1. Red Sea Disruptions Shrink OECD Crude Inventories Further
- The price squeeze in the Atlantic Basin market has mostly stemmed from longer and costlier voyages of crude oil and products around the Cape of Good Hope, a direct consequence of Red Sea disruptions.
- According to Kpler data, onshore inventories in developed nations have plunged to their lowest for this time of the year in post-pandemic history, with buyers failing to purchase enough to replenish stocks.
- At the same time, the amount of oil that is sailing on water has risen to the highest level since the summer of 2023, indicating that temporary physical shortages might become more frequent as Europe needs to buy products from elsewhere.
- Shipping giant Maersk expects Houthi attacks to persist throughout the second half of 2024, with Red Sea transit volumes for oil products down 45% since last October and transited LNG volumes plunging to zero.
2. US Gas Price Slump Puts Haynesville Producers in Jeopardy
- The collapse of US natural gas prices is ratcheting up pressure on Haynesville shale producers as mild weather and booming gas output is rendering production uneconomical and prompts shutdowns.
- According to S&P Global, even for the most efficient shale gas producers the Henry Hub breakeven in Haynesville stands at $2.67 per mmBtu; for producers seeking to return 30% of free cash flow that same metric rises to $3.2 per mmBtu.
-…
1. Red Sea Disruptions Shrink OECD Crude Inventories Further
- The price squeeze in the Atlantic Basin market has mostly stemmed from longer and costlier voyages of crude oil and products around the Cape of Good Hope, a direct consequence of Red Sea disruptions.
- According to Kpler data, onshore inventories in developed nations have plunged to their lowest for this time of the year in post-pandemic history, with buyers failing to purchase enough to replenish stocks.
- At the same time, the amount of oil that is sailing on water has risen to the highest level since the summer of 2023, indicating that temporary physical shortages might become more frequent as Europe needs to buy products from elsewhere.
- Shipping giant Maersk expects Houthi attacks to persist throughout the second half of 2024, with Red Sea transit volumes for oil products down 45% since last October and transited LNG volumes plunging to zero.
2. US Gas Price Slump Puts Haynesville Producers in Jeopardy
- The collapse of US natural gas prices is ratcheting up pressure on Haynesville shale producers as mild weather and booming gas output is rendering production uneconomical and prompts shutdowns.
- According to S&P Global, even for the most efficient shale gas producers the Henry Hub breakeven in Haynesville stands at $2.67 per mmBtu; for producers seeking to return 30% of free cash flow that same metric rises to $3.2 per mmBtu.
- Even with Chesapeake’s production cut pledge and a continuously increasing backlog of DUCs in the basin, Haynesville production is expected to remain flat at just over 15 Bcf per day, raising the risk of further curbs.
- Henry Hub natural gas futures recovered a little this week to $1.85 per mmBtu, although they remain in steep contango, the steepest since October 2023, with the M1-M3 spread rising to $0.40 per mmBtu.
- Oil majors are in no hurry to ramp up exploration spending, with Rystad finding that the likes of ExxonMobil, Shell or TotalEnergies will have spent a combined $7 billion each year between 2020-2024 on drilling.
- Such exploration expenditures are substantially lower than the pre-pandemic average of $10 billion per year, even though oil majors are increasingly looking at deepwater projects for boosting reserves.
- Conventional discoveries plummeted to a mere 1 billion barrels of oil equivalent in 2023, a 68% drop year-on-year after 2022 saw huge oil finds in Namibia, with drilling in frontier basins providing only 20% of reserves found.
- As the cost of capital is much higher than in 2016-2019, oil majors are looking for frontier area breakthroughs akin to Guyana’s surge, landing a whopping 112,000 km2 of awarded acreage, more than a third of which came from Shell’s Uruguay expansion alone.
4. Pipeline Rupture Halts Sudan Oil Exports
- The Dar Petroleum Oil Company, South Sudan’s key consortium of oil producers, declared force majeure on loadings of the country’s key Dar Blend crude following a rupture on the only export pipeline that evacuates oil through Sudan.
- South Sudan produces around 160,000 b/d of oil, triple the amount of its northern neighbor, however armed strife in Sudan has first restricted its pool buyers as shippers refused to dock in Port Sudan and now forced DPOC to cut flows altogether.
- Sudan has been engulfed in a bloody conflict between the Sudanese Armed Forces and the RSF militia since April 2023, with opposition forces occupying key areas in the country’s south, along the pipeline’s route.
- Dar Blend, a heavy sweet grade that is very acidic and has a high arsenic content, has been mostly used for fuel oil blending in Fujairah, increasing the pressure on fuel oil supply in the Persian Gulf.
5. Germany Eyes Higher Gas Utilization Amidst Improved Switching Economics
- German power-generating companies are incentivized to switch their plants to natural gas as a more than 25% slump in TTF prices in 2024 so far helped make gas generation more profitable than coal.
- European coal prices only dropped by 10% in 2024 to date, bringing the coal-to-gas switching price to €26.8 per MWh and giving natural gas some €3.5 per MWh of cost advantage over coal.
- Gas-fired power generation emits less than half of the pollution of coal plants, suggesting Germany’s CO2 emissions could improve even if electricity production moves higher.
- Power generating companies might not react immediately to improved gas economics as electricity producers must have confidence that the switching would not flip back to favor coal again.
6. China’s Solar Power Expansion Moves
- For the first time since 2020, China installed more solar panels in dedicated power plants than on residential rooftops, marking a turning point in Beijing’s forced roll-out of industrial-scale solar power.
- According to China’s National Energy Administration, the country added 120 GW of utility-scale solar capacity against 96.3 GW of new distributed capacity, with developers now focusing on inland areas.
- China’s solar installation growth – in one year launching more than all the solar panels installed in the US – was further boosted by plunging module prices that were driven down by the country’s overproduction of polysilicon.
- Despite Beijing’s push to boost renewables, China’s oil, gas, and coal consumption in 2023 increased by 9%, 7.2%, and 5.6%, respectively, keeping the country’s carbon emissions per unit of GDP stagnant.
7. Indonesia Cools Down Hopes of Nickel Bulls, Supply Surge to Stay
- Indonesia’s top energy officials have indicated that the country’s nickel processing boom will continue, arguing prices are unlikely to rise above the $18,000 per metric tonne that the transition metal is currently trading on the London Metal Exchange.
- Jakarta has argued its interest is in ensuring that the nickel market remains well supplied to keep costs lower for EV manufacturers, defying calls to curb production to allow for higher prices globally.
- Indonesia is forcing other nickel producers that don’t have the same low production costs out of the business, with the current $17-18,000/mt pricing making operations unprofitable for nearly half of all operations worldwide.
- Arguing Indonesian producers need “good profitability, not an excessive one”, the government seeks to guarantee prices above the assumed Indonesian breakeven of $15,000/mt, Jakarta warned that below that level local producers would be prompted to cut.
To access this exclusive content...
Select your membership level below
COMMUNITY MEMBERSHIP
(FREE)
Full access to the largest energy community on the web