Canada's Oil Production Continues To Surge

1. Australia’s LNG Strike Keeps Gas Markets on Tenterhooks

- European gas prices have been seesawing this week on the back of Australia’s industrial action saga, peaking at €43 per MWh mid-week ($15/mmBtu) only to fall back to €35/MWh after Woodside Energy announced a tentative deal with unions.

- Unions of offshore workers across Australia’s LNG liquefaction platforms have been demanding higher pay and better working conditions, however so far only Woodside (ASX:WDS) reached an in-principle agreement with them.

- Workers at Chevron’s (NYSE:CVX) two Australian projects, Gorgon and Wheatstone, almost unanimously rejected the US firm’s offer and might start industrial action as soon as Tuesday, once the votes of the Wheatstone strike ballot are counted.

- Australia’s LNG projects account for approximately 10% of global LNG supply and have been mostly going towards Japan (historically their key market) and China.

2. Not Even Wildfires Can Halt Canada’s Oil Production Surge

- Never-ending Canadian wildfires have overshadowed the stellar performance of Canada’s oil industry which is set to boost its total production by nearly 8% over the next two years, buoyed by new oil sands projects.

- Canada’s oil production is set to surpass the 5 million b/d threshold for the first time in history this year, thanks to a 175,000 b/d year-on-year increment, to be followed by a further addition of 200,000 b/d in 2024.

- Triggering the ire of the Trudeau government, much of the growth will be coming from “tie-backs” to oil sands thermal projects whereby new productive areas are linked to existing upgrader facilities rather than building new plants from scratch.

- Key producers such as Suncor Energy, Cenovus, and MEG Energy are trying to dovetail their new upstream projects with the planned start-up of the 600,000 b/d Trans Mountain expansion pipeline, believed to start commercial operations in late Q1 2024.

3. Southeast Asia Boosts Continent’s Renewable Drive

- The national oil companies of Southeast Asia have become significant investors in renewable projects with total investments into wind, solar, and geothermal expected to hit $76 billion in 2023-2025.

- Malaysia’s Petronas is focusing on carbon capture, utilization, and storage (CCUS) projects, building the world’s largest such facility in the Sarawak region, whilst also investing in solar and hydrogen capabilities.

- Indonesia’s Pertamina, seeking to reaching net zero emissions by 2060, invested some $1.6 billion in geothermal projects, becoming the geothermal champion amongst NOCs.

- With Malaysia, Indonesia, the Philippines, and Vietnam all struggling to halt structural production declines in their respective oil industries, the quest to find new energy sources for a region where electricity demand grows at an average of 6% per year is on.

4. China Withholds Product Export Quota Issuance on Shortage Fears

- China’s oil companies are eagerly expecting the release of new clean product export quotas for September, as weaker domestic diesel demand is boosting middle distillate inventories across the country.

- Chinese sources suggest a new product quota should be expected by end-August with total export volumes expected below 10 million tonnes, with no additional quota allocations for the remainder of 2023.

- Chinese refiners have been waiting for the export quota for almost a month already, however it seems Beijing seeks to guarantee sufficient supplies of diesel in the peak season of September-October, despite the high stocks of more than 16 million tonnes.

- According to Kpler data, Chinese exports of clean products have been some 20% above this year’s 800 kbd average to date, with gasoline becoming the main export product (and most of it sold into the Singapore market).

5. Copper Prospects Remain Hazy as China Drags Down Sentiment

- China’s property crisis and weakening industrial activity have been weighing heavily on copper prices since May as the LME three-month contract remained within the $7,800-8,800 per metric tonne bandwidth.

- Hopes for a Chinese stimulus package have been largely offsetting the negative news from the country’s ailing property sector, rendered even more complex by the double whammy of high inflation across the Atlantic Basin and still-robust EV demand.

- Consequently, hedge funds have ended up increasing both their short and long positions simultaneously, with the former rising to the highest reading since early 2020, at 69,700 contracts.

- Supply-side disruptions might provide additional support to the new EV-driven supercycle for copper, with Chile’s government launching a probe into the world’s largest producer Codelco this week, potentially disrupting future production.

6. Amidst EV Proliferation Headwinds, Hybrids Make a Surprise Comeback

- All talk of EV expansion notwithstanding, hybrid gasoline-electric cars are looking increasingly promising as Ford, Toyota, and Stellantis are ramping up production capacity to meet future demand.

- EV demand in the US remains tepid as customers bemoan the high initial costs, lack of charging infrastructure, and limited range, with the attention now moving onto hybrid cars that currently represent only 7% of domestic sales.

- According to S&P Global, sales of hybrids will more than triple by 2028 and account for just south of 25% of US new vehicle sales, whilst pure EVs will claim about 37% of the market, a downgrade compared to previous forecasts.

- Toyota accounts for a third of the more than 60 hybrids marketed in the US, whilst Ford revised its earlier push into all-electric vehicles and is now pledging to quadruple its hybrid sales over the next 5 years.

7. Deadly Coal Accident Raises Questions About China’s Production Push

- A gas explosion in a coal mine located in China’s Shaanxi province, killing 11 miners, has once again raised the risk of nationwide checks on safety following a similar tragedy in February, claiming 53 lives.

- Wary of power outages, the Chinese authorities have compelled coal miners to maximize output, often at the expense of miners’ safety, as the country seeks to produce 4.6 billion tonnes this year, up 100 million tonnes from 2022.

- The Shaanxi mining incident also halted a month-long decline in coal prices across China, lifting coking coal futures in Dalian by 8% this week to above ¥1,500 per metric tonne ($205/mt).

- Alongside rising output, China has also dramatically increased its coal imports, with January-August imports set to equal last year’s full-year readings of 257 million tonnes and most probably surpassing the 2021 record high of 293 million tonnes by year-end.