Easwaran Kanason

Co - founder of NrgEdge
Last Updated: July 26, 2020
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Business Trends
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Amid the unprecedented upheaval that has taken its toll on the world and, in particular the energy industry in the first half of this year, life goes on. Despite shut-ins, weak prices, huge impairments, gloomy forecasts and business challenges, life still goes on. Rigs are still running, exploration is still being conducted and projects are still being approved. The oil and gas world has weathered a huge storm, but that has not stopped it from focusing on necessary work that is vital for the future of the industry itself and the global economy. We have summarised a list of key upstream announcements and developments since April.

One of the major headlines that came out over the past three months was news that Total’s giant LNG in Mozambique has secured as much as US$16 billion in funds from various financial institutions. This is the single largest foreign direct investment project in Africa ever, matching the total current GDP of Mozambique. The speed at which Total completed financing for the US$23 billion project (which taps in the gigantic Golfinho and Atum natural gas fields) is quite remarkable, when the ExxonMobil-led Rovuma LNG next door is facing delays. In fact, the funding raised US$600 million than expected, representing the faith that the 13.1 million ton per annum project, potentially expandable to 43 mtpa, will pay off in the long run. For Total, this will be a hedge, given that its LNG efforts in Papua New Guinea are currently still stymied by a showdown against the country’s new government.

Chevron also had some major news to publish. After failing to acquire Anadarko in 2019 in a dramatic storyline against Occidental Petroleum, the US supermajor has swooped in to acquire US independent Noble Energy for some US$5 billion. The acquisition neatly replaces what the original Anadarko purchase was supposed to achieve – expand Chevron’s presence in the prolific US onshore shale basins, with Noble’s 92,000 acres in the Permian noted as being ‘largely contiguous and adjacent’ to Chevron’s current assets. Noble will also bring with it established positions in the Eagle Ford basin, significant US midstream assets and upstream assets in Israel and Equatorial Guinea, swelling Chevron’s proven oil and gas reserves by 18%. For that amount of potential, the price is a steal. With smaller shale players under pressure, expect more acquisitions of this sort to be announced by deep-pocketed bargain hunters.

Chevron wasn’t the only one to make acquisitions. ConocoPhillips splashed out US$375 million to take up land in Western Canada’s liquids-rich Montney formation, taking the Inga-Fireweed asset from Kelt Exploration. Trident Energy completed its purchase of 10 concessions in the offshore Pampo and Enchova clusters in Brazil from Petrobras. And trader Vitol announced a rara avis, a new US upstream venture called Vencer Energy, focusing on acquiring and operating mature assets in the US Lower 48 region from its base in Houston.

New discoveries have also been coming at a regular speed. Despite divesting assets, Petrobras announced two new discoveries in the offshore Buzios and Albacora pre-salt fields, with reserves of ‘excellent quality’. Eni continues its winning run in Egypt with the new Bashrush natural gas discovery in the Mediterranean Sea, while MOL made its lucky 13th discovery in Pakistan with the Mamikhel South-1 well (the tenth in the TAL Block alone) that revealed ‘significant gas and condensate reserves’. ExxonMobil has restarted two of its four drillships in Guyana and Petronas has handed out contracts in Suriname, so more discoveries are due from that part of the Caribbean. Neptune Energy hit oil at the Dugong well in the Norwegian North Sea, and China’s CNOOC announced a ‘significant discovery’ at the Huizhou 26-6 well in the Pearl River Mouth Basin – the first mid-to-large sized oil and gas field in the area.

CNOOC will be hoping the Huizhou discovery will continue its streak of recent discoveries, boosting domestic Chinese upstream output. Its Luda 21-2/16-3 asset, in the Bohai Sea’s Liaodong Bay, has just started up production, reaching a peak of 25,600 b/d in 2022. Sinopec is also marshalling resources, announcing a US$770 million plan to develop the Dingbei gas prospect in Ningxia and its 230 bcm of natural gas.

Medco reported first gas from the Meliwis field off East Java in Indonesia from an unmanned platform, while the National Iranian Oil Co shrugged off a domestic economic crisis to partner with Persia Oil and Gas Industry Development Co for US$463 million to re-develop the Yaran field in the Khuzestan Province, raising output by 40 million barrels over 10 years. And then in frozen Siberia, where Novatek is speeding ahead with LNG, Gazprom Neft and Shell have agreed to collaborate on developing the Leskinsky and Pukhutsyayakhshy blocks in the Gydan Peninsula: an unusual display of cooperation between a Russian state firm and a Western supermajor.

This is not an exhaustive list of recent developments in the upstream oil and gas corner of the universe. They are the most notable, but there are other signs that the thaw is coming and the industry can recover and begin to grow again. Covid-19 may be something that we must all learn to live with going forward, but life will always go on, and this too shall pass.

Market Outlook:

  • Crude price trading range: Brent – US$42-44/b, WTI – US$40-42/b
  • Global crude oil price markers remain stuck in the lower US$40/b area, as concerns of demand linger given the accelerating rate of Covid-19 in the Americas
  • News that OPEC+ was looking for a gradual phasing into the new supply quota level provides some support on the supply side, while key developments in potential Covid-19 vaccines indicate that first availability could be as early as September
  • A massive stimulus package agreed by the EU and positive messaging of recovery in Asia after two quarters of bad economic data also offer hope that growth could resume soon, though global trends are likely to be uneven given the situation in the Americas

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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