NEWS OF THE DAY:
When Does BP See Oil Demand Back at Pre-Virus Levels?
Sharon Cho, Bloomberg (Rigzone), September 28, 2021
Global oil consumption is expected to return to pre-pandemic levels in the third quarter of 2022, with Asia continuing as the center for oil-product demand growth, according to BP Plc.
Oil demand in 2022 is expected to see an average gain of 3.8 million barrels a day year-on-year, easing from growth of 5.4 million barrels a day in 2021, the President of BP Singapore Eugene Leong said in an email interview. Stockpiles of crude and most products returned to normal levels by June following supply restraint from OPEC+ and an economic recovery, he added.
“We have seen oil demand recover from the lows witnessed in the second quarter of 2020, but it has not rebounded to the same levels as before,” Leong, who is also BP’s chief executive officer of trading and shipping for the Asia-Pacific and Middle East, said on the sidelines of Platts APPEC 2021. “Oil demand recovery is expected to continue into the rest of this year and 2022.”
Oil prices and consumption have rapidly rebounded in 2021 as Covid-19 vaccination rates accelerated and restrictions on movement have been eased. Goldman Sachs Group Inc. sees continuing strength in the market and has boosted its year-end price forecast, while Vitol Group is predicting a slightly earlier return to pre-virus demand levels — by mid-2022.
Chinese oil demand this year is expected to advance at a similar rate to 2020, which was about 1.8%, according to Leong. The nation’s consumption of crude will continue to grow over the next few years, with more refining capacity expected to come online through early 2022, he said.
Still, global oil output growth will probably outpace consumption next year as OPEC+ and U.S. producers add more supply, leading to a surplus of 700,000 barrels a day, said Leong. That compares with an estimated draw of 1.6 million barrels a day in the second half of 2021, he added, citing market consensus.
“The world’s energy needs are evolving dramatically, and the uncertainty around how and when the pandemic will end will certainly impact the market dynamics,” Leong said.
OIL:
Crude oil extends gains amid bullish fundamentals, Brent nears $80/b
Jasper Chan, S & P Global Platts, September 28, 2021
Crude oil futures were higher in mid-morning trade in Asia Sept. 28 amid bullish fundamentals and supply restrictions.
At 10:20 am Singapore time (0220 GMT), the ICE November Brent futures contract was up 22 cents/b (0.28%) from the previous close at $79.75/b, while the NYMEX November light sweet crude contract was 25 cents/b (0.33%) higher at $75.70/b.
“The catalyst driving oil prices strength continues to be the bullish demand outlook and near-term constrained supply, leading to a greater-than-expected drawdowns in crude inventories over the past two weeks,” IG Market Strategist, Yeap Jun Rong told S&P Global Platts on Sept 28.
Brent prices have also seen to be surging towards the $80/b mark. ING research analysts have said in a research note on Sept. 28 that given the strength across the energy complex, it is probably only a matter of time before Brent finally breaches $80/b.
The last time front-month ICE Brent crossed $80/b intraday was on Oct. 23, 2018, and Brent last settled above that level on Oct. 17, 2018.
Sharing similar sentiment, several analysts have also noted that the global energy crisis could see demand for crude increase if the northern hemisphere experiences a cold winter, with many countries not equipped to cope.
The record level of natural gas prices and insufficient gas reserves in Europe have offered a significant boost on the demand side, leaving oil as a potentially attractive alternative.
“Natural-gas futures rallied back to levels not seen since February 2014 on Sept. 27 on signs that supply is rapidly tightening amid a global energy crunch with UK and China in the news as gas stations across London turned customers away due to no supplies,” said UOB market research on Sept. 28.
Amid the bullish demand outlook, restrictions on the supply side is also providing additional support to the oil complex.
Global supply outlooks have come under pressure as extended production outages in the US Gulf of Mexico have sent US crude inventories sharply lower in recent weeks.
Inventory withdrawals have also been strong across the US, with oil inventories falling to a three-year low of 414,000 barrels. Fuel shortages are widening, putting upward pressure on oil prices, added ANZ research analysts.
Meanwhile, all eyes will be on the upcoming OPEC+ meeting, which is scheduled on Oct. 4 to discuss about the strength in energy markets.
ING research analysts said that the scale of the deficit for the remainder of the year means that the market can absorb more than the currently planned 400,000 b/d increase per month, however, added that the group will also want to ensure that the market continues to draw inventories.
GAS:
PennEast Gas Project Halted in Latest U.S. Pipeline Casualty
Simon Casey, Gerson Freitas Jr., Bloomberg, September 27, 2021
- Project was halted due to ‘legal and regulatory obstacles’
- Decision adds to a series of pipeline projects being scrapped
A $1 billion project to haul natural gas from Pennsylvania to New Jersey has become the latest casualty of opposition to pipelines across the U.S.
PennEast Pipeline Co., a joint venture of five companies including Southern Co. and Enbridge Inc., halted development on the proposed 116-mile (187-kilometer) conduit after failing to receive water-quality certification and other wetland permits for the New Jersey section.
“The PennEast partners, following extensive evaluation and discussion, recently determined further development of the project no longer is supported,” PennEast said in an emailed statement. “Accordingly, PennEast has ceased all further development of the project.”
The decision adds to a series of gas-pipeline projects scrapped amid fierce opposition from environmental groups pushing for a faster transition away from fossil fuels and an increasingly burdensome approval process. It also comes amid growing concerns about energy reliability, with prices for natural gas surging because of tighter supplies.
In 2020 alone, Dominion Energy Inc. and Duke Energy Corp. scrapped an $8 billion Atlantic Coast gas project, and Williams Cos. abandoned its Constitution gas pipeline and its Northeast Supply Enhancement plan. Completion of the Mountain Valley Pipeline, a 303-mile conduit spanning from northwestern West Virginia to southern Virginia, has been pushed into 2022 due to permitting delays.
Limited pipeline capacity makes it harder to bring gas from shale fields in Appalachia, where producers including EQT Corp. are forced to sell supplies at a discount. Meanwhile, costumers in places such as New England pay stiff premiums for gas because only limited supplies can reach the region.
The inability to build new pipelines will slow down the energy transition and leave costumers with higher energy bills, the Interstate Natural Gas Association of America said in a statement. Consumer Energy Alliance said the pipeline cancellation will force New Jersey consumers to “find another source of affordable energy or otherwise face reliability problems and price-hiking shortages.”
The decision on PennEast comes despite a June Supreme Court ruling that gas pipeline projects with federal approval can seize state-owned land, and support from the Federal Energy Regulatory Commission. The pipeline would have carried as much as 1.1 billion cubic feet of the fuel a day, enough to serve 4.7 million homes, from northeastern Pennsylvania to a Transco pipeline interconnection in New Jersey.
The project has “encountered significant legal and regulatory obstacles and we no longer believe the project can be efficiently completed,” Enbridge said in a separate emailed statement, adding the project was designed to help deliver “much-needed” gas in New Jersey and Pennsylvania.
MINING:
Coal prices are booming but US miners struggle to boost output
Mining.Com, September 28, 2021
A labor shortage and reluctance to open new mines has left U.S. coal companies struggling to keep up with surging global demand.
“It’s very difficult for the coal industry to increase production,” Xcoal Energy & Resources LLC Chief Executive Officer Ernie Thrasher said Monday in a phone interview. “Everyone is working within the limits they have.”
Coal prices are booming around the globe as a global recovery from the economic impacts of the pandemic drives up demand for power. Prices for coal in China are up 40% this month. In Europe, they’ve almost tripled since the start of the year.
As demand surges, some of Xcoal’s current deliveries running two to four weeks late. Thrasher, however, said the disruptions are “nothing out of the ordinary” and represent less than 5% of the company’s total shipments. The closely held coal miner hasn’t declared force majeure for any contracted shipment, he said.
While high prices are good for producers, Thrasher doesn’t know how long that’ll last — making strategic planning difficult. The Latrobe, Pennsylvania-based company expects to deliver about 16 million tons this year. Xcoal produces coal for power plants and steel companies, and demand for both is booming.
“I’m glad coal is still supplying energy to people who need it,” Thrasher said.
POLITICS:
Manchin raises red flag on carbon tax
Alexander Bolton, The Hill, September 27, 2021
Centrist Sen. Joe Manchin (D-W.Va.) on Monday raised a red flag over his Democratic colleagues’ push to include a carbon tax in the reconciliation package they will need his vote to pass later this year.
A plan to tax carbon as a way to combat climate change and raise revenue for the reconciliation package is gaining momentum, and some Senate Democrats think that Sen. Kyrsten Sinema (D-Ariz.) is open to the idea after she raised global warming as a key concern during an interview with the Arizona Republic last week.
But Manchin, who represents coal-rich West Virginia, is not a fan of the idea.
I just heard about that,” he told reporters Monday when asked about the new push for the carbon tax. “Any type of a tax is going to be passed on to the people.”
“Now if a tax is going to be beneficial to help something and give us more research and development and innovation and technology, it’s something to look at,” he said.
But Manchin said he doesn’t believe that would be the case for the carbon tax under discussion, at least as it’s been explained to him so far.
Manchin made a similar argument against a carbon tax in April when he criticized the idea during a virtual conversation with the National Press Club in Washington. He argued at the time that it wouldn’t create significant incentives for the development of new technologies but instead would likely be used to eliminate jobs in fossil fuel industries.
The leading proponents of a carbon tax include Sens. Sheldon Whitehouse (D-R.I.) and Brian Schatz (D-Hawaii).
Whitehouse says a carbon polluter fee would add as much as $1 trillion, and he wants it in the package.
Sen. Chris Coons (D-Del.) and Rep. Scott Peters (D-Calif.) introduced legislation in July to create a border carbon adjustment fee on the import of products that emit a lot of carbon to produce. It would direct revenue to the development of emissions reducing technology.
Sinema, a fellow Senate centrist, is said to be open to the idea of a carbon tax, and last week she told The Arizona Republic, “We know that a changing climate costs Arizonans. And right now, we have the opportunity to pass smart policies to address it — looking forward to that.”
A Democratic aide familiar with Sinema’s thinking, however, said she is not actively pushing the idea.
“Sen. Sinema is not pushing or proposing a carbon tax,” the source said.
CLIMATE CHANGE:
Ford’s big plans to turbocharge the electric car industry in the U.S.
Joann Muller, Axios, September 28, 2021
Ford Motor Company’s new $11 billion manufacturing plan, the biggest component of which will sit just outside Memphis, is part of a much bigger effort to put the U.S. at the center of the electric vehicle revolution, executive chairman Bill Ford says.
The big picture: Ford’s plans — for enormous facilities in both Tennessee and Kentucky, employing a combined 11,000 workers — are ambitious manufacturing efforts designed to minimize their environmental impact.
- But Ford says these investments will also help the U.S. build its own supply chain for batteries, rather than continuing to import them from Asia — providing economic security, insulation from supply chain disruptions and ultimately bringing down the price of EVs.
“We need to, as a country, decide — do we want to have a domestic battery industry? And that’s something that’s kind of starting tomorrow,” Ford said in an interview conducted Monday before the company publicly announced its new manufacturing plants.
Details: The company is building two battery manufacturing plants in Kentucky, as well as an enormous new complex near Memphis that will include both battery manufacturing and vehicle assembly for electric F-series pickup trucks.
- Long-term, the plan is to perpetually recycle EV batteries in the U.S., and end imports of batteries made with precious metals like nickel, lithium, cobalt, and copper from foreign mines.
- “We’ll be importing a lot of these batteries initially, but then they stay within our country and start to be remade into American batteries, if you will,” Ford told me.
- Ultimately, he said, a more robust U.S. supply chain will help bring down the cost of EVs.
“That does require us to completely remake our company in many, many ways. And we’re in the process of doing that,” said Ford, who is the great-grandson of Henry Ford.
The bottom line: “My great-grandfather was the ultimate sort of disruptor,” Ford said. “And I think if he looked at what we’re announcing … he might just say, what took you so long? And he’d be right.”