Numbers Report - January 27, 2023
In the latest edition of the Numbers Report, we will take a look at some of the most interesting figures put out this week in the energy and metals sectors. Each week we'll dig into some data and provide a bit of explanation on what drives the numbers.
Let's take a look.
1. G7 and EU Start Discussing Product Price Caps
⢠A week before the Russian product price cap is set to come into effect, the European Union proposed setting the price limit of high-value products such as diesel at $100 per barrel.
⢠As was the case with crude, EU countries will be forbidden from purchasing Russian oil products and the price cap is there to facilitate flows into third-party countries.
⢠Since the onset of the Russia-Ukraine war, there has not been a single instance when European diesel prices have been below $100 per barrel, currently trending around $130 per barrel.
⢠With Russia expected to reroute its diesel flows towards Latin America and Africa, with more US and Middle Eastern middle distillates moving in the other direction, shipping costs for products are set to increase.
2. Norway Tax Cuts Pave the Way for Last Gas Hurrah
⢠According to Rystad research, Norway has become one of the most actively growing upstream areas recently with 35 projects greenlighted in the post-pandemic era since 2020.
⢠With the onset of COVID, Norway introduced a temporary…
Numbers Report - January 27, 2023
In the latest edition of the Numbers Report, we will take a look at some of the most interesting figures put out this week in the energy and metals sectors. Each week we'll dig into some data and provide a bit of explanation on what drives the numbers.
Let's take a look.
1. G7 and EU Start Discussing Product Price Caps
⢠A week before the Russian product price cap is set to come into effect, the European Union proposed setting the price limit of high-value products such as diesel at $100 per barrel.
⢠As was the case with crude, EU countries will be forbidden from purchasing Russian oil products and the price cap is there to facilitate flows into third-party countries.
⢠Since the onset of the Russia-Ukraine war, there has not been a single instance when European diesel prices have been below $100 per barrel, currently trending around $130 per barrel.
⢠With Russia expected to reroute its diesel flows towards Latin America and Africa, with more US and Middle Eastern middle distillates moving in the other direction, shipping costs for products are set to increase.
2. Norway Tax Cuts Pave the Way for Last Gas Hurrah
⢠According to Rystad research, Norway has become one of the most actively growing upstream areas recently with 35 projects greenlighted in the post-pandemic era since 2020.
⢠With the onset of COVID, Norway introduced a temporary tax regime that offered direct expensing for drilling operators and increased investment uplift rates which despite year-on-year declines were still at 12.4% in 2022.
⢠Oslo's incentives to invest into drilling will trigger some $9.6 billion of new investments in 2023 alone, just in time because the country returned to its standard taxation regime from January 2023 onwards.
⢠Incremental production from the preferentially taxed period is expected to reach some 25 bcm by 2028, equivalent to roughly 6% of Europe's gas demand.
3. US Natural Gas Go into Oversupply Tailspin
⢠US natural gas futures fell below the $3 per mmBtu threshold for the first time since May 2021 as relatively mild weather and high stocks minimized the risks of a gas squeeze.
⢠The February Henry Hub contact traded at $2.9/mmBtu at the time of writing, down 70% from August 2022 levels as US national gas stocks remain above the 5-year average (2,729 Bcf).
⢠Despite news of Freeport LNG partially resuming operations, the market expectation is that the liquefaction facility would ramp up exports only closer to March, saturating the domestic market even more.
⢠The Henry Hub March/April futures spread is flirting with contango, corroborating fears that robust production risks overfilling available storage by that point.
4. EU Delays Sanctions on Russian Methanol
⢠In stark contrast to the product price cap, the European Union delayed banning Russian methanol imports into the EU as the bloc searches for alternative sources of supply.
⢠The Russia methanol ban was agreed upon in October as part of the 8th sanctions package and was supposed to come into force earlier this month, however, it has been delayed until June 18.
⢠The postponement was probably driven by Equinor's 900 ktpa capacity Tjeldbergodden methanol plant shutting down soon for protracted maintenance until the end of April.
⢠As at least 25% of European production capacity will be offline, prices started spiking recently from the â¬300/mt troughs seen in early January.
5. Permian Earthquakes Create Another Drilling Headache
⢠Back-to-back earthquakes that hindered drilling operations in the Permian basin in late 2022 has compelled the Railroad Commission of Texas to curb wastewater disposal allowances from shale operations.
⢠As cost inflation continues to decelerate supply growth in the US, the now-added costs of trucking wastewater that can no longer be injected adds further $2-3 per barrel to the cost tally.
⢠The hauling cost is a fourfold increase compared to the usual method of doing things, namely to bury the fracking-polluted water underground in a new well.
⢠Rising costs combined with increased regulatory scrutiny is set to add another downward pressure for Permian production growth in 2023.
6. Chile Downgrades Copper Production Outlook
⢠According to a report from Chile's regulator Cochilco, the Latin American country's copper production will grow slower than expected and will peak later and lower than previously assumed.
⢠Chile is the world's largest copper producer accounting for almost 30% of global output, however since the inauguration of left-wing president Gabriel Boric new FIDs have become rare.
⢠Now, the expected copper production peak for Chile is penciled in for 2030 at a level of 7.14 million tonnes, still a 30% increase compared to this year's expected output of 5.47 million tonnes.
⢠As copper prices soared above $9,000 per metric tonne in the first weeks of 2023, Chile's slower ramp-up and ongoing protests in Peru, the second-largest producer globally, there remains further upside.
7. Prospects of Chinese Growth Feed Iron Ore Spike
⢠Iron ore has so far been one of the main beneficiaries of China's reopening, surging 60% since early November 2022 when it bottomed out at $79 per metric tonne.
⢠Adding a whopping 25 million tons month-on-month, Chinese imports of iron ore are set to tally 116 million tons in January, according to Kpler tracking data.
⢠The strength of China's demand rebound is worrying authorities in Beijing as the NDRC has issued three public warnings against excessive speculation as prices hover just below $130/mt currently.
⢠The iron ore price surge is front-running upticks in housing and infrastructure demand as physical steel production is still yet to reflect higher pace of buying.
That's it for this week's Numbers Report. Thanks for reading, and we'll see you next week.
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