Politics, Geopolitics & Conflict
Venezuela: With gasoline prices in the United States at all-time highs–over $6 per gallon in California–the pressure is on the Biden Administration to vigorously pursue ways to lower prices. With U.S. production stagnating at more than a million barrels per day shy of pre-pandemic levels, and with major oil consumers such as Europe looking for alternate supplies, the situation has grown worse, despite the Administration’s first step of releasing millions of barrels of oil from the SPR. Even though there were 5 million barrels of crude released from the SPR last week, the EIA showed a major draw of more than 3 million barrels. A month ago, the United States was said to look to Venezuela–sitting atop the world’s largest oil reserves–for additional oil, but it was rumored to come away empty-handed. Now, the United States is granting Chevron a license to negotiate with PDVSA to strike up oil deals. Venezuela’s heavy oil is perfectly suited for many American refineries. It is likely to be just the first of many steps in lightening up sanctions on Venezuela’s oil industry, and as many as 400,000 bpd of oil could be added to global supplies if sanctions were relaxed.
Libya: This week in Libya we saw the prime minister-designate (Bashagha) show up in Tripoli with his militias for security, ending in clashes with militias loyal to the interim incumbent prime minister (Dbeibah). Bashagha…
Politics, Geopolitics & Conflict
Venezuela: With gasoline prices in the United States at all-time highs–over $6 per gallon in California–the pressure is on the Biden Administration to vigorously pursue ways to lower prices. With U.S. production stagnating at more than a million barrels per day shy of pre-pandemic levels, and with major oil consumers such as Europe looking for alternate supplies, the situation has grown worse, despite the Administration’s first step of releasing millions of barrels of oil from the SPR. Even though there were 5 million barrels of crude released from the SPR last week, the EIA showed a major draw of more than 3 million barrels. A month ago, the United States was said to look to Venezuela–sitting atop the world’s largest oil reserves–for additional oil, but it was rumored to come away empty-handed. Now, the United States is granting Chevron a license to negotiate with PDVSA to strike up oil deals. Venezuela’s heavy oil is perfectly suited for many American refineries. It is likely to be just the first of many steps in lightening up sanctions on Venezuela’s oil industry, and as many as 400,000 bpd of oil could be added to global supplies if sanctions were relaxed.
Libya: This week in Libya we saw the prime minister-designate (Bashagha) show up in Tripoli with his militias for security, ending in clashes with militias loyal to the interim incumbent prime minister (Dbeibah). Bashagha left Tripoli hours after he entered, vowing instead to set up his rival government, backed by parliament, in Sirte–the gateway to the country’s ‘Oil Crescent’. We also saw protesters following this fire shots outside the port of Hariga in an attempt to halt the loading of 1 million barrels of oil bound for the UK. The tanker loaded regardless, and set sail, but we likely haven’t seen the last of clashes and violence as the rival governments intensify their positioning to control the country’s oil and revenues, while currently, Tripoli controls the revenues while Tobruk (in the east/Bashagha) controls the production and exports (though not across the board).
US/Saudi Arabia: Unnamed sources are telling the media (namely, CNN) that Biden may meet Saudi Crown Prince MBS for the first time as soon as June. Biden has cold-shouldered the Crown Prince since assuming office over the murder of Khashoggi and has chosen to speak only to the Saudi King, who is largely just a figurehead. This has incredibly irked MBS, who has retaliated by refusing to condemn Russia over Ukraine and by moving closer to China with various deals.
Oil Markets: China Data vs Russian War
The war in Ukraine is leading to more long-term LNG deals this year, with the latest being Sempra Energy’s supply deal with Polish state-run PGNiG. This is a 20-year deal for some 3 million tonnes of LNG per year. The US is expected to export over 12 billion cubic feet of LNG per day this year–more than Australia and Qatar.
The official Russian oil industry forecast shows output falling this year and remaining low until 2026. More specifically, the data shows a loss of some 1 million bpd for 2022, a further drop next year and slight recovery in 2025.
Russian fuel oil making its way to Fujairah is set to increase to 2.5 million this month–125% higher than April and 24% higher than November as more fuel oil is finding homes other than in Europe. Fujairah is the world’s third-largest bunkering hub.
The European Commission published plans on Wednesday for the EU to cut its reliance on Russian gas by 66% by the end of the year and completely by 2027 at a cost of $221 billion. The plan details ways the bloc can save energy, obtain alternate sources for gas including LNG from the United States and Canada and pipelined gas from Norway, and hastening the transition to renewables by targeting 45% renewable energy instead of just 40% and speeding up the permitting process for renewables projects.
Russia’s oil pipeline company Transneft will no longer disclose its full loading plans for Russian ports for all crude exporters. Instead, Transneft will provide exporters with only the loading dates for their own cargoes. The move follows similar moves by the Russian Energy Ministry back in April that limited its access to oil and gas production and export figures, and Gazprom and Lukoil which have said they will not publish Q1 results.
The Netherlands will ban fossil-fuel-based heating system installations, beginning in 2026, instead requiring heat pumps or connections to heat networks. The ban would mean that whenever a house’s heating system needs to be replaced post 2025, it would need to be replaced with a heat pump. Germany was the first country in the EU to mandate heat pumps, although their mandates are for hybrid heat pumps.
Deals
TotalEnergies is looking to sell its 10% stake in Shell Petroleum Development Company of Nigeria (SPDC). As part of the stake sale, Total will sell its stake in 13 onshore fields and 3 shallow water fields capable of producing a combined 20,000 boepd, and 3500 km of pipelines. Not part of the sale are its stakes in OML 23 and 28 and the associated gas pipeline network. JV partners in SPDC include Shell, NNPC, NAOC, and Eni.
The privatization of Brazil’s now state-run power company, Eletrobras, may be completed as early as June–the previous estimate was July. A Brazilian audit court is now set to review the privatization, which is set to take place through a share offering. The government will still hold a stake after the privatization, but it will be only a minority shareholder. There is a push to privatize the power company before October elections, in which Workers Party candidate and former president Luiz Inacio da Silva, who has voiced opposition to the privatization deal, is the frontrunner.
India’s state-refiner privatization has stalled, with two bidders–Apollo Global Management and I Squared Capital Advisors–bowing out of the process. Only one potential bidder–Vedanta–remained for the 53% stake of Bharat Petroleum (BPCL), but India didn’t want to proceed with just one bidder. India will now restart the process with a smaller stake for sale. Vedanta was looking at around $12 billion for the stake.
A major deal has been struck to create a $7 billion Permian basin oil and gas producer by combining Centennial Resource Development and Colgate Energy Partners III. Last year, Colgate was considering a stock market float valued at nearly $4 billion. It was also looking for buyers for 6,000 acres in the Delaware basin. Now, the tie up will create a company capable of producing 135,000 boepd. The deal is expected to close in H2 2022.
Discovery & Development
Chevron and TotalEnergies will move forward with its Ballymore project in the U.S. Gulf of Mexico. The project is expected to cost $1.6 billion and produce 75,000 bpd of crude starting in 2025. Chevron owns 60% while Total holds 40%.
Colombia’s Ecopetrol has agreed to develop four offshore deepwater oil blocks with Occidental. Ecopetrol will hold a 49% stake, while Occidental subsidiary Anadarko Colombia will hold the remaining 60%. Anadarko Colombia will be the operator. Colombia’s oil regulator has yet to approve the deal.
ADNOC has announced three new oil discoveries this week. The discoveries are at Bu Hasa, Onshore Block 3 (with Oxy as operator), and Al Dhafra Petroleum Concession. An additional 500 million barrels of oil were discovered in Bu Hasa, while in Onshore Block 3, around 100 million barrels of oil in place were discovered. Al Dhafra was discovered to hold 50 million barrels.
