Politics, Geopolitics & Conflict
Ukraine: While the Ukraine-Russia conflict seems to be escalating, it’s still a lot of hot air at the moment. There are Russian war games in Belarus, UK arms shipments to Ukraine, and American senators pow-wowing on the ground in Kyiv. Germany has still shown no backbone in this game, and the coalition is growing more disunified in its position on Russia by the day. Russia will win the diplomatic victory here unless there is a German response that doesn’t bow to Russian money and politics.
Libya: Libya’s oil output is back up to 1.2 million bpd after a shut-in caused by a skirmish between the NOC head Sanalla and the Petroleum Facilities Guards (PFG). Whether they can maintain this without another crisis is questionable at best. Most recently, the speaker of Parliament Ageelah Saleh has said the current government’s mandate formally expired on December 24th, when elections were meant to be held but were then postponed. He’s calling for a new government to lead the country to elections, and that will start off another round of jockeying for control over oil and oil revenues to secure leadership.
China/Iran: On January 20th, China – ever-emboldened – reported official imports of Iranian crude despite sanctions. It was the first time in a year that China has done this officially. The official nature of this reporting is not without reason: Beijing plays an important role in the Iran…
Politics, Geopolitics & Conflict
Ukraine: While the Ukraine-Russia conflict seems to be escalating, it’s still a lot of hot air at the moment. There are Russian war games in Belarus, UK arms shipments to Ukraine, and American senators pow-wowing on the ground in Kyiv. Germany has still shown no backbone in this game, and the coalition is growing more disunified in its position on Russia by the day. Russia will win the diplomatic victory here unless there is a German response that doesn’t bow to Russian money and politics.
Libya: Libya’s oil output is back up to 1.2 million bpd after a shut-in caused by a skirmish between the NOC head Sanalla and the Petroleum Facilities Guards (PFG). Whether they can maintain this without another crisis is questionable at best. Most recently, the speaker of Parliament Ageelah Saleh has said the current government’s mandate formally expired on December 24th, when elections were meant to be held but were then postponed. He’s calling for a new government to lead the country to elections, and that will start off another round of jockeying for control over oil and oil revenues to secure leadership.
China/Iran: On January 20th, China – ever-emboldened – reported official imports of Iranian crude despite sanctions. It was the first time in a year that China has done this officially. The official nature of this reporting is not without reason: Beijing plays an important role in the Iran nuclear talks, and this is its way of showing how much leverage it has as talks proceed in Vienna.
Armenia/Azerbaijan: In an offshoot of another frozen conflict, Turkey and Azerbaijan will start laying a gas pipeline to supply Nakhichevan, Azerbaijan, a landlocked exclave bordering Armenia. The new pipeline will be part of the Igdir gas pipeline in Turkey and will transport natural gas from Azerbaijan to Nakhichevan.
Iran/Russia: Russia and Iran reported that they had agreed to several energy deals between Russian companies and oil and gas projects in Iran. Meanwhile, Raisi lent support to Russia over its amassing troops in Ukraine. Iran said the deals included oil and gas developments and building refineries, but was otherwise nonspecific about the projects.
Markets & More
The latest Drilling and Productivity report this week showed that the Permian basin is on fire, with the EIA estimating production there will increase to 4.996 million bpd in January and 5.076 million barrels per day in February. This level of production far surpasses that of OPEC’s second-largest producer, Iraq (4.270 million bpd in Dec).
The pipeline explosion that knocked offline the Kirkuk-Ceyhan pipeline has since resumed operations. The pipeline moves oil from Kurdistan to Turkey’s port of Ceyhan. Kurdistan exports 330,000 barrels per day. Exxon has announced its goal of reaching net-zero across its operated assets by 2050 through improved energy efficiency and electrification, among other methods. The oil giant will publish later this year detailed road maps that cover 90% of its operations-related emissions.
Gazprom is taking Polish gas company PGNiG to court in hopes of recovering a retroactive increase in the price of natural gas. The dispute between the two has been long in the making and centers around the Yamal contract. Gazprom says it requested a price increase starting in November 2017 and has since moved to arbitration to recoup the increase in price. The move comes just as Saudi Arabia purchased Polish refining assets, knocking Russia off 2/3rds of Poland’s oil supply. Poland has long sought to break the chains of Russia’s hold over its energy supplies.
In other Gazprom news, Moldova may declare a state of emergency if Gazprom fails to agree to a deferral on the payments for January’s gas consumption. Moldova is set to pay for December’s gas this week. Moldova found itself in the same situation last winter.
Inpex will undertake exploratory drilling offshore the Shimane and Yamaguchi prefectures in Japan. Drilling will take place between March and July of this year. If Inpex is able to find oil and gas, it would improve Japan’s energy self-sufficiency.
CNPC subsidiary PetroChina Fuel Oil Co had its alleged illegal profits confiscated after China said it engaged in an irregular trade of imported crude oil to the tune of 179.5 million tonnes since 2006. Those barrels were sold to 115 different independent refineries, according to an investigation. China asked PetroChina Fuel last year to stop trading off crude oil import quotas with local refineries in its crackdown on excessive fuel production.
Deals, Mergers & Acquisitions
2021 and the beginning of 2022 have continued the trend for oil and gas company mergers, with the bulk of those mergers focused on the Permian Basin. The biggest of those was on January 12th with the $1.9B merger of Desert Peak Minerals and Falcon Minerals Corp.
Brazilian state-owned oil producer Petrobras and the construction company Novonor announced the sale of shares of the petrochemical firm Braskem and are hoping to raise about $1.5 billion. Petrobras currently owns 22% of Braskem's Novonor currently owns 23%. The sale is expected to be one of the country's largest equity offerings this year.
Polish state-owned PKN Orlen has agreed to sell a stake in an oil refinery and hundreds of petrol stations to Saudi Aramco and Hungarian MOL. The assets in question actually belong to Lotos Group (also state-owned), which PKN is planning to acquire. The sale is part of a necessary divestment required by the EU before the merger can take place between PKN and Lotos.
Australian Woodside Petroleum has inked a long-term deal to purchase LNG from the US Gulf Coast in yet another indication that the U.S. export market is growing at a fast clip. The deal will see Woodside purchase 2 million tonnes of LNG per year (over 20 years) from the proposed export terminal in Louisiana beginning around June 2026.
Chesapeake Energy is in talks to buy domestic rival Chief Oil & Gas, in a deal worth approximately $2.4 billion, according to a Reuters report. Chesapeake, who emerged from bankruptcy last year acquired another competitor, Vine Energy for about $2.2 billion in August.
Shell has reached a deal with Pemex to supply crude oil to Pemex’s recently purchased–from Shell–Deer Park refinery in a deal that will span at least 15 years. The transfer of the refinery from Shell to Pemex took place on Thursday.
South Korea and a handful of Persian Gulf oil producers are wheeling and dealing over oil prices - and the deal could lower the price of Middle Eastern crude grades in the very near future. South Korea’s trade ministry has reached an agreement to resume the free-trade agreement negotiations with GCC members for the first time in ten years. One possible item under discussion is the 3% levy that has been imposed on imported crude. South Korea bought about 2/3rds of its oil needs from the GCC region in 2020. The last negotiations between the two parties collapsed in 2010.
Discovery & Development
With respect to supermajor exploration, all eyes are now on Shell in Namibia, with a potential light oil discovery offshore at Shell’s Graff-1 exploration well in the Orange Basin. It is not yet clear if this is a commercial discovery but we will be closely monitoring for updates.
Norway’s regulators have awarded 28 companies interests in 53 offshore production licenses in the latest licensing round for mature areas. Of the total, 28 of the licenses are in the North Sea, 20 in the Norwegian Sea, and five in the Barents Sea. Norwegian state-controlled Equinor won stakes in 26 licenses, while Aker BP got stakes in 15 licenses. Sweden's Lundin was awarded stakes in 10 licenses, as was Eni's Norwegian subsidiary Vaar Energy.
BP, Shell, and Iberdrola have all won seabed rights for the development of offshore wind projects in Scotland. The auction raised nearly $960 million. A total of 17 projects in Scotland will produce some 25 GW of wind power in the next decade.
