Buyuma Weekly Energy Roundup(Wk 18)
Hello There,
Welcome to this week's?Buyuma roundup newsletter covering?the latest energy?news that made waves.
According to the International Energy Agency the industry accounts for 15% of total energy-related greenhouse gas emissions globally.
The IEA calls on the oil and gas industry to reduce greenhouse gas emissions in order to reach a net-zero scenario by 2050.
Below are?updates that made the headlines in the Oil and Gas industry
Economies of MENA Oil Exporters Set to Dip This Year: IMF
A shift to non-hydrocarbon activities as the driver of growth in oil-exporting economies in the Middle East and North Africa (MENA) is poised to slow down their gross domestic product (GDP) expansion in 2023, the International Monetary Fund (IMF) said last week.
MENA oil exporters are forecast to log a collective 3.7 percent increase in GDP “as the positive momentum in the retail and service sectors (Kuwait, Saudi Arabia, United Arab Emirates) is sustained thanks to abundant liquidity, continued reform momentum, and rapid acceleration of private investment (Saudi Arabia), partially offsetting the impact of slow growth in major trading partners”.
The shift to non-oil revenue sources is evident in oil production cuts, the lender said in its economic outlook report for the Middle East and Central Asia.
The Organization of Petroleum Exporting Countries Plus (OPEC+) has set a group output curb of two million barrels per day (bpd) effective November 2022 to December 2023. Eight OPEC+ nations further said on April 2 they will trim output on top of the collective rollback agreed on last year.
The separate announcements by OPEC members Algeria, Iraq, Kuwait, Saudi and the United Arab Emirates and OPEC allies Kazakhstan, Oman and Russia mean a combined reduction of 1.649 million bpd from May to December.
The IMF upgraded its real GDP growth projection for the MENA region for 2022 to 5.3 percent due to higher-than-expected growth in oil exporters Bahrain, Libya, Qatar, Saudi Arabia and the United Arab Emirates, as well as oil importers Jordan, Mauritania, Morocco and Tunisia. But the IMF presented a different scenario for 2023.
“Real GDP growth for MENA oil exporters is expected to slow from 5.7 percent in 2022 to 3.1 percent in 2023 (and to broadly maintain that pace in 2024) as the main driver of growth in most oil exporters shifts to nonhydrocarbon activities, reflecting agreed oil production cuts”, the Washington-based agency said.
For Central Asia and the Caucasus, a decline in oil prices is likely to drag down current account balances for oil exporters in the region by 5.4 percent of GDP on average. The IMF projected average petroleum spot prices at $74.2 a barrel in 2023 and $70 in 2024, down from $85.5 and $80.2 in October 2022 respectively. “Oil futures curves point to prices decreasing toward $62.70 by 2028”, it added.
Economies in the Caucasus and Central Asia are expected to decelerate to 4.3 percent this year before rebounding to 4.5 percent in 2024.
Growth Pulldown from Inflation
For both CCA and MENA, tight monetary policies in response to high inflation would contribute to the economic slowdown, the IMF said. Core inflation has remained high since the last months of 2022 despite some easing in headline inflation partly due to an energy-led decrease in commodity prices, the report said.
Monetary policy tightening, or the raising of interest rates by central banks, across the globe has also contributed to the deceleration in headline inflation or inflation in consumer prices including items with volatile price movements. But this policy trend has also started “to dampen demand and contain price pressures”, the IMF said.
Energy Price Implications on Households, Economies
While oil prices are predicted to fall, the cost of energy has remained heavy for households, the report said.
“In the near term, and where fiscal space permits, countries should prioritize targeted and temporary support, with cash transfers to protect the most vulnerable from still-high energy and food prices”, it said.
At the macro-level, the IMF recommended oil exporting economies “manage oil revenue carefully, avoid expanding current expenditures, and improve budget transparency”.
“Fiscal efforts should address the challenges posed by climate change, the energy transition, and economic diversification by continuing non-oil revenue mobilization with reforms to increase the efficiency of tax collections and wage bill rationalization”, it added.
Energy transition and geopolitics to ‘weigh heavily’ on oil & gas industry in 2023
GlobalData outlined in its new report, titled?Top 20 Oil & Gas Themes 2023 , the 20 prominent themes impacting the oil and gas industry in 2023.
With geopolitics becoming a pivotal macroeconomic theme for the oil and gas industry ever since the start of the Ukraine crisis, the fallout of this conflict is “critically” impacting the supply chain theme as newer alliances are being forged, says the report.
Ravindra Puranik, Oil and Gas Analyst at GlobalData, remarked: “The current geopolitical conflict in Eastern Europe is deeply impacting the global oil and gas industry and reshaping its supply chains. In this environment, industry participants need to sense the scenarios that could either diminish their profitability or open new market avenues.”
Despite this, Global Data claims that oil and gas companies will continue to pursue new industry themes that support the energy transition towards zero emission technologies, such as renewables, low-carbon hydrogen, carbon capture and storage (CCS), and electric vehicles (EV).
“The ongoing transition towards clean energy sources will also weigh heavily on the oil and gas players. Themes, such as renewable energy, and electric vehicles, are major disruptors to the industry, while CCS and low-carbon hydrogen will create new opportunities for oil and gas players in the coming years,” added Puranik.
While environmental, social, and governance (ESG) is increasingly becoming integral for large enterprises – even more so for high carbon-emitting companies in the oil and gas industry – the report points out that the industry aims to strike a balance between environmental commitments and global energy supply.
Aside from this, traditional oil and gas themes – liquefied natural gas (LNG), shale, and integrated refineries – are expected to enable the energy market players to remain competitive. GlobalData emphasises that these themes are at major crossroads with their utility counterparts in the energy sector.
Although LNG and shale will continue to play “a critical role” in global energy security, according to the report, integrated refineries theme also signals the changing demand patterns in the downstream refining and petrochemicals sector.
In addition, the report highlights that artificial intelligence (AI), blockchain, cloud computing, cybersecurity, the Internet of Things (IoT), robotics, and the metaverse will be “the disruptive tech themes” impacting the industry.
“In the midst of ESG, macroeconomic, and industry themes impacting the oil and gas industry, technology themes will continue to shape operational capabilities in this decade. Timely and methodical investments in tech themes could provide competitive advantages for oil and gas players,” concluded Puranik.
California Air Resources Board Approves First of its Kind Rule
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The California Air Resources Board (CARB) has announced that it has approved a “first of its kind rule” that requires a phased-in transition toward zero-emission medium-and-heavy duty vehicles.
Dubbed Advanced Clean Fleets, the rule helps put California on a path toward accomplishing Governor Gavin Newsom’s goal of fully transitioning the trucks that travel across the state to zero-emissions technology by 2045, CARB noted, adding that fleet owners will save an estimated $48 billion in their total operating costs from the transition through 2050.
The rule includes an end to combustion truck sales in 2036 and sees fleet owners operating vehicles for private services, such as last-mile delivery, and federal fleets, such as the Postal Service, along with state and local government fleets, begin their transition toward zero-emission vehicles starting in 2024, CARB outlined. It also includes the ability to continue operating existing vehicles through their useful life and allows fleet owners to receive exemptions based on available technology, CARB pointed out.?
An analysis of the sales and purchase requirements estimates that about 1.7 million zero-emission trucks will hit California roads by 2050, according to CARB, which highlighted that, to support the needed infrastructure and services to make this transition, agencies across government have committed to the Zero-Emission Infrastructure Joint Agency Statement of Intent.
California is set to invest almost $3 billion between 2021 and 2025 in zero-emission trucks and infrastructure, CARB noted. This investment is a part of a $9 billion multi-year, multi-agency zero-emissions vehicle package to equitably decarbonize the transportation sector that was agreed upon by the governor and the legislature in 2021, the organization said.
“We have the technology available to start working toward a zero-emission future now,” CARB Chair Liane Randolph said in an organization statement.
“The Advanced Clean Fleets rule is a reasonable and innovative approach to clean up the vehicles on our roads and ensure that Californians have the clean air that they want and deserve,” Randolph added.
“At the same time, this rule provides manufacturers, truck owners and fueling providers the assurance that there will be a market and the demand for zero-emissions vehicles, while providing a flexible path to making the transition toward clean air,” Randolph continued.
Yana Garcia, California’s Secretary for Environmental Protection, said, “California continues to lead by example with first of its kind standards to slash air pollution and toxics from heavy-duty trucks”.?
“The Advanced Clean Fleets rule brings California one step closer to addressing historic inequities that have placed some communities at the epicenter of environmental pollution and the resulting health consequences, while accelerating our transition to a zero-emission future,” Garcia added.
Commenting on CARB’s adoption of the Advanced Clean Fleets rule, American Trucking Associations (ATA) President and CEO Chris Spear, said, “California is setting unrealistic targets and unachievable timelines that will undoubtedly lead to higher prices for the goods and services delivered to the state and fewer options for consumers”.
“As it becomes clear that California’s rhetoric is not being matched by technology, we hope the board will reverse course and allow trucking companies the freedom to choose the clean technologies that work best for their operations,” Spear added in the statement.
“ATA member companies work tirelessly to deliver the nation’s freight while deploying the cleanest technologies available. Over the past 35 years, those efforts have produced a 98 percent reduction in truck emissions. We continue to say ‘Yes’ to advancing cleaner technologies, but achievable targets and realistic timelines matter,” Spear went on to state.
CARB’s mission is to promote and protect public health, welfare, and ecological resources through effective reduction of air pollutants while recognizing and considering effects on the economy, CARB’s site notes. The organization, which states that it is the lead agency for climate change programs and oversees all air pollution control efforts in California to attain and maintain health-based air quality standards, consists of 16 members.?
Twelve of these are appointed by the governor and confirmed by the state senate and the other four include two who represent environmental justice communities, one appointed by the senate and the other by the assembly, and two nonvoting members appointed for legislative oversight, one each from the senate and assembly, CARB’s site shows.
The ATA describes itself as the largest and most comprehensive national trade association for the trucking industry. It is a 90 year old federation with state trucking association affiliates in all 50 states, according to its site, which states that it represents every sector of the industry, from LTL to truckload, agriculture and livestock to auto haulers, and from large motor carriers to small mom-and-pop operations.?
Iran Seizes Second Oil Tanker
Iran seized a second oil tanker in less than a week, ratcheting up tensions for shipping in one of the world’s most vital trade corridors.
Iran’s Islamic Revolutionary Guard Corps Navy seized the Panama-flagged oil tanker Niovi at around 6:20 a.m. local time Wednesday as it was transiting the Strait of Hormuz, according to a statement from the US Navy.?
The incident is the latest flare-up in one of the world’s most oil-rich regions. Hundreds of tankers sail through the strait each month on their way to and from ports in Saudi Arabia, the United Arab Emirates, Iraq and Kuwait.
The Niovi left Dubai and was heading for the United Arab Emirates port of Fujairah when “a dozen IRGCN fast-attack craft swarmed the vessel in the middle of the strait,” according to the US. The ship was forced to head toward Iranian territorial waters off the coast of Bandar Abbas, it said.
On May 3 at approximately 6:20 a.m. local time, Panama-flagged oil tanker Niovi was seized by Iran’s Islamic Revolutionary Guard Corps Navy (IRGCN) while transiting the Strait of Hormuz.
Iran’s Tasnim news service reported that Iranian naval forces took a foreign oil tanker in the Strait of Hormuz, without giving further details.
The vessel, built in 2005, is a supertanker capable of carrying 2 million barrels of crude, ship-tracking data compiled by Bloomberg show. It appeared to be empty earlier Wednesday, according to the latest signal from the ship’s navigation system, which includes draft data.
Global benchmark Brent crude futures stabilized after dropping as much as 2.4% on Wednesday, trading less than $75 a barrel for the first time since March.
Iran’s navy seized the Marshall Islands-flagged Advantage Sweet in international waters on April 27. The ship sailed to Bandar Abbas, where it is being held along with its crew.
Some US officials believe that move was in retaliation against a decision by the Department of Justice to force a tanker headed to China with Iranian oil to redirect to America, the Financial Times reported.
IEA: Oil and gas industry must reduce emissions by 60% by 2030 for 2050 net-zero scenario
In a report released on Wednesday, the International Energy Agency (IEA) stated that the oil and gas industry will need to reduce emissions by 60% by 2030 to meet a net-zero by 2050 scenario.
This would include emissions from the consumption of oil and gas, known as Scope 3 emissions. The report, Emissions from Oil and Gas Operations in Net-Zero Transitions, found that the oil and gas industry accounts for around 15% of total energy-related greenhouse gas emissions globally.
The IEA suggests that the industry could reduce emissions by “tackling methane emissions, eliminating all non-emergency flaring, electrifying upstream facilities with low-emissions electricity, equipping oil and gas processes with carbon capture, utilisation and storage technologies, and expanding the use of hydrogen from low-emissions electrolysis in refineries”.
Tackling methane emissions
Flaring has been the subject of a series of policy actions in recent months. In the UK North Sea. British industry regulator the North Sea Transition Authority reported that flaring was down 50% from 2018 following pressure from government and environmental groups.
Additionally, the US government has committed to a clampdown on methane emissions and leaks. The US Environmental Protection Agency plans to charge emitters of methane up to $1,500 a tonne under the recently-passed Inflation Reduction Act. This would be the first nationwide fee imposed for the production of greenhouse gases.
According to another IEA report, methane emissions have accounted for a 30% rise in global temperatures since the industrial revolution.
According to the IEA: “Tackling methane emissions is the most important measure to limit emissions from the industry’s operations. It is also one of the most cost effective and impactful measures to cut emissions across the economy and limit near term global warming”.
Approximately half of companies that make up the global oil and gas industry have announced plans or targets to reduce their scope 1 and 2 emissions, according to the IEA. But the report states that “a far broader coalition – with much more ambitious targets – is needed to achieve meaningful reductions across the oil and gas industry and beyond”.