Today’s Key Takeaways: OPEC to COP28: “reduce emissions, don’t choose energy sources”. Oil patch consolidations continue. 10% drop in U.S. natural gas prices. Half the nation’s miners to retire by 2029. Geopolitics biggest economic threat in 2024.
NEWS OF THE DAY:
OPEC Urges Members to Block COP28 Pronouncements vs Fossil Fuels
Laura Millan, Grant Smith, Nayla Razzouk, Bloomberg/Rigzone, December 11, 2023
OPEC’s top official urged member countries in a letter to reject any agreements that target fossil fuels at the latest climate negotiations.
Producers should “proactively reject any text or formula that targets energy” in the form of “fossil fuels rather than emissions,” Secretary-General Haitham Al Ghais said in the letter to OPEC’s 13 members.
The COP28 climate talks in Dubai, which are due to conclude early next week, are playing out with delegations positioning themselves on either side of a clearly drawn battle line: whether or not they can commit to phasing out fossil fuels. Al Ghais said he was concerned by the possibility that the meeting might endorse such an approach.
“It seems that the undue and disproportionate pressure against fossil fuels may reach a tipping point with irreversible consequences, as the draft decision still contains options on fossil fuels phase out,” Al Ghais said in the letter. “It would be unacceptable that politically motivated campaigns put our people’s prosperity and future at risk,” he continued. The group has a pavilion at the flagship United Nations event for the first time.
Al Ghais said in a subsequent statement to Bloomberg that the Vienna-based organization “continues to advise our member countries.”
“What we will continue to advocate for is reducing emissions, not choosing energy sources,” he added. “The world requires major investments in all energies, including hydrocarbons, all technologies, and an understanding of the energy needs of all peoples. Energy transitions must be just, fair, and inclusive.”
Occidental to Buy CrownRock in Nearly $11 Billion Deal as Oil Patch Consolidates
Benoit Morene, The Wall Street Journal, December 11, 2023
With CrownRock, Occidental accesses more than 94,000 net acres in part of the oil-rich Permian Basin
Occidental Petroleum announced a $10.8 billion agreement to buy West Texas producer CrownRock as the independent oil company seeks to keep pace with rapid consolidation in the industry.
As part of the cash and stock deal, Occidental said Monday that it would incur $9.1 billion of new debt, issue about $1.7 billion of common equity and take on CrownRock’s $1.2 billion existing debt.
The Wall Street Journal reported last month that Occidental and CrownRock were in talks for a tie-up.
The acquisition would allow Occidental to keep up with competitors who have recently announced major deals. It closely follows
U.S. Natural Gas Prices Tumble 10% on Mild Weather
Charles Kennedy, OilPrice.Com, December 11, 2023
The benchmark U.S. natural gas prices slumped by more than 10% early on Monday amid high inventories and forecasts of warmer-than-usual weather suggesting very light demand for space heating.
As of 9:24 a.m. ET on Monday, the front-month futures at the Henry Hub, the American benchmark, were trading down by 10.50% at $2.305 per million British thermal units (MMBtu). Prices are now at their lowest level since the start of the summer.
“The weekend data failed to trend any colder with the setup through Dec. 26 suggesting warmer than normal temperatures and lighter than normal demand will continue through the end of the month,” according to a report by NatGasWeather.com cited by The Wall Street Journal.
NatGasWeather.com expects “light to very light national demand the next 7 days,” it said on Monday.
Adding to the bearish factors are the higher-than-average inventories at the start of the winter heating season.
The United States is entering the heating season with the highest natural gas in storage since 2020, the U.S. Energy Information Administration (EIA) said last week.
Moreover, the U.S. now has 5% more natural gas in inventories entering the winter heating season than the previous five-year average, and 7% more than last October 31.
The high natural gas inventories are partially the result of a milder 2022-2023 winter and weaker heating demand, which allowed working natural gas inventories to total 1,823 Bcf on April 1, 2023—the end of the previous heating season. This was 19% higher than the average U.S. April 1 total for the previous five years.
High storage levels, rising natural gas production, and a milder start to this year’s heating season are putting downward pressure on U.S. benchmark natural gas prices at Henry Hub. Prices have fallen from a high of $3.40 per million British thermal units (MMBtu) on November 13, to $2.21 per MMBtu on December 11.
Why the U.S. has a serious mining worker shortage
Shawn Baldwin, CNBC, December 8, 2023
The U.S. is running out of miners. More than half the nation’s mining workforce, about 221,000 workers, is expected to retire by 2029, according to the Society for Mining, Metallurgy & Exploration, and the number of candidates willing to fill those slots is shrinking.
“Our workforce is aging,” said Bold Baatar, chief executive of copper at Rio Tinto. “There is a lot of baby boomers that will be looking to retire or are already retiring, and we’re continuing to rely on their expertise.”
At the same time, demand for rare earth minerals such as lithium, cobalt and copper, critical components used to make batteries for electric vehicles and smartphones, is on the rise.
Globally, at least 384 new mines will need to be built to meet demand for electric vehicles by 2035, according to Benchmark Mineral Intelligence.
To better understand the role miners play in the transition to green energy, CNBC got a behind-the-scenes look at Rio Tinto’s copper mining operation in Utah.
Biggest economic threat in ’24? Geopolitics.
Kate Marino, Axios, December 11, 2023
The biggest economic threat next year comes from geopolitical bad actors “who with one action can upset economic and market assumptions globally,” a new survey of 500 institutional investors finds.
Why it matters: We’re in a post-COVID world now, where relationships and alliances are breaking down.
- That was evident last year, too, when war was the top economic risk identified in the Natixis survey.
- The year before that, though, as the world was still emerging from COVID-related shutdowns, investors said the biggest economic risk for 2022 was supply chain disruptions. (They didn’t anticipate Russia invading Ukraine.)
Other financial firms are also picking up on similar views:
- In Bank of America Global Research’s fund manager survey, 89% of respondents said geopolitical risk is above normal.
- BlackRock Investment Institute wrote in a recent paper that historically, geopolitical events have had short-lived market and economic impacts — but that “has changed in the new, more volatile regime … Today we see geopolitics as a structural market risk.”
The big picture: “Geopolitical risk is always there, but there are times when it bubbles up higher,” Dave Goodsell, executive director of Natixis’ Center for Investor Insight, tells Axios.
- “After seeing how the early stages of the Russian invasion of Ukraine drove big price spikes for energy and food in 2022, institutions have good reason for concern as the geopolitical landscape is looking less stable going into 2024,” the Natixis report said.
- “The survey was fielded just as Hamas unleashed a terror attack on Israel … and Iran and North Korea tightened alliances with the Kremlin to provide military assistance back to Russia,” the report went on.
Zoom in: In the survey, about 70% say they believe a growing alliance between Russia, North Korea, and Iran will lead to greater economic instability.
- The U.S. elections next year cast a shadow as well: 72% think a messy US campaign will lead to increased market volatility.
The bottom line: Investors can’t plan or position around geopolitical wildcards — that’s why they can be so worrisome.