Easwaran Kanason

Co - founder of NrgEdge
Last Updated: January 8, 2020
39 views
Business Trends
image

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 It has also completely withdrawn from the 2015 nuclear deal (that the US pulled out of in 2018).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.

Recent US-Iran conflict and crude prices:

  • 6 December 2019: Brent – US$64/b
  • 31 December 2019: Aftermath of attack on US Embassy in Baghdad by Iranian-backed militia, Brent - US$66/b
  • 6 January 2019: Aftermath of US assassination of Major General Qaseem Soleimani in Iraq, Brent – US$70/b

Read more:
iran iraq america usa middle-east proxy war oil prices
3
2 1

Something interesting to share?
Join NrgEdge and create your own NrgBuzz today

Latest NrgBuzz

EIA expects U.S. energy-related CO2 emissions to decrease annually through 2021

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.

U.S. annual carbon emissions by source

Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2020
Note: CO2 is carbon dioxide.

January, 21 2020
Latest issue of GEO ExPro magazine covers Europe and Frontier Exploration, Modelling and Mapping, and Geochemistry.

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.

You can download the PDF of GEO ExPro magazine for FREE and sign up to GEO ExPro’s weekly updates and online exclusives to receive the latest articles direct to your inbox.

Download GEO ExPro Vol. 16, No. 6

January, 20 2020
Your Weekly Update: 13 - 17 January 2020

Market Watch   

Headline crude prices for the week beginning 13 January 2020 – Brent: US$64/b; WTI: US$59/b

  • Tensions in the Persian Gulf have abated, but not disappeared, as both the US and Iran stepped back from going to war; the buck, so far, has stopped with Tehran’s retaliation to the US assassination of its top general with a barrage of missile strikes at US bases in Iraq
  • The underlying situation is still fragile, with the Iranian population swinging from supporting the government to protesting its accidental downing of a commercial Ukraine Airlines plane; with the risk of war easing, crude prices have fallen back to their pre-crisis levels
  • However, American and foreign oil companies have pulled their staff from crude fields in northern Iraq and Kurdistan, including Chevron, as the oil industry in Iraq monitors the risk – and consequences – of military action
  • In precaution, oil tankers have begun boosting their rates once again to haul crude through the Persian Gulf, with quoted rates now at their highest level since the 2019 attacks on ships passing through the narrow straight
  • Although political tensions remain fresh, Saudi Arabia said that OPEC and the OPEC+ club were instead focused on using their window of production cuts to reduce excess oil stockpiles to levels ‘within the contours of 2010-2014’
  • In the US, not only is shale output staying strong, but production in the US Gulf of Mexico also made history, exceeding 2 mmb/d for the first time ever in 2019, beating the previous high recorded in 2018
  • Worries about the health of global oil demand persist… although the US and China signed a Phase 1 trade deal, the agreement is more about halting escalation of the trade war than repairing inflicted damage; a slowdown in Chinese economic growth could lead to oil demand growth halving in 2020 in China according to CNPC
  • The US active rig count fell for a second consecutive week, losing 15 rigs – 11 oil and 4 gas – for the 17th weekly decline of the past 20 weeks; losses in the Permian were once again high, shedding a total of 6 rigs
  • Crude oil prices should remain rangebound with Brent at US$63-65/b and WTI at US$57-59/b, as the market retreats back to its ever-present worries about demand while geopolitical risk premiums scale back


Headlines of the week

Upstream

  • Guyana’s success is now extending to its neighbours, with Total and Apache announcing a ‘significant’ oil discovery at their Maka Central-1 well in Suriname’s Block 58, which lies adjacent to the prolific Stabroek Block
  • BP has agreed to sell its operating interest in the UK North Sea’s Andrew assets – including the Andrew platform as well as the Andrew, Arundel, Cyrus, Farragon, and Kinnoull fields – along with its 27.5% non-operating interest in the Shearwater field to Premier Oil for some US$625 million
  • Liberia will kick start its next offshore licensing round in April 2020, offering nine blocks in the Harper basin, one of the few offshore regions in West Africa that remains unexplored and undrilled
  • Equinor has extended the life of its Statfjord assets beyond 2030, with plans to commission up to 100 new wells over the next decade, deferring decommissioning with a goal of maintaining current output levels beyond 2025
  • After Murphy Oil, Petrofac and ExxonMobil, Repsol is the latest major considering an upstream exit from Malaysia, covering assets that include six development blocks and the major Kinabalu oilfield in Sabah
  • Senegal’s government has approved Woodside’s offshore Sangomar Field Development, which will involve the drilling of 23 subsea wells and a FPSO with the capacity to process up to 100,000 b/d of crude
  • Equinor has announced plans to reduce greenhouse gas emissions from its offshore fields and onshore plants in Norway by 40% by 2030, 70% by 2040 and to near zero by 2050 from 2019 levels

Midstream/Downstream

  • Shell is reportedly seeking buyers for its 144 kb/d Anacortes refinery in Washington state, which would be its third North American sale in two years after divesting its Martinez refinery in California and Sarnia refinery in Ontario
  • Shell has announced plans to increase its share of the Mexican fuel market to 15%, which would require considerable growth in its network of 200 fuel stations in 12 states that currently represent 1% of the market
  • Occidental Petroleum plans to reduce its holdings in Western Midstream Partners – acquired as part of its controversial takeover of Anadarko – to less than 50%, potentially removing up to US$7.8 billion of debt

Natural Gas/LNG

  • Sempra Energy and Saudi Aramco have signed an agreement that will see the Saudi giant play a bigger part in the planned 22 million tpa Port Arthurt LNG project, following an existing agreement to purchase 5 mtpa signed in May 2019
  • Kuwait Petroleum Corp has agreed to purchase 3 million tpa of LNG from Qatar Petroleum for 15 years beginning 2022, with Kuwait remaining one of the few countries in the Middle East that remain neutral to the Saudi-Qatar standoff
  • ExxonMobil has signed an agreement with midstream company Outrigger Energy II to build a 250 mmscf/d cryogenic gas processing, gathering and pipeline system in the Bakken’s Williston Basin in North Dakota
  • The Larak gas field in Sarawak has achieved first gas, operated by SapuraOMV Upstream as part of the SK408 PSC that includes the Gorek and Bakong fields, with output planned to be processed into LNG at Petronas’ Bintulu complex
  • Russia’s TurkStream natural gas pipeline – connecting Russia, Turkey, Bulgaria and eventually Serbia and Hungary - has officially begun operations, delivering up to 13 bcm of Russian gas that can be rerouted from the Ukraine route
January, 17 2020