News of the Day:
Stay tuned: The EIA this afternoon will release its 2021 Annual Energy Outlook in an event with the Bipartisan Policy Center. We’ll see how the agency projects the pace of oil and gas demand recovery after a brutal 2020 for the industry.
OIL:
Will Saudi Arabia’s Surprise Production Cut Backfire?
Matthew Smith, OilPrice.Com, February 2, 2021
Global energy markets and industry insiders believe that it was a good idea for Saudi Arabia to slash oil production by one million barrels daily until the end of March 2021. While it certainly helped to buoy short-term oil prices and spark a sense of optimism regarding the outlook for oil prices, which were severely impacted by the fallout from the COVID-19 pandemic, it may not be as favorable as initially believed. The surprise cut allowed a new OPEC Plus production agreement to be established after initial discussions failed because some participants, notably Russia and Kazakhstan, wanted to increase their petroleum output. By implementing the cut, the cartel’s oil production for January, February, and March 2021 will average 22.119 million barrels per day, a 13.6% decrease compared to the 25.6 million barrels per day pumped during 2020. When the cut was announced oil prices soared, gaining 10% since the start of 2021 leading to claims of a sustained rally and higher prices ahead. Higher crude oil prices will benefit OPEC members because their economies and government finances are highly dependent on petroleum prices and exports. A key beneficiary is the world’s third-largest crude oil producer Russia. Not only does Moscow benefit from higher oil prices, because of Saudi Arabia’s significant production cut, but can increase oil output during February and March 2020. During January 2021 Russia, according to the deal, can pump on average 9.12 million barrels of crude daily, which incidentally is the same as Saudi Arabia. In February 2021, Russia is permitted to increase production by 0.7% to 9.1 barrels daily, and then another 0.7% for March to 9.24 million barrels daily.
By slashing production Riyadh risks losing market share at a time when non-OPEC countries are ramping-up oil operations. This includes South American nations Guyana, Brazil, Colombia, and Argentina which see higher oil output as a means of strengthening economic growth to mitigate the fallout from the COVID-19 pandemic. As their oil production expands, they will fill the supply gap left by Saudi Arabia, particularly Brazil which has experienced strong demand growth from Asia for its medium-grade sweet crude oil varieties. Brazil finished 2020 as the fourth-largest supplier of crude oil to China, a slot previously filled by Angola whose oil exports declined because of reduced production due to eventual compliance with its OPEC’s quota.
GAS:
Study: New Lifecycle Analysis Of U.S. LNG Exports
A study released by API and conducted by researchers at ICF examines the environmental benefits of U.S. natural gas use in China, Germany, and India, finding that using U.S. liquefied natural gas (LNG) rather than coal for electricity generation produces on average 50.5 percent fewer greenhouse gas (GHG) emissions in all base case scenarios studied.
Looking at cases in China, Germany and India, the study, “Update to the Life-Cycle Analysis of GHG Emissions for US LNG Exports,” demonstrates the importance of natural gas for achieving global emissions reductions. In China, coal still makes up 66 percent of power generation – in India, it’s 74 percent, and in Germany it also remains high – nearly 30 percent. Coal generation in the U.S. has fallen from roughly 50 percent in 2005 to 24 percent in 2019, while natural gas generation has increased from 19 percent to nearly 40 percent in the same period. This transition has been instrumental to the U.S. reducing emissions in the power sector by 25% from 2008 to 2018.
“This study underscores what we have known for quite some time – that U.S. natural gas is a far cleaner option than coal for electricity generation, especially in key markets in China, Germany and India. U.S. LNG exports can help accelerate environmental progress across the globe, enabling nations to transition to cleaner natural gas to reduce emissions and address the global risks of climate change.” – Director of Market Development Dustin Meyer
Other key findings from the study can be found below:
- Percentage decreases in emissions from the use of U.S. LNG versus U.S. and domestic coal:
- In China: U.S. LNG delivers 48 percent fewer emissions than Chinese coal and 49 percent fewer emissions than U.S. coal.
- In Germany: U.S. LNG delivers 53 percent fewer emissions than U.S. coal and 51 percent fewer emissions than German coal.
- In India: U.S. LNG delivers 48 percent fewer emissions than Indian coal and 48 percent fewer emissions than U.S. coal.
MINING:
UK defends approval of first deep coal mine in 30 years
Cecilia Jamasmie, Mining.Com, February 3, 2021
Despite pressure from the UK’s climate change advisors, Prime Minister Boris Johnson’s office says it will not intervene in Cumbria County Council’s decision to approve the country’s first new deep coal mine in 30 years.
The government interrupted the development of West Cumbria Mining’s Woodhouse Colliery project in north-west England in October while it decided whether to call in the application or hand the decision back to local authorities.
Cumbria’s council announced in January it had received confirmation that the decision to allow the coal mine would not be reversed.
POLITICS:
Alaska House deadlock continues, endangering state’s COVID-19 response
James Brooks, Anchorage Daily News, February 2, 2021
Two weeks into the 32nd Alaska State Legislature, members of the state House of Representatives say they are optimistic about ending a leadership deadlock soon but cannot point to tangible progress.
The ongoing deadlock, now the worst since statehood by some measures, has left the House unable to appoint even a temporary leader and is threatening Alaska’s response to the COVID-19 pandemic.
Since November, that response has been legally justified by a series of 30-day emergency declarations from Gov. Mike Dunleavy. The current declaration expires Feb. 15.
On Tuesday, state health commissioner Adam Crum said he does not expect the governor to issue any additional orders.
“The governor cannot extend the current declaration and will not issue another one while the Legislature is in session,” said Jeff Turner, a spokesman for the governor.
Any further extensions must be approved by the House, which is currently unable to act.
CLIMATE CHANGE:
Senate Energy and Natural Resources Committee Hearing on Climate Change
The Senate Energy and Natural Resources Committee held its first climate change hearing of the new Congress today amid tensions between incoming Chairman Joe Manchin (D-W.Va.) and the White House.
The hearing, to look at climate trends and examine progress in addressing climate change, could go a long way in revealing the course of congressional climate action in the next two years.
Manchin, a coal state moderate who holds sway in the closely divided Senate, is a key vote on virtually any legislation, including a potential climate change and infrastructure bill that he could help craft as chairman of the ENR panel.
Incoming ranking member John Barrasso (R-Wyo.), meanwhile, was an important negotiator on the energy and climate package that passed into law at the end of last year, but he has also set himself up to be a top opponent of the Biden administration’s climate agenda.