Today’s Key Takeaways: World’s First Megamajor. No embargo, but is American surrendering energy independence once again? Geopolitical factors send gas prices higher. BLM releases flawed environmental review for Ambler Road proposal. A quarter of the power planned from ocean turbines by 2030 is facing delays or cancellations.
NEWS OF THE DAY:
Exxon Becomes World’s First Megamajor
Andreas Exarheas, Rigzone, October 16, 2023
ExxonMobil’s purchase of Pioneer Natural Resources is the largest upstream deal, in nominal terms, since Shell acquired BG for $82 billion in 2015 and makes ExxonMobil the world’s first megamajor.
That’s according to Wood Mackenzie’s Senior Vice President of Corporate Research, Tom Ellacott, who added, in a statement sent to Rigzone, that “the company will now be in a peer group of one”.
In the statement, Wood Mackenzie noted that, with its deal, Exxon gains over 700,000 barrels of oil equivalent of Midland Basin production, adds $5 billion of annual free cash flow, establishes a Permian resource base of over 16 billion barrels of oil equivalent, and creates the world’s largest tight oil player, “leapfrogging the leadership Chevron gained when it added PDC”.
Wood Mackenzie highlighted in its statement that, based on its analysis, Pioneer’s upstream operating cash margins over the next five years are 20 percent higher than ExxonMobil’s global upstream average.
“Wells payback in less than 24 months, driving stellar returns and some of the lowest breakevens in the sector,” Wood Mackenzie said in the statement
Echoes of the 1973 Oil Crisis
Arthur Herman, The Wall Street Journal, October 15, 2023
There’s no embargo today, but America is again surrendering its energy independence.
The attack on Israel on the 50th anniversary of the Yom Kippur War should remind us of another anniversary: the 1973 Arab oil embargo. The war began on Oct. 6, and the Organization of the Petroleum Exporting Countries cut production and raised prices on Oct. 17. By the end of the embargo in March 1974, the global cost of oil had climbed nearly 300%. Service-station lines and “out of gas” signs became a feature of American life. The White House had ration cards printed in secret (fortunately never used), and President Richard Nixon contemplated military action to seize oil fields in Saudi Arabia, Kuwait, and Abu Dhabi.
The oil shock of October 1973 is the story of America’s surrendering its energy independence, with dangerous consequences. It has disturbing parallels today. In 1960 America imported only 10% of the oil it consumed. But as demand and costs of domestic production rose, imports became cheaper. By 1973, on the eve of the crisis, total oil imports had reached 34% of consumption, much of it from an increasingly volatile Middle East.
When OPEC raised the price of oil overnight and its Arab members imposed an embargo on the U.S. and other nations that supported Israel, the world economy reeled. On Dec. 28, OPEC jacked up prices again. The barrel of oil that cost $2.59 in January 1973 cost $11.65 a year later.
In America, inflation surged from 3.2% in 1972 to 11.04% in 1974, while economic growth fell from 5.6% in 1973 to negative 0.5% in 1974. New development of domestic oil in the 1960s might have relieved the pressure. The discovery of oil at Prudhoe Bay, Alaska, in 1967 was the largest in North America. But environmentalists won a court injunction to block the necessary pipeline and forced the Nixon administration to impose a moratorium on new offshore drilling in California, another promising source put off limits.
Even the opening of the Alaska pipeline in 1977 couldn’t take the American economy off its reliance on imported oil. Not until the late 1990s, with the advent of fracking and directional drilling, did the U.S. take its first major step back toward energy independence.
If America can learn anything from the 1973 oil crisis, it is that energy independence can’t be taken for granted. It requires constant effort and political will, particularly against those who oppose it for ideological or self-interested reasons. Otherwise, we hand over our future to those who do not wish us well, both at home and abroad.
Geopolitical Volatility Sends Gas Prices Soaring
City A.M. OilPrice.Com, October 16, 2023
- Gas prices in Europe are on the rise due to geopolitical factors, including disruptions in supply chains and ongoing tensions.
- While supply levels are expected to be manageable this winter, household energy bills are likely to remain high, posing financial challenges for consumers.
- Calls for government action include separating gas prices from renewable energy costs, reforming the price cap, and reducing standing charges to alleviate the burden on households and businesses.
On Friday, the Bureau of Land Management’s Alaska State Office released the draft supplemental environmental impact statement (EIS) evaluating the Ambler Road project proposed by the Alaska Industrial Development and Export Authority (AIDEA). The updated document responds to a remand by the U.S. District Court for the District of Alaska based on identified deficiencies in the 2020 environmental analysis for the proposed road, including inadequate analysis of subsistence impacts under the Alaska National Interest Lands Conservation Act.
Response from Alaska’s Congressional Delegation:
“This road is guaranteed under federal law and will facilitate access to crucial supplies of copper, cobalt, gallium, germanium, and other minerals that our nation currently imports from abroad. This is particularly important as China cuts off exports of gallium and germanium, cobalt is produced through modern-day slavery in the DRC, and some of our best analysts are forecasting shortages of copper within a decade,” said Murkowski. “Given the clear terms of the law and the strategic importance of this project, you would expect the Biden administration to prioritize its approval with reasonable mitigation measures for subsistence. You would also expect them to recognize that Alaska has repeatedly demonstrated that subsistence rights can safely co-exist with road infrastructure. My team and I will review this document closely, but based on what Interior released today, it does not appear they have undertaken the serious, credible analysis that we expected and deserved.”
“Here we go again. The Biden administration is reversing yet another fully completed Environmental Impact Statement—approved by the previous administration—on a critical Alaska project,” said Sullivan. “Our country is in the midst of one of the most dangerous periods since World War II. One of America’s greatest strengths over our adversaries is our energy and critical minerals. Remarkably, the Biden administration has sought to unilaterally disarm these strengths, including with today’s Ambler Road supplemental EIS, which sets up more hurdles to access one the biggest deposits of much-needed critical minerals in our country. Additionally, this supplemental EIS is almost certainly counter to ANILCA, which mandates that the Interior Secretary ‘shall’ grant an Ambler Road right-of-way not subject to judicial review. Finally, it is dishonest for the Biden administration to suggest that this project will become a public road, ignoring the fact that the application is for a private road, paid for with private funds. This is classic Biden administration: undermining American strengths in a very dangerous time, subverting the clear intent of federal law, and lying to Alaskans.”
“Projects in the Ambler mining district could create good-paying jobs for local communities while also developing an Alaska-based supply chain for the critical minerals our country needs to compete with China and create a cleaner energy grid,” said Peltola. “Those communities and local tribes must be adequately consulted. From my conversations with impacted communities, they want a private road, and I believe that a private road can find a balance between providing economic opportunities for the region while also protecting subsistence. I will continue to encourage the Interior Department to complete this process without further delays.”
‘Pipe dream’? Biden’s offshore wind plan takes a hit.
Benjamin Storrow, Climatewire, October 13, 2023
The president set a goal of building 30 gigawatts of offshore wind by 2030 as part of a plan to slash planet-warming pollution and create a new generation of blue-collar jobs.
But rising interest rates and supply chain bottlenecks have complicated those efforts, sending the costs of offshore wind projects soaring and making developers scramble to renegotiate or cancel power deals.
Offshore wind companies have canceled four electricity contracts to supply a combined 2.4 GW of power to Massachusetts utilities since July. Another 0.8 GW is on the chopping block in Connecticut after a developer moved to end its contract last week.
Now, in the biggest blow to the industry yet, 4.2 GW of offshore wind power is at serious risk of being terminated in New York after utility regulators Thursday unanimously rejected a petition by developers to amend their contracts to account for inflation.
Those developments mean that roughly a quarter of the power needed to meet Biden’s target will likely be delayed several years or canceled. Either could undercut the president’s climate ambitions and jeopardize future offshore wind developments in the U.S.
“The U.S. targets of 30 GW by 2030 are further from reality,” said Atin Jain, an analyst who tracks the offshore wind industry at BloombergNEF. “I’ve been saying it was a pipe dream at the beginning of the year. My opinion has just become stronger.”