Today’s Key Takeaways: 2024 supply crunch for oil? Oil production to hit all-time high next year. Gas markets bad for Biden this summer. Ambler planning to spend $28m on drilling, engineering studies and permitting in 2022.
NEWS OF THE DAY:
Standard Chartered Sees $100+ Oil
Andreas Exarheas, Rigzone Staff, January 13, 2022
Analysts at Standard Chartered see the price of Brent oil averaging more than $100 in the next few years, a research note sent to Rigzone earlier this week revealed.
In the note, the analysts also outlined that they had raised their 2022 Brent forecast by $8 per barrel to $75 per barrel and their 2023 Brent forecast by $17 per barrel to $77 per barrel.
“We adjust our price forecasts to reflect the move from a challenging H1-2022 to a more balanced H2-2022 and 2023, through to a mounting supply crunch from 2024 to 2026; we forecast a Brent average of $108 per barrel in 2026,” the analysts stated in the note.
“While the supply crunch does not begin in our model until deep into 2024, we expect the market to get well ahead of it, resulting in high intra-year volatility prices in periods when the short-term reality falls too far short of the medium-term fear,” the analysts added.
Standard Chartered analysts highlighted in the note that they expect demand to average 106.5 million barrels per day in 2026, based on announced and likely government policies. The analysts noted that they expect all of the incremental 5.2 million barrels per day of demand from 2023 to 2026 to come from non-OECD countries.
Non-OPEC supply growth is forecasted to decelerate sharply, from 2.4 million barrels per day in 2022 to 0.3 million barrels per day in 2026, with growth from 2022-26 skewed towards Brazil, Guyana, the U.S. and Russia, the analysts pointed out. The analysts expect the call on OPEC to average 28.4 million barrels per day in 2023, which they outlined is 1.4 million barrels per day less than in 2019. The increase in the call on OPEC across 2022 and 2023 was put at 1.4 million barrels per day by the analysts, who see this call increasing by 3.2 million barrels per day from 2023 to 2026.
Also this week, the U.S. Energy Information Administration (EIA) raised its Brent spot average price forecast for 2022 but lowered it for 2023. The organization now sees Brent spot prices averaging $74.95 per barrel this year, which marks a $4.90 increase on its previous 2022 projection of $70.05, and $67.50 per barrel in 2023.
Earlier this month, Fitch Solutions Country Risk & Industry Research released its latest multi-year oil price forecast, which stretched to 2026. According to its latest projections, the company now sees the average price of Brent hitting $72 per barrel this year, $73 per barrel in 2023, $75 per barrel in 2024, and $78 per barrel in both 2025 and 2026.
At the time of writing, the price of Brent oil stood at $84.52 per barrel.
OIL:
Feds: 2023 oil production to reach highest level in history
Carlos Anchondo, ENERGYWIRE, January 12, 2022
The annual average for U.S. crude oil production is expected to hit an all-time record next year and surpass pre-pandemic levels, according to a report yesterday from the U.S. Energy Information Administration.
In its January short-term energy outlook, EIA projected that U.S. crude oil production would grow to 12.4 million barrels per day (bpd) in 2023, which the agency said would be “the highest annual average U.S. crude oil production on record.”
EIA said the current record, set in 2019, is 12.3 million bpd. In a tweet, the agency said its forecast includes nine consecutive quarters of growth in U.S. oil production from the end of 2021 through 2023.
“Production growth reflects oil prices that we expect will be sufficient to lead to continued increases in upstream development activity, which we forecast will proceed at a pace that will more than offset decline rates,” the EIA report said.
The upstream segment of oil and gas refers to exploration and production activities.
U.S. crude oil production dropped slightly from 2020 to 2021, down 0.1 million bpd, because of well freeze-offs during extreme cold in February, as well as well shut-ins triggered because of Hurricane Ida, which slammed into the Gulf Coast in August 2021.
EIA said U.S. crude oil production averaged 11.2 million bpd last year, adding it anticipates that production will average 11.8 million bpd this year.
Spot prices for Brent crude, the international price benchmark, rose from $43 per barrel in the third quarter of 2020 to $79 per barrel in the fourth quarter of 2021, the report said. Brent prices averaged $71 per barrel last year, and EIA forecasted they will average $75 per barrel this year.
After an 8 percent jump from 2020 to last year, U.S. coal production will also continue to grow through next year, EIA said. The agency said it expects coal production will increase by 6 percent this year and 1 percent in 2023.
“The 2021 increase primarily reflected more consumption of coal in the electric power sector amid an increase in natural gas spot prices, which made coal more economically competitive relative to natural gas for electricity generation dispatch,” the EIA report said.
Additionally, the data said natural gas and coal are expected to have decreasing shares of total power generation this year and next.
Natural gas-fired power generation is forecast to fall from an average of 37 percent last year to “average 35% in 2022 and 34% in 2023,” EIA said.
While coal’s share of generation grew to 23 percent last year because of higher natural gas prices, EIA expects it to “decline slightly over the next two years, averaging near 22% in 2022 and 2023.”
Natural gas’s share of power sector generation was 39 percent in 2020, and coal’s share was 20 percent in 2020, according to EIA’s short-term energy outlook from January 2021.
GAS:
U.S. gasoline markets point to bad news for Biden this summer
Jack Wittels, Chunzi Xu, World Oil, January 12, 2022
The gasoline market is painting a picture of tight supplies this summer — the last thing Joe Biden will want to see as he tries to contain high fuel prices.
On the New York Mercantile Exchange, futures contracts for gasoline are in an increasingly bullish structure called backwardation. They show that those who trade the fuel expect a summer of relatively weak supply and strong demand. And that doesn’t bode well for a U.S. president who’s trying to keep fuel costs low.
Ominous Message
The U.S. typically builds its supplies of gasoline from November through February. Then, they’re drawn back down in spring and the summer driving season.
This year, inventories are starting off well below the seasonal norm and there are signs that work on oil refineries could slow the buildup of stockpiles. ExxonMobil Corp.’s Baytown oil refinery, the fourth largest in the U.S., has suffered a fire and this spring’s refinery maintenance season is set to be heavy. Demand, meanwhile, has been trending above normal. Supplies are also low in Europe — one of the country’s biggest suppliers.
This summer’s backwardation — whereby more immediate contracts are priced at a premium to later ones — is currently much steeper than it’s been at this time of year since at least 2017. It’s also more deeply backwardated than Brent crude, the global oil benchmark.
The Biden administration has invested a lot of time and effort in jawboning oil prices lower and orchestrating a global release of strategic petroleum reserves.
MINING:
Ambler Metals budgets $28M for 2022
Shane Lasley, North of 60 Mining News, January 11, 2021
2022 is shaping up to be a pivotal year for unlocking the world-class potential of the Ambler Mining District in Northwest Alaska.
Toward realizing this potential, Ambler Metals LLC, a joint venture equally owned by Trilogy Metals Inc. and a subsidiary of South32 Ltd., has budgeted US$28.5 million for 2022. This program is slated to include drilling, engineering studies, and the initiation of permitting for Arctic, the first mine to be developed on its Upper Kobuk Mineral Projects, a 427,690-acre package of state, patented and NANA-owned Alaska Native lands that blanket a large portion of the Ambler District.
A feasibility study finalized in 2020 details a financially robust mining operation at Arctic that would produce 1.9 billion pounds of copper, 2.3 billion lb of zinc, 388 million lb of lead, 386,000 ounces of gold, and 40.6 million oz of silver over an initial 12-year mine life.
This operation is based on 43 million metric tons of reserves averaging 2.32% copper, 3.24% zinc, 0.57% lead, 0.49 grams per metric ton gold, and 36 g/t silver.
While high-grade volcanogenic massive sulfide deposits such as the one hosting the rich ore at Arctic are typically mined from underground, the feasibility study details a lower cost open-pit mine feeding a 10,000-metric-ton-per day mill.
The Arctic mine project going into permitting is based on the operation detailed in this study.
Following an independent review of the permitting package for Arctic, Ambler Metals expects to file the permitting application, which will start the formal permitting process for the Arctic Project, with the United States Army Corps of Engineers early this year.
Given the key federal permit needed for developing a mine at Arctic falls under the jurisdiction of Army Corps, this agency will serve as the lead for the permitting process to be carried out in accordance with the National Environmental Policy Act.
In addition to federal authorization, Ambler Metals will need state permits issued by the Alaska Department of Environmental Conservation, Alaska Department of Natural Resources, and Alaska Department of Fish and Game, as well as other permits issued by the Northwest Arctic Borough.
Trilogy expects the permitting process to take a little over two years to complete, putting the Arctic Mine project on track to be permitted sometime in 2024.
“We are pleased that we are continuing to make progress on de-risking the Arctic project and that we are now very close to commencing the formal permitting activities,” said Trilogy Metals President and CEO Tony Giardini.
As Ambler advances Arctic permitting, crews in the field will continue to explore the wider potential at UKMP.
After reviewing the technical data available from the 2021 program, Ambler Metals approved a 2022 field program that is expected to include up to 10,000 meters of helicopter-supported diamond drilling.
This program is expected to include resource development drilling at Arctic, scout drilling of both volcanogenic massive sulfide targets at Arctic and across the wider Ambler Belt, and carbonate-hosted copper targets around Bornite and the Cosmos Hills.
Located about 16 miles (26 kilometers) southwest of Arctic, Bornite hosts 6.4 billion lb of copper and 77 million lb of cobalt in near-surface and underground deposits.
At a cut-off grade of 0.5%, the open-pit portion of Bornite hosts 40.5 million metric tons of inferred resource averaging 1.02% (913 million pounds) copper; and 84.1 million metric tons of indicated resource averaging 0.95% (1.77 billion lb) copper.
At the same cut-off grade, the Bornite open pit also hosts 124.6 million metric tons of inferred resource averaging 0.017% (45 million lb) cobalt.
The below-pit portion of Bornite, at a cut-off grade of 1.5%, hosts 57.8 million metric tons of inferred resource averaging 2.89% (3.68 billion lb) copper and 0.025% (32 million lb) cobalt.
Outside of Bornite itself, the Cosmos Hills have not been systematically explored since historical work was carried out by Kennecott in the 1990s. However, several copper-cobalt targets simiar to Bornite, including Aurora and Pardner Hill, about three miles to the west, have been identified.
In addition to drilling, geological crews will seek out and evaluate new targets for drilling. This effort is expected to include the use of ground and down-hole electromagnetic surveys.
“Senior management at Trilogy Metals is working very closely with representatives from South32 and Ambler Metals in devising a 2022 program that will greatly assist in moving the Arctic project forward and to continue to add value through the drill bit,” said Giardini. “We believe that 2022 will be another significant year for the company.”
POLITICS:
Oil industry renews attacks on Democrats’ methane fee
Jeremy Dillon, E & E News, January 12, 2022
The top oil and gas lobby group today stressed its opposition to a central climate provision included in the Democrats’ budget reconciliation effort, even as the measure would be offset with hundreds of millions of dollars in subsidies to help the industry reduce its methane emissions.
American Petroleum Institute CEO Mike Sommers said the methane fee would result in “higher prices for American consumers” amid inflationary concerns already plaguing the economy, largely because of pandemic disruptions.
“Natural gas prices are going up because we’re in the middle of a cold winter, and there have been restrictions on supply that have come as a consequence of some of the policy decisions that have been made by this administration,” Sommers said.
“So, we’re focused on reversing those policy decisions,” he said, “but at the same time, we have to stop this natural gas tax, because that would just mean higher prices for American consumers.”
Sommers’ comments came as part of API’s annual “State of Energy” event that offered an outlook on trends and policies likely to shape the oil and gas industry during the rest of the year.
Originally pitched as a punitive measure to force companies to reduce their emissions, the methane fee has been a central provision of Democrats’ $1.7 trillion reconciliation package as lawmakers seek to reduce greenhouse gas releases across the energy sector.
But because of opposition from moderate Democrats, including those from oil state districts in Texas and other producing states, the provision was watered down before it passed the House (E&E Daily, Dec. 10). The current structure would start in 2023 at $900 per ton, rising to $1,500 per ton in 2025.
The bill includes a new Methane Emissions Reduction Program, funded at $775 million annually, that would offer grants for companies to improve their infrastructure to prevent methane leaks. The policy would be, in effect, a new subsidy.
API, however, argued today that it already endorsed the Biden administration’s plans for regulating methane emissions. That should be enough, Sommers said.
“We support the direct regulation of methane,” Sommers said. “Based on EPA numbers, compliance costs for that new regulation could exceed $15 billion, so we don’t think that it’s right to impose both a new regulation, which we support, and a tax on top of that as well, because the consequence of that is going to be increased costs for American consumers.”
Sen. Joe Manchin (D-W.Va.), chair of the Energy and Natural Resources Committee, has voiced similar concerns with the fee. Other Democrats were looking to tweak the policy to Manchin’s liking, but negotiations appear to be on ice.
API said it did support other portions of the budget reconciliation bill, including an expansion of the 45Q tax credit for carbon capture.
“We’re working with lawmakers now to ensure that that legislation, if it comes forward, can make the investments that we need to make within carbon capture 45Q [tax credit], but also doesn’t put a hindrance on American production at a time when American energy demand is significantly increasing,” Sommers said.
CLIMATE CHANGE:
Biden’s climate runway is shortening
Ben Geman, Axios, January 13, 2022
The Biden administration is expanding efforts to speed clean electricity expansion with its existing powers but faces big obstacles to meeting its climate goals without far more help from Congress.
Why it matters: President Biden has set a goal of reaching 100% carbon-free power by 2035 and cutting economy-wide greenhouse gas emissions — that is, power, transport, industry, etc. — in half by 2030.
- The chart above shows why the power side of the target is a heavy lift, even as wind and solar are expanding very fast, and coal plant retirements are continuing.
- The story is similar in other big emitting sectors. Electric vehicle sales are surging, but that’s from a small base as gasoline-powered vehicles remain dominant.
Driving the news: Wednesday officials made a bunch of announcements on electricity.
- They include final plans for what the administration calls the largest-ever auction for offshore wind leases off the New York and New Jersey coasts.
- The sale next month could ultimately lead to up to 7 gigawatts of offshore wind development, enough to power 2 million homes, the Interior Department said.
Zoom in: Per a White House summary, various other new plans include…
- A new multi-agency initiative to speed review of clean energy project proposals on public lands. It involves departments of the Interior, Energy, Agriculture and Defense, as well as the EPA.
- Launch of an Energy Department program called “Building a Better Grid” aimed at financing transmission, and coordinating development among federal, state and local governments — a historically slow and difficult process.
The big picture: The new bipartisan infrastructure law has a suite of major clean energy initiatives, including transmission provisions that support the announcements.
- But the clock is ticking — 2030 isn’t that far away — and the administration’s targets are unlikely to be met absent the stalled, and larger, Build Back Better bill.
- It has over $500 billion in clean energy and climate measures, including expanded incentives for clean power developers and electric vehicle buyers.
By the numbers: U.S. energy-related CO2 emissions bounced back by an estimated 6.2% last year from the pandemic-fueled decline of 2020, per the Energy Information Administration.
- The EIA’s latest analysis Tuesday projects these emissions will rise by another 1.8% this year and 0.5% in 2023.
- They’ll still be below pre-pandemic levels, per EIA. But U.S. emissions are nowhere close to a trajectory consistent with White House targets.
Go deeper: The Biden agenda is meeting a dead end