Geopolitics, Politics & Conflict
-Iran is claiming that it is already increasing its oil production, and will have reached pre-sanctions levels within a month or two. Iran is also claiming that the market would be able to absorb its full-out production of 4 million barrels per day. If that is indeed true, and we’re not saying that it is, it would certainly limit other OPEC members and their plans going forward. For now, the plan is for the group to reassess every month to see where the market is, and then decide on production volumes for the group as a whole and individually. Any increased production in Iran, even if swallowed up by an increase in demand, would surely stymie production from other OPEC members.
Iraq may have a shot at bringing itself into fuller compliance with its OPEC cuts now that Iraqi protestors have shut down the Dhi Qar Oil Company in southern Iraq. The oil company owns Nassiriya and Gharaf, which produce 290,000 barrels of oil. Iraq has failed to comply with its output quotas for months, including in January. The protests come as Iraq battles with severe unemployment.
Following the very tentative peace and transition process in Libya, which will dictate how the oil flows and if it continues to flow, the UN has released a list of 24 candidates for Libya’s tripartite presidency council and 21 names for prime minister. The four ultimately elected will preside of Libya’s first full elections since the war in December…
Geopolitics, Politics & Conflict
-Iran is claiming that it is already increasing its oil production, and will have reached pre-sanctions levels within a month or two. Iran is also claiming that the market would be able to absorb its full-out production of 4 million barrels per day. If that is indeed true, and we’re not saying that it is, it would certainly limit other OPEC members and their plans going forward. For now, the plan is for the group to reassess every month to see where the market is, and then decide on production volumes for the group as a whole and individually. Any increased production in Iran, even if swallowed up by an increase in demand, would surely stymie production from other OPEC members.
Iraq may have a shot at bringing itself into fuller compliance with its OPEC cuts now that Iraqi protestors have shut down the Dhi Qar Oil Company in southern Iraq. The oil company owns Nassiriya and Gharaf, which produce 290,000 barrels of oil. Iraq has failed to comply with its output quotas for months, including in January. The protests come as Iraq battles with severe unemployment.
Following the very tentative peace and transition process in Libya, which will dictate how the oil flows and if it continues to flow, the UN has released a list of 24 candidates for Libya’s tripartite presidency council and 21 names for prime minister. The four ultimately elected will preside of Libya’s first full elections since the war in December 2021. Following the names on this list will be crucial to making any projections about the potential for peace or divvying up oil resource wealth after 2021. One of the names on the list is Aguila Saleh, whom the Turks take issue with and whom they associate directly with General Haftar, which is not completely accurate. Saleh is President of the eastern-based Libyan House of Representatives, and while few are buying that he’s turned from a warmonger into a “peacemonger”, he has not always been on Haftar’s side. Indeed, he is dangerously butting heads with the General, but also an equal threat to the Turks and their designs on the region. Saleh pressured Haftar’s Libyan National Army (LNA) into pulling out of Tripoli. He did this not through negotiations with Haftar by going to tribal leaders with members involved in the fighting on the side of the eastern forces (Haftar’s forces). This ended up giving Saleh leverage with Egypt, which has been on Haftar’s side in this conflict, but then stepped in to support a plan to stop the war and create a new government.
Deals, Discoveries, Mergers & Acquisitions
- Survey data shows that Iraq’s January oil production was higher than many had hoped. The largest OPEC laggard, Iraq produced 3.87 million bpd. True, this was lower than December’s production, which was 3.848 million bpd. On the surface, it appears Iraq did a pretty good job for January, in that its official production quota for Q1 is an average of 3.86 million barrels per day. But Iraq was supposed to be cutting more to make up for many many months of overproduction under the deal. Iraq had promised to pump an average of 3.6 million bpd in January and February. OPEC’s official production figures won’t be released until February 11. All signs point to Iraq continuing its laggard status, troubled by an economic crisis and subsequent rioting over unpaid salaries.
- BP has agreed to sell off a 20% interest in a gas field, Block 61, in Oman for $2.6 billion. The buyer, Thailand-based PTTEP, already has a presence in Oman in Block 6, Oman’s largest onshore oilfield, although its first foray into Oman was fairly recently, in 2019. For BP, the offloading of the asset gets it closer to its $25 billion divestment goals. BP will still hold a 40% interest after the deal closes later this year. Block 61’s output capacity is equivalent to about 35% of Oman’s total production.
- Shell has made a huge purchase of oil from the North Sea--the largest amount in a decade. The purchases, which total five cargoes, were made in a short 30-minute window on Monday. This 30-minute window in the market’s main trading window that S&P Global uses to establish the benchmark prices. Analysts are suggesting that this is a sign the market is tightening.
- Chevron has offered to buy the rest of Noble Midstream Partners LP. The US major is already the indirect majority owner of Noble Midstream, and is its largest customer.
- Equinor has made a discovery in Norway, it the Troll oil and gas field. Partners are DNO, Wellesley, and Petoro. Troll is expected to hold between 44 million and 69 million boe.
Regulations & Legislation
- With the Keystone XL pipeline in peril, the industry was nervous that the scrapping of the pipeline could embolden anti-pipeliners to lobby to scrap other pipelines too. And for good reason. This week, Ilhan Omar pushed for President Biden to scrap Enbridge’s Line 3 pipeline that is currently being built in Minnesota. Line 5 in Michigan has also found itself a target. The new objections to Line 3 come just a day after a Minnesota appeals court ruled that construction on the Line can continue while the legal haggling continues.
- The new U.S. Administration has signaled for the first time that it could be willing to discuss with Germany the lifting of the American sanctions on the Nord Stream 2 gas pipeline project if Germany offers solutions to ensure Europe’s energy security, though we do not yet see what such proposals could possibly include.
Earnings
2020 earnings reports that came out this week are not good for Big Oil.
- BP lost $5.7 billion in 2020 as demand slumped and oil prices fell, although the oil major is expecting the oil market to rebalance this year as OPEC+ continues to restrict output. It is the oil major’s first annual loss in a decade.
- Next up, is ConocoPhillips, which lost $2.7 billion last year, or -$2.51 per share. This is in contrast to the earnings of $7.2 billion for 2019.
- ExxonMobil’s loss for last year is staggering, at $22.4 billion. It is the oil supermajor’s first annual loss since its merger in 1999 that made it what it is today. The loss is mainly attributable to writedowns of its asset values. However, even without these writedowns, Exxon’s loss would still be $1.4 billion for the year, compared to a profit of $9.6 billion in 2019.
- Shell took a loss of $20 billion for the full year 2020 after it lost $22 billion in value on its assets.
- Chevron, too, reported an annual loss of $5.5 billion after a Q4 loss of $665 million. This Q4 loss is an improvement on its Q4 2019 loss of $6.6 billion. Chevron’s 2020 revenues were 35.4% down, to $94.7 billion.
Renewables
Renewables may not mean the death of oil and gas anytime soon, but according to Morgan Stanley, they are expected to replace coal by 2033. By 2035, Morgan Stanley expects solar and wind power to make up 55% of the U.S. electricity mix.
- Rumor has it, Tesla is set to produce 2,500 semis this year, and 10,000 in 2022. Price targets have Tesla stock soaring higher, and in strange Tesla news, Elon Musk has said not to purchase Tesla’s in time of production ramp-ups due to potential quality issues.
- Even though Ford lost $1.2 billion last year, it is increasing its spending on electric vehicles. Ford plans on spending $22 billion on EV development between now and 2025--nearly double the figure it previously promised.
- The Danish government has taken one fairly critical step forward toward a $34-billion man-made “energy island” that now appears to have significant political backing. The “energy island”--a massively ambitious project--will house hundreds of offshore windmills.
- South Korea is moving to spend $43 billion on what will be the world’s largest windfarm, to be complete by 2030 as the country looks to increase its total renewable energy generation capacity to 40% of the country’s total mix by 2034. The country now relies heavily on LNG and coal-fired energy generation.
- The French oil major Total has acquired from SunChase Power a development pipeline of 2.2GW of solar projects and 600MW of battery storage assets in Texas.
