Today’s Key Takeaways: Wood Mackenzie’s top energy predictions for 2023. $4B windfall for U.S. on oil-reserve sales. Germany launches first LNG terminal. Green aluminum output on the rise – good for carmakers and climate. CA oil drilling ban heads to ballot.
NEWS OF THE DAY:
Ten Energy Industry Predictions For 2023
Bojan Lepic, Rigzone, December 19, 2022
Analyst company Wood Mackenzie has compiled ten predictions for energy developments in the year ahead.
Wood Mackenzie presented ten of its analysts’ top predictions for 2023 but noted that unexpected events could forestall some of the events that currently seem likely.
Countries will follow US lead in policy support for low-carbon energy
The extended and expanded tax credits and subsidies offered to low-carbon energy in the US Inflation Reduction Act, signed into law in August, has caused companies around the world to reconsider investment decisions. Key measures in the act, including support for wind and solar power, battery storage, carbon capture, and low-carbon hydrogen, simply outshine existing policy frameworks in most other countries.
To remain competitive, those countries will have to introduce incentives that are closer in value to what is now available in the US. That will be a net gain for the world, not a zero-sum game: a leveling-up of policy support will unlock new business opportunities for the entire globe.
World oil demand growth will bounce back
As 2022 ends, global oil demand is faltering. For the fourth quarter of 2022, we expect a sharp decline in demand of 1.2 million b/d year-on-year. However, we think this downward trend will turn out to be short-lived. We are forecasting a brisk return to oil demand growth next year, with an increase of 2.3 million b/d for 2023, driven by the easing of Covid restrictions in China and the rising use of petrochemical feedstocks. This resumption of the upward trend in demand is likely to jolt the oil market out of its current doldrums and support prices.
There will be a slowdown in LNG contract signings
2022 was a busy year for LNG contracting, with deals signed for 80 million tonnes per year. Of that total, 75% was with exporters from the US, and over 50% was for portfolio players and traders. In 2023, we expect contracting activity to slow down.
Chinese companies will continue to buy, and US independent upstream and midstream players will continue to secure deals to access global LNG prices. But portfolio players will be more selective, placing their bets only on those projects that can move quickly. Meanwhile, European buyers are unlikely to commit to much supply, as they remain concerned about demand longevity and future pricing dynamics.
OIL:
U.S. Scores $4 Billion Windfall on Oil-Reserve Sales
David Uberti, The Wall Street Journal, December 19, 2022
Washington emerges as unlikely winner after releases from Strategic Petroleum Reserve
Volatile energy markets have made 2022 a big year for commodity traders. One of the biggest and perhaps most unlikely winners: The U.S. government.
Emergency releases from the U.S. Strategic Petroleum Reserve are slated to end this month, concluding an unusual attempt to lower gas prices after Russia’s invasion of Ukraine sent oil prices soaring.
Over the release period, Washington sold 180 million barrels of crude at an average of $96.25 apiece, well above the recent market price of $74.29—meaning the U.S., for now, is almost $4 billion ahead.
The price of West Texas Intermediate to be delivered next month is down 40% from its wartime peak, reflecting concerns that China’s pandemic reopening isn’t juicing global demand.
The question is whether the good news will last.
Some market participants criticized the Biden administration’s March decision to authorize the releases, calling it an unprecedented intervention into the market. Now, as the differential between the prices of SPR sale and crude futures widens, some analysts and investors have called on the administration to begin replenishing its stockpiles.
The Energy Department, empowered by October rule changes that give it more flexibility in such purchases, is able to wait for favorable prices as it begins to refill more of the SPR’s skyscraper-sized underground storage caverns, a senior administration official said, adding that the process will likely take months and years. On Friday, the department solicited bids for 3 million barrels from a U.S. supplier starting in February.
“At some point, they will need to start buying irrespective of the market,” said Claudio Galimberti, senior vice president of analysis at the consulting firm Rystad Energy. “You cannot expect the U.S. government to behave like a trader.”
But the administration appears to be in no rush. It has said it believes the SPR’s remaining holdings—about 382 million barrels—leave it well-positioned to weather potential supply shocks. The SPR held about 593 million barrels of oil at the beginning of this year, according to the Energy Department, down from a peak of 727 million barrels in 2009.
Since then, the U.S. has emerged as a major oil exporter.
“There is no need to refill it to previous levels due to the shale revolution,” said Anas Alhajji, a managing partner at Energy Outlook Advisers.
GAS:
Germany Turns to LNG to Fill Energy Gap
Bloomberg, December 19, 2022
“This facility alone can deliver more than 8% of Germany’s consumption.” Germany launched its first LNG terminal in a bid to help fill the country’s energy gap. Bloomberg’s Oliver Crook reports from a port in Wilhelmshaven.
MINING:
Bumper green aluminum output is good news for carmakers, and climate
Reuters, Mining.Com, December 19, 2022
Aluminum makers are set to boost low-carbon metal output by 10% in 2023 and churn out even more in the years ahead, driving down the cost for carmakers seeking climate-friendly supplies and shrinking the industry’s hefty carbon footprint.
Aluminum is the most energy-intensive metal to produce, accounting for about 1.1 billion tonnes of global CO2 emissions per year. Next year’s forecast increase in “green aluminum” output would reduce that by 13 million tonnes, or about 1.2%.
Pressure by governments to cut greenhouse gas emissions has given aluminum producers an incentive to ramp up output of the low-carbon material, which emits less than 4 tonnes of CO2 per tonne of metal compared to the global average of 16.6 tonnes.
That means global surpluses of green aluminum – largely produced using hydro power or recycled material – already weigh on the premium that producers can charge buyers, from automakers and beverage can firms to construction suppliers.
“It’s (the premium) been very modest now for the last couple of years,” Ivan Vella, chief executive of Rio Tinto Aluminum, told an investor conference last month.
Vella added that the company had seen some increases in premiums recently, without giving details.
POLITICS:
Bid to undo Calif. oil drilling ban likely headed to ballot
Anne C. Mulkern, ENERGYWIRE, December 15, 2022
Oil drillers and their allies gathered nearly 1 million signatures to get a proposition on the 2024 ballot to stop S.B. 1137, said Rock Zierman, chief executive officer of the California Independent Petroleum Association. They need slightly more than 623,200 valid ones to qualify.
Election officials must now check the validity of a sampling of those signatures. If verified, the petition would block S.B. 1137 from taking effect until voters decide on the law’s fate in the November 2024 election. The law bans oil wells within 3,200 feet of homes, schools, parks, and similar facilities.
The new law “would shut down production in the state of California,” Zierman said. “We wanted to give the voters a say in whether or not this law, which [state lawmakers] jammed through in the last five days of session, should stand or not.”
California allows residents and groups to add measures to the state ballot but gathering the required number of voter signatures is costly. Successful efforts are typically funded by wealthy backers.
Oil companies and their allies donated $20 million to the latest effort, Zierman said. It comes as Democratic Gov. Gavin Newsom and legislative leaders push to limit oil production in the state and lead the nation in fighting climate change.
“Big Oil will stop at nothing to put profits over people — and now they’re spending millions to overturn California’s law to protect kids and families from drilling in communities,” Daniel Villaseñor, a Newsom spokesperson, said in an email. “The Governor fought for this law and won’t back down from protecting Californians from the oil industry’s greed.”
Jamie Court, president of Consumer Watchdog, argued that the petition’s likely success shows the power of the oil industry. Eight drillers who helped finance the effort won 86 oil drilling permits this year for wells within the controversial zones covered under S.B. 1137, Court said.
Court argued that the Newsom administration should stop granting new drilling permits for wells in the affected areas until the referendum is decided.
“It’s clearly a threat to the health and safety of residents,” Court said. “The administration has the ability to deny permits,” based on “the health and safety of residents.”
Vision, an environmental justice group, has also filed a protest with the California secretary of state’s office, arguing that the signature gathering broke state rules. Kobi Naseck, coalition coordinator with Vision, said the petition’s block on the law won’t go into effect until the secretary of state investigates the claims.
In the complaint, Vision wrote that petition circulators lied to voters to get signatures. In Los Angeles, the group wrote, two signature gatherers repeatedly stated they were circulating a “petition on lowering gas prices” and that they “work[ed] with the State of California.”
The California secretary of state’s office did not immediately respond to an inquiry about how it would handle the allegations and the complaints.
Zierman, with the oil drillers’ association, said the secretary of state would investigate any complaint that’s been made.
“We have given clear instructions to our guys on the talking points” of the proposed referendum, he said. “We’ve been public about what it’s all about, and so I think that’s why people signed the petition in record time.”