2024 Could be a Better Year for Canadian Oil Producers

Numbers Report - January 05, 2024

In the latest edition of the Numbers Report, we will take a look at some of the most interesting figures put out this week in the energy and metals sectors. Each week we'll dig into some data and provide a bit of explanation on what drives the numbers.
Let's take a look.

1. 2024 Should Have Been Canada's Year, Might Still Be

- The long-anticipated launch of the Trans Mountain Expansion (TMX) pipeline has been a rallying call for Canadian upstream producers to ramp up operations, benefitting from a new export conduit.
- Delays in TMX's commissioning have restrained Canada's export options, with the WTI-WCS spread widening from a $12 per barrel discount in July to -$25 per barrel over the winter months, as exporters need to rely on costly crude-by-rail options.
- Despite weak differentials and protracted wildfires earlier in 2023, crude production from Alberta's oil sands are still set to increase by 3% year-on-year, adding 90,000 b/d to a new record level of 3.345 million b/d.
- With Canada's oil industry expecting the start of pipeline fills in the 590,000 b/d TMX lines between March and May, the price of Canada's benchmark WCS is expected to strengthen to a $13-15 per barrel discount to WTI again.

2. China Becomes World's Largest LNG Buyer, Overtaking Japan

- Benefitting from its first full year of post-pandemic normality, China has regained the title of the world's largest buyer of LNG, surpassing Japan as it imported nearly 71 million tonnes LNG in 2023.
- China is set to drive global LNG demand growth despite lower economic growth at home, with its imports slated to increase by almost 20% to 84 million tonnes through 2025, adding a further 50 million tonnes to its import tally by 2030.
- Natural gas still accounts for a mere 8.5% of China's total energy mix and the country's goal of gradually lowering its exposure to coal might trigger a price war between Europe and East Asia for incremental LNG volumes.
- According to Kpler data, Australia and Qatar were the top suppliers to China, accounting for 34% and 23% of the market, respectively, with US imports of LNG still subdued around 3 million tonnes, a quarter of their 2021 aggregate.

3. US Solar Firms Rail Against White House Tariff Moratorium

- US solar companies are challenging the Biden administration's moratorium blocking tariffs on solar panels produced in Southeast Asia, believed to be used as Chinese tariff circumvention tactics by assembling equipment in Vietnam, Thailand or Malaysia.
- Module-makers Auxin Solar and Concept Clean Energy argue that the White House had no legal basis to introduce a "tariff holiday" for these countries, providing Chinese firms with "unfettered US market access".
- Even though US solar service firms have amassed huge stocks of panels in anticipation of a tariff snapback come June 2024, should the US Court of International Trade side with the plaintiffs, the solar industry's supply chains might come under severe pressure again.
- As direct US imports of solar panels from China have declined, the four Southeast Asian countries (Vietnam, Thailand, Malaysia, and Cambodia) account for 77% of all incoming solar shipments.

4. UK Nuclear Generation Plummets to 40-Year Lows

- The United Kingdom is aiming to reach net zero emissions by 2050, intending to more than triple its nuclear generating capacity from 7 GW to 24 GW by 2050, however in the interim operational delays might jeopardize its low-carbon targets.
- Electricity generation from Britain's nuclear power plants slumped to the lowest level since the early 1980s last year, coming in at 37 TWh following the closure of two Hinkley Point reactors earlier in 2022.
- The first UK nuclear plant to be built in more than three decades, the $30 billion Hinkley Point C, has been plagued by cost overruns and project delays and even its current start-up date, 5 years later than initially assumed, might be too ambitious.
- As London would need to add more than 16 GW of nuclear capacity in the next decade at a cost of more than $190 billion, industry watchers are starting to doubt if the UK's nuclear ambition can match its real capabilities.

5. US Ethanol Industry Firms Up on Solid 2023 Margins

- The US ethanol industry is still hoping on policy support from the Biden administration after ethanol prices plunged to their lowest levels since January 2021 by year-end 2023, driven by weaker gasoline sentiment and high production.
- The US Environmental Protection Agency is expected to issue a final rule on the year-round sale of E15 gasoline by March 28, a decision that could be a huge victory for ethanol producers, as lobbied by eight Midwest states.
- According to S&P Global, ethanol production in the United States should trend sideways in 2024, slightly above the 1 million b/d mark, despite domestic demand increasing to 910,000 b/d.
- For the first time in the past decade, margins for US ethanol producers have remained positive throughout 2023, buoyed by tight stocks (especially in the East Coast) as well as cheap corn prices.

6. China Consolidates Its Clout As the World's Top Cobalt Producer

- China's CMOC Group has become the largest cobalt producer globally after boosting its production of the metal by more than 170% last year, churning out 55,526 metric tonnes from its giant Congolese mines.
- Surpassing Glencore that "only" produced 42,000 tonnes this year, CMOC has been the main culprit for the steep decline in cobalt prices that started 2023 at $52,000/mt and ended it at a meagre $29,150/mt.
- The surplus in global cobalt markets is set to remain in place throughout 2024, widening even to 25,000 metric tonnes as supply of refined cobalt is expected to grow a further 15.8% year-on-year to 257,000 metric tonnes.
- Cobalt is also facing pressures from no-cobalt EV technologies such as lithium-iron-phosphate batteries (LFP), also prompted by human rights concerns as cobalt mining in the Democratic Republic of Congo has seen a flurry of child labour scandals.

7. Libya's Internecine Fights Lead to Shut Production Again

- The relative lull in Libya's troubled oil politics has come to end after protestors took over and shut down the 300,000 b/d El Sharara field, the largest in the country, just as project operator Repsol was readying to start exploration drilling around the field, for the first time in years.
- The protests were reportedly driven by grievances related to poor government services and lack of infrastructure spending, however, they have also coincided with Libya's ongoing dilemma over a new $5 billion oil project.
- Libya's Tripoli-based prime minster Abdelhamid Dbeibeh backtracked on the NC-07 project, to be jointly developed by ENI, TotalEnergies, ADNOC and Turkish Energy, after domestic opposition decried the 40% share of production for the Western consortium.
- According to Kpler, the blockade of the Sharara stream did not immediately halt export flows as the Minerva Sophia tanker loaded a full cargo of the Libyan grade on January 4, two days after the protests started.

That's it for this week's Numbers Report. Thanks for reading, and we'll see you next week.