Argus Live: Clean energy faces investment challenges

Spanish Market: Crude oil, Hydrogen
28/01/21

The shift to a lower-carbon future risks "de-commoditising" the energy market, which could discourage investment in the clean energy sector, the Argus Crude Live virtual conference heard today.

Over the past 40 years, centralised liquidity in a few core benchmarks has grown, resulting in the price discovery of major contracts, such as gasoline and crude, exchange operator CME's managing director and global head of research and product development Owain Johnson told the conference.

There are few concerns surrounding the operation of these core benchmarks as they are underpinned by strong liquidity, and they have established financial instruments and forward curves. The absence of these for clean energy products, such as hydrogen and cobalt, will make it difficult to lock in forward prices and for banks to secure their investments. Cobalt can be used to split water for hydrogen production.

"You're never going to get a seven-year curve on hydrogen or cobalt, you cannot lock in those prices. So if I'm a bank going to a cobalt producer or to fund a hydrogen project, how do I know I'm going to get paid in three years' time?" Johnson said.

This has raised questions whether banks take the more "dangerous" route of avoiding hedging or using an instrument that may be inappropriate, the conference heard.

"Do we need hydrogen instruments, or will people lock it in versus natural gas where there is more of a forward curve? Are liquidity and transparency better than an active hedge that really reflects what I need?" Johnson said. Fragmentation and multiple fuel sources in different regions do not lead to core price discovery, particularly on the forward curve that will attract finance into the sector, he added.

It is also important for the trading community to develop benchmarks and certification for clean and sustainable forms of oil, the IEA's chief economist Laszlo Varro told Argus Crude Live delegates.

"[CME] is trying to respond with products that support the energy transition, so you've seen us in ethanol for many years, we launched used cooking oil with Argus this summer as a risk management tool, and we've seen cobalt start trading just in the last few weeks," Johnson said. And there has been a shift from coal trading towards natural gas trading.

But early stages of the energy transition have had limited impact on crude and products trading, with the market still developing new contracts, oil benchmarks and risk management tools.

Investment in upstream oil and gas will still need to continue throughout the energy transition, Laszlo said. Under the IEA's sustainable development scenario, in which the world achieves net zero emissions by 2070, oil demand falls to 66.2mn b/d by 2040, from around 97.9mn b/d in 2019.

The Covid-19 pandemic resulted in oil and gas companies cutting upstream investment by around a third last year to around $300bn.

"[This is] broadly speaking the same volume of investment that you need year after year during the energy transition to supply this gently declining demand," Laszlo said. "The projects at the companies [which] survived the baptism of fire [in 2020] are actually quite well positioned for the transition."

By Rowena Edwards

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29/04/24

Service firms talk up long-term gas prospects

New York, 29 April (Argus) — Leading oil field service firms are bullish on the outlook for natural gas demand in coming years even though the fuel remains stuck in the doldrums for now, with US prices near pandemic lows amid oversupply after a mild winter. "This is the age of gas," Baker Hughes chief executive Lorenzo Simonelli says, adding that global demand for the power plant and heating fuel is due to climb by almost 20pc through 2040. "Gas is abundant, lower emission, low cost, and the speed to scale is unrivalled," he says. Halliburton also sees natural gas as the "next big leg of growth" in North America, driven by demand for LNG expansion projects, although its current plans do not envisage any comeback this year. Given a shrinking fracking fleet and lack of new equipment being built, the stage is set for an "incredibly tight market" in future, chief executive Jeff Miller says. A recovery in natural gas activity in the US may not happen until the end of this year or even 2025, Liberty Energy chief executive Chris Wright says. "Customers need to see that prices have firmed, that export volume demand actually is pulling upward at a meaningful rate," he says. On recent first-quarter earnings calls, service firms were upbeat about international growth prospects in the face of escalating geopolitical tensions in the Middle East. The backdrop remains one of growing demand for oil and gas and an "even deeper focus" on energy security, according to Olivier Le Peuch, chief executive of SLB, the world's biggest oil field service company. SLB, formerly known as Schlumberger, expects overseas growth momentum to make up for a slowdown in North America this year. "The relevance of oil and gas in the energy mix continues to support further investments in capacity expansion, particularly in the Middle East and in long-cycle projects across global offshore markets," Le Peuch says. But results in North America will be depressed by the combination of low gas prices, capital discipline and producer consolidation. International rescue Halliburton expects international revenue growth in the "low double-digits" for the full year, with some margin expansion given the tight market for equipment and labour. Steady activity levels are seen in North America after land completion activity bottomed out in the fourth quarter of 2023 and rebounded in the first quarter. "The world requires more energy, not less, and I'm more convinced than ever that oil and gas will fill a critical role in the global energy mix for decades to come," Miller says. The positive outlook is reinforced by customers' multi-year activity plans across markets and assets. Baker Hughes forecasts "high single-digit growth" when it comes to the outlook for international drilling and completion spending this year. But customer spending in North America is expected to fall in a "low to mid-single-digit range" when compared with 2023. "We continue to anticipate declining activity in the US gas basins, partially offsetting modest improvement in oil activity during the second half of the year," Simonelli says. Beyond 2024, upstream spending is seen growing further across international markets, albeit at a "more moderate" pace than seen in recent years, according to Baker Hughes. SLB paced a decline among oil service stocks at the end of January when state-controlled Saudi Aramco scrapped plans to increase crude output capacity to 13mn b/d from 12mn b/d. But Saudi Arabia has stepped up its plans to boost gas output, by 60pc by 2030. This new energy mix was not anticipated six months ago, but it will "not have a natural impact on our ambition for growth" in Saudi Arabia, Le Peuch says. And Saudi gas plans will require substantial investment in gas infrastructure, which is a "long-term net positive" for Baker Hughes, Simonelli says. By Stephen Cunningham Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Production, patience driving Canada’s oil sands profits

29/04/24

Production, patience driving Canada’s oil sands profits

Calgary, 29 April (Argus) — Canadian oil sands operators enjoying firm profits on strong production are getting ready for a major boost when a new export pipeline to the Pacific coast goes into commercial service this week. The federally owned 590,000 b/d Trans Mountain Expansion (TMX) remains on track to start operations on 1 May, and the line has already started to bear fruit. More than 4mn bl of Canadian crude is being pushed into the C$34bn ($25bn) expansion for linefill, helping to work down inventory levels in Alberta while lifting local prices relative to international benchmarks, as intended. The largest four oil sands companies — Canadian Natural Resources (CNRL), Cenovus, Suncor, and Imperial Oil — are all shippers on the expansion. They closed 2023 with a new production record of 3.6mn b/d of oil equivalent (boe/d) combined in the fourth quarter, and are targeting further increases as they plan to fill the new pipeline. About 80pc of their output comes from their core oil sands businesses, with the balance from natural gas and offshore projects. The higher output compensated for a slight dip in prices, helping to push profits higher. First-quarter 2024 results are likely to be a similar story, but it is the second quarter when producers look ready to shine as prices climb to multi-month highs. A combined profit of C$26bn in 2023 was a stellar result for the big four oil sands operators, despite a 25pc decline from the record C$34bn set the previous year. Their massive projects are agnostic to daily price swings, instead focused on uptime, long-term fundamentals and capitalising on key step-changes such as the one TMX presents. Patience in the oil sands is key. TMX will cater largely to heavy crude producers, which saw diluted bitumen prices in Alberta rise only slightly quarter on quarter to $58/bl in the first quarter. But climbing global benchmarks in April and a shrinking heavy sour discount with the help of TMX linefill now has the outright price for the crude approaching $70/bl. This is above guidance given in 2024 corporate budgets, and far above oil sands operating costs that for some are as low as $12/bl. The TMX factor TMX will nearly triple the existing 300,000 b/d Trans Mountain system that connects oil-rich Alberta to the docks in Burnaby, British Columbia. The expansion was first conceived more than a decade ago with the intention of being operational by late-2017, but cost overruns and repeated delays put the project in jeopardy. Canadian producers that sought growth during that period of frustration are poised to take advantage of this new era of excess export capacity. CNRL, Cenovus and Suncor have been significant buyers in the oil sands in recent years, doubling down on the world's third-largest deposit of oil while many international companies fled amid regulatory uncertainty. The government itself enabled a foreign operator to leave Canada, buying the Trans Mountain system from Kinder Morgan in 2018. But as Prime Minister Justin Trudeau's Liberal party sees TMX to completion, and then the line's planned sale, it is also readying legislation towards something more on-brand for climate-concerned Ottawa: carbon capture. A carbon capture and storage (CCS) project spearheaded by Pathways Alliance — a consortium of the six largest oil sands producers — is awaiting federal and provincial help to push their proposal forward. Federal incentives are soon to become law, the Trudeau government said this month, with the expectation that tax credits will advance the massive C$16.5bn project and start to offset oil sands greenhouse gas emissions to meet net zero pledges for all parties involved. TMX represents a new era for Canadian crude producers, but so too does CCS, as it could attract even more investment into Alberta's oil sands region. By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

S Korea’s SK Innovation sees firm 2Q refining margins

29/04/24

S Korea’s SK Innovation sees firm 2Q refining margins

Singapore, 29 April (Argus) — South Korean refiner SK Innovation expects refining margins to remain elevated in this year's second quarter because of continuing firm demand, after achieving higher operating profits in the first quarter. SK expects demand to remain solid in the second quarter given a strong real economy, expectations of higher demand in emerging markets and continuing low official selling price (OSP) levels. This is despite the US Federal Reserve's high interest rate policy and oil price rallies, which are weighing on crude demand. The company's sales revenue dropped to 18.9 trillion won ($13.7bn) in the first quarter, down by 3.5pc on the previous quarter. Its energy and chemical sales accounted for 91pc of total revenue, while battery and material sales accounted for the remaining 9pc. But SK's operating profit increased to W624.7bn in January-March from W72.6bn the previous quarter. This came as its refining business flipped from an operating loss of W165bn in October-December to an operating profit of W591.1bn in the first quarter. SK attributed this increase to elevated refining margins because of higher oil prices, as well as Opec+ production cut agreements and OSP reductions. First-quarter gasoline refining margins almost doubled on the previous quarter from $7.60/bl to $13.30/bl, although diesel and kerosine edged down to $23.10/bl and $21.10/bl respectively. SK Innovation's 840,000 b/d Ulsan refinery operated at 85pc of its capacity in the fourth quarter, steady from 85pc in the previous quarter but higher than 82pc for all of 2023. The refiner's 275,000 b/d Incheon refinery's operating rate was at 88pc, up from 84pc in the fourth quarter and from 82pc in 2023. SK plans to carry out turnarounds at its 240,000 b/d No.4 crude distillation unit and No.1 residual hydrodesulphuriser, both at Ulsan, in the second quarter. Its No.2 paraxylene unit in Ulsan will have a turnaround in the same quarter. By Tng Yong Li Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Singapore’s Jadestone cuts 2024 output guidance

29/04/24

Singapore’s Jadestone cuts 2024 output guidance

Sydney, 29 April (Argus) — Singapore-listed independent Jadestone Energy has cut its 2024 oil and gas production guidance, citing disappointing first-quarter group production. Jadestone said the impact of planned and unplanned downtime across its portfolio resulted in it narrowing its guidance from 20,000-23,000 bl of oil equivalent (boe/d) to 20,000-22,000 boe/d in its results for 2023 published on 29 April. Average production for January-March was 17,200 boe/d, which Jadestone said reflected the impact on its Australian assets, including the 6,000 b/d Montara oil field, of an active cyclone season at the start of 2024. The firm produced 14,000 b/d in 2023, up from 11,500 b/d in 2022. But problems at Montara and lower realised oil prices resulted in a loss of $91mn in 2023 following a $9mn profit recorded in 2023. Jadestone's realised oil price of $87.34/boe in 2023 was 16pc lower than $103.85/boe a year earlier. Proved and probable reserves at the end of 2023 totalled 68mn boe, a 5pc increase on a year's earlier 64.8mn boe, mainly because of the acquisition of a 9.52pc stake in Thailand's Sinphuhorm gas field and increases at the Cossack, Wanaea, Lambert and Hermes oil fields offshore Australia and the Akatara gas field in Indonesia's Sumatra. By Tom Major Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Industry leaders urge realism in green hydrogen push

28/04/24

Industry leaders urge realism in green hydrogen push

Dubai, 28 April (Argus) — Hydrogen and its derivatives will have a critically important role to play in accelerating the energy transition but policymakers need to be more realistic given that many of the technologies are still in their infancy, energy industry leaders from the Middle East and Europe said Sunday at a special meeting of the World Economic Forum in the Saudi capital Riyadh. "The market is a challenge," UAE energy minister Suhail al-Mazrouei said. "There is development of the market, but are we there yet? No. At the same time, are we serious about our production? I would say yes. It's between planning something, and getting the result you are aiming for." The UAE is planning to produce 1.4mn t/yr of hydrogen by 2031, more than 70pc of which will be green hydrogen, al-Mazrouei said. In the longer term the country aims to build its hydrogen capacity to 15mn t/yr by 2050. "Clean energy is something we decided to venture into 17 years ago when we began investing in the likes of [UAE state-owned renewables firm] Masdar and started thinking about what would happen after we export the last barrel of oil," UAE energy minister Suhail al-Mazrouei said. "What we did first is regulate and put a strategy of how much to produce." Al-Mazrouei's Saudi counterpart, Prince Abdulaziz bin Salman, voiced similar concerns. "We don't mind partnering with everybody… With the Koreans, the Japanese, our friends the UAE… but there are challenges," he said. "There is a lack of clarity on the policies, a lack of clarity on the receiving or consumer end, a lack of clarity on the incentives and a lack of clarity around what it takes to develop these technologies." Arguably more prohibitive is the "economics" of new energies such as hydrogen, he said. The cost of green hydrogen today is "between roughly $250-300/bl of oil equivalent," Prince Abdulaziz said. "What kind of a business acumen would choose to buy at $250-300/bl?" Al-Mazrouei agreed that costs are too high. "We cannot just treat the consumers as if they are ready to just pay double or triple the price [of conventional energies today]." Let's be serious The EU has set ambitious targets on renewable hydrogen. In 2022, the bloc doubled its 2030 production target to 10mn t/yr, from 5.6mn t/yr previously, and it is also working towards a separate pledge to import another 10mn t/yr by the same date. The production target is an unrealistic goal, according to the Saudi energy minister. "Those projects that have crossed the finishing line only come to 400,000t ꟷ around 4pc of the target," Prince Abdulaziz said. "How is it conceivable that in 2024, only 4pc has been achieved? How can people imagine that 10mn t/yr can be achieved?" TotalEnergies chief executive Patrick Pouyanne, who was speaking on the same panel, was even more blunt in his assessment, describing the EU's target as "impossible" and "not in reality". "Let us recognise that we are still at the infancy stage, and stop speaking about 10mn t, 20mn t, just to the media. It makes no sense," Pouyanne said. "Let's just be serious about it and find the right roadmap. Yes, we probably won't reach our target by 2030, but that's not a problem. It's more important to take steps and spend the money economically, to give them affordable and clean energy." By Nader Itayim Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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