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Today’s Key Takeaways: Just how bad are IEA’s predictions? Santos-Woodside LNG merger talks highlight importance of LNG. Will end users (automakers) become biggest mine investors? COP28 latest.
The Oil Demand Outlook COP28 Leaders Would Hate
Irina Slav, OilPrice.Com, December 6, 2023
- The International Energy Agency said in its recent oil report that oil consumption is close to peaking, thanks to transition efforts and energy efficiency gains.
- Goehring and Rozencwajg: In 12 of the past 14 years, the IEA has underestimated oil demand by an average annual of 820,000 barrels per day.
- Goehring and Rozencwajg: “If the IEA’s error were a country, it would be the world’s 21st largest oil consumer,”.
This week, a report from a climate organization warned that emissions from the combustion of hydrocarbons are set for a record this year.
This is despite the massive buildout of wind and solar capacity, hundreds of billions of investments in alternatives of hydrocarbons, and pledges for a lot more.
There appears to be a gap between stated goals and ambitions and reality. It might be more difficult to see looking at the oil futures market, but it is there. And it may be getting deeper.
Like emissions, oil demand rose this year. Yet the International Energy Agency said it is close to peaking, thanks to transition efforts and energy efficiency gains. Oil producers slammed the IEA for manipulating data. The investment world was divided. And some recalled the Jevons Paradox as proof that the hopes being pinned on energy efficiency, especially as it related to oil demand, were empty ones.
In their latest quarterly market commentary, contrarian natural resource investment managers Goehring and Rozencwajg did just that: they reminded everyone watching COP28 and listening to all the talk about efficiency and demand for hydrocarbons that gains in the former never lead to a decline in the latter.
Woodside, Santos in Early Merger Talks to Create LNG Giant
Stephen Stapcynski, Shoko Oda, Bloomberg, December 7, 2023
Woodside Energy Group Ltd. is in preliminary talks with Santos Ltd. on a potential merger, opening the door for the creation of an Australian gas export powerhouse amid a global wave of multi-billion-dollar energy deals.
Discussions are at an early stage, according to Santos, which said it is also exploring a range of “alternative structural options.” Talks “remain confidential and incomplete, and there is no certainty that the discussions will lead to a transaction,” Woodside said in a statement.
Woodside, with a market capitalization of about A$57 billion ($37 billion), is seeking to add growth options to meet oil and gas demand that it forecasts to remain resilient for decades. Smaller rival Santos, valued at A$22 billion, said last month it was working with advisers on options to boost its value.
Both producers have seen their shares decline in recent months, falling at least 15% since the start of August as earnings have retreated following the sector’s bumper 2022 fueled by a spike in energy prices.
Representatives for the companies weren’t immediately available to comment further. The Australian Financial Review earlier reported the producers were exploring a deal.
A possible combination of Woodside and Santos comes amid a wave of merger activity as oil and gas producers figure out how best to deploy last year’s profit windfalls. The talks follow Exxon Mobil Corp.’s roughly $60 billion bid for Pioneer Natural Resources Co. and Chevron Corp.’s $53 billion takeover of Hess Corp.
The Santos-Woodside discussions also illustrate the growing importance of liquefied natural gas, with producers insisting the fuel will be vital to complement renewables as part of the energy transition.
‘Huge problem’ – Andrew Leyland says mining sector can’t attract enough investment
Andrew Topf, Mining News, December 6, 2023
Automakers, not the mining industry, are going to ensure that the supply of battery minerals is enough to meet electrification goals, said Andrew Leyland, managing director, Supply Chain Insights.
Leyland spoke to Kitco mid-November at the 2023 Precious Metals Summit Zurich event.
“The industry itself won’t be able to meet those targets, or it will do it in a very bumpy way,” said Leyland. “We work in these boom-and-bust cycles in the commodity markets, so it’s going to be tricky. I think it will be the end user who steps in.
“A lot of the automakers had to stop production, because they had a shortage of semiconductors. They can see that they’re moving to a supply chain that they need to encourage to be built. They need to sign these long-term off-take contracts.”
Automakers are staffing up, putting people in place to work on minerals acquisition.
“They’re not going to start operating mines. It’s not in their wheelhouse, it doesn’t make sense for them, but investing in those operations’ long-term off-takes, which helps with financing, particularly for debt capital, is the way to go,” he said.
While lithium prices have come off the boil, Leyland said at $22,000 per tonne, miners should be profitable.
“Everybody makes money at that level. If you can’t make money, you probably shouldn’t be in this game.”
More cash is being deployed to the energy transition sector, but a lot of the funding would rather focus on the manufacturing side.
“It’s a huge problem,” said Leyland. “A lot of the money isn’t interested in [mining], but they are interested in deploying parts of the supply chain that can be built quicker. You can put a factory up in two to three years, whereas you’re looking at seven years realistically for bringing a mine onto the market.”
Asked whether governments can help by easing permitting, Leyland said the issue is not so much permitting but legal challenges to operations, which can delay a project for months to years.
He said 2024 is likely to bring some negativity around investments in the energy transition, as the issue becomes politicized in the United States and the UK.
“The one thing that we have relative certainty on is that the demand story is still there,” he concluded.
Special coverage of the 2023 Precious Metals Summit Zurich is brought to you by Vizsla Copper Corp. (TSXV:VCU).
COP28 LATEST: Another day at COP28, another day of pledges and promises from world leaders. Here’s the rundown on the latest agreements:
A global cooling pledge: More than 60 countries have signed onto a global “cooling pledge” that would aim to reduce cooling-related emissions – the first of its kind to focus on the sector, Reuters reports.
The United States, Canada, and Kenya were among the 63 countries to sign onto the promise, which would commit countries to reduce cooling-related emissions, such as those involved in refrigeration and air conditioning, by at least 68% compared to 2022 levels by 2050.
“We want to lay out a pathway to reduce cooling-related emissions across all sectors but increase access to sustainable cooling,” U.S. climate envoy John Kerry told reporters at the climate summit.
The UN Environment Programme estimates that more than 1 billion people are at risk of extreme heat due to a lack of access to cooling, with the majority of the vulnerable population living in Africa and Asia. However, greenhouse gas emissions related to cooling make up more than 10% of total GHG emissions, according to an Annual Reviews study. Furthermore, cooling equipment consumes nearly 20% of current total electricity consumption – and is expected to more than triple by 2050.
Separately, at least 118 countries agreed on Saturday to support another pledge to triple renewable energy and double energy efficiency rates by 2030.
Focus on fusion: Kerry announced that the U.S. will work with other governments to ramp up efforts to support nuclear fusion as a new source of carbon-free energy, which he says will be a “critical piece of our energy future.”
Nuclear fusion has been suggested as an alternative energy source to fossil fuels, as it emits no CO2 or other harmful atmospheric emissions. On top of that, it doesn’t produce the radioactive waste of nuclear fission. However, researchers have been trying for decades to harness the energy that results from the chemical reaction – a difficult feat due to the required high temperatures and pressures that can easily sputter.
Kerry’s plan, outlined at the Atlantic Council Global Energy Forum, is to focus on five areas for international partnerships: research and development, supply chain improvement, regulation, workforce issues and public engagement. The strategy would involve 35 nations.
If you’ll recall, the United Kingdom and the U.S. signed a cooperation agreement on fusion in November. Other countries pursuing fusion include Australia, China, Germany, and Japan.
Dairy majors unite on methane: Six of the world’s largest dairy companies have agreed to disclose their methane emissions in a new global alliance, Reuters reports.
The six members of the Dairy Methane Action Alliance include Danone, Bel Group, General Mills, Lactalis USA, Kraft Heinz, and Nestle. The groups will be required to report their emissions by mid-2024 and create methane action plans by the end of the year.
Livestock is responsible for about 30% of global anthropogenic methane emissions, according to the U.N.’s Food and Agriculture Organization. Advocacy groups have stated that tackling methane should be a priority at this year’s climate conference.
Companies involved in the new alliance do not need to pledge to reduce their methane emissions by a certain amount, but measurement and reporting are essential to eventually reduce emissions, Katie Anderson, a senior director for the Environmental Defense Fund’s food and forest program, told reporters on a press call.
Related, ICYMI: Six major oil companies have promised to pledge tens of millions of dollars to a grant fund aimed at helping developing countries curb methane emissions. Those that are missing from the pledge? Chevron and Exxon Mobil. Read more from Bloomberg here.
From the Washington Examiner, Daily on Energy