A Drilling Boom in Africa

1. Shell Kicks Off Q4 Results With a Bang

- The second largest investor-owned oil and gas company in the world, Shell has kicked off this month’s Q4 earnings calls exceeding expectations and promising to maintain the pace of buybacks despite lower commodity prices.

- Shell posted a net profit of $28 billion for 2023, beating analyst expectations with Q4 readings of $7.3 billion thanks to improved LNG trading as well as higher production after Australia’s Prelude facility came back online.

- The UK-based energy major cut spending on its renewables and energy solutions divisions by 23% last year, at $2.7 billion accounting for 11% of the company’s total spending, down from 14% in 2022.

- Shell still needs to fend off pressure from activist investors as a group of 27 shareholders led by Follow This filed a resolution demanding tighter climate targets, after a similar initiative last year that only won the backing of 20% of shareholders.

2. Africa Becomes World’s Hottest Drilling Hotspot

- Seeking to bounce back from a disappointing year of 2023 that saw high drilling activity but very few large commercial discoveries, upstream operators are zooming in on Africa and Latin America to discover new crude frontiers.

- Rystad Energy has identified 36 high-impact wells to be drilled in 2024, the highest total since 2014, and Africa seems to be taking the lead amongst all continents, with 13 likely prospects.

- Less than a third of last year’s high-impact wells resulted in commercially viable reserves, eight out of 27 wells, unearthing a mere 1 billion barrels of oil equivalent in oil and gas, a 70% drop year-on-year.

- ExxonMobil, Shell, Eni, TotalEnergies, Chevron and BP dominate the list of high-impact wells, collectively accounting for some 45% of all key wildcats, with most of African drilling focusing on untapped frontier basins.

3. Guyana’s Crude Production Reaches New Heights

- Whilst current drilling results disappoint, Guyana remains the most impressive growth story of the 2020s, already producing more than 600,000 b/d despite having started oil production as recently as 2019.

- Hess Energy announced that the Payara field has reached peak production capacity of 220,000 b/d in January, merely two months after startup, complementing the Liza field that is being developed with two separate FPSOs.

- The operator of the prolific Stabroek block ExxonMobil is now developing the fourth and fifth FPSOs in Guyana’s offshore zone, tapping into the Yellowtail and Uaru prospects, both of which are expected to add 250,000 b/d and come online in 2025 and 2026, respectively.

- Guyana’s production capacity is expected to reach 1.2 million b/d by 2027, hence the South American country is now focused on commercializing gas resources as the Stabroek block alone is supposed to hold 17 TCf in recoverable gas.

4. US Coal Lives Its Swan Song to the Fullest

- US coal exporters have shipped abroad the highest volume of thermal coal since 2018, generating a whopping $5 billion as domestic demand for the fuel continues to decline.

- According to Kpler data, US coal exports to India, the world’s largest coal consumer after China, more than doubled last year to 11.75 million tonnes, making the South Asian country the largest buyer of American coal.

- Simultaneously, coal consumption in the United States has fallen 44% since 2017, from 775 million short tonnes to 436 million tonnes last year, so domestic demand keeps on declining quicker than exports.

- The US Energy Information Administration expects that the share of exports in the country’s coal production will rise further to 21% by 2025, currently at 17%, mitigating the losses coming from domestic power generation.

5. Russia’s China Romance Expands into Aluminium

- China doubled its imports of aluminum last year compared to 2022, with most of the incremental volumes coming in from Russia, a country that now accounts for 76% of all Chinese imports.

- Before the Russia-Ukraine war, Russia was a relatively modest supplier of aluminum to China, supplying 291,000 metric tonnes in 2021, but since then it leaped to 1.18 million tonnes last year.

- China has become a key buyer of Russian aluminum after European buyers self-sanctioned, US exports were restricted with huge import duties and the UK banned its citizens from physically dealing with the metal.

- China accounts for almost 60% of global aluminum production, although its heretofore robust pace of growth is slowing down because production capacity is nearing the government’s cap of 45 million tonnes.

6. France Recovers from Nuclear Malaise, Boosting Exports

- France’s vast nuclear industry, the backbone of Europe’s electricity grid after Germany’s nuclear phaseout, is roaring back to strength, boasting the highest available capacity since 2019 this year.

- Stress corrosion and faulty welding led to France halting operations at a dozen nuclear reactors back in 2022, however operational capacity available rebounded to 79% in January as repaired plants came back into operation.

- Month-ahead electricity prices plunged to €67 per MWh ($73/MWh), bringing futures contracts in neighboring states lower, too, as more French capacity also means higher exports to continental Europe.

- The French government has capped electricity price hikes until early 2025, mitigating the past years’ volatility, all the while taking full control of the country’s nuclear power plant operator EDF.

7. Australian Miners Test Their Faith in the Energy Transition

- As prices for key energy transition metals such as lithium, nickel, and cobalt doubled between 2021 and 2022, Australian miners were spending heavily on new production capacity in the country.

- However, amidst the price collapse of 2023, Australian mining giants are wary of carrying on with the same ambition, as attested by IGO announcing this week that it would freeze operations at its Cosmos nickel project.

- Confronted with a glut of cheap Indonesian supply, the world’s largest miner BHP said it is actively optimizing its nickel operations, warning that it is assessing the carrying value of its nickel assets.

- Whilst iron ore-focused miners in Australia have not been under the same pressure, nickel production Down Under is set to decline sizably in 2024 – apart from IGO and BHP, Andrew Forrest’s Wyloo venture will also halt operations from May.