Saudi Arabia abruptly altered its oil production strategy in early March and began to flood the market with cheap oil. Financial markets worldwide haemorrhaged value at the prospect of a protracted and painful price war, and American oil firms immediately cut back spending and dividend payments as the price for their primary product halved. As of this morning, WTI Crude (a pricing benchmark tied to U.S. supply) was barely north of $20/bbl, prices not seen since 2002.
This sudden tumult represents an opportunity for the renewable energy sector. At first glance, this may sound counterintuitive. After all, oil prices seem largely unrelated to the prospects of wind, solar, and other renewables in the electricity generation sector, because in the United States the primary fossil source of electricity is natural gas. Natural gas prices have been largely uncorrelated with the price of oil since 2007, when large-scale domestic shale-gas production began to come online (see chart). In other parts of the world, coal drives electricity generation, which is similarly decoupled. Virtually nobody uses oil as a primary electricity source, except in certain very specific locations, such as Hawaii, where the demands of unique geography and supply logistics align to make oil the best bet for power production.
Oil’s link to renewables instead comes through competition in the financing marketplace. As new projects are developed and financing is sought, the infrastructure funds that provide capital to enable these developments naturally prefer projects that promise the most attractive financial returns. With relatively high prices over the last decade and unmatched value as a transportation fuel, oil exploration has beaten out renewable project development on the financial metrics time after time.Today In: Energy
The oil shocks over the last weeks could dramatically alter that calculus. Revenues for potential oil projects have suddenly dropped by over 50%, and futures contracts currently show only a modest improvement in prices by year’s end. The market is already pricing in the expectation that oil prices remain below $40/bbl for the foreseeable future, a dramatic change from the $55+/bbl that has been the norm for the last few years.
Even if prices do recover, the sudden volatility will still weigh on the minds of project investors. Oil markets haven’t resembled a purely competitive market since the mid-1960s, and since that time prices have been regularly impacted by sudden and unforeseen changes in supply by OPEC producers, primarily Saudi Arabia. The rise in shale-oil in the U.S. in the last decade has effectively put a cap on prices and provided a counterweight to OPEC’s pricing power. But the muscle being flexed now shows that the OPEC nations and Russia still maintain substantial influence over the fate of American oil producers. This ‘stroke of the pen’ risk, now that it has again bared its head, maybe unlikely to be forgotten in the near future.
Renewables, by contrast, have no supply risk whatsoever, and are primarily exposed to fluctuations in the price of electricity. Insomuch as this relates to the price of natural gas, investors in the U.S. will take comfort knowing gas is essentially a local market, with U.S. prices driven by supply and demand within North America; there is little ability to arbitrage against global markets due to limited export capacity. Therefore, as oil prices come down, project financiers should start to turn more of their attention to the new safe bets that offer more durable returns: wind, solar, and the like.
This isn’t to say that renewables don’t face headwinds in the current environment. Cheap oil also competes with renewables in the transportation sector. Electric Vehicles will be less competitive with their gasoline-powered cousins as the price for gasoline at the pump drops, lowering demand for new grid capacity and forcing renewables to wait for retirements of current assets. The price for natural gas in the U.S. is dropping as well, driven primarily by the sudden decrease in demand due to the shuttering of entire industries. These drops make fossil power from natural gas more competitive with their renewable counterparts.
Futures markets, however, are currently pricing in a full rebound of natural gas prices by year’s end, with the futures contract for Henry Hub for December 2020 currently priced above market levels at the end of 2019. This suggests that the drop in prices of natural gas will be temporary, and investors making long-term bets do not view the current situation as durable. Further, natural gas prices are just one component of the price paid by utilities to power producers, and so a drop in natural gas prices doesn’t necessarily imply a similar fall in the rates negotiated in new power purchase agreements. So the drop in natural gas prices evident in the market now looks to be temporary, and unlikely to dramatically alter the widespread conclusion that renewables are now the cheapest power source to build.
Altogether, the oil market has changed dramatically in the last three weeks, in ways unforeseen just a few short months ago. But despite the headlines and worrying drops across financial markets, opportunity lies in these disruptions. Renewables are well positioned to capitalize.
Brentan Alexander‘s words: I am the Chief Science Officer and Chief Commercial Officer at New Energy Risk, where I lead the detailed diligence of novel technologies and business models across the energy landscape. I have devoted my career to advancing solutions to the climate crisis and use my experience to help technology companies assemble everything they need to reach the market faster. I hold a PhD in Mechanical Engineering from Stanford University, where I studied gasification, thermochemistry, and electrochemistry, and Masters and Bachelors degrees in Mechanical Engineering from the Massachusetts Institute of Technology. When I’m not in the office, you can find me hiking the hills outside Oakland, California, or turning wood in the shop. All of my articles reflect my personal views and not those of my employer nor the volunteer initiatives that I am involved in. You can find out more about me via my website (brentanalexander.com) or follow me on Twitter or LinkedIn.
Oil market rout as Saudi Arabia and Russia launch a price war and the coronavirus pandemic sparks an equities meltdown.
Oil prices were headed for their worst weekly loss in more than a decade Friday after Saudi Arabia and Russia launched a price war and the coronavirus pandemic sparked an equities meltdown.
US benchmark West Texas Intermediate reversed earlier losses in afternoon trade, rising about two percent to around $32 a barrel after the US military launched air strikes in major crude producer Iraq.
But prices are still down more than 20 percent this week and on course for their biggest weekly drop since the global financial crisis of 2008.
Brent crude, the global benchmark, also jumped about two percent to about $34, erasing earlier losses — but is still down 25 percent for the week, Bloomberg News reported.
Crude markets were plunged into turmoil at the start of the week after top exporter Saudi Arabia began a price war amid a row with Russia over whether to cut output to support the virus-battered energy sector.
That triggered the biggest one-day drop on Monday since the start of the Gulf War in the 1990s.
The virus outbreak then added to downward pressure, as growing concerns about a global recession and travel restrictions — including a temporary ban on travel from mainland Europe to the US — dimmed the outlook for demand.
“The scale of the oil price crash would have economists and analysts revaluating their forecast for growth, and even increase the urgency among central bankers to cut interest rates,” said Phillip Futures in a note.
Emergency measures by central banks Thursday failed to douse concerns about the economic toll from the outbreak, and markets suffered their worst day for decades.
The rout continued in Asia Friday with stocks and oil plummeting in morning trade, although they pared their losses in the afternoon.
Analysts said oil prices were boosted after US air strikes against a pro-Iranian group in Iraq, a member of the oil-exporting cartel OPEC.
The price war started after Saudi Arabia and other OPEC members pushed for an output cut to combat the impact of the virus outbreak.
But Moscow, the world’s second-biggest oil producer, refused — prompting Riyadh to drive through massive price cuts and pledge to boost production.
Energy generation through renewable sources is improving exponentially and is something that is no longer simply better for the planet but also for investors. Nevertheless, the oil industry has no intention of voting itself out of office and will continue extracting and exploiting the planet’s oil reserves. We don’t have time to wait for investors to tire of these companies. The much-needed end of the oil industry should be brought about not by its profitability or otherwise, because it could linger on for decades, but instead through political decisions guided by scientific evidence, links to which can be found throughout this article. The writing is on the wall, and has been for years; when will we bother to read it? Follow me on Twitter or LinkedIn. Check out my website.
Enrique Dans Teaching Innovation at IE Business School since 1990, and now, hacking education as Senior Advisor for Digital Transformation at IE University. BSc (Universidade de Santiago de Compostela), MBA (Instituto de Empresa) and Ph.D. in Management Information Systems (UCLA).
Today, 8 January 2020, it appears that the US is more relaxed about oil spike than Europe – which helps explain differences over Iran, according to Mueid Al Raee, of United Nations University.
Oil prices shot up following the US assassination of Iranian general Qassem Soleimani, rising more than US$5 per barrel to more than US$71 (£54) on January 6, its highest level since the Saudi oil refinery attack last September. Brent crude has since eased to around US$69 at the time of writing, though there is much discussion that it could climb a lot higher if the current crisis leads to an all-out war.
In keeping with many recent developments in US-Iranian relations, the Europeans have taken a dim view of America’s decision to take out the military commander. When trying to make sense of the very different approaches Iran on either side of the Atlantic, one factor that is often overlooked is that the US and Europe are affected in different ways by a rising oil price.
People tend to see more expensive oil as bad news for the global economy, but the reality is that it’s not necessarily bad for America. It may be that, in continuing to provoke Iran, driving up the oil price is almost seen by the Americans as an added incentive.
The complex oil effect
Oil pricing and its associated effects are often more complex than portrayed. As citizens, we are most often concerned with the price of fuel for our cars and the cost of heating our homes. This is the first way that oil prices affect the broader economy: if consumers have to spend more on fuel and associated taxes, they have less to spend elsewhere – and this can lead to a global slowdown.
Like all countries, the US is affected by this. Yet on previous occasions where US actions on the geopolitical stage drove up oil prices, there were also benefits to the country’s economy. Take the 2003 invasion of Iraq, which ushered in a period that would see the price of Brent nearly triple by the end of the decade. This led to a wave of investment into the US shale oil sector, which would eventually account for approaching two-thirds of the country’s total oil production.
Brent crude price, 1940s to present day
The trouble with shale oil is that it is expensive to produce, with average break-even of fields not far below US$50 per barrel. Shale oil wells also produce most of their oil in the first year of production, which means that producers have to continually drill new wells.
Due to the lower prices of the last few years, a large number of oil-related companies in the US have filed for bankruptcy, including both producers and services businesses. And while US production of shale oil managed to continue rising impressively throughout this period, mainly thanks to the bigger producers, it has been slowing down markedly in recent months.
If the oil price now trends higher, it could well mean that shale oil production in the US can resume its upward march. It also raises the prospect of US oil services companies earning more both locally but, most importantly, from foreign oil-production ventures, since there is a well-established correlation between their stock price and higher oil prices.
At the same time, six of the last eight recessions in the US were followed by high oil prices. One reason why this was not a hindrance for the economy is that, in the longer term, stable higher prices promoted the development of more energy-efficient technologies within the country.
The Americans can also argue that there are some longer-term economic benefits to higher oil prices that can help everyone. Oil-producing countries with surplus cash from oil profits invest in foreign technology and foreign assets. At the same time, oil-importing countries innovate to mitigate the profit-reducing effects of higher oil prices. These are both ultimately good for economic vibrancy and growth.
On the other hand, there are advantages to cheaper oil that are particularly important to countries in Europe – including the UK – because, unlike America, they are not oil self-reliant. Lower oil prices are shown to be beneficial for Europe’s highly energy-intensive economies and are expected to help with job creation. During the oil price drops of 1986 and the early 1990s, for instance, energy-intensive industries in Europe increased their earnings. Consumer product businesses and European airlines benefit from lower oil prices, too.
What happens next
Whether or not the Americans actually want higher oil prices, there are certainly good economic reasons why they probably won’t mind them. Deepening the chaos that started with the US withdrawing from the West’s nuclear deal with Iran is an “easy” way to achieve higher oil prices while meeting other strategic objectives.
Yet how the Europeans, China and Russia respond will also determine the global flow of oil from Iran and Iraq. Whatever the ultimate pros and cons of a higher oil price from an economic point of view, the Europeans clearly have more reasons to be unenthusiastic than the US. If the new exchange and payment instruments that have been developed by Europe to circumvent US sanctions are effective, and the US does not escalate the conflict, it may yet mean that oil prices remain stable at current levels.
Sukru Cildir of Lancaster University wonders how Saudi-Iranian oil rivalry has been shaped by American power. It has not historically been going for a long time and the recent decarbonisation wave sweeping the world does not seem to affect either party.
The relationship between Saudi Arabia and Iran, both oil-rich states in the Middle East, has oscillated from co-operation to conflict throughout history. Alongside a range of factors that shape their rivalry including sectarianism and nationalism has been the politics of oil.
Oil is a strategic international commodity, and its use as a political tool is widespread. Its role in the Saudi-Iranian rivalry can’t be understood without unpicking the international context, and the power structures that govern the way countries interact with each other. At the heart of this is the dominance of the US over this international system.
The dynamics between the US, Iran and Saudi Arabia over oil were laid bare in September 2019, after a series of drone attacks on Saudi oil facilities. The attacks caused the suspension of 5.7m barrels per day (mbpd) of crude oil production, nearly half the Saudi output.
The Houthis, a Yemeni faction, claimed responsibility. However, American and Saudi government officials accused Iran of committing these attacks. In return, the Iranians blamed foreign forces in the region for the insecurity and told the US to leave the area.
While the Saudi-Iranian oil rivalry is ostensibly the business of these two countries, it has always had an international dimension, overshadowed by the US.
The 1979 Iranian revolution marked a turning point for the place oil played within the Saudi-Iranian relationship. Before then, both countries were important allies of the US, a position which brought with it political and economic benefits, particularly to their oil industries. But the 1979 Islamic revolution in Iran paved the way for a separation of paths.
As a result, ever since 1979, the Iranian oil industry has been subject to American pressure, through a range of economic sanctions and embargoes, which has crippled Iranian oil production. Iran has been unable to reach the level of oil production of over six mbpd that it had in the pre-revolution years. Meanwhile, Saudi oil production reached over 12 mbpd in 2018.
This led to the Iranian oil industry being deprived of necessary foreign investment and technology transfer, and it has fallen behind Saudi Aramco, the kingdom’s state-owned oil company, and other regional competitors. Saudi Arabia has largely backed the US policy of isolating and sanctioning Iran, particularly the Iranian oil industry, which has, as I’ve argued elsewhere, contributed to the ongoing tensions in the Saudi-Iranian relationship.
As Saudi Aramco prepares for an IPO in December that could make it the world’s biggest publicly listed company, Iran is desperate to revitalise its own outmoded oil industry. As Iranian oil minister Bijan Zanganeh admitted in early 2019, many of Iran’s ageing oil facilities are in fact “operating museums”.
The US continues to have such an influence on Middle Eastern oil politics because of the way it has successfully pushed its own international agenda since 1945. After World War II, the US cemented its dominance over an international system built on the basis of liberal and capitalist principles. While the US rewards its allies with economic and political benefits, it punishes its challengers through a range of political and economic measures, not least economic sanctions.
Oil became a strategic international commodity in the post-World War II period, and began to play a pivotal role in the way the US maintained its global dominance. To do this, the US aimed to open up and transnationalise oil-rich economies in the Global South such as Saudi Arabia and Iran, to both promote its national interests and solidify its privileged position within the current system.
Accordingly, the supply of Middle Eastern oil into international markets without disruption – and at a reasonable price – became an essential instrument for maintaining American dominance, even though the US didn’t need to import oil from the Middle East.
A world of US dominance
The political economist Susan Strange provided a theoretical framework back in 1987 to explain the structure of US dominance over the international system through four main dimensions: production, finance, security and knowledge. This is also a useful way to understand how the US shapes the international oil market – and the Saudi-Iranian rivalry.
By 2018, in the wake of a shale boom, the US became the largest oil-producing country in the world by reaching production of 15 mbpd. Financially, oil has been priced and traded in US dollars, in particular since the early 1970s when a series of negotiations and agreements linking the sale of oil to the US dollar were made between Saudi Arabia and the US. This has increased global demand for US dollars, and helped the US deal with its trade deficit and keep its interest rates low. It has also helped the US to monitor the petroleum trade by controlling global bank transfers.
The US also stands as a main security provider to oil-rich Gulf monarchies, with publicly acknowledged military bases in over 12 countries in the Middle East. Additionally, it has a supremacy over global knowledge, most obviously through its continued domination and control of the sector’s technological needs. By leading global innovation and technological development in the shale revolution, for example, and having the highest budget for research and development, the US largely controls global technology transfer. This has also deprived Iran of necessary technology, capital and know-how to modernise its ageing oil industry, constraining production.
Therefore, despite the fact that the Saudi-Iranian oil rivalry seems like a regional issue, the role of American power in a globalised world has been key to shaping this regional political competition over oil.
The key factors of all energy policies across the MENA are about reducing carbon emissions and conserving hydrocarbons reserves per this article, dated September 30, 2019, of Power Technology reporting (see below) on the latest World Energy Council’s congress of Abu Dhabi, early this month.
With an estimated $100bn-worth of renewables projects under study, design and in execution across the region, the policy momentum behind energy transformation is now being converted into new, potentially lucrative business opportunities across the Middle East and Africa.
Reducing carbon dioxide emissions and conserving hydrocarbons reserves are key factors shaping energy policy in the Middle East and North Africa (MENA).
But it is the more immediate combination of lower oil prices and the fall in the cost of renewable energy technologies that have seen every country in the region announce ambitious clean energy targets.
Clean energy, which includes renewables such as solar and wind power, as well as alternative fuels including waste-to-energy and nuclear, accounts for only a small proportion of electricity generation in the MENA region today.
Change is coming
According to the International Renewable Energy Agency (Irena), installed solar and wind capacity across the MENA region reached respectively 2,350MW and 434MW in 2017, up from just 91MW and 104MW in 2010.
And with an estimated $100bn-worth of renewables projects under study, design and in-execution across the region, the policy momentum behind energy transformation is now being converted into new, potentially lucrative business opportunities in the region.
The significance of the region’s energy transition was clear to see at the latest edition of the World Energy Congress, which was hosted in Abu Dhabi in September.
Unsurprisingly, Saudi Arabia’s pavilion was the most-buzzing hive at the congress.
In addition to its broad programme of structural economic reforms and the recent appointment of a new energy minister, the region’s biggest economy has by far the most ambitious clean energy programme planned in the Middle East.
As Riyadh’s Renewable Energy Project Development Office (Repdo) outlined plans to launch tenders for its third round of its ambitious National Renewable Energy Programme (NREP) before the end of 2019, representatives from Saudi Arabia’s sovereign investment wealth fund, the Public Investment Fund (PIF), were meeting technology providers on the sidelines of the event to discuss the opportunities for building large-scale solar manufacturing facilities in the kingdom.
While solar and wind power are the main focus of the region’s energy diversification plans, some of the world’s largest energy companies were keen to showcase the potential for emerging technologies including waste-to-energy.
Another glimpse into the future was provided by discussions about the potential to store energy from peak-power sources such as solar and wind.
With the race to achieve cost-effective battery-storage solutions already underway, other technologies using hydrogen are being piloted in the region to offer another method to mitigate the intermittency issues of solar and wind power.
The challenge facing the region’s utilities is to convert their ambitious clean energy ambitions into actual investment projects.
This article is sourced from Power Technology sister publication http://www.meed.com, a leading source of high-value business intelligence and economic analysis about the Middle East and North Africa. To access more MEED content register for the 30-day Free Guest User Programme.
Polluters, as all those big energy producers (Big Oils, OPEC members and non members alike) are labelled, appeared to be ‘undermining’ UN climate Paris agreement. In effect, Oil, Gas and Coal world giants are exploiting a lack of conflict-of-interest protection at UN climate talks to push for continued fossil fuel use despite its contribution to catastrophic climate change through expensive lobbying campaigns because as it happens these oil, gas and coal giants could stand to waste trillions in a moderate world climate change. Patrick Galey elaborates on Phys.org.
The five largest publicly listed oil and gas majors have spent $1 billion since the 2015 Paris climate deal on public relations or lobbying that is “overwhelmingly in conflict” with the landmark accord’s goals, a watchdog said Friday.
Despite outwardly committing to support the Paris agreement and its aim to limit global temperature rises, ExxonMobil, Shell, Chevron, BP and Total spend a total of $200 million a year on efforts “to operate and expand fossil fuel operations,” according to InfluenceMap, a pro-transparency monitor.
Two of the companies—Shell and Chevron—said they rejected the watchdog’s findings.
“The fossil fuel sector has ramped up a quite strategic programme of influencing the climate agenda,” InfluenceMap Executive Director Dylan Tanner told AFP.
“It’s a continuum of activity from their lobby trade groups attacking the details of regulations, controlling them all the way up, to controlling the way the media thinks about the oil majors and climate.”
The report comes as oil and gas giants are under increasing pressure from shareholders to come clean over how greener lawmaking will impact their business models.
At the same time, the International Panel on Climate Change—composed of the world’s leading climate scientists—issued a call for a radical drawdown in fossil fuel use in order to hit the 1.5C (2.7 Fahrenheit) cap laid out in the Paris accord.
InfluenceMap looked at accounts, lobbying registers and communications releases since 2015, and alleged a large gap between the climate commitments companies make and the action they take.
It said all five engaged in lobbying and “narrative capture” through direct contact with lawmakers and officials, spending millions on climate branding, and by employing trade associations to represent the sector’s interests in policy discussions.
“The research reveals a trend of carefully devised campaigns of positive messaging combined with negative policy lobbying on climate change,” it said.
It added that of the more than $110 billion the five had earmarked for capital investment in 2019, just $3.6bn was given over to low-carbon schemes.
The report came one day after the European Parliament was urged to strip ExxonMobil lobbyists of their access, after the US giant failed to attend a hearing where expert witnesses said the oil giant has knowingly misled the public over climate change.
“How can we accept that companies spending hundreds of millions on lobbying against the EU’s goal of reaching the Paris agreement are still granted privileged access to decision makers?” said Pascoe Sabido, Corporate Europe Observatory’s climate policy researcher, who was not involved in the InfluenceMap report.
The report said Exxon alone spent $56 million a year on “climate branding” and $41 million annually on lobbying efforts.
In 2017 the company’s shareholders voted to push it to disclose what tougher emissions policies in the wake of Paris would mean for its portfolio.
With the exception of France’s Total, each oil major had largely focused climate lobbying expenditure in the US, the report said.
Chevron alone has spent more than $28 million in US political donations since 1990, according to the report.
AFP contacted all five oil and gas companies mentioned in the report for comment.
“We disagree with the assertion that Chevron has engaged in ‘climate-related branding and lobbying’ that is ‘overwhelmingly in conflict’ with the Paris Agreement,” said a Chevron spokesman.
“We are taking action to address potential climate change risks to our business and investing in technology and low carbon business opportunities that could reduce greenhouse gas emissions.”
A spokeswoman for Shell—which the report said spends $49 million annually on climate lobbying—said it “firmly rejected” the findings.
“We are very clear about our support for the Paris Agreement, and the steps that we are taking to help meet society’s needs for more and cleaner energy,” they told AFP.
BP, ExxonMobil and Total did not provide comment to AFP.
Energy Reporters posting an article on Libya’s oil chief being bullish amid his country’s chaos that does seem to be wanting to end.
aims to more than double its oil production to 2.1 million
barrels per day (bpd) by 2021 provided security and stability are boosted, said Mustafa Sanalla, the chairman of
the state oil company, the National Oil Corporation (NOC).
The war-torn state produces 953,000 bpd, compared
to its pre-war capacity of 1.6 million bpd, according to Sanalla.
The oil boss demanded increased security at El Sharara oil field to ensure the
315,000 bpd site – which on December 8 was overrun by tribal activists, protesters and
security guards demanding unpaid wages – could return to production.
El Sharara, around 750km southwest of the capital Tripoli, is the country’s
largest oil field. Until recently it was producing about 270,000 barrels of oil
per day, more than a quarter of Libya’s daily oil production.
The oil activists demanded the rebuilding of cities and towns affected by
post-2011 armed conflict and providing liquidity for banks in the south to
boost recovery efforts.
“What happened in El Sharara discourages foreign companies,” said Sanalla, who
announced a visit to China in early 2018 to discuss oil investment
“The legitimate and rightful concerns of the southern Libyan communities are
being hijacked and abused by armed gangs, who instead of protecting the field
to generate wealth for all Libyans, are actually enabling its exploitation and
looting,” said Sanalla.
He also confirmed the improved security conditions in the Sirte basin in
central Libya which would enable the launch of production at the Farigh gas
field to 24 million cubic feet per day in three months, with an eventual output
goal of 270 million cubic feet per day, Sanalla said.
Prime Minister Fayez al-Serraj (pictured) recently agreed to set up funds in
excess of US$700 million for the development of southern Libya, which has
suffered from decades of neglect after talks with the El Sharara militants. The
talks followed a warning from Sanalla that the government should not encourage
the militant groups at El Sharara with concessions as this would set a
dangerous precedent for other direct action.
Despite security problems, the NOC said it expected full-year revenue to surge
by 76 per cent to US$24.2 billion for 2018.
Prime Minister Fayez al-Serraj. Libya’s oil
producers struggle with security challenges, making the war-torn state an
unreliable member of Opec. Picture credit: Wikimedia
Other entities can only affect the traders’ bidding decisions. These influencers include the U.S. government and the Organization of Petroleum Exporting Countries. They don’t control the prices because traders actually set them in the markets.
The oil futures contracts are agreements to buy or sell oil at a specific date in the future for an agreed-upon price. They are executed on the floor of a commodity exchange by traders who are registered with the Commodities Futures Trading Commission (CFTC). Commodities have been traded for more than 100 years. The CFTC has regulated them since the 1920s in the US and by equivalent institutions in every developed and / or developing country. It is also function of the following:
The eight factors determining the price of oil
According to the September monthly report of the International Energy Agency (IEA), in August 2018, for the first time, the bar of 100 million barrels produced per day was crossed. World oil consumption represented 97.4 million barrels per day (MBJ) in 2017 (including 57 MBJ by non-OPEC countries), equivalent to 1,127 barrels or 179,000 liters per second. Also, despite the commitments of the Paris Agreement (COP21) of December 2015 (entered into force in November 2016), global awareness for the climate does not seem to reach the oil sector. A list of eight reasons that determine the current course.
The first reason, as noted in international reports would be a recovery of growth for 2018, but with a slowdown forecast for 2019 and 2020. Many international experts, as well as international institutions such as the IMF and the World Bank, foresee a possible global crisis horizon 2020/2025 in case of acceleration of protectionist measures between the US and Europe, as well as between the US and China. Moreover, the latest report of the IEA of October 2018 warns the countries dependent on the oil revenues, due to a change in the trajectory of growth based on a new configuration of the global energy demand (Energy efficiency, renewable energies, hydrogen inlet horizon 2030 all based on the Knowledge economy) that will impact the demand for traditional hydrocarbons.
The second reason is respect for the quota of each member of the OPEC as decided upon in December 2016 in Vienna with notably Saudi Arabia representing 33% of OPEC’s. It is worth noting that OPEC in its entirety represents 33% of global marketing, even though the current tensions between Iran and Saudi Arabia can lead to a disagreement between unsatisfied OPEC’s members.
The third reason is the agreement between OPEC’s Saudi Arabia and non-OPEC Russia; these two countries producing each more than 10 million barrels per day. Moreover, any different decisions from these two countries would impact the price of hydrocarbons downwards.
The fourth reason is the political situation in Saudi Arabia, the world not seeing yet evident in the action of the kingdom’s Crown prince, with the fear of internal political tensions, but above all the sale of 5% shares of the country’s largest company ARAMCO, to maintain its shares at a high level; sale that has been postponed.
The fifth reason is the tension in Kurdistan (this area producing about 500,000 barrels/day), declining Venezuelan production, socio-political tensions in Libya and Nigeria.
The sixth reason is the American president’s speech on the US having second thoughts on the agreement on Iran nuclear deal; with sanctions beginning to be applied on November 5th, 2018. This would certainly be mitigated by the European position that decided to set up a barter system to circumvent the transactions in Dollars, and the Chinese market or the Iranians can get paid in Yuan.
The seventh reason is the weakness of the Dollar in relation to the Euro.
The eighth reason is the decline or rise of US stocks, while not forgetting the Chinese stocks.
In the short term, the above eight reasons may influence the price of oil either upward or downward, with some factors being more predominant than others. The Minister of Energy of Saudi Arabia reported on October 30th, 2018, under American pressure to raise its oil production to 12 million barrels per day against 10.7 million currently, to fill in for the Iranian production and in this case, it will be followed by Russia that does not want to lose market share. In this hypothesis, the price of Brent should, except for a significant global crisis where the prize could fall below 60 Dollars, fluctuate between 65 and 75 Dollars, 70 Dollars a barrel, being the price of equilibrium in order not to penalise either the consumer countries or the producing ones. The oil price went lower than $60 mainly as consequent to the massive entry of U.S. shale oil and gas with a production exceeding 10 million barrels/day.
In August 2018, according to the US Energy Information Agency (EIA), the US has even turned into the world’s leading producer of oil, in front of Russia and Saudi Arabia, with 10.9 million barrels per day and this production should even exceed 11.5 million barrels per day in 2019.
This article dated October 16, 2018 is part of a collaboration between the Center for Public Integrity, The Texas Tribune, The Associated Press and Newsy. It is in 2 parts. Excerpts of part 2 are below with my Bolds.
WASHINGTON — Energy Secretary Rick Perry’s keynote speech at the World Gas Conference in June opened with a marching band and ended with an exhibition by the Harlem Globetrotters. It was a spectacle befitting the industry symposium, which kicked off with a reception featuring a violinist perched on a pedestal in a 20-foot-long dress and trumpeters bearing ExxonMobil and ConocoPhillips banners on their instruments.
“We’re sharing our energy bounty with the world,” Perry gushed from a stage at the Washington Convention Center. “I wish I could tell you the entire world is on board. There is still this stubborn opposition to natural gas and other fossil fuels.”
Long undervalued, natural gas was once burned off indiscriminately as an unwanted by-product of oil drilling. But the fuel’s fortunes have changed. Cooled to minus 162 degrees Celsius, natural gas condenses into a liquid marketed as a clean alternative to coal. In just three years, the U.S. has emerged as a top producer of liquefied natural gas, or LNG, selling shiploads of the commodity to countries such as China, which are seeking low-carbon energy sources to combat climate change.
Natural gas, it turns out, isn’t so great for the climate, but that hasn’t stopped America from sending its fossil fuels abroad. Since Donald Trump took office in 2017, exports of LNG and crude oil have surged, rivalling the likes of Saudi Arabia and Russia. To achieve what it calls “energy dominance,” the Trump administration has taken its cues from an unlikely source: its predecessor.
The Harlem Globetrotters put on a basketball exhibition at the World Gas Conference in Washington, D.C., on June 26, 2018. The performance followed a keynote speech by Energy Secretary Rick Perry. (Kyle Pyatt/Newsy)
When Perry hawked LNG and coal to India in April, he was advancing a dialogue the Department of Energy began under Barack Obama in 2014. That same month, Vice President Mike Pence pledged to work with the Japanese government to bring LNG to Asia — building on a partnership that began in 2013. Leaked administration plans for a “central institution” to promote “clean and advanced fossil fuels” abroad could combine several Obama-era initiatives.
Compared to Trump, Obama is regarded as an environmental champion. But history paints a more complicated picture. As the young senator promised “change we can believe in” during the 2008 presidential campaign, change was also sweeping American oilfields. Advances in hydraulic fracturing, or fracking — a way of recovering oil and gas from tight rock called shale — created a glut. Industry responded by pitching fossil-fuel exports as a “win-win” that would benefit consumers and enhance American power. Helping to deliver the message was a coalition of White House advisers: academics such as Columbia University’s Jason Bordoff, energy gurus such as Daniel Yergin, and national-security experts such as John Deutch — all with links to firms profiting from the boom.
President Donald Trump and Energy Secretary Rick Perry at the “Unleashing American Energy” event on June 29, 2017, at U.S. Department of Energy headquarters in Washington, D.C. (Simon Edelman/U.S. Department of Energy)
Leading the charge within government was then-Energy Secretary Ernest Moniz, a nuclear physicist with longstanding ties to the oil and gas industry and an enthusiastic proponent of natural gas. Under his watch, the Energy Department moved swiftly to foster LNG exports in 2013 before shifting its focus to decades-old restrictions on the export of crude oil. Days after the Paris climate agreement was reached in 2015, Obama signed a budget bill to keep the federal government running; slipped inside was a provision allowing crude oil to be sold freely for the first time since 1975. The move was praised by an alliance of 16 companies, most of which are now capitalizing on an export-driven boom in the Permian Basin of West Texas and south-eastern New Mexico. By 2016, a new global market connected U.S. drilling rigs with refineries in China and LNG terminals in the United Kingdom.
What’s good for corporate profits, however, may not be good for the planet. A growing body of research suggests natural gas isn’t the climate panacea many promised it would be, with mounting concerns over its main component: methane, a greenhouse gas roughly 86 times more potent in the short term than carbon dioxide. In the race for energy supremacy, the U.S. has become not only the world’s largest natural-gas producer but also a top exporter of oil — a fuel that remains among the most harmful for the climate and public health. As energy exports climb, so too does global consumption of fossil fuels, drawing billions in infrastructure investment that — some argue — tilts the world away from renewable sources of energy such as wind and solar.
“We should start drilling at the beginning of next year,” Abdelmoumene Ould Kaddour told reporters on the side-lines of a signing ceremony with TOTAL for a petrochemical plant that will produce 550,000 tonnes of polypropylene per year.
“The potential is huge. We have gas in the east around Skikda, and oil in the west around Mostaganem,” he added.
SONATRACH and TOTAL have also agreed to invest $406 million to boost the output of the gas field named Tin Fouye Tabankort Sud.
“Our partnership with TOTAL is good and it allows us to implement our long-term strategy,” Ould Kaddour told reporters.
TOTAL Chairman and CEO Patrick Pouyanne said in a statement earlier on Oct. 7 that TOTAL and SONATRACH had signed new agreements, including a contract to develop the Erg Issouane gas field.
In the meantime, here is the same event as reported by the francophone local media: Algeria is officially embarking on offshore oil exploitation. The CEO of SONATRACH, Abdelmoumen Ould K, confirmed that the first offshore drilling would be launched in the first half of 2019.
For Algeria, these new drillings have become more than an alternative to oil extracted onshore. It is important to know that the recurring increase in crude oil and technological advances in offshore operations offer more opportunities and margins for petroleum companies.
In all likelihood, it is the Italian giant ENI who as the partner of SONATRACH for the development of its offshore activities. SONATRACH has long conducted negotiations with ENI’s to launch these explorations. These negotiations have advanced considerably since the conclusion in January 2017 of a memorandum of understanding (MoU) with the Italian company Versalis (a 100% subsidiary of the Italian group ENI) to carry out studies on petrochemical projects.
The MoU with Versalis deals with feasibility studies for the realisation of petrochemical complexes in Algeria, and the strengthening of cooperation between the two companies in the field of Petrochemicals.
It is to be noted that offshore oil exploitation has its peculiarities if compared to the conventional oil exploitation. This difference is due to the environment in which it occurs. In fact, up to 200 m in depth, it is possible to fix the operating platform. More than 200 m, pressures are increasing and becoming less sustainable. The control of operations, even though robots, is then more difficult. In these conditions, floating platforms are more appropriate. Most offshore oil farms do not exceed 500 m in depth.
The first offshore drilling will be carried out in the provinces of Oran and Béjaïa, delimited as offshore exploration zones after seismic studies were carried out in their territorial waters. The interpretation of the 2d seismic data of the 1200 km of the Algerian coasts, led the prospecting to these two provinces. In Algeria, offshore areas that are likely to hold hydrocarbons are located between 2000 and 2500 metres in depth, according to the results of the first seismic studies carried out on the Algerian offshore. As for the cost of single offshore drilling, it is close to $100 million.
Abdelghani Henni, back in January wrote that Algeria ranks third globally after China and Argentina in technically recoverable shale gas reserves with 20 Tcm, according to the U.S. Energy Information Administration. (Source: Shutterstock.com)
Developing abundant shale gas has become a necessity for Algeria to reverse its declining domestic natural gas production and safeguard its economy. Shale gas is however not for NOW. The struggle is ferocious between the French and the Americans and it is not over yet.
Meanwhile, it must be said that all the onshore and diminishing conventional oil reserves are located deep in the Algerian Sahara whereas all offshore are obviously in the country’s territorial waters of its northern shores. Shale gas on the other hand prospected pockets are mostly all located also in the Sahara but close to many inhabited oases whose populations are predominantly and adamantly against any exploration of such fossil resources.
This article is meant to be as informative about the problematics of consultation and decision making in Algeria as it is possible to muster at this conjecture. What to do with the vastness of the Saharan desert where large pockets of gas lay buried according to all known geological analyses for millennia. The strategic decision regarding the exploration or not would be the prerogatives of a small circle of civil servants that as techno-functionaries with their small private interests are more likely to weigh in more than the country’s development. The locals would certainly not look at it the same way. As for exploring the societal-economic impacts related to the extraction of shale gas and comparing their different technical-economics characteristics that any extraction of the dormant shale gas could have on local and national communities, it is indeed not for tomorrow. In any case, what do they, these so-called elite know about all this gentleman in the picture? It seems to be the typical case of Algerians; unable to manage a small professional organisation and yet to aim to steer a whole country towards the exploration of this resource. The demonstration is no longer necessary when we think of parliaments in non-democratic states, we often think of a room full of raised hands. This compelling image of unanimity conveys a simple idea: that these assemblies are stuffed with loyal servants of the ruling elite. Rather than scrutinise, challenge, amend, and block initiatives from the government, they provide guaranteed support. Rather than act as a check on executive power, they provide symbolic, merely ceremonial approval. (Russia: new research shows even authoritarian regimes …. ). Alternatively, that is how the conventional wisdom goes. Meanwhile, it is said however in London and from all mainstream US media “feedback” on shale oil production, that the benefits of fracking are more likely to be appreciated by communities in actively and highly developed countries rather than by those in low or middle-level development countries. Besides, it is reasonably well known that the potential risks and disadvantages of shale gas and its extraction are more likely to be experienced by the communities of the latter countries like Algeria than by those that are in very or very highly developed countries and that for the same reasons. However, there is no longer need for further proof that even the communities of developed countries would also be as vulnerable to some environmental and health risks. It is demonstrated by the increasingly greater awareness and consequent movements of resistance against exploitation of all fossils. From the streets to the big investors, but there are always the Big Oils monetising the defence of their careless turnovers against all attempts to demonise their short-term business plans of exploitation of shale gas. There are also these famous Algerians with their vast Sahara projects; they are rather keen to follow because they are not difficult to convince with only a small handful of Petro-Dollars. Is it worth all the trouble whereas the same vastness could easily be covered by solar and wind farming infrastructure.
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