Russia's Seaborne Oil Exports Plunge

1. Russia Seaborne Oil Exports Plunge on OPEC+ Compliance and Higher Runs

- Russia’s crude oil exports have plunged to a 7-month low, averaging only 3.1 million b/d over the past four weeks, coming on the back of the country’s growing OPEC+ compliance and a recovery in domestic refining.

- Russia’s crude production came in at 9.078 million b/d in June as per the country’s Energy Ministry, which is still about 100,000 b/d higher than its assumed OPEC+ target but well below output levels seen in Q1.  

- The value of Russia’s seaborne oil flows has been trending between $1.6 and $1.7 billion per week, double the readings in the first months of the price cap but also lower than the peak seen in June 2022.

- Hampered by the widespread damage from Ukraine’s drone strikes, Russian refineries reduced their throughput by 4% year-on-year to 5.3 million b/d, but this month's runs have jumped above 5.6 million b/d already.

2. Losing Out to Nimbler Peers, US Needs to Expedite Mining Approvals

- A new S&P Global report has shed light on the damage that regulatory hurdles have been causing to US mining projects, with the United States seeing the second-longest lead time globally for developing a new mine.

- The average period required to take a mine from discovery to production in the US stands at 29 years, only Zambia (34 years) performed worse and almost double that of China, Russia or the Democratic Republic of Congo.

- Overall, only three mines have come into production across the United States over the past 20 years, with the backlog of unrealized projects including potential mines that have been in development since 1978. 

- High levels of litigation have added to the dearth of new US mining success stories, with the Resolution Copper project in Arizona (developed by Rio Tinto and BHP) disputed by Apache Indians and Alaska’s Pebble project blocked by the EPA.

3. As Heat Tests Global Power Grids, Investment into Transmission Sits Atop Agenda

- As countries across the globe post record high electricity demand numbers, the energy markets’ attention is increasingly focused on power grids as the roll-out of renewables outpaces the growth in grid connectivity.

- According to Bloomberg, the grid expansion cost required to meet global net zero emissions by 2050 would be equivalent to $24.1 trillion as electricity demand is set to double over the next 15 years.

- The global power industry also faces a voltage replacement dilemma – currently, of the 86 million km of power lines, a whopping 72 million km comes from low-voltage transmission and a mere 6 million km comes from high-voltage ones.  

- China would be the most exposed when it comes to power grid spending, requiring some $1.2 trillion in investment through 2030, equivalent to 1% of its GDP, followed by the United States which would require around $1 trillion.

4. Defying High Inventories, Europe’s LNG Appetite Is Still in Place

- High natural gas inventories across Europe are capping the upside for LNG prices, with storage in EU countries already being 82% full, however strong power generation demand and a tight supply market are also limiting the downside for gas.

- According to Kpler data, Europe’s imports of LNG have been consistently lower year-over-year in 2024, with June inflows totaling 6.7 million tonnes LNG, down 20% compared to the 8.3 million tonnes in June 2023.  

- With arbitrage economics from the United States firmly favoring Europe, we should see a notable uptick in US flows to EU countries, also buoyed by the fact that most US LNG exporters can flexibly switch between desired destinations.  

- Europe’s benchmark TTF gas futures have been relatively rangebound in July, remaining within the €30-33 per MWh bandwidth that it moved into in late May as Norwegian gas fields started seasonal maintenance.

5. Canada’s Sprawling Wildfires Come Within Touching Distance of Oil Sands Sites

- Hot and extremely dry conditions have triggered an array of wildfires across Canada’s oil-rich Alberta province, with more than 130 blazes burning currently, potentially impacting the country’s crude production.

- One of the largest wildfires, named MWF047, has tripled in size to more than 100,000 hectares in just two weeks, prompting Suncor to evacuate non-core staff from its 231,000 b/d Firebag oil sands site.

- Some 400,000 b/d of upgrading capacity remains under threat, with Imperial Oil evacuating non-essential personnel from its 275,000 b/d Kearl bitumen project and MEG Energy did the same with its 100,000 b/d Christina Lake plant, without lowering output as of mid-July.

- Concerns of potential forced production shutdowns have been exerting a lot of pressure on Canadian oil prices, with the country’s most prominent grade WCS gaining more than $2 per barrel in July vs WTI.  

6. Mexico’s Oilmen Call for Shale Revolution

- As Mexico’s crude production continues to decline amidst depleting legacy fields and restricted investment for non-domestic investors, the country’s oil industry is calling on the government not to neglect shale deposits.

- According to Mexico’s National Hydrocarbons Commission, the country has roughly 113 billion barrels of oil equivalent in prospective resources, of which almost two-thirds are unconventional.

- The overwhelming majority of shale deposits have never been assigned to Pemex, nor were they on offer in any of the liberalization plans, and the tenure of President Lopez Obrador was no different; Pemex was instructed to focus on shallow water and conventional onshore fields.  

- Shale resources might also fuel Mexico’s natural gas self-sufficiency as currently Pemex flares around 6% of its production and the uses ample volumes of gas for its needs, leaving Mexico’s dependency on foreign (US) gas around 90%.  

7. Japan Mobilizes Importers and Refiners to Cope With Jet Fuel Shortages

- A sudden tourist boom has led to jet fuel shortages across Japan, as the number of visitors this year is expected to grow 30% year-over-year to 35 million people, lured by the resumption of visa-free travel and a depreciating yen. 

- The Japanese government has introduced a trifold action plan; comprising short-, medium- and long-term solutions to tackle the dearth of jet fuel as well as lifting the ban on kerosene imports.

- Tokyo’s Narita airport will see the first-ever direct imports of jet fuel from abroad as South Korean refiners are set to capitalize on Japan’s woes, just as the country’s refiners take time to come out of peak maintenance in July.

- The president of the Petroleum Association of Japan, Shunichi Kito, claims that there is no overall shortage of jet fuel but logistical bottlenecks such as lack of lorries, refuelling staff and shuttle vessels limit timely deliveries.