Today’s Key Takeaways: Geopolitical risk keeps markets on edge. Onshore production drops as drillers pivot to offshore. Alaska incentivizing new natural gas development in Cook Inlet. Ancient microbes can reduce methane? Car makers unite against Biden’s proposed fuel efficiency plans.
NEWS OF THE DAY:
Middle East Risk Escalation Has Markets on Edge
Andreas Exarheas, Rigzone, October 17, 2023
A sharp escalation in geopolitical risk in the Middle East has markets on edge.
That’s what the International Energy Agency (IEA) noted in its latest oil market report, highlighting that the region accounts for more than one-third of the world’s seaborne oil trade.
“The surprise attack by Hamas on Israel on October 7 spurred traders to price in a $3-4 per barrel risk premium when markets opened,” the IEA said in the report, adding that prices have since stabilized.
“While there has been no direct impact on physical supply, markets will remain on tenterhooks as the crisis unfolds,” the IEA went on to state.
In the report, the IEA stated that the Middle East conflict is fraught with uncertainty and added that events are fast developing.
“Against a backdrop of tightly balanced oil markets anticipated by the IEA for some time, the international community will remain laser focused on risks to the region’s oil flows,” the IEA said in the report.
“The IEA will continue to monitor the oil market closely and, as ever, stands ready to act if necessary to ensure markets remain adequately supplied,” the IEA added.
In its report, the IEA said evidence of demand destruction is appearing, “with preliminary September data showing that U.S. gasoline consumption fell to two-decade lows”. The organization added, however, that “buoyant” demand growth in China, India, and Brazil, “nevertheless underpins an increase of 2.3 million barrels per day to 101.9 million barrels per day in 2023”.
OIL:
U.S. oil drillers to pivot from shale to offshore projects, EIA reports
David Wethe, Devika Krishna Kumar, Bloomberg, October 16, 2023
The latest evidence of a pivot by oil operators from U.S. shale to offshore appeared Monday as the U.S. Energy Information Administration warned that a drop in onshore production is accelerating into November.
After revising its own figures from previous months, a decline in oil output is now expected to gain speed in every month from September through November, when combined production from the seven biggest shale fields will fall to 9.6 MMbpd, according to Monday’s report by the U.S. agency. The Permian basin of West Texas and New Mexico continues to lead the contraction.
Reports of a shrinking shale patch come as total U.S. output soared to a record 13.13 MMbpd last quarter. U.S. Gulf oil production was almost 2 MMbpd in July, according to the most recent data available. That’s up 4% from the previous month and marks a 11.7% jump from the same period a year earlier.
As shale growth slows, deepwater drilling is enjoying a renaissance, with more than $500 billion in global offshore investments expected through 2025, according to the oilfield services giant SLB.
GAS:
Alaska offering royalty-free lease terms to try to simulate new Cook Inlet natural gas development
Yereth Rosen, Alaska Beacon, October 17, 2023
To try to entice investment in new natural gas development in Southcentral Alaska’s Cook Inlet basin, state officials are trying something new: a waiver of royalties in the upcoming annual lease sale.
The Alaska Division of Oil and Gas last week announced five upcoming lease sales that include the unusual terms in the Cook Inlet area.
The impetus is the concern that the state’s most populous region may soon be running low of the natural gas that is its main source of power for heat and electricity, a division official said.
“We’re kind of in a bind in terms of having a gas shortage, potentially, in the next few years,” said Sean Clifton, a policy and program specialist with the division. “We’re trying to be innovative and try new things within the bounds of the laws we already have on the books.”
Instead of requiring new leaseholders to pay royalties once production starts, the state is offering a net profit-sharing arrangement aimed at reducing companies’ economic risks. And instead of expecting bidders to compete for exploration rights, the division is setting a fixed price of $40 an acre for the 3.3 million acres that are being offered in the sale.
While royalties on oil and gas produced from state territory generally hover between 12.5% and 16.67%, state law gives the commissioner of the Department of Natural Resources the authority to vary those terms if doing so is deemed in the state’s best interest. The commissioner also has the authority to set up profit-sharing arrangements for oil and gas leases. The Division of Oil and Gas is part of the Department of Natural Resources.
Various options of lowered or sliding-scale royalties, profit-sharing systems, or combinations of the two have been occasionally used in past lease sales, Clifton said. But total elimination of royalties is a tool that has not been used before, as far as the division’s records show, he said.
Recent lease sales for territory in the Cook Inlet basin, whether conducted by the state or by the federal government, have failed to win many bids. Clifton said it has long been difficult to attract investment to the basin, where oil production peaked in 1970 and where natural gas production now serves an entirely in-region market.
“It’s just always been a struggle, even back in the heyday,” he said. The industry built a lot of platforms in the 1960s, “and then there wasn’t a whole lot of activity after that.”
The Cook Inlet lease sale is scheduled at the same time as the state’s other annual areawide oil and gas lease sales – for state territory on the central North Slope, territory in the Brooks Range foothills, an offshore area in the Beaufort Sea and territory on the Alaska Peninsula in the southwestern part of the state.
Bids on all the sales will be accepted through Dec. 7, with results to be made public on Dec. 13, the division said in its notice.
MINING:
Ancient nickel-eating microbes can teach us valuable biomining techniques – study
Staff Writer, Mining.Com, October 17, 2023
New research produced at Montana State University examines a specific type of ancient microbe that can isolate and bioaccumulate nickel from its surroundings, using minerals as a nutrient source to support growth.
The recent findings, published in the journal Applied and Environmental Microbiology, help differentiate between two competing hypotheses about the reduction in atmospheric methane billions of years ago.
The microorganisms in question are called methanogens, which are ancient life forms that still exist today. Methanogens are unique because they don’t use sunlight to power their metabolisms like most organisms do, and they are poisoned by oxygen. Instead, their metabolism uses chemicals from their environment, often breaking down rocks and minerals to do so. During the process, the cells produce methane, also known as natural gas.
Pinpointing exactly how methanogens do this could answer questions that reach back more than 3 billion years.
“Early earth had no oxygen, and the atmosphere at that time contained a lot more methane and hydrogen,” Eric Boyd, co-author of the study, said in a media statement. “That’s largely due to these methanogens that react hydrogen with carbon dioxide to make methane. And all of a sudden, for reasons that aren’t clear, methane started to decrease, and oxygen started to increase. That was about 2.4 billion years ago. So, what happened?”
POLITICS:
U.S. Carmakers Slam Biden’s Fuel Efficiency Plans
Irina Slav, OilPrice.Com, October 17, 2023
All major carmakers in the United States have united against proposed rules for higher fuel efficiency that would threaten them with fines totaling some $14 billion in the five years from 2027 to 2032.
In July, the National Highway Traffic Safety Administration proposed hiking fuel efficiency limits by an annual 2% for passenger cars and by 4% for trucks between 2027 and 2032. That, the NHTSA said, would lead to an average fuel efficiency boost to 58 miles per gallon.
“If finalized as proposed, the updated standards would save Americans hundreds of dollars at the pump,” the NHTSA said at the time in a press release, “all while making America more energy secure and less reliant on foreign oil.”
Carmakers, however, are not on board with the idea at all. They have argued that these higher requirements will add some $3,000 to car prices by 2032 because of the penalties that car manufacturers will be liable to.
The plan, carmakers said this week, as quoted by Reuters, “exceeds reason and will increase costs to the American consumer with absolutely no environmental or fuel savings benefits.”
Opponents include GM, Volkswagen, Toyota Motor, and others. Volkswagen said the fuel efficiency plan was “arbitrary, capricious, and an abuse of the agency’s discretion to set standards that are not feasible.”
Separately, the American Automotive Policy Council, which represents the Detroit Three, slammed the proposal, insisting that the NHTSA halve its target for trucks because the current target would affect the truck fleet disproportionately.
Carmakers are also unhappy with plans to change the way regulators calculate the fuel efficiency equivalence of EVs. According to the industry, that change, which would significantly lower the numbers, would “devalue the fuel economy of electric vehicles by 72%.”
This, in turn, could affect demand, which is already meeting challenges.