Friday, January 10th, 2020
Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.
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Now, onto this week’s issue.
Curated weekly oil and gas newsletter
Oil Prices and Markets
+ Fast Facts – Houston Chronicle “Fuel Fix”
Light, sweet crude (dollars per barrel): $ 63.05
Last Week: $61.72
Natural Gas (dollars per million British thermal units): $2.13
Last Week: $2.16
Rig count (United States): 796
Last Week: 805
Oil Price Volatility
Oil prices began rising late Thursday, January 2nd and into Friday, January 3rd after the U.S. assassinated a top Iranian military commander, Qassem Soleimani. Middle Eastern conflict, like the Abqaiq-Khurais attacks in late September, tends to send oil prices higher because it’s a direct threat to global supply. Tensions rose on Monday and oil prices along with it before Iran launched missiles at two U.S. Army bases in Iraq, though no casualties were reported. Prices reversed on Wednesday and briefly sent WTI down more than 4% below $60 after President Donald Trump said “he believed Tehran was “standing down” from its retaliation.”
The Barrons article notes an important point about emerging geopolitical energy trends; that because of U.S. energy independence, the Middle East isn’t as powerful as it used to be.
“We are now the number one producer of oil and natural gas anywhere in the world,” Trump said. “We are independent and we do not need Middle East oil.”
“The value of U.S. oil and gas mergers and acquisitions reached a five-year peak of $96 billion in 2019 on the back of competing bids for Anadarko Petroleum, energy data provider Enverus said on Thursday [January 2nd]…Without that acquisition, the total value of deals in 2019 would have been $39.1 billion, well below the $85 billion recorded in 2018, according to Enverus. The data provider valued the Anadarko deal at $57 billion, including debt taken on by the acquirer.”
This article is a bit misleading considering the trend of lower mergers and acquisitions (M&A) activity is still ongoing.
M&A activity was high in 2014 when oil was above $100 a barrel but has since fallen quite a bit.
As noted in this newsletter, there has been a paradigm shift from “drill baby drill” to “cash flow at all costs.”
Enverus expects that future M&A activity will mostly consist of “smaller players with good land but less access to capital [being] gobbled up by those with free cash flow.”
“Apart from Occidental-Anadarko, 2019’s largest corporate deals in the sector were Callon Petroleum Co’s $2.7 billion merger with Carrizo Oil & Gas Inc, WPX Energy Inc’s $2.5 billion buy of Felix Energy, and Parsley Energy Inc’s $2.3 billion acquisition of Jagged Peak Energy.”
This article and its accompanying 10-minute video tackle the relationship with big-tech companies and oil and gas, specifically the increasing demand for AI in the energy industry. The article notes that oil and gas spent “an estimated $1.75 billion on AI” in 2018 which is expected to increase to $4 billion by 2025. Amazon and Google are targeting a piece of that demand, but the article notes that these companies publicly celebrate sustainability and even disparage the oil and gas industry. It’s somewhat hypocritical but it’s a nod to the rise of the digital oilfield, data-driven drilling and production, and “computer algorithms that perpetually improve themselves can automate the discovery of new reserves and streamline fossil fuel extraction — a big boost for companies that now have to compete with wind and solar.”
Large tech companies sing a chorus of support to reduce the world’s dependence on fossil fuels, whereas Big Oil companies tend to vary their responses. For example, Exxon prides itself on innovating to be the best oil and gas company in the world, whereas Shell sees a future in renewables and, according to Bloomberg, led supermajors in clean energy investments last year. Shell’s focus is mainly on electric power generation through solar and further “electrification” efforts like charging stations for electric vehicles. That being said, Exxon is contributing to reducing its carbon footprint. According to Exxon, the company’s efforts on carbon capture and storage (CCS) have “accounted for more than 40 percent of cumulative CO2 captured” since 1970. CCS technological innovation is a way for oil and gas companies to participate in reducing greenhouse gas emissions while still dealing in the business of hydrocarbons. CCS and other environmental efforts are important for Exxon since it is betting big on the future of oil and gas, and thus will benefit from proving that it is dedicated to a sustainable energy future.
The artificial intelligence efforts that Amazon and Google would hope to sell would make it all the more profitable for upstream companies to produce oil and get towards healthy cash flow, so it’s ironic that someone like Kate Brandt, who used to be Obama’s chief sustainability officer, is working towards making Google a global leader in “reducing or even eliminating our dependence on raw materials and fossil fuels.”
The increasing dominance of natural gas and renewables is one thing but most forecasts point towards high fossil fuel demand as emerging economies develop. After all, most of the environmental benefit comes from transitioning from coal to natural gas, so the more natural gas and LNG infrastructure developing nations can build, the better.
In terms of Google, what the company is doing is pretty incredible. Their data centers reached 100% renewable energy use in 2017, and have held that 100% number even as their data center capacity continued their monstrous growth in 2018 and 2019.
The Vox video on this topic is one of the best I’ve seen in a while in terms of the history of the oil and gas business, the “peak-oil” concept that has continued to be disproven, and the relationship between technology and oil and gas and how technology has continuously pushed production and new discoveries farther than anyone could have predicted.
Here are some key takeaways from the video, which again, I highly recommend you check out:
- “Google’s data centers need more energy every year. In 2012, just 34% of that power came from renewables, but by 2017, they got that up to 100%.”
- The same machine learning techniques that Google uses to keep its energy costs down are being applied to AI efforts to better find fossil fuels as well as extract them.
- “In 2018, Google hired Darryl Willis, a 25-year veteran of BP to lead its new “Oil, Gas, and Energy division. Willis explained, “our plan is to be the partner of choice for the energy industry.”
- Google and French oil and gas giant, Total, signed a deal for Google to help Total streamline oil and gas production.
- Amazon has a plan to “accelerate and optimize exploration, drilling, and production by using AWS machine learning and big data tools to quickly and easily extract powerful insights from structured and unstructured seismic data. This automates time-consuming, error-prone manual tasks, and improves the speed and accuracy of decision making.”
- According to the BP Statistical Review of World Energy, the total global energy consumption was around 10 petawatt hours when oil was discovered in 1859 but has since risen to over 150 petawatt hours as of 2017. A petawatt is equal to one billion million watts.
- “Today, if we rely on current reserves and current tech, oil production will start to falter, but if new technology lets us squeeze more out of the reserves we already have and find new sources of oil, we’ll be able to meet the growing demand.”
- Great description of hydrocarbons: “Oil, gas, and coal are a time capsule of a different sort, sealing ancient carbon deep below the Earth. When humans open that time capsule and burn those fossil fuels, carbon re-enters the atmosphere as a greenhouse gas, CO2.”
- “Since 1859 CO2 levels have shot up and so has the planet’s temperature.”
- Global atmospheric CO2 levels, according to data derived from the DOE, NASA, and NOAA, have risen from less than 300 parts per million in 1859 to over 400 parts per million around 2015.
- Currently, the world relies on fossil fuels for 85% of its energy needs.
The video ends on a poignant note: “While they talk up there commitment to sustainability, big tech is making sure the world can keep burning plenty of fossil fuel.”
Noble starts Leviathan gas production offshore Israel – Offshore Magazine
Discovered in 2010, “Leviathan, in deepwater around 80 mi (129 km) offshore in 5,500 ft (1,676 m) of water, contains estimated recoverable resources of 22 tcf. The first phase of development has a designed production capacity of 1.2 bcf/d of natural gas.”
Leviathan is a big deal because it will impact the geopolitics of Europe since most of their gas currently comes from Russia.
+ ExxonMobil starts up Liza, finds more oil offshore Guyana – Offshore Magazine
Aside from its Permian focus, ExxonMobil’s 45% stake in the Stabroek Block offshore Guyana is another multi-billion dollar investment. ExxonMobil expects the Stabroek Block to produce 750,000 barrels of oil per day by 2025, bolstered by up to 120,000 barrels of production from the Liza Phase 1 development starting in 2020. ExxonMobil began producing oil from its Liza Destiny floating production, storage, and offloading vessel (FPSO) in December 2019.
+ America’s coal consumption entered free fall in 2019 – The Atlantic
“Coal fell 18 percent last year, the largest drop ever recorded. But carbon emissions across the rest of the economy barely budged.”
“Here’s the good news, such as it is, for the climate: American coal consumption plunged last year, reaching its lowest level since 1975, as electrical utilities switched to cheaper natural gas and renewables. Over the past decade and a half, coal’s collapse has saved tens of thousands of lives nationwide, according to new research, and cut national greenhouse-gas emissions by more than 10 percent.”“The bad news is almost everything else. Outside of the power sector, the country’s planet-warming pollution continued to grow last year. Almost three decades after climate change first became a political issue, the American economy remains a continent-size machine that guzzles fossil fuels and excretes money.”
“Ultimately, the electricity sector generates only about 27 percent of national climate pollution. The remaining 73 percent of national emissions are produced by the rest of the economy, and these have barely budged. Almost nothing is being done about greenhouse gases from HVAC systems, 18-wheelers, or livestock, for instance.”
Have a great weekend!
EKT Interactive Managing Editor