1. ExxonMobil-Pioneer Merger May Spark Further Giant Deals
- The largest upstream deal since Shell's 2015 acquisition of BG for $82 billion, ExxonMobil's acquisition of Pioneer Natural Resources has become the crown jewel of post-Covid E&P consolidation.
- With the Pioneer deal, ExxonMobil will gain over 700,000 boe/d of production in the Midland Basin as well as 5 billion of annual free cash flow, creating the world's largest tight oil company with a Permian resource base of over 16 billion boe.
- By 2024, the Permian is set to account for almost 40% of ExxonMobil's upstream operating cash flow, with ConocoPhillips being the only major to have a Permian focus higher than that (at 41%).
- Other US majors might be tempted to join the E&P acquisition game, with Diamondback, Permian Resources, or Matador becoming hotter targets for the likes of Chevron or ConocoPhillips.
2. Russian Flows Increasingly Relying on Non-Western Oil Tankers
- Roughly 60% of Russia's seaborne crude exports are now shipped by tankers that do not need to comply with the G7 oil price cap, complicating efforts to curb Moscow's revenue from oil sales.
- As Russia's main export grade Urals has been trading above the oil price cap of $60 per barrel since July 11 on a FOB Primorsk basis and India has been reporting purchase prices of $85-86 per barrel, the enforcement of the price cap has been questionable to date.
- Currently, ship owners that carry…
1. ExxonMobil-Pioneer Merger May Spark Further Giant Deals
- The largest upstream deal since Shell's 2015 acquisition of BG for $82 billion, ExxonMobil's acquisition of Pioneer Natural Resources has become the crown jewel of post-Covid E&P consolidation.
- With the Pioneer deal, ExxonMobil will gain over 700,000 boe/d of production in the Midland Basin as well as 5 billion of annual free cash flow, creating the world's largest tight oil company with a Permian resource base of over 16 billion boe.
- By 2024, the Permian is set to account for almost 40% of ExxonMobil's upstream operating cash flow, with ConocoPhillips being the only major to have a Permian focus higher than that (at 41%).
- Other US majors might be tempted to join the E&P acquisition game, with Diamondback, Permian Resources, or Matador becoming hotter targets for the likes of Chevron or ConocoPhillips.
2. Russian Flows Increasingly Relying on Non-Western Oil Tankers
- Roughly 60% of Russia's seaborne crude exports are now shipped by tankers that do not need to comply with the G7 oil price cap, complicating efforts to curb Moscow's revenue from oil sales.
- As Russia's main export grade Urals has been trading above the oil price cap of $60 per barrel since July 11 on a FOB Primorsk basis and India has been reporting purchase prices of $85-86 per barrel, the enforcement of the price cap has been questionable to date.
- Currently, ship owners that carry Russian oil need to obtain attestations from their clients that the price of the cargo complies with the price cap, but they have no means to verify them nor do they actually need to do checks.
- The US signaled its readiness to clamp down on shippers that continue to ship Russian oil in breach of the price cap, sanctioning the owners of the Yasa Golden Bosphorus and SCF Primorye tankers.
3. India Maximizes Diesel Exports into Europe
- Indian diesel exports to Europe soared to an all-time high in September as the country's key refinery cashed in on a highly profitable arbitrage to the West, hitting 305,000 b/d according to Kpler data.
- Simultaneously, India sent significantly less to Singapore and other Asian destinations as Europe has become the premium market for diesel, with the gasoil EFS spread dropping to $70-80 per metric tonne recently.
- As India remains in a demand off-season, with consumption restricted by the monsoon season and the heat, there is a surplus in middle distillates, with diesel exports boosted by a drop in the country's export tax during much of September.
- Totalling 12 ULSD cargoes, all of India's diesel exports to Europe were coming from Reliance Industries, with the country's largest private refiner sending huge Suezmax-sized tankers to Rotterdam or Hamburg.
4. Europe's Gas Price Rally Stokes Supply Fears Ahead of Winter
- European gas prices have jumped above the €50 per MWh threshold for the first time since August, buoyed by Finland's subsea gas leak, renewed strike risks in Australia, and Israel's closure of the Tamar offshore gas field.
- The negotiations between Chevron and labour unions at the Gorgon and Wheatstone LNG facilities in Australia have moved into their second round, absent a deal over the upcoming days workers will restart strikes on October 19.
- In Europe itself, the biggest supply disruption might come from the damage of the Finland-Estonia gas interconnector which started leaking after a presumedly deliberate act of sabotage, with repairs potentially taking up to 5 months.
- This week's price rally has fortified Europe's standing as the premium LNG market with JKM only trading at $14 per mmBtu, $4 mmBtu lower than the European prices currently.
5. Aluminium Becomes Too Expensive for Europe
- Europe is poised for an aluminum squeeze as prices for European consumers are moving to record highs on the back of soaring energy costs and production cuts.
- Buyers usually pay for the benchmark LME aluminum price, currently around $2,950 per metric tonne, plus a physical market premium and it is the latter that has spiraled out of control in recent months, coming in at $430/mt lately.
- The BoA calculated 650 ktpa capacity being shut already in Europe and another 900 ktpa at risk of closing down due to high energy costs, pegging Western Europe's aluminum deficit at a whopping 5 million tonnes this year.
- Before European electricity prices started surging, the extremely energy-intensive process of producing aluminum accounted for 35-40% of smelting costs, right now that same metric is already at 50-55%.
6. China's Wind Energy Cost Efficiency Triggers Ire of EU
- In addition to an ongoing EV inquiry and a potential steel pricing investigation, European Union officials have signaled they might start a probe into China's wind power manufacturers if Chinese firms are deemed to receive too much government aid.
- This is coming on the back of Europe gradually realizing it would need more wind turbines that it's able to produce through the end of the decade, just as high electricity prices and high feedstock costs lifted turbine production costs.
- Chinese wind companies used to focus primarily on the domestic market, accounting for 97% of sales in 2022, however from 2023 onwards they have been reaching out externally, offering prices at discounts of 20% to European and US producers.
- Even though China started to develop its wind industry later, government measures such as additional payments for power generators and a cheap baseload coal supply have allowed producers to create huge economies of scale, with the cost of building wind turbines now about half the cost of new coal power.
7. Asian Exporters Eye UCO Exports into the Atlantic Basin
- Just as Europe and the United States are ramping up incentives for biofuels made from agricultural waste and non-agricultural feedstocks, Asian producers of used cooking oil (UCO) are seeing the supply-demand balances lengthen.
- According to S&P Global, worldwide supply of UCO is expected to more than double to 31 million tonnes by 2030 from the current 14 mtpa, with Europe's imports expected to soar to 3.7 million tonnes by the end of this decade.
- Used cooking oil has a smaller carbon intensity than biodiesel derived from conventional vegetable feedstock such as rapeseed, soybean, or palm oil, hence its price premium to first-generation agriculture feeds.
- Asia's UCO competitive edge comes from its abundance of first-generation feedstocks, especially palm oil and sugar, creating a vast excess of UCO that could be exported to Europe or the US, regions with the most ambitious biofuel blending mandates.