NEWS OF THE DAY:
Saudi Arabia to launch enormous oil themed ‘extreme park’
Tamara Hardingham-Gill, CNN, October 19, 2021
Saudi Arabia may be trying to reduce its dependency on oil, but that hasn’t stopped the Arabic kingdom from using its petroleum industry as inspiration for a brand-new tourist attraction.
The Middle Eastern country has announced plans to convert an oil rig into a 150,000 square meter “extreme park” and resort located in the Arabian Gulf.
Funded by Saudi Arabia’s Public Investment Fund (PIF), The Rig will be comprised of three hotels and 11 restaurants spread over a number of connected platforms, as well as roller coaster rides and adrenaline-rush activities like bungee jumping and skydiving.
Renderings of the upcoming attraction, which aims to “provide a multitude of hospitality offerings, adventures, and aquatic sporting experiences,” along with a promotional video, were released earlier this month.
“This project is a unique tourism attraction, expected to attract tourists from around the world,” said a statement from the PIF. It said it was expected to be particularly popular with visitors from the Arabian Gulf region.
A completion date for the venture has not been stipulated.
Described as the “world’s first tourism destination inspired by offshore oil platforms,” the upcoming attraction is being devised in line with the long-term Saudi Vision 2030’s strategy, which aims to reposition Saudi Arabia as a top international tourism destination and diversify its economy.
While millions of religious visitors make the pilgrimage to the Saudi holy city of Mecca every year, the country’s conservative laws restricting women’s freedoms, along with its troubling human rights history have made it a less than favorable destination for many international visitors.
But the country is determined to reposition itself as an alluring global hotspot that can compete with the likes of nearby Dubai, Abu Dhabi, and Oman. It aims to attract 100 million tourists each year by the close of the decade.
Earlier this year, plans for a second national airline — the kingdom’s current flag carrier is Saudia, formerly known as Saudi Arabian Airlines — and to invest $147 billion into transport and logistics over nine years were confirmed by Saudi Arabia’s Crown Prince Mohammed bin Salman.
News of The Rig project comes just months after plans for Six Flags Qiddiya were announced.
The site is being constructed as part of a new city situated outside capital city Riyadh and will be home to the world’s fastest roller coaster when it launches in 2023.
OIL:
Analysis: As oil prices skyrocket, fund managers hop on board for the ride
David Randall, Reuters, October 19, 2021
A surge in oil prices is drawing fund managers back into shares of oil and gas companies, even as some remain unsure that the price gains will stick.
Energy stocks in the S&P 500 (.SPNY) are up 53.8% for the year to date compared with a 20.2% gain for the broader index, as rising demand from the global economic reopening collides with supply chain disruptions and inflation fears to boost energy prices to multi-year highs.
The rally has caught many fund managers by surprise, and some are scrambling to catch up, betting that commodity prices will remain high in the face of burgeoning demand. Allocations to energy stocks among fund managers increased by 23 percentage points from last month to the largest overweight since March 2012, a BofA Global Research survey showed on Tuesday.
“I have a sneaking suspicion that energy prices may be elevated for a while because it will take some time for the supply side to catch up,” said Jack Janasiewicz, a portfolio strategist at Natixis Investment Managers who has been increasing his overweight in energy stocks.
Janasiewicz also said he believes surging prices for oil and gas companies will likely bring in money managers who have been underweight the sector and are nervous their comparative performance will suffer.
Many fund managers had spent years pruning their energy holdings, as clients demanded more exposure to environmentally friendly companies in their portfolios and an abundance of shale oil in the United States undercut the case for big rallies in prices. U.S. equity funds had an average of 2.6% of their portfolios in energy stocks in August, compared with 5% three years earlier, according to Morningstar data.
Supply bottlenecks and worker shortages that have helped push energy prices in Europe to record levels have helped change that calculus. Meanwhile, worries that a recent surge in inflation may be more persistent than previously expected have boosted the appeal of commodities as a hedge against rising consumer prices. read more
Brent crude futures topped $86 a barrel on Monday, their highest level since October 2018. U.S. West Texas Intermediate futures stand at $83.73, their highest since October 2014. read more
Exploration and production companies remain attractive if oil prices stay between $50 and $80 a barrel and do not rise high enough to start weighing on demand, said Eric Marshall, a fund manager at Hodges Capital Management who has positions in companies including Pioneer Natural Resources Co (PXD.N) and Diamondback Energy Inc (FANG.O).
Energy companies have focused more on returning cash to shareholders through dividends and buybacks than gaining market share and have been slow to increase their rig counts as spot prices increase, he said.
Lower rig counts help buoy prices because they keep a lid on supply. While rigs operating in the United States have increased six weeks in a row, the total rig count is just now back to levels last seen in April 2020, according to Baker Hughes Co.
Yet some on Wall Street remain wary that the rally in oil prices can reverse if inflation proves to be transitory, demand slackens, or energy companies invest too heavily in production. Past boom and bust cycles in commodity prices have been marked by rapid surges in oil prices followed by bruising declines: Oil plummeted from above $100 a barrel to around $30 between 2014 and 2016 as growth in shale drilling turned the United States into the world’s largest producer of crude oil.
Simon Wong, an energy analyst at Gabelli Funds, said that some market participants may be wary of companies ramping up production and flooding the market with supply. read more
“The generalist investors need to see two or three years of commitment from companies that they are not going to grow at all costs before they return en masse,” he said.
Michael Underhill, chief investment officer at Capital Innovations, said high costs will push some consumers to shift consumption to alternative energy sources or cut back on usage, causing oil prices to fall as much as 20% in the next 12 months.
“The old adage of ‘the best remedy for high oil prices is high oil prices will prove to be correct again,” Underhill said.
GAS:
Russia signals Europe won’t get extra gas without Nord Stream 2 – BNN Bloomberg
Irina Reznik, Henry Meyer and Ilya Arkhipov, Bloomberg News, October 19, 2021
Russia is signaling that it won’t go out of its way to offer European consumers extra gas to ease the current energy crisis unless it gets something in return: regulatory approval to start shipments through the controversial Nord Stream 2 pipeline.
In exchange for upping supplies, Russia wants to get German and European Union approval to begin using the pipeline to Europe, according to people close to state-run gas giant Gazprom and the Kremlin.
“We cannot ride to the rescue just to compensate for mistakes that we didn’t commit,” Konstantin Kosachyov, a top pro-Kremlin legislator in the upper house of parliament, said in an interview, without specifying what Russia is seeking. “We’re fulfilling all our contracts, all our obligations. Everything on top of that should be a subject for additional voluntary and mutually beneficial agreements.”
As if to underline the point, the pipeline’s operator said Monday its first line is full of so-called technical gas and ready to begin operation, though it can’t ship it until regulatory approval is granted. That announcement came hours after European gas prices spiked on news that Gazprom had again bid for only a small amount of capacity to ship the fuel to Europe via other routes.
As surging fuel costs have caused increasing economic havoc, pressure has grown on Russia, Europe’s largest supplier, to pump more. Extra Russian gas is seen as the main way to avoid an even deeper supply crunch in the middle of the winter.
But with relations with Europe in the deep freeze after years of sanctions and other tensions, there’s no appetite in the Kremlin to do any favors. Although exports to Europe are up this year from last year’s depressed levels, they lag those seen in 2019, according to the Oxford Institute for Energy Studies. Daily flows have dropped in October and Gazprom has been slow to refill storage facilities it owns in Europe, adding to upward pressure on prices. Russia has blamed an overly hasty shift to relying on spot markets and alternative energy sources for the crisis.
At an energy conference in Moscow last week, President Vladimir Putin seemed to suggest Russia could offer more gas. But he also lamented the slow progress on getting approval for Nord Stream 2, a process that could take until well into next year. German regulators are currently reviewing its application for certification but have said their initial decision could come only in January, after which the European Commission would also have to give the go-ahead.
“If we could increase deliveries through this route, this would substantially ease tension on the European energy market,” Putin said. “However, we cannot do this so far because of the administrative barriers.”
One of his highest-priority projects, the pipeline has drawn criticism and sanctions from the U.S., as well efforts by Poland and Ukraine to block its completion. Russian officials have for months denied allegations that they were deliberately holding back gas supplies to Europe to push for approval to use Nord Stream 2.
After years of tensions with Europe, Russian authorities are unlikely to agree to up gas supplies without ironclad assurances that the new pipeline will be allowed to operate, the people close to the situation said. Additional volumes would avoid the traditional routes across Ukraine, the people said.
MINING:
Global shortage of magnesium to cripple car industry
Cecelia Jamasmie, Mining.Com, October 19, 2021
The world’s top automakers face disruption from tight global supplies of magnesium, as China’s power crisis threatens availability of the key component used to make aluminum, Germany’s association of metals producers WVM said on Tuesday.
European magnesium stocks have been particularly affected by the lack of supplies from China, which has a near monopoly on the magnesium market, the association said in a letter to the German government. The worst part of this shortage is about to come, it noted.
“It is expected that the current magnesium inventories in Germany and respectively in the whole of Europe will be exhausted by the end of November 2021,” the letter said.
Magnesium is used for a range of products, especially aluminum alloys, which are used in several auto-parts from gearboxes and steering columns to seat frames and fuel tank covers.
China, which Europe’s main magnesium supplier, has ordered roughly 35 of its 50 magnesium smelters to close until the end of the year to conserve power supplies.
What makes the shortage a pressing issue is that there are no substitutes for magnesium in aluminum sheet and billet production.
“Thirty-five per cent of downstream demand for magnesium is auto sheet — so if magnesium supply stops, the entire auto industry will potentially be forced to stop,” Barclays analyst Amos Fletcher said in a report quoted by Financial Times.
According to Reuters’ columnist Andy Home, the growing shortage of both silicon and magnesium suggests that a downstream hit may shortly be following the upstream smelter hit.
The WVM called on Germany’s government to start talks with China about increasing magnesium supplies to Europe, and to press the European Union to return magnesium production to the Old Continent.
“With a supply bottleneck of this proportion, massive production losses are threatened in the entire aluminum value-addition chain in sectors such as the automobile, aircraft, electro-bicycle, construction, the packaging industry and engineering,” the association said.
The problem has already reached North America. Canada’s Matalco Inc., which produces aluminum billet, told its clients last week that magnesium availability had “dried up”, and if the scarcity persisted it would have to curtail output and ration deliveries as soon as next year.
POLITICS:
From the Washington Examiner, Daily on Energy:
CARBON TAX TROUBLE: That was fun while it lasted. Senate proponents of including a carbon tax in Democrats’ reconciliation package to replace the fading clean electricity performance program are quickly being reminded that it faces massive political headwinds of its own.
“The carbon tax is not on the board at all right now,” Sen. Joe Manchin, the centrist West Virginian who also opposes CEPP, told reporters this morning after departing an Energy Committee hearing he chaired.
It’s not just Manchin. Sen. Jon Tester of Montana, another relative centrist, told Politico, “you might have problems with me on a carbon tax.”
“It’s just not going to work,” Tester added.
House Democrats, meanwhile, did not include carbon pricing in their version of the reconciliation package, as the idea has fallen out of favor with liberals.
“I don’t think you can have any carbon pricing bill that you could introduce to the House today that you would get the majority of Democrats,” Rep. Sean Casten of Illinois told Josh and co-host Neil Chatterjee for a new episode of the “Plugged In” podcast that just dropped this afternoon (check it out here, and also on Apple podcasts and Spotify).
“I share that concern,” Rep. Jared Huffman, a California Democrat, told Josh this afternoon. “Putting aside economists just love it and some people think it’s the holy grail, we’ve got a difficult political needle to thread here, and I am skeptical carbon pricing can be made to work.”
Casten specifically took aim at an idea championed by Senate Finance Committee Democrats, led by chairman Ron Wyden of Oregon, who want to use the revenue from the tax for rebates or checks for low-income people. Casten’s point underscores that Democrats would have a hard time agreeing on how to use the revenue, as some prefer to use it for clean energy and infrastructure resilience investments.
“An even worse idea is tax and dividend because if you tax and dividend you say, ‘I am going to put a price on carbon and then I am going to expressly guarantee the money I take in will not be used for C02 reductions,’” Casten said.
Not giving up on CEPP: Casten is continuing to gun for the CEPP program and warned fellow Democrats such as Manchin that weakening or removing it is tantamount to not giving a “rat’s ass about climate.”
“If you take out or weaken the CEPP it’s no longer a climate bill,” Casten added.
Casten, a clean-energy businessman and scientist, says that a program of incentives and penalties for utilities to generate more zero-carbon power is more effective than a carbon tax. A carbon tax would raise the cost of fossil fuels but not necessarily induce developers to build more clean energy to replace coal and natural gas.
“I built clean energy projects in response to incentives,” Casten said. “I never built a clean energy project because my competitors had a change in their cost structure. The CEPP is not ideal, but much closer to the optimum than a simple carbon tax would be. There is enough people in the House that share my views it would be very hard.”
The advocacy of Casten and other Democrats has done nothing to persuade Manchin on CEPP.
And with broader opposition to carbon pricing among their ranks, that means Democrats are scrambling to come up with a mix of policies that can ensure President Joe Biden has a shot at meeting his climate change goals.
CLIMATE CHANGE:
Deloitte Survey Finds Four Major Pathways for Most Oil and Gas Companies in Energy Transition
Hellenic Shipping News, October 19, 2021
Key takeaways
• Oil and gas companies see competing strategies for energy transition, with four key strategic decarbonization pathways emerging across the industry.
• Forty-seven percent (47%) of oil and gas executives surveyed are currently mapping out near-term decarbonization strategies.
• Five percent (5%) of respondents are already shifting to green portfolios.
• Only 30% of respondents currently envision remaining solely focused on oil and gas by the 2040s.
Why this matters
Corporate pledges for net-zero are pouring in, but the pathways to net-zero are many, with varying shades of green. Deloitte’s latest survey-based study, “Oil and gas business in a low carbon world,” highlights four main pathways: “Net-zero pioneers” and “green followers” are now setting their sights on green energy, while “low-carbon producers” and “hydrocarbon stalwarts” will likely continue to focus on fossil fuel production, but with many of the latter doing so on a decarbonized basis. Each pathway is expected to be important to meet climate goals and keep oil prices stable while the transition is ongoing. The study findings are based on a survey of 100 C-level executives at global oil and gas companies, including integrated, U.S. pure-play, multinational exploration and production, and state-owned oil and gas companies.
One goal, four pathways for the energy transition
The net-zero goal is real, and the global energy system is set to undergo transformational changes. But the future is wide open for oil and gas companies. Many O&G companies are needed to supply the remaining demand outlook while others will play a big role in enabling the successful energy transition. O&G companies will likely embark on one of the distinct pathways during the transition and beyond.
Net-zero pioneers with net-zero targets and a bold vision to divest their hydrocarbon business model built over decades — especially at an oil price of $75/bbl — could create and unlock significant value through capex redeployment, valuation uplift and divestment proceeds. The companies already on this pathway are undertaking green change now.
Green followers with an ultimate goal of going green could realize significant financial gains by monetizing their traditionally higher reserves-to-production (R/P) ratio in the near term and using this revenue to make a big foray into the green business at a reduced risk in the medium term. These companies seek to right-size oil reserves and pace into new energy solutions as more green technologies reach commercial maturity around the mid-2020s.
Low-carbon producers could create new value by streamlining their portfolio, decarbonizing their business, and optimizing their operations.
Hydrocarbon stalwarts with the capability to remain the last-standing suppliers have the potential to gain value through increased market share. By the 2040s-2050s, a small group of O&G surveyed producers, or 30% of respondents, expect to remain focused on regions and assets with the lowest costs and extract the remaining value of reserves.
The survey finds the transition will likely play out over time, driven by fundamentals, technology maturity and stakeholder pressures.
Key quote
“The energy transition presents both a welcome opportunity and a huge challenge for oil and gas companies transforming for a low-carbon future while meeting the world’s growing energy demand. There’s no uniform prescription for the O&G industry’s decarbonization efforts. Instead, we find each company must carve its own path among a host of options for innovation and value creation across a continuum.”
– Amy Chronis, vice chairman and U.S. oil, gas and chemicals leader, Deloitte LLP
Long-term value of staying in O&G
The 30% of surveyed O&G executives staying in hydrocarbons as their long-term strategy, see concentrated value in an anticipated smaller, but more competitive, market. Respondents at companies with less than 16% of their hydrocarbon portfolio at risk may reap $1.3 trillion of value by 2050.
Between a rock and hard place: shareholders versus stakeholders
While pressure is on to act sooner than later, companies waiting to make a green plunge are carefully researching where best to redeploy capital while those deciding to stay in the hydrocarbons business are studying how best to grow market share in a shrinking market. Irrespective of which pathway they choose, companies must serve a widening array of stakeholders: their shareholders, customers, governments, and communities, all becoming more environmentally conscious. Additionally, progress on four capabilities —operations design, supply chain ecosystem, the digital mindset, and organizational set-up, including workforce planning for tomorrow — could differentiate the rate of value creation across and within the four pathways to a low-carbon world.
Next-gen Greenhouse to accelerate transformation
To address the pressing need to decarbonize and transform business models for the energy transition, Deloitte opened a first-of-its kind next-gen Deloitte Greenhouse®, powered by energy and industrials. The immersive, interactive space, located in the nation’s energy capital of Houston, leverages advanced technologies to accelerate innovation and help ideate, co-create and prototype solutions to the toughest challenges facing the industry today and in the future.
About the survey
Deloitte conducted a survey of 100 C-level senior executives and environment, health and safety leaders of global oil and gas companies to study organizations’ plans and strategies to navigate the energy transition. It spanned a diverse mix of global upstream portfolios, including integrated companies, domestic pure plays, international E&Ps, and national oil companies with revenues above $100 million. The comprehensive survey helped uncover the actions that some O&G businesses are taking to address changes in the industry and identify what motivates those businesses to adopt new practices and implement new technologies related to optimizing the hydrocarbons business and/or venturing into clean energy.
Source: Deloitte