[C8]

Seb Kennedy

Opinion: US LNG is becoming a zero-sum game
The US is now a world-beating gas exporter, but the spoils of LNG market dominance are increasingly coming at the expense of US consumers via higher gas prices. Renewables stand to benefit, but tail risks abound.

Tricky trade-offs
The Freeport outage illustrates how US LNG exports help to keep a lid on soaring European energy prices, while driving up domestic prices. Put simply, more US gas in Europe means less gas in America. So far, the US has enjoyed the economic benefits of its cheap shale gas bounty on the road to becoming a world player on the global LNG stage. Soon, it will have to choose between the two.

Industrial Energy Consumers of America, a Washington-based trade body that has been campaigning for years to cap US gas exports, has seized on this moment to drive home its message: US LNG is hurting American industry.

Shale peak looms
So, if US gas demand won’t fall to match rising exports, can production keep pace? Shale gas output grew spectacularly in the 2010s. A net increase in supply of 20Bcf/d since 2016 far outstripped the 10Bcf/d of new LNG export demand, creating the structural surplus that kept Henry Hub at a structural discount to prices in global gas markets – underpinning the original economic case for LNG exports.

However, field declines, constraints on investment and broken supply chains mean the US gas industry is at an inflection point. The Permian, Marcellus and Haynesville shale plays that drive supply growth are rapidly approaching peak production, tipping the US gas market from structural surplus to structural deficit.

That is according to New York investment house Goehring & Rozencwajg Associates, which said in a May 2022 briefing: “The idea that gas supply could falter and as a result that US gas prices could nearly instantly rise four-fold is completely off any investors’ radar. And yet, this is exactly what our models are telling us could happen within the next six months.”

No more cheap US gas?
What would $30/MMBtu on Henry Hub mean for the US energy transition? For starters, LNG exports would falter if feed gas costs rose to the point that liquefying and transporting the molecules to Europe becomes unprofitable. For that to happen, natural gas would first be rendered uneconomic in many domestic end-use segments, making alternatives more attractive – but it would also aggravate inflationary tail risks for clean energy investments.

More homeowners would be convinced to invest in solar thermal or heat pumps for space heating in cooler northern states. Solar PV would become a vital source of onsite generation for homes, apartment blocks and offices to offset spiralling energy bills during the summer cooling season, particularly in warmer climes.

Full article: https://www.energymonitor.ai/analysis/o ... o-sum-game

[C8]

America is depleting its strategic petroleum reserve faster than it looks
By Javier Blas Bloomberg Opinion Jun 24, 2022

The U.S. has become the world’s oil barrel of last resort, singlehandedly keeping prices in the energy market from exploding even higher by selling a large chunk of its Strategic Petroleum Reserve. Washington can’t use the reserve forever: It’s a finite stockpile fighting a potentially unlimited flow shortage. More worryingly, the U.S. is depleting its cache a lot faster than it looks.

And that matters. The International Energy Agency earlier this week warned that “global oil supply may struggle to keep pace with demand next year.” The SPR may be the final cushion late this year and in 2023 to put a lid on oil prices — and global inflation. What Federal Reserve Chair Jerome Powell and his peers around the world do with interest rates hinges in large part on energy market developments.

To understand the limits of the SPR, one has to go into the plumbing of the reserve itself, and the inner workings of the U.S. oil-refining industry. Over the past year, the White House has sold almost 115 million barrels from its hoard, with the releases surging to a record high of nearly 1 million barrels per day since mid-May. At the current rate, the U.S. is selling more barrels from its reserve than the production of most medium-sized OPEC countries, such as Algeria or Angola.

If Washington sticks to its current pace, the reserve will shrink to a 40-year low of 358 million barrels by the end of October, when the releases are due to stop. A year ago, the SPR, located in four caverns in Texas and Louisiana, contained 621 million barrels. As the oil market looks today, it’s difficult to see how Washington can halt sales in October. Removing that additional supply would mean commercial inventories quickly deplete, putting upward pressure on oil prices.

In theory, what’s going to be left beyond October would still allow the White House to sell more crude in November and December, and into next year. But there’s an important catch: Not all of the crude set aside is equal, and what’s left is, increasingly, far less useful than what’s already gone.

Broadly speaking, the SPR contains two kinds of crude: medium-sour and light-sweet. The first adjective refers to the oil’s density, the second is about sulphur content. Typically, U.S. refiners prefer medium-sour crude, which is denser and has more sulphur but is a variety they can easily process into gasoline and other products thanks to their highly sophisticated plants.

The medium-sour the U.S. has set aside matches the kind of crude its domestic refiners process. The stockpiled medium-sour has a density of 31.9 API degrees and a sulphur content of 1.44%, mirroring the average crude American refiners have processed over the last five years, which has a density of 32.6 degrees and 1.34% sulphur. The light-sweet in the reserves has a much lower density, at 35.8 degrees, and far less sulphur, at 0.4%. Medium-sour is the quality of crude pumped by Russia, most Middle Eastern countries and Venezuela.

For that reason, the White House has prioritized the sale of medium-sour barrels, satiating the refiners’ appetite for their favorite crude. Over the last year, 85% of the oil the SPR has sold has been medium-sour, according to an analysis based on government data. Considering that refining is one of the biggest bottlenecks right now in the oil market, satisfying the preferred diet of American oil refiners is crucial. The biggest companies — Marathon Petroleum and Valero Energy — have been big buyers at SPR auctions in the last six months, helping the industry to profit from record-high refining margins.

As the White House fed American refiners with their preferred variety, those sales have reduced the amount of medium-sour crude inside the reserve dramatically — and it’s set to decline further over the next four months. OilX, a consultant, estimates that by the end of October, the SPR will hold only 179 million barrels of medium-sour crude. To put that into perspective, during the period June 2021 to October 2022, the U.S. is likely to sell about 180 million to 190 million barrels of medium-sour crude from the reserve. Clearly, Washington is running out of firepower to repeat that exercise.

What’s left still leaves the White House with some ammunition — but not a lot. Already, the government has started to offer more light-sweet crude than medium-sour in its most recent tender for SPR barrels. Regardless of the preference of refiners, any barrel is still better than no barrels. But with the good stuff already nearly gone, the world can’t keep relying on the U.S. strategic reserve to keep oil prices in check.

With that in mind, next month’s trip by President Joe Biden to Saudi Arabia makes a lot more sense. The Saudis, and their neighbors in the United Arab Emirates, pump medium-sour crude. That’s all what you need to know.

[JuanP]

Great link, C8! The next two and a half years are likely to be extremely interesting in the USA. Will Biden choose to deplete the SPR to help the Democrats as much as possible in the coming midterm and in the 2024 elections? I am very curious to find out how things will play out in the oil markets and the Us political system. Interesting times indeed!

[Tanada]

Last month, after weeks of negotiations, European Union leaders agreed to ban 90% of Russian oil imports by 2023. Until then, Russia will be able to continue to sell millions of barrels of oil a day to the EU, with some of the proceeds continuing to fund the war. Reliance on this fuel delayed a dignified, united condemnation of the invasion of Ukraine, and continues to interfere with the EU’s response.

There is a lesson in this for both the rest of Europe and the rest of the world: independence from Russian energy is the way to avoid another Ukraine.

France — where I live and work as an energy researcher at the Foundation for Strategic Research in Paris — was unusual among EU nations in calling for speedy, firm action. Although a now-concluded electoral campaign meant that French President Emmanuel Macron took a particularly tough stance on Russia, France’s relative independence of oil and gas certainly made this easier. This independence stems from consistent investment in nuclear energy since the 1960s; France produces 70% of its electricity from nuclear sources.

That has brought critics — especially after the 2011 Fukushima Daiichi accident in Japan. German policymakers are instead calling for a slow transition to electricity made from a mix of renewable energy sources, coal and gas.

Because of squeamishness about investing in nuclear power, thanks to Fukushima — as well as the Chernobyl disaster in 1986, which took place in what is now Ukraine — the West has not developed a clear strategy on nuclear power. The Generation IV International Forum, established in 2001, was the last major attempt to create a global nuclear research agenda. After the Fukushima accident, the forum faded into the background.

In the meantime, a small number of countries have advanced their nuclear technologies. Russia builds more than 30% of the new reactors worldwide, mostly in Eastern Europe, the Middle East and the Indian subcontinent. China also builds around 30% of reactors, most of them in China itself.

New nuclear technologies are more practical and more agile than those that were around when the Generation IV forum was established. Small modular reactors — those with a total capacity of up to 300 megawatts — are particularly promising. They offer flexibility in terms of plant design and maintenance, because they can be replaced module by module. Small reactors could work alongside green power and fill gaps in capacity.

Further advancement in nuclear technology is more fundamental, both in terms of the physics and the change it could represent for the industry. Fast neutron reactors operate with enough energy to cause fission of many heavy atoms, potentially eliminating both nuclear waste material and reliance on uranium as the sole fuel source. These are just one of a host of fourth-generation nuclear reactor systems that together overcome some of the shortcomings of conventional installations.

Russia and China are currently alone in operating commercial power plants using these technologies — at China’s Shidaowan power plant in Shandong, and Beloyarsk-3 and -4 in Sverdlovsk Oblast, Russia.

Without clear political will, the EU risks sleepwalking into a world where Russia has a technological grip on nuclear technologies, as well as physical control over much of Europe’s fossil fuels.

Nuclear technologies could help the world to move away from hydrocarbon fossil fuels, speed up the transition to cleaner sources of power and end the grip some undemocratic states have on the world’s energy markets. But building a nuclear power plant is time-consuming. It might take ten years to build nuclear capacity in a country, especially when using new technologies. The construction of Beloyarsk-4 began in 2006; operations started in 2016.

Long-term thinking, consistent public support and political willpower — both national and international — is needed. This willpower must outlast any individual electoral campaign or political term and will be the only way to enable the construction of fourth-generation technologies in democratic nations.

Many Western countries have both know-how on nuclear power and experience in international cooperation. Together, they must build a cooperation framework to achieve the commercial operation of fourth-generation power plants to foster energy independence, while ensuring that citizens are both safe and informed about the safety of modern commercial nuclear power plants.

This cooperation would also send positive signals to both the nuclear industry and the finance sector that nations are serious about developing nuclear power. Such a signal would precipitate funding for construction and new investment in nuclear technologies, and would serve as a boon to a sector that has stagnated since Fukushima. This private interest must be accompanied by greater public investment in the sector.

Engagement in this major nuclear policy can be done only alongside a full consultation with the public over issues such as mining, waste management and safety.

To avoid another situation like that in Ukraine, the Western world needs to attain permanent energy independence. One day, green technologies alone might achieve that, but we cannot afford to wait.

LINK

[C8]

Tanada, I can't see this happening. The far left is in control of Western govts. They will not allow nuclear no matter what. I believe it is an emotional issue- hard core environmentalists worship the Earth itself and see anything that does not use simple natural forces (sunshine, wind) as suspect.

[JuanP]

"Sakhalin is Russian: Is Moscow kicking the West out of key energy projects?"

https://www.rt.com/business/558205-sakh ... ssia-west/

"President Vladimir Putin has signed a decree to transfer the rights of the giant Sakhalin-2 oil and liquefied natural gas project to a new Russian company. The move comes in response to actions from “unfriendly states” and could force out foreign stakeholders, including British and Japanese investors."

More at link.

"Kremlin reacts to claims about nationalization of major gas project"

https://www.rt.com/business/558194-sakh ... alization/

"The change in ownership of the Sakhalin-2 oil and gas project in Russia’s Far East should not be viewed as nationalization, Kremlin spokesman Dmitry Peskov said on Friday.

On Thursday, Russian President Vladimir Putin signed a decree ordering the creation of a firm to take over all rights and obligations of the Sakhalin Energy Investment Company. The document indicates that it is up to Moscow to decide whether foreign shareholders are to remain in the enterprise.

Asked whether other projects involving Western corporations in Russia would follow suit, Peskov responded that each situation will be reviewed on a case-by-case basis."

More at link.

[JuanP]

"JP Morgan sounds alarm over oil price prospects"

https://www.rt.com/business/558256-jp-m ... il-prices/

"The bank’s analysts warn that a worst-case Russian cut will push crude to $380 per barrel"

More at link.

[C8]

U.S. Rig Count Slips

By Julianne Geiger - Jul 01, 2022, 12:11 PM CDT

The number of total active drilling rigs in the United States fell by 3 this week, according to new data from Baker Hughes published on Friday.

The total rig count slid to 750 this week—275 rigs higher than the rig count this time in 2021.

Oil rigs in the United States rose by 1 this week to 595. Gas rigs fell by 4 to 153. Miscellaneous rigs stayed the same at 2.

The rig count in the Permian Basin stayed the same this week at 349. Rigs in the Eagle Ford fell by 4, to 68. Oil and gas rigs in the Permian are 112 above where they were this time last year.

Primary Vision's Frac Spread Count, an estimate of the number of crews completing unfinished wells—a more frugal use of finances than drilling new wells—rose again last week. The frac spread count is now 289 for week ending June 24, compared to 232 a year ago.

Crude oil production in the United States rose to 12.1 million bpd in the week ending June 24—the highest level since April 2020 when the pandemic took hold.

At 10:37 a.m. ET, oil prices were trending up on the day. WTI was trading at $107.60—up $1.84 per barrel (+1.74%) on the day, but up only $.10 on the week. The Brent benchmark traded at $110.70 per barrel, up $1.63 (+1.50%) on the day, and down roughly $2.30 on the week.

At 1:07 pm ET, WTI was trading at $108.10, while Brent was trading at $111.30 per barrel—both up on the day.

By Julianne Geiger for Oilprice.com

Does this mean anything? Fear of a recession? Just a normal variation?

[C8]

Libya Declares Force Majeure On Oil Exports

By Tsvetana Paraskova - Jul 01, 2022, 8:00 AM CDT

Libya's NOC has declared a force majeure on its oil exports on Friday.
The most recent force majeure comes after weeks of protests and port blockades.
NOC chairman Sanalla: Oil, the lifeblood of Libyans is being used as a bargaining chip.

Libya’s National Oil Corporation (NOC) declared force majeure on crude exports from its oil terminals amid continued blockades of production and ports, which have severely crippled Libya’s oil exports.

The force majeure comes after weeks of protests and closures amid the new rift in Libya’s political class over who should be governing the country.

The most recent rivalry is between Fathi Bashaga, the Prime Minister appointed by the parliament earlier this year, and Prime Minister Abdul Hamid Dbeibah, who was appointed last year through a process backed by the United Nations. Dbeibah refuses to cede power. Bashaga, backed by the east-based Parliament, is now based in Sirte in the east of Libya, while Dbeibah is based in Tripoli.

Earlier this week, NOC said it was considering declaring force majeure within 72 hours unless production and shipment of oil resume in the Gulf of Sirte, which hosts the oil export terminals of Zueitina, Brega, Ras Lanuf, and Es Sider.

On Thursday, NOC’s chairman Mustafa Sanalla said that “Our patience has run out after we have repeatedly tried to avoid declaring the state of force majeure, but the implementation of our obligations has become impossible, and we are forced to declare a state of force majeure on the terminals of Asidra and Ras Lanuf, in addition to the Al-Feel field, with the continuation of the state of force majeure on the terminals of Brega and Zueitina.”

“Political difference is a right, but the mistake is to use oil, ‘the lifeblood of Libyans’ as a bargaining chip,” Sanalla said in a statement, describing the use of oil as a bargaining chip as an “unforgivable sin.”

Libya’s exports have recently ranged from 365,000 barrels per day (bpd) to 409,000 bpd, which is a decrease of 865,000 bpd compared to “normal production rates under normal circumstances,” NOC said today.

The new outage in Libya comes as the market grapples with the loss of Russian oil supply due to the Western sanctions on Moscow, and could further tighten the physical market.

By Tsvetana Paraskova for Oilprice.com

Notice that internal turmoil is leading to rash actions- how reliable is an oil producing nation that is breaking apart socially?

Social breakdown leads to energy breakdown, which leads to more social breakdown

[AdamB]

Notice that internal turmoil is leading to rash actions- how reliable is an oil producing nation that is breaking apart socially?

It isn't. Just ask Venezuela.

Social breakdown leads to energy breakdown, which leads to more social breakdown

Could be. It did in Venezuela. The USSR didn't do so well either. Good thing that for all the peak oils that have happened this century, including the last one 4 years ago, it isn't peak oils that caused any global energy breakdown, but local idiots running their oily countries into the ground!

It is referred to as the "resource curse" by the way, and is a known thing.

[JuanP]

Does this mean anything? Fear of a recession? Just a normal variation?

No, it doesn't. There is more drilling because oil and gas prices are higher. It has always been the same.

[JuanP]

"Libya Declares Force Majeure On Oil Exports"

Notice that internal turmoil is leading to rash actions- how reliable is an oil producing nation that is breaking apart socially?

Social breakdown leads to energy breakdown, which leads to more social breakdown

The situation in Libya has been the same since the West destroyed it in 2011. It used to be the most prosperous African country by far, but Qaddafi said he was going to sell oil in currencies other than the US Dollar. How dared he? We had to make an example of him, and we did! Now Libya is a failed state that has open street slave auctions every week. Nothing new here.

[Doly]

The far left is in control of Western govts. They will not allow nuclear no matter what.

Where do you get that notion from? Boris Johnson was saying not long ago "nuclear is coming home" and saying he wanted to get lots of nuclear as fast as possible.

And I don't know what you Republicans call the "far left" unless it's what most people everywhere else call "being reasonable". As for what a reasonable person calls "far left", I doubt you would even be able to provide a description that matches the idea.

[jato0072]

you Republicans call the "far left"

Marxists, Social Justice Warriors, Socialists. Collectivist vs. individual rights and responsibilities.

Now please define the "Far Right". I really want to drill down on definitions and why the Left and Right are having difficulty communicating.

[AdamB]

And I don't know what you Republicans call the "far left" unless it's what most people everywhere else call "being reasonable". As for what a reasonable person calls "far left", I doubt you would even be able to provide a description that matches the idea.

The schism in the US around party affiliation is nothing short of alarming to those of us who are independents because the entire "us vs them" mentality is appalling. While the entire time both sides were playing Americans for suckers with globalization.

It has gotten so bad that folks like VT are probably the norm for 2/3's of the population. "Sure, my candidate is a convicted child molester currently awaiting trial for stealing their child's Girl Scout cookie sale money, but he/she is better than THEM!!!". The concept works bi-directionally.

[jato0072]

It really seems like the Elites are agitating Left vs. Right to gain power. Classic divide and conquer. It appears to be working.

[AdamB]

Now please define the "Far Right". I really want to drill down on definitions and why the Left and Right are having difficulty communicating.

Does this look like communicating to you?

[C8]

The far left is in control of Western govts. They will not allow nuclear no matter what.

Where do you get that notion from? Boris Johnson was saying not long ago "nuclear is coming home" and saying he wanted to get lots of nuclear as fast as possible.

And I don't know what you Republicans call the "far left" unless it's what most people everywhere else call "being reasonable". As for what a reasonable person calls "far left", I doubt you would even be able to provide a description that matches the idea.

I am actually an independent politically- the closest description would be a Bill Clinton/Bob Dole guy (wonderful election for me- 1996 that is). But I do love how people just assume so much around here!

As far as nukes go- name the Western govts. that are shutting them down vs. building more? The greens hate nukes. Liberal states in the US are shutting theirs down, so is Germany & Japan. Its a green energy suicide march pushed by the left (and no, using that term doesn't make a person a Republican)

[JuanP]

"Russia makes massive oil discovery in the Arctic"

https://www.rt.com/business/558090-russ ... ry-arctic/

"Russian energy major Rosneft has announced the discovery of a huge oil deposit in the Pechora Sea containing an estimated 82 million tons of oil.

The field was discovered thanks to a drilling campaign in the Medynsko-Varandeysky area. “During the tests, a free flow of oil was obtained with a maximum flow rate of 220 cubic meters a day,” the company’s statement read on Wednesday, noting that the “oil is light, low-sulfur, low viscosity.”

Rosneft noted that the exploration works in the waters of the Pechora Sea proved the “significant oil potential of the Timan-Pechora province on the shelf and became the basis for continuing the study and development of the region.”

The company reportedly controls a total of 28 offshore licenses in the Arctic, eight of them in the Pechora Sea."

Really beautiful photo at link.

[AdamB]

"Russia makes massive oil discovery in the Arctic"

https://www.rt.com/business/558090-russ ... ry-arctic/

"Russian energy major Rosneft has announced the discovery of a huge oil deposit in the Pechora Sea containing an estimated 82 million tons of oil.

USGS field size class 14. Bubbcuss in the greater scheme of oil discovery.