone has fallen from 28% in 2018 to 24% in 2019 and will fall further to 21% in 2020 and 2021. The natural gas-fired generation share rises from 37% in 2019 to 38% in 2020, but it declines to 37% in 2021. In general, when the share of natural gas increases relative to coal, the carbon intensity of the electricity supply decreases. Increasing the share of renewable generation further decreases the carbon intensity.
Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2020
Note: CO2 is carbon dioxide.
GEO ExPro Vol. 16, No. 6 was published on 9th December 2019 bringing light to the latest science and technology activity in the global geoscience community within the oil, gas and energy sector.
This issue focusses on oil and gas exploration in frontier regions within Europe, with stories and articles discussing new modelling and mapping technologies available to the industry. This issue also presents several articles discussing the discipline of geochemistry and how it can be used to further enhance hydrocarbon exploration.
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Headline crude prices for the week beginning 13 January 2020 – Brent: US$64/b; WTI: US$59/b
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