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Last Updated: March 13, 2020
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Headline crude prices for the week beginning 9 March 2020 – Brent: US$31/b; WTI: US$27/b

  • A bloodbath has ensued, as the fragile-but-necessary Saudi Arabia-Russia alliance to stabilise crude oil prices shattered into an all-out price war
  • Following Russia’s refusal to participate in and extend the OPEC+ supply deal to 1.5 mmb/d and to the end of 2020 (as proposed by Saudi Arabia), the OPEC+ alliance is over; Saudi Arabia immediately announced it would raise its production to 12 mmb/d and offering steep discounts on its crude for April
  • The largest discounts offered on Arabian crude was for European markets – directly impacting one of Russia’s largest markets – and the Saudi government is planning to go even further, directing Saudi Aramco to raise output to 13 mmb/d for April, which may involve dipping into stocks
  • Saudi Arabia’s drastic move was joined by some of its OPEC allies – including the UAE – and appears to be intended to punish Russia for its reticence to shoulder responsibility, particularly after Vladimir Putin suggested that Russia was ‘content’ with oil prices at US$50/b
  • The aftermath of the price war’s start was that crude oil prices plunged by 31% in a day to their lowest levels in 3-years, triggering a global panic that caused a severe sell-off in all financial and commodity markets, exacerbating a situation already made desperate by the global Covid-19 pandemic
  • The price war between the two oil giants will claim many victims, including other OPEC members dependent on oil revenue like Iraq and Iran, as well as US shale producers that were already in dire straits due to debt; this, indeed, might be the end goal of the Saudi-Russia tiff
  • Although Russia itself is standing firm against Saudi Arabia’s opening salvo – stating that it will raise its output by 500,000 b/d as well – it also hinted that it remains open to further cooperation, although this olive branch may fall on deaf ears in the Saudi Kingdom
  • As the Covid-19 outbreak begins to accelerate in Europe and the US, the global worst case scenario keeps getting worse and worse, as the possibility of several countries going into full lockdown becomes very real
  • The price war kicked off by Saudi Arabia is poised to decimate the US active rig count; the decline is coming, but the Baker Hughes rig count managed a rare gain last week, adding 3 sites for a total of 793
  • With no sign of the price war ending, and the Covid-19 pandemic spreading far and wide, crude oil prices will remain infected with pessimism, although there will be windows for opportunistic trades; wide swings are expected, with Brent is likely to trade between US32-38/b, and WTI at US$28-34/b

 

Headlines of the week

Upstream

  • ExxonMobil announced that it would be slowing its Permian production growth by some 10% over the next two years in the face of the recent havoc on crude prices, in sharp contrast to Chevron that intends to increase Permian output to fund a planned US$80 billion programme of dividends and share buybacks
  • Spirit Energy has sold two ‘non-core’ Danish upstream assets to Ineos, which include its 40% stake in the Hejre and 27.7% stake in the Solsort discoveries
  • ConocoPhillips has sold its US Niobara and Wadell Ranch assets (in the Denver-Julesberg Basin and the Permian Basin) to undisclosed buyers
  • Santos has taken FID on the Van Gogh Infill Development Phase Two project in offshore Western Australia, ramping up production of the heavy-sweet crude produced from the WA-35-L block in the Exmouth Basin
  • Equinor has reported its first oil discovery of 2020, with two wells in the North Sea Sigrun East prospect estimated to contain 7-17 million barrels of oil
  • ExxonMobil and Shell are teaming up to explore for oil offshore Somalia, with a government-approved roadmap converting the companies’ previous concessions into new PSAs under the recently-approved Petroleum Law
  • CNOOC is moving full speed ahead with its seven-year action plan to boost upstream production in China, earmarking US$13.6 billion in CAPEX for 2020

Midstream/Downstream

  • PDVSA’s US refining arm Citgo has reached an agreement with Aruba to transfer the ownership of the 209 kb/d San Nicolas refinery to the island’s government, after failure to overhaul the site idled since 2012
  • Sinopec’s 400 kb/d Maoming refinery has exported its first shipment of low sulfur fuel oil, with Chinese refineries grappling with a fuels glut as domestic demand craters amid the shift towards cleaner marine fuels
  • As its spat with Russia over crude oil deliveries continues, Belarusian state refiner Belneftekhim is turning to Azerbaijan’s SOCAR to fuel its refineries
  • China’s largest refinery – Sinopec’s 460 kb/d Zhenhai refinery – will shut down one of its three CDUs in March for maintenance as domestic demand weakens
  • Eni is reportedly mulling closure of its 100 kb/d Milazzo refinery in Sicily as the site might fail to meet the region government’s air quality requirements
  • Liberia has suspended all fuel import licences – including those of France’s Total – for review as the country deals with severe gasoline shortages, with fears that importers had been grossly overstating their inventories
  • The planned 100,000 b/d grassroots Fort Stockton refinery in Texas – which will refine Permian shale crude – has kicked off two months ahead of schedule

Natural Gas/LNG

  • Sempra Energy’s Cameron LNG Train 2 in Louisiana has reached commercial operations, with Train 3 expected in Q3 2020 for a total of 12 mtpa of LNG
  • Cryopeak LNG Solution has completed a 18,000 gallon/29-ton shipment of LNG by truck in Canada, the largest-ever road shipment of LNG in North America as an alternative LNG distribution channel
  • Eni is reportedly the front-runner to acquire most of Chevron’s gas assets in Indonesia, including the Indonesia Deepwater Development project in the Makassar Strait that involves the Bangka, Gendalo and Gehem fields
  • Santos is poised to sell a 25% stake in Darwin LNG and its feed field Bayu-Undan for some US$390 million to SK E&S, in order to developer the offshore Barossa gas field to keep the Darwin LNG plant going

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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