Rising Electricity Demand Will Keep Fossil Fuels Around

1. Oilfield Services Majors Enjoy International Boom

- The world’s largest oil services majors, SLB and Halliburton, have boosted their quarterly dividend as their Q4 performance beat expectations thanks to an improving international drilling portfolio.

- Halliburton generated $1.1 billion in free cash flow this past quarter, its best quarter in more than two decades, prompting it to lift its quarterly dividend to $0.17 per share, whilst SLB hiked its dividend to $0.275 per share.

- Both oil services giants have signaled a slowdown in US shale activities, with 2024 upstream capital spending expected to grow by a mere 2% compared to 19% last year, although their international portfolios could grow in low double digits.

- Recalibrating its growth abroad, SLB indicated that the Middle East will be a huge revenue generator for the upcoming years as record upstream investment in Saudi Arabia, UAE, and Iraq extends beyond 2025-2026.

2. Absent 2024 Terminal Launches, Natural Gas Markets Wait for 2025

- The entire 2024 Henry Hub curve has now moved below $4 per mmBtu as natural gas producers are anticipating 2025 when a string of new LNG could be ramping up liquefaction demand.

- Reflecting the market’s expectation of higher feedgas demand further down the road, the December 2025 Henry Hub contract trades at $4.1/mmBtu, up 60% compared to current levels.

- The US boasts 84 million tonnes per year of operational liquefaction capacity, with the upcoming wave of new projects set to add a further 8.4 million tonnes per year of new capacity.

- Despite the natural gas lobbying against project delays, the Biden administration is expected to announce an expansion of DOE approval criteria, specifically when it comes to climate change, delaying Calcasieu Pass 2 and another 16 proposed projects.

3. Soaring Power Needs Will Keep Fossil Fuels Around

- Rapidly rising electricity demands of data centers and AI are complicating the United States’ stated aim of de-fossilizing electricity generation, leaving 2020 as the only year in the past decade to see a year-on-year decrease in electricity demand.

- BCG believes that US data centers are set for a tripling in electricity demands from 2022 by the end of the decade, hitting 390 TWh by 2030 or 7.5% of the nation’s total power consumption.

- The US Energy Information Administration expects wind and solar energy to lead growth in the country’s power generation in 2024-2025, adding 171 billion kWh of incremental generation over the next two years.

- The slowdown in coal plant closures for at least two dozen facilities across Kentucky to North Dakota is stemming from such higher-than-assumed power needs, buoyed by the IRA-subsidized infrastructure build-out.

4. Red Sea Disruptions Hit Europe’s Jet Supplies Hard

- Jet fuel has become the favorite product of European refiners in 2024 so far, beating last year’s champion diesel as the continent’s regrade (the spread between kerosene and diesel) has been on average $3 per barrel more profitable this year to date.

- Europe being reliant on Middle Eastern jet fuel more than on diesel, the impact of Red Sea disruptions has been more palpable also because the US doesn’t have enough jet to supply to Europe.

- Jet cargoes arriving in Europe this month declined by 26% compared to December, averaging only 323,000 b/d, a problem for a continent where refiners’ yields produce only 9% of jet fuel, preferring diesel output.

- As jet is routinely blended into the diesel pool to produce winter specification ultra-low sulfur diesel with stronger cold properties, missing volumes from the kerosene end will keep diesel cracks elevated, too.

5. Is Tesla Losing Out to the Chinese?

- Tesla shares have plunged by 27% since the beginning of 2024, with this week’s Q4 earnings call prompting a 10% day-on-day collapse as Elon Musk has warned of a notable slowdown in sales growth.

- As the US carmaker lost its crown as the world’s top-selling EV producer to China’s BYD in Q4, the company reported earnings of $0.71 per share, slightly below Wall Street’s $0.73 per share estimate.

- Before the call, the analyst consensus saw Tesla selling 2.2 million vehicles in 2024, an approximately 22% year-on-year growth compared to the 1.8 million EVs delivered last year, but that call might be revised lower.

- Simultaneously, Tesla said it would be recalling 200,000 Model S, X, and Y vehicles in the United States due to a rearview image dysfunction, less than two months after a similar fault in the Autopilot system.

6. Floating Solar Plants Proliferate Across Southeast Asia

- Southeast Asia is poised to become a global hotbed for floating solar photovoltaic projects, with Indonesia, the Philippines and Thailand leading the way as floating solar is slated for a 60% increase year-on-year.

- Onshore solar projects in Southeast Asia have been sapped by the predominant use of available land for agricultural purposes, writes Rystad Energy, prompting solar developers to move into the sea.

- Currently, 9 out top 10 floating solar projects are in China, but thanks to the successful November 2023 commissioning of the 145 MW Cirata project in Indonesia will propel Southeast Asian countries into the top rankings soon.

- Thanks to many large inland lakes, the Philippines is expected to add 3 GW of floating solar power capacity by the end of this decade, although that would still be only a quarter of China’s capacity by that point.

7. China Launches Voluntary Carbon Market

- Beijing launched its national voluntary carbon market this week, with China’s carbon credits (also China Certified Emission Reduction, CCER) trading at a relatively low price of $9/mtCO2e.

- The revamp of CCER was halted for six years between 2017 and 2023, however last year the Chinese government announced four methodologies for their issuance – forestation, mangrove cultivation, solar thermal, and offshore wind power.

- Currently, only domestic Chinese companies have the right to generate carbon credits, but Beijing would like to enable international transactions, too, at an unspecified later stage.

- China kicked off its carbon market reform in 2021 when it started carbon allowance trading for power generation companies, by enabling CCER companies can expand their activities into offsetting emissions.