Quickfire visit to the Economist Sustainability Week

Earlier this morning, The Oilholic had the pleasure of attending Economist Impact's 9th Annual Sustainability Week in London, albeit briefly, given commitments elsewhere in what is turning out to be a very hectic March. 

In a day packed with interesting sessions, three of which this blogger found time to attend, the expected conjecture was that there aren't any viable commercial models to leave things as they are in a world facing climate change. So, should you buy that supposition, the next inevitable question is how to finance the energy transition? To this end, an afternoon session - Financing net zero: assessing and accelerating green finance - really stood out. 

Some of the profound discussion slants included - how are companies building on the progress of previous years and what strategies are they implementing to boost the deployment of green finance further? What kinds of green investment funds are helping to "finance an inclusive climate transition"?

The panel included Heather Buchanan, Chief Executive and Co-founder, Bankers for Net Zero, Nicki Harrison, Director, Sustainable Finance, Europe, Environmental Defense Fund Europe, Evelina Olago, Managing Director of Client and Strategy, Just Climate, and, of course, The Economist's very own global energy and climate innovation editor Vijay Vaitheeswaran. 

There was plenty of interesting chatter among the panellists about asset managers making informed decisions based on data, predictive analytics, IIoT, and all the rest, as well as genuinely linking transition finance to greener pathways, including green bonds and equity investments. 

But all is not plain sailing, and quite frankly no one expects it to be so. For starters corporate balance sheets are stretched. We are in a high interest rate climate, and will likely remain so near-term. Both will trigger caution when it comes investing petrodollars towards green causes. Private equity players - typically keen backers of viable cleantech forays - are also holding back given the uncertain climate.

However, products and services aimed at decarbonisation continue to strengthen, said the panellists. But they also made one key observation that chimes with market intel obtained by the Oilholic - the anti-ESG backlash (or movement if you wish) has indeed had a chilling effect of late on financing greener initiatives. 

That is particularly true in the US in an election year that is going to be a rematch between incumbent Joe Biden and the man he ousted from the White House - Donald Trump. Therefore, a lot may depend on the post-November discourse, and a possible Trump presidency could materially alter the green finance landscape both in the US and abroad. 

And on that thought, it's time to say goodbye. There are two energy site visits coming up plus the little matter of CERAWeek in Houston. So more musings to follow soon. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo: Panel on financing net zero: assessing and accelerating green finance, at the Economist Impact Sustainability Week in London, UK on March 5, 2024. © Gaurav Sharma 2024. 

OEG Energy site visit & a 'crude' chat with its boss

Last week The Oilholic headed to sunny Scotland for a very interesting visit to one of OEG Energy's industrial sites in Aberdeen, with none other than its Chief Executive John Heiton. 

The scene of the walkabout was the global mission critical offshore logistics group's state-of-the-art Cairnrobin chemical plant.

This impressive six acre site, just south of Aberdeen's city centre, serves as OEG's storage, servicing and processing hub for a wide range of chemicals and aviation fuel on behalf of a veritable-who's-who of the energy business. It was fascinating to observe the place, its personnel, their processes and top-notch North Sea standard protocols on safe and secure handling of their operational tanks. 

The site visit was followed by a long overdue conversation with Heiton about how he is reshaping OEG along two offshore business silos under one group umbrella - traditional offshore energy and renewables. As it appears, after three years of painstaking work and over a dozen acquisitions, in 2023 the company managed the milestone of a near 50%/50% split in revenue between its traditional and renewables units. 

Heiton described it as the inexorable direction of travel for OEG, with double-digit growth expected for OEG's renewables business over the near-term, and solid single-digit growth for traditional energy boosted by operations in emerging oil and gas extraction hubs like Guyana and Suriname, and established ones in Africa and the Middle East. 

The OEG boss - who's company has its footprints in over 60 global locations - also said he'd encountered the same hike in shipping rates between Asia and Europe via the Red Sea as the readers of this blog (and The Oilholic's sources in Singapore) report, i.e. an uptick of 300% to 350% since November! 

That's when attacks by Yemen's Iran-backed Houthi rebels began on international energy and commercial shipping in the key maritime artery. 

"However, shipping rates from Australia to China have also gone up and there are no security issues there! So while some of the cost hike (since November) is related to the troubles in the Red Sea, shipping lines may also be using it as an excuse," Heiton said. 

On the subject of oil demand growth in 2024, OEG is going with the International Energy Agency's conservative forecast of 1.1 million barrels per day (bpd). "Part of it has to do with operational prudence in going for the lower end of global oil demand growth forecasts, rather than much higher forecasts out there. 

"However, where demand growth goes this year does not materially impact us as a business because a lot of global spare capacity is onshore based. Volume produced by the offshore fields we service doesn't make much of a difference to us as a critical logistics provider. They'd ultimately still require broadly similar levels of outsourced services we provide to the facility/platform in question."

Away from the exclusive snippets for this blog, do read The Oilholic's full interview with Heiton for Forbes here. It offers a much wider perspective on OEG's journey as a company in recent years. That's all for now folks, more blogging to follow later this week. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo 1: John Heiton, Chief Executive of OEG Energy (left) with Gaurav Sharma. Photo 2: Specialist storage tanks at OEG Cairnrobin Chemical Plant, Aberdeen, UK, February 2024. 

Rising shale output & oil's recovery to November levels

At the start of the year there were some doubts whether US shale oil production would remain high, having broken records in 2023 and propelled the States to the top of the global oil production leader-board. 

But a recent update from the Energy Information Administration (EIA) has gone some way in dispelling those doubts. 

The statistics arm of the US Department of Energy projects that production will likely  go up in March. Key basins are expected to produce around 20,000 more barrels per day (bpd) next month. This implies a total of 9.7 million bpd in shale production - a volume that hasn't been recorded since December last year. 

Conventionally, you'd think an upbeat US production forecast would knock a few dollars off crude prices. However, the market is more or less holding firm, as the Oilholic noted in an earlier blog post. After the profit-taking of last few weeks cooled, the last couple of sessions have seen oil futures return to levels not seen since November. That'd be $83+ per barrel prices for the Brent front-month contract and $79+ per barrel for the WTI.

A combination of OPEC+ cuts, Moscow's recent (and well documented) difficulties in shifting its crude owing to Western sanctions and heightened geopolitical tensions in the Middle East are keeping oil prices at elevated levels. 

However, the Oilholic reckons the price will face resistance at $85 and the upcoming week should be interesting. (And the EIA's next update - in this data series - is on March 18, and next weekly US inventory report is out on February 22). 

Elsewhere, yours truly participated in a panel discussion on TRT World's Round-table program to discuss Italy's overtures to Africa for its energy security needs whilst addressing the thorny issue (or shall we say the political hot potato) of migration. 

One guesses, that in reaching out to African heads of state ahead of the Gas Exporting Countries Forum (GECF)'s next high-level summit in Algeria in March, Italy's Prime Minister Giorgia Meloni has made a strategic and pragmatic move. (The full broadcast is available here)

And finally, remember Uniper? And it's bailout by the German government in 2022 after its options for Russian gas imports ran out? Well its back with a bang, and ready to repay (some of) the bailout money back in phases. That's just as Berlin is seemingly contemplating a share sale to recoup (some of) the money. Here's a full Forbes report. Well that's all for now folks. More soon. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo: Oil well in Oman © Shell. 

On modest crude price gains and more

In what's coming up to mid-February, oil benchmarks are largely holding on to geopolitical risk gains made since the start of the month. That's after the U.S. response to an attack on its military base in Jordan allegedly by Iranian-backed militia and Israel's rejection of a ceasefire in Gaza.

Of late, Brent futures have found support around $80 per barrel mark but it remains to be seen whether the level will hold. For what its worth, the global proxy benchmark still remains in technical backwardation. It was though bemusing to read a recent Financial Times editorial declaring "The days of $100 oil prices are over" in a rapidly decarbonising world where "demand will continue but potential world supply is likely to peg back the cost." Indeed. 

In fact, it's something yours truly agreed with former BP boss Bob Dudley back in 2017 at the World Petroleum Congress in Istanbul, who if the Oilholic recollects well, was positioning his company to even weather a $30 per barrel oil price. Speaking of CEOs, Occidental's boss Vicki Hollub told Business Insider that oil oversupply may well be keeping prices low, but the situation is about to flip! 

And of course, Goldman Sachs analysts reckon we may be about to enter a commodities supercycle with a potential for driving oil prices as high as - yup you guessed it - $100 per barrel. Well we shall see, but for now $70-$80 will do, and the Oilholic seriously doubts we'll hit $100 imminently! Elsewhere, oil giant BP hiked its dividend by 10% and accelerated the pace of share buybacks in a bid - by its new CEO Murray Auchincloss - to woo investors. 

And finally, here is one's take via Forbes on US President Joe Biden's arguably barmy plan to pause the approvals of new LNG export projects for a review. All at a time when his country has become the world's largest LNG exporter! Clever eh? Well that's all for now folks. More market thoughts to follow later in the month. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo © Terry McGraw from Pixabay.

The mad first month of crude trading year 2024

As the first month of the current oil trading year nears its end, the Oilholic's thoughts on the direction of crude prices hasn't materially altered. We're likely to see prices oscillate in the range of $70 and $85 per barrel in 2024, using Brent as a benchmark. And that's because the bearish bias in wider market fundamentals remains the same in a different trading year, despite all the geopolitical flare-ups we've seen October. We'll touch on those later in this blog. However, admittedly it has been the maddest possible start to trading. 

Feeling the pulse of the market and tepid demand, the Saudis made two profound short- and medium-term decisions. The first came early in the month after Aramco - the Saudi state-owned behemoth - announced a cut to official selling prices (OSPs) for all regions, including lucrative Asian markets, for several crude grades. These included Aramco's flagship Arab Light crude oil. Aramco said cuts in Asia would be as high as $2 per barrel versus the Dubai Oman regional crude benchmark from January levels. 

Prices for Europe would be down by $1.50-$2 per barrel versus Brent January prices, while North American exports would see a drop of $2 per barrel versus the Argus Sour Crude Index (ASCI) used to benchmark U.S. Gulf Coast sour grades. The move weighed on oil prices and seemed like a logical one. 

The Saudis, having voluntarily cut their headline production down to 9 million barrels per day (bpd), want to make sure every single drop of it gets sold in a competitive market receiving plenty of barrels, especially of US light crude. 

The second move came late-January, after Aramco said it was stopping its expansion plans and concentrating on a maximum sustained capacity of 12 million bpd. This immediately generated headlines along the lines of the Saudis acknowledging the end of oil, which, as the Oilholic said via market commentary on several broadcasters, is a load of rubbish. 

Aramco plans to finish the oilfields it has started - namely Berri (250,000 bpd), Dammam (75,000 bpd), Marjan (300,000 bpd) and Zuluf (600,000 bpd). There's only one project cancellation and the company intends to let some other existing fields decline. So with respect, it is nothing more than a pragmatic business move faced with changing medium- to long-term demand in a market the Saudis hope to tap with aplomb for as long as they can.

Away from Saudi moves there were geopolitical flash points aplenty. But none of these managed to move the oil price quite like they used to back when US crude barrels weren't keeping the global markets honest. Following weeks of attacks by Yemen's Iran-backed Houthi rebels on energy and commercial shipping in the Red Sea, the US and UK pounded Houthi positions and infrastructure. The Houthis vowed a response and their sporadic attacks on shipping continued. 

Then on January 28, after over 170 drone and missile attacks on US bases in Syria, Jordan and Iraq since October by Iran-backed proxies in the Middle East, one got through and killed three service personnel. The US' imminent response is to be expected and could mark a dangerous escalation. Where this goes is anybody's guess. But an attack by the US on Iranian soil appears unlikely. (Should it happen, and its hasn't since the 1980s, we could see crude prices around the $90s).

As things stand, crude prices remain range bound. January offered precious little to alter this despite it being one of the most volatile starts to a trading year. Well that's all for now folks. More market thoughts to follow. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo: Gaurav Sharma on Asharq Business with Bloomberg TV in January 2024 © Asharq Business with Bloomberg TV.