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The Geopolitical Implications of Future Oil Demand

The Geopolitical Implications of Future Oil Demand

Chatham House Energy, Environment and Resources Department produced this research paper dated August 14, 2019, of Professor Paul Stevens, Distinguished Fellow, Energy, Environment and Resources. It is about The Geopolitical Implications of Future Oil Demand. The study’s Summary is reproduced below.

The Geopolitical Implications of Future Oil Demand

The global energy economy is undergoing a rapid transition from ‘hydrocarbon molecules to electrons’: in other words, from fossil fuels to renewables and low-carbon electricity. Leading energy industry players and analysts – the energy-forecasting ‘establishment’ – are seriously underestimating the speed and depth of this transition. This in part reflects the vested interests that dominate that establishment. By contrast, the financial sector – which has little or no vested interest in fossil fuels – understands what is going on and is taking the transition on board.

The history of past energy transitions – including the US’s shift from wood to coal in the late 19th and early 20th centuries, and the French adoption of nuclear power on a wide scale in the 1980s – provides useful context for analysis of this trend. Such transitions have been triggered by factors ranging from market upheaval to technological change, with the technological element typically reinforcing the transition.

A similar dynamic, involving triggers and reinforcing factors, is in evidence today. The current transition in the global energy system has been triggered, in the first instance, by concerns over climate change and recognition of the imperative of shifting to a lower-carbon economy. In some places, growing concerns over urban air quality have overtaken climate change as a driver of government policy in support of the transition. The reinforcing factors include the falling costs of renewables and the rapid market penetration of electric vehicles (EVs). To these factors can be added ongoing uncertainty over the possibility of another oil price shock; and rises in oil product prices that are independent of movements in crude oil prices – a phenomenon sometimes known as ‘OECD disease’.

If the transition to renewables and low-carbon electricity happens faster than the energy establishment anticipates, the implications for exporters of oil and for the geopolitics of oil will be very serious. For example, the failure of many oil-exporting countries to reduce their dependence on hydrocarbon revenues and diversify their economies will leave them extremely vulnerable to reduced oil and gas demand in their main markets. The countries of the Middle East and North Africa (MENA) region will be particularly exposed, with the possible consequences including an increase in the incidence of state failure in a region already suffering the fallout from having signally failed to address the causes of the Arab uprisings since 2011. Increased political and economic turbulence in the MENA region would also have the potential to create serious migration problems for Europe.

The geopolitics of oil over the past 120 years have played a central role in international relations. Indeed some would argue that geopolitical rivalry over access to, and control of, oil supplies has been the source of much of the conflict witnessed in the 20th century (Yergin, 1991). The rise of renewables implicit in the current energy transition could well change this status quo. Renewables are widely used and widely produced. Currently, their availability is constrained neither by the agendas of dominant fuel suppliers nor by the threat of physical disruption to the strategic transit routes along which traded resources are typically shipped. There are certainly supply constraints associated with some minerals required for renewable energy technologies, but these hardly compare with the conflicts around oil supply, and most such constraints, in any case, are easily managed. Thus, as this energy transition proceeds, oil geopolitics will begin to fade away as an issue of concern.

The paper (ISBN978 1 78413 325 2) DOWNLOAD PDF914 KB

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Fracking Boom in US and Canada Largely to Blame

Fracking Boom in US and Canada Largely to Blame

Other countries such as Algeria, people have objected quite strongly at times, to anything to do with fracking out fossil fuel from the ground using water from its invaluable phreatic water. More recently, it is found as elaborated in Fracking Boom in US and Canada Largely to Blame for ‘Massive’ Rise of Global Methane Levels: Study, that it is no more a question of water use only, but as put mildly in Common Dreams, in this article below as a matter far more lethal for life on earth.

While the rise of methane in the Earth’s atmosphere over the past decade has been “globally significant,” quick action to end fracking would have a rapid, positive impact on the environment by Julia Conley, Staff writer.

A new study out of Cornell University suggests that fracking in the U.S. and Canada over the past decade is largely to blame for the rise of methane in the Earth’s atmosphere. (Photo: Jeff Wallace/flickr/cc)

New research by a scientist at Cornell University warns that the fracking boom in the U.S. and Canada over the past decade is largely to blame for a large rise in methane in the Earth’s atmosphere—and that reducing emissions of the extremely potent greenhouse gas is crucial to help stem the international climate crisis.

Professor Robert Howarth examined hydraulic fracturing, or fracking, over the past several decades, noting the fracking boom that has taken place since the first years of the 21st century. Between 2005 and 2015, fracking went from producing 31 billion cubic meters of shale gas per year to producing 435 billion cubic meters.

Nearly 90 per cent of that fracking took place in the U.S., while about 10 per cent was done in Canada.

The fracking method was first used by oil and gas companies in 1949, but Howarth concluded that fracking done in the past decade has particularly contributed to the amount of methane in the atmosphere. As Kashmira Gander wrote at Newsweek:

While methane released in the late 20th century was enriched with the carbon isotope 13C, Howarth highlights methane released in recent years features lower levels. That’s because the methane in shale gas has depleted levels of the isotope when compared with conventional natural gas or fossil fuels such as coal, he explained.

“The methane in shale gas is somewhat depleted in 13C relative to conventional natural gas,” Howarth wrote in the study, published Wednesday in the journal Biogeosciences. “Correcting earlier analyses for this difference, we conclude that shale-gas production in North America over the past decade may have contributed more than half of all of the increased emissions from fossil fuels globally and approximately one-third of the total increased emissions from all sources globally over the past decade.”

“The commercialization of shale gas and oil in the 21st century has dramatically increased global methane emissions,” he added.

Other scientists praised Howarth’s study on social media.

In addition to being the second-biggest contributor to the climate crisis after carbon dioxide, methane has been known to cause and exacerbate health issues for people who live in areas where large amounts of the gas is present in the environment.

Chest pains, bronchitis, emphysema, and asthma can all be caused or worsened by high levels of methane. The process of fracking has also been linked to pollution in drinking water.

The Trump administration has no plans to reduce the amount of fracking that is taking place in the U.S.—rather, President Donald Trump has moved to open up public lands to gas and oil companies looking to purchase leases for fracking.

Howarth urged fossil fuel companies—and the government agencies charged with regulating them—to reverse course, shift to a renewable energy economy, and “move as quickly as possible away from natural gas, reducing both carbon dioxide and methane emissions.”

Cutting emissions of methane promptly would have a positive impact on the atmosphere and could help to slow the climate crisis because the atmosphere reacts quickly to the addition and subtraction of the gas.    

“This recent increase in methane is massive. It’s globally significant. It’s contributed to some of the increase in global warming we’ve seen and shale gas is a major player,” Howarth said in a statement.

“If we can stop pouring methane into the atmosphere, it will dissipate,” he added. “It goes away pretty quickly, compared to carbon dioxide. It’s the low-hanging fruit to slow global warming.”

Aramco Takes a Beating by S. Jack Heffernan

Aramco Takes a Beating by S. Jack Heffernan

Lots are happening as far as fossil fuels are concerned, whether in the MENA region or elsewhere. For instance, Aramco Takes a Beating by S. Jack Heffernan, PhD was published on LiveTradingNews of August 12, 2019.

It is yet another piece of information from the trading world ups and downs that seem to demonstrate the ephemeral character of all hydrocarbons related businesses. In effect, Aramco Takes a Beating, as an article clearly shows how traders apart from their daily routines visualise their emotional involvement.

Aramco Takes a Beating by S. Jack Heffernan

Saudi state-owned energy giant Aramco said Monday its first-half net income for 2019 had slipped to $46.9 billion, a first such disclosure for the secretive company ahead of its debut earnings call.

“The company’s net income was $46.9 billion for the first half (of) 2019, compared to $53.0 billion for the same period last year,” the company said in a statement.

The fall in income, owing to lower oil prices, comes amid renewed speculation the company was preparing for its much-delayed overseas stock listing.

“Despite lower oil prices during the first half of 2019, we continued to deliver solid earnings and strong free cash flow,” Aramco CEO Amin Nasser was quoted as saying in the statement.

It is the first time the company has published half-year financial results and comes after Aramco opened its secretive accounts for the first time in April as it prepares to raise funds from investors.

It made no mention of the planned initial public offering in Monday’s statement.

Crown Prince Mohammed bin Salman has previously said the IPO — dubbed as potentially the world’s biggest stock sale — would take place in late 2020 or early 2021.

Saudi Arabia plans to sell up to five per cent of the world’s largest energy firm and hopes to raise up to $100 billion.

The planned IPO forms the cornerstone of a reform programme envisaged by Prince Mohammed to wean the Saudi economy off its reliance on oil.

Saudi Arabia has not announced where the listing will be held, but London, New York and Hong Kong have all vied for a slice of the much-touted IPO.

View all posts by S. Jack Heffernan, PhD

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S. Jack Heffernan Ph.D is CEO at HEFFX.

S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several startups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen startups in Mining, Shipping, Technology and Financial Services.1

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Saudi Arabia struggles to end oil addiction

Saudi Arabia struggles to end oil addiction

Reuters’ BUSINESS NEWS on July 25, 2019, posted this article titled Old habits die hard: Saudi Arabia struggles to end oil addiction written by Rania El Gamal and Saeed Azhar to clearly show us how things of fossil fuels nature tend not to change a bit if not at all and despite all efforts to the contrary.

DUBAI (Reuters) – When Saudi Aramco was on the verge of a deal last year to buy a stake in an Indian oil refinery, its boss quickly boarded a company jet in Paris and flew to New Delhi.

FILE PHOTO: Saudi Energy Minister Khalid al-Falih addresses the media flanked by India’s Oil Minister Dharmendra Pradhan (L) and Saudi Aramco Chief Executive Officer Amin Nasser (R) during International Energy Forum (IEF) to announce Saudi Aramco’s participation in a planned refinery project in the western state of Maharashtra, in New Delhi, India, April 11, 2018. REUTERS/Altaf Hussain/File Photo

Chief executive Amin Nasser arrived unannounced early on April 11, 2018, finalised the agreement and signed it later that day. Negotiators had just finished hammering out the details.

His last-minute flight, after a business trip to France with Crown Prince Mohammed bin Salman, underlined the importance of the deal both to Saudi Arabia and its huge state oil firm.

The planned investment in the $44-billion (£35 billion) refinery and petrochemical project on India’s west coast is a prime example of how Aramco is trying to squeeze value out of each barrel of oil it produces by snapping up refining capacity, mainly in fast-growing Asia.

But it also underlines the challenge Saudi Arabia faces in reducing its heavy economic reliance on oil. The results of its programme to diversify have been mixed, some projects are moving slowly and others are too ambitious, economic and energy analysts say.

Prince Mohammed’s stated goal of being able to “live without oil” by as early as 2020 looks set to be missed.

“Saudi Arabia’s oil addiction is as strong as ever…economically, of course, the Saudi economy runs on oil. Oil still dominates GDP, exports and government revenues,” said Jim Krane, energy fellow at Rice University’s Baker Institute.

“That said, Saudi Arabia is changing its relationship with oil. The dependence remains. But the kingdom is squeezing more value out of its oil,” he said.

The slow progress means the Saudi economy is likely to remain hostage to oil prices for longer than planned. Any delay in implementing change also risks denting Prince Mohammed’s image as a reformer.

SECURING THE FUTURE

Announcing his plan three years ago, the Crown Prince said Saudi Arabia must end its “oil addiction” to ensure the world’s biggest oil exporter and second largest producer cannot be “at the mercy of commodity price volatility or external markets.”

He spoke after a fall in crude oil prices boosted the Saudi fiscal deficit to about 15% of gross domestic product in 2015, slowing government spending and economic growth.

This year the deficit could hit 7% of GDP, according to the International Monetary Fund, as oil-related growth slows following production cuts led by the Organization of the Petroleum Exporting Countries.

Aramco is central to the Crown Prince’s reform plan in several ways, not least because its planned partial privatisation will generate income for the reforms.

The company has also been involved in most of the kingdom’s high-profile deals in the last two years as it increased investment in refining and petrochemicals.

In that time, Aramco has announced at least $50 billion worth of investments in Saudi Arabia, Asia and the United States. It aims to almost triple its chemicals production to 34 million metric tons per year by 2030 and raise its global refining capacity to 8-10 million barrels per day (bpd) from more than 5 million bpd.

In March last year, Aramco finalised a deal to buy a $7 billion stake in a refinery and petrochemicals project with Malaysia’s Petronas. A month later, Nasser and a consortium of Indian companies signed the initial deal that would give Aramco a stake in the planned 1.2 million bpd refinery in India’s western Maharashtra state.

In February of this year, Aramco signed a $10 billion deal for a refining and petrochemical complex in China. Last month it signed 12 deals with South Korea worth billions of dollars, ranging from ship building to an expansion of a refinery owned by Aramco.

“This is what I call the back to basics approach to economic diversification in the Gulf,” said Robin Mills, chief executive of energy consultancy Qamar Energy in Dubai. “The energy industry has the assets, capital and skills, so it’s the engine of new projects – refining, petrochemicals, gas and so on.”

MR UPSTREAM LOOKS DOWNSTREAM

In March, Aramco said it was acquiring a 70 percent stake in petrochemicals firm Saudi Basic Industries (SABIC) (2010.SE) for $69.1 billion from the national wealth fund, known as the Public Investment Fund (PIF).

Aramco is gaining new markets for its crude and building a global downstream presence – the refining, processing and purifying end of the production line. Its aim is to become a global leader in chemicals.

“We are not investing left and right, we are investing in the right markets, we are investing in the right refining assets, we are investing where we create value from fuels to chemicals,” Abdulaziz al-Judaimi, Aramco’s Senior Vice President for Downstream, told Reuters in May.

Nasser, previously known by Aramco employees as Mr Upstream, is leading the downstream expansion. He wants to bring Aramco’s refining capacity closer to its oil production potential, which is now at 12 million bpd.

Aramco wants gradually to match the downstream presence of its big competitors and, like Saudi Arabia as a whole, to reduce its vulnerability to any downturn in demand for crude oil or oil price volatility.

“You want to secure your demand in key markets,” said an industry source familiar with Saudi Arabia’s oil plans. “You have to become more dynamic, to become more adaptable, you have to make sure that you secure your future. Malaysia was one example, India was another.”

For years, Aramco has been a regular crude supplier to Indian refiners via long-term crude contracts.

Yet while it has stakes in refineries or storage assets in other important Asia markets such as China, Japan and South Korea – and owns the largest refinery in the United States – it has not secured that same access in India, a fast-growing market for fuel and petrochemicals.Slideshow (2 Images)

“India is a market that you just can’t ignore anymore,” an industry source said.

Aramco has also shifted its marketing strategy in China. It is now more oriented towards independent refiners to boost Saudi crude sales after years of dealing almost exclusively with state-owned Chinese firms.

SLOW PROGRESS

But overall, plans to wean Saudi Arabia of oil have advanced slowly.

Few details have emerged of a $200-billion solar power-generation project announced by the PIF and Japan’s SoftBank in March 2018. It is unclear how or when the project will be executed, and Saudi’s Arabia’s energy ministry is moving ahead with its own solar projects.

In a blow to potential investment, the image of Saudi Arabia and the reputation of the Crown Prince have been damaged by the murder of journalist Jamal Khashoggi in the Saudi consulate in Istanbul last year.

Leading businessmen and politicians boycotted an investment forum meant to showcase the kingdom’s new future away from oil, and it was only big deals with Aramco that saved it.

Also, the partial privatisation of Aramco has been delayed since it set out its plans to acquire the stake in SABIC, though senior Saudi officials including Energy Minister Khalid al-Falih have said it could now happen in 2020-2021.

The PIF, chaired by Prince Mohammed, was meant to receive around $100 billion from the flotation. Instead it will get around $70 billion from the sale of its SABIC stake.

The PIF made its mark on the global stage three years ago by taking a $3.5- billion stake in Uber Technologies. But since 2016, the PIF’s direct investments overseas stand at just $10.5 billion, according to Refinitiv data, and many of the fund’s announced commitments have yet to materialise.

The funds’ main investments over the past two years were inequity shares in companies such as electric car makers Tesla (TSLA.O) and Lucid Motors and Gulf e-commerce platform Noon.com.

Such deals would not necessarily attract inward foreign investment, help develop industries or create jobs.

Additional reporting by Marwa Rashad and Hadeel Al Sayegh; writing by Rania El Gamal; editing by Ghaida Ghantous and Timothy Heritage

Our Standards: The Thomson Reuters Trust Principles.

Could OPEC play second fiddle to US’s oil boom?

Could OPEC play second fiddle to US’s oil boom?

With America’s oil boom, OPEC is stuck in retreat as demonstrated in this June 11, 2019, post of CNN’s. The MENA mainstream media are shouting: Could OPEC play second fiddle to US’s oil boom? In any case, a new world order seems to be taking shape with respect to the world’s energy generation, production and trade.

In the meantime, here is CNN’s view on this seemingly fight between Shale and conventional fossil fuel type of commerce.

Could OPEC play second fiddle to US’s oil boom?

America’s oil boom will break more records this year. OPEC is stuck in retreat

By Matt EganCNN Business

New York (CNN Business) The epic American oil boom is just getting started. OPEC, on the other hand, is stuck on the sidelines. US oil production is on track to spike to a record 13.4 million barrels per day by the end of 2019, according to a recent report by energy research firm Rystad Energy. Texas alone is expected to soon top 5 million barrels per day in oil production — more than any OPEC member other than Saudi Arabia. Oil plunges back into bear market The surge in American barrels — led by the Permian Basin in West Texas — has offset oil blocked by US sanctions on Venezuela and Iran. But all of that US oil is also contributing to a supply glut that last week sent crude into another bear market. OPEC has been forced to scale back its output — a trend that could continue as the cartel tries to prop prices back up. “We continue to see the Permian representing the key driver of global oil supply growth for the next five years,” Goldman Sachs analyst Brian Singer wrote to clients on Monday.

US daily output could soon top 14 million

The shale oil revolution has made the United States the world’s leading producer, surpassing Saudi Arabia and Russia. The ferocity of the US shale oil revolution has caught analysts off guard several times over the past decade. Rystad Energy ramped up its year-end US output forecast by 200,000 to 13.4 million barrels per day. In May, the United States likely produced a record 12.5 million barrels of oil per day, the firm added. All but four million of those barrels were from shale oilfields. That growth is expected to continue. The United States is on track to end 2020 by producing 14.3 million barrels per day, Rystad projects. That’s slightly higher than the firm previously estimated and nearly triple 2008’s output. Of course, analysts could have to rein in those blockbuster forecasts if oil prices crash significantly further. That would force American frackers to preserve cash and pull back on production.

OPEC’s production hits five year low

OPEC remains in retreat as the cartel tries to balance the market by putting a floor beneath prices. OPEC’s oil production tumbled to 29.9 million barrels per day in May, the lowest level in more than five years, Rystad said. OPEC output is down 2.6 million per day since October 2018 — the month before oil prices crashed into the last bear market. Khalid al-Falih, Saudi Arabia’s energy minister, said on Friday that OPEC is close to a deal to extend its production cuts. Those cuts, which Saudi Arabia has borne the brunt of, are due to expire at the end of June. The stock market is ‘spoiled’ by rate cuts” We think that OPEC will at least maintain its output cuts, and maybe even deepen them at their next meeting,” Caroline Bain, chief commodities economist at Capital Economics, wrote in a note to clients on Monday. Rystad dimmed its projection for Saudi Arabia’s oil production from 10.6 million barrels per day to 10.3 million.

Venezuela, Iran under pressure

OPEC’s output could be further hurt by problems in some of its member countries. Iran’s oil exports have plunged because of US sanctions. The years-long collapse of Venezuela’s oil industry has been accelerated in recent months by US sanctions and sprawling blackouts in the South American nation. “There appears little prospect of a recovery in output from Iran or Venezuela any time soon,” Bain wrote. Violence is also threatening oil production in Libya and Nigeria. All told, Rystad Energy estimates 1.3 million barrels per day of oil production is at risk in those four OPEC nations. “Risks to short-term supply are undoubtedly still plentiful,” Rystad analyst Bjørnar Tonhaugen said in the report.

Will crude slide below $50?

Despite all this, analysts aren’t predicting a spike in oil prices. If anything, forecasters are bracing for more pressure on prices, due in part to robust US production. Brent, which has tumbled about 15% since late April to $63 a barrel, should finish the year at around $60 a barrel, according to Capital Economics. The US economy is about to break a record. These 11 charts show why US oil prices, trading at about $54 a barrel, are down nearly 19% since late April. Recent selling has been driven by a spike in oil inventories that suggest demand for crude is deteriorating. Goldman Sachs said that a reversal in the oil demand metrics will be required to prevent US oil prices from sinking below the $50-$60 range.”Our real concern is over demand weakness,” consulting firm Facts Global Energy wrote in a report on Monday. “Have we entered an era where demand will keep falling and we have a lot more oil on our hands than expected?”

Fossil Fuel Complicity as No Longer Hidden

Fossil Fuel Complicity as No Longer Hidden

­CleanTechnica Fossil Fuels elaborated on the more and more overwhelming tendency of eying Fossil Fuel complicity as no longer hidden in America’s investments institutions. as well as elsewhere in the world. Here it is.

Fossil Fuel Complicity No Longer Hidden Behind ‘Fiduciary Duty’

May 7th, 2019 by Carolyn Fortuna 

They’re not giving up. Yes, several attempts were defeated to persuade the Massachusetts municipal and county retirement systems to remove fossil fuel investments from their portfolios. But the Massachusetts Legislature is still considering measures that open up possibilities for divestment. To do otherwise, they argue, is to engage in fossil fuel complicity.

And they’re not alone. All over the US, organizations are pushing for divestments within institutions and municipalities. Led by FossilFree.org, individuals and advocacy groups are raising the discourse around the necessity to stop and ban all new oil, coal, and gas projects bypassing local resolutions to divest and by building community resistance.

fossil fuel complicity

Divestment has been a tool used to promote social change since at least the 1970s, when anti-apartheid activists urged institutions to move their investment dollars away from companies that did business with South Africa. Fossil fuel divestment has been gaining momentum in recent years, with more than 1,000 institutions pledging to remove $8.55 trillion from investments in the fossil fuel sector.

fossil fuel complicity

Fiduciary Duty is Now a Companion Argument to Social & Environmental Reasons to Divest

In 2017, Somerville, Massachusetts’ governing board agreed to move $9.2 million — 4.5% of the total invested funds — out of fossil fuel investments. The regulatory body that oversees public pension systems rejected the move, however, with reasons ranging from procedural to breach of fiduciary duty. The Massachusetts Public Employee Retirement Administration Commission (PERAC) claimed Somerville was failing to put the financial needs of its beneficiaries ahead of social and environmental causes. PERAC oversees 104 public pension plans across the state, with about $86 billion in total assets.

However, 2 counterarguments quickly made that position untenable.

  1. Demand for fossil fuels is likely to drop as much of the global economy shifts to renewable energy.
  2. Increased storm frequency due to climate change can cause supply chain disruption and infrastructure damage for oil companies.

“From the fiduciary perspective, there are a lot of questions as to the economic health of the fossil fuel sector moving forward,” Alex Nosnik, a member of the Somerville board, said. “Risk, certainly in concert with the environmental and social issues, was driving our decision to move forward.”

Ultimately, after lots of divestment advocates worked alongside sympathetic legislators to craft a local option bill that would authorize any municipal or county retirement system to divest from fossil fuels should they so choose. Standalone bills have been filed in the House and Senate; similar language has also been included in a wide-ranging clean energy bill pending in the Senate.

Several of the state’s environmental groups have come out in favour of these measures, including the Massachusetts chapter of the Sierra Club, the Green Energy Consumers Alliance, and the Climate Action Business Association.

“We have to stop putting money into fossil fuels,” said Deb Pasternak, director of Sierra Club Massachusetts. “We need to take our money and direct it toward the renewable energy economy.”

Read more on CleanTechnica.