The Energy Industry Is Under Fire

Energy Markets on War Footing

ExxonMobil’s Montana refinery shut down some units on Saturday after a fire broke out. The cause of the fire remains under investigation. The refinery can process a total of 60,000 bpd of crude sourced from Wyoming and Alberta, producing about 600 million gallons of gasoline and diesel annually, most of which makes its way to Montana, Wyoming, Utah, Colorado, South Dakota, Washington, Idaho, and Nevada. Rival refineries in the area include Phillips Billings refinery and Par Pacific’s Wyoming refinery.

Another refinery fire has struck Suncor’s Strathcona refinery in Edmonton. Suncor had announced a couple of days earlier that the refinery was going into maintenance.

India’s ONGC Videsh has managed to sell at least one cargo of Russian Sokol to Hindustan Petroleum and Bharat Petroleum after an earlier tender received zero interest for the crude. India continues to purchase deeply discounted Russian crude despite many other nations self-sanctioning.

OPEC will no longer use IEA as a secondary source for production data. The news comes as the IEA has been sharply critical of OPEC’s unwillingness to boost production to higher levels to mitigate rising prices. OPEC will instead use data from Rystad and Wood MacKenzie.

Russia is continuing to send out confusing signals concerning the matter of unfriendly countries paying for gas in rubles. The deadline for paying in rubles is Friday, after which Russia has threatened to halt deliveries for non-ruble payments. But Russia had told Germany that it would not have to pay for gas in rubles, proposing a perplexing scheme where Germany would pay Gazprom Bank, then it would be transferred into rubles for Russia. The EU maintains that requiring payment in rubles is a breach of contract. Also today, Russia clarified that it would require payment in rubles, but since payments for deliveries after April 1 won’t be processed for weeks, gas flows will not be halted as of today.

New Fortress Energy hopes to build the first offshore U.S. LNG export facility, and have it up and running within the next 12 months. It would have a capacity of producing 2.8 MTPA.

The U.S. has warned India that significantly increasing the amount of Russian oil it purchases could expose it to “great risk” as the U.S. gets ready to step up enforcement of sanctions. Since there are no sanctions prohibiting India from purchasing Russian crude, it’s possible that the U.S. will attempt to restrict countries from purchasing more Russian oil than their usual amounts.

PDVSA said it was in talks with several firms about leasing additional oil tankers amid a possible increase in crude exports. We’re not sure if this is a case of Maduro-madness or wishful thinking. The U.S. has previously stated that it is not in direct talks with Venezuela over the lifting of sanctions. The companies that PDVSA had discussions with are all reportedly willing to accept crude oil and refined products as a form of payment for the tankers. Venezuela’s existing fleet of tankers is old and in disrepair, not to mention uninsurable and uncertifiable due to sanctions. One of the companies offered to obscure PDVSA’s ownership of the new tanks by muddying the waters with a series of intermediaries to evade sanctions.

CNOOC announced share buybacks and dividends after it saw record profits last year. Net income for last year came in at $11 billion on the back of higher gas output. CNOOC will propose at its shareholder meeting annual dividends of at least 40% of profits from 2022 to 2024, with an absolute dividend of at least HK$0.70 per share, and will institute share buybacks as well. CNOOC will increase its capex from $88 billion last year to $90-$100 billion this year.

Saudi Arabia’s economic growth is expected to more than double this year on the oil rally, while unemployment dropped 11% in Q4 2021. Its economy is set to grow 7.7%, compared to 3.2% last year.

Geopolitical Update

Iraq and Turkey officials have alleged that a previous plan to have Iraq’s Kurdistan region supply gas to Turkey and Europe with the help of Israel is what provoked Iran’s Islamic Revolutionary Guards Corps into striking Erbil with a dozen ballistic missiles on March 13.

There are reports that more tankers carrying Russian oil are going dark, even though sanctions do not prohibit purchasing Russian crude oil. The theory is that while it is not illegal to purchase Russian crude, it is unfavorable.

Discovery & Development

Vintage Energy Ltd (ASX:VEN) has spudded the oil exploration well Cervantes-1 in the Perth Basin. Cervantes is located between Hovea and Jingemia onshore oilfields and the Cliff Head offshore oilfield. The well will test the potential of the Kingia Formation, the Dongara sandstone, and the High Cliff Sandstone–three Lower Permian zones. Chances of success are estimated at 28%.

Houston-based Tellurian (NYSEAMERICAN: TELL) issued a limited notice to proceed to Bechtel Energy under its EPC contract to begin construction of Phase 1 of the 27.6 mtpa Driftwood LNG export facility in Lake Charles, Louisiana. First LNG is expected in 2026. The Land has been purchased and leased, permits obtained, and progressed detailed engineering to 30% complete.

Sonatrach has made a new oil discovery in its Tarsem well with reserves estimated at 961 million barrels. The well confirmed the northward extension of the crude oilfield reserves of Okla Al-Nasser. The assessment of production is oil and associated gas flow rates of 5094 barrels of oil per day and 185,000 cubic meters of gas per day. Confirmed and probable crude oil reserves in the Touggourt region are now estimated at 961 million barrels–up from 546 million before the drilling.

Mexico has reiterated its ruling that Pemex will be the operator of the offshore Zama field in what was a great disappointment for Houston-based Talos Energy (NYSE:TALO). Talos will keep its 17.35% stake in Zama. FID is expected next year. Talos has long argued that it is better suited to quickly reach first oil after it discovered Zama in 2017. Obrador’s strong nationalistic tendencies, however, have dashed Talos’ hopes. Critics of Obrador’s plans argue that the heavily indebted Pemex isn’t suited to operate what would be its deepest project to date–in 500 feet of water.

Cuadrilla’s fracking wells near Blackpool have been given a stay of execution. They were set to be capped with concrete, but energy price pressure has won out, with the NSTA granting Cuadrilla until the end of June next year to evaluate and come up with options. If they have not put in place “credible re-use” plans by then, the wells will need to proceed with decommissioning.

Shell has announced first oil from the Colibri field in Trinidad and Tobago, after teaching FID in March 2020. The backfill project is expected to add 30,000 boepd of near-term gas production, with peak production of 43,000 boepd. The project will be tied back to the Poinsettia platform.

Legislation

The California bill that would have suspended the 51 cents per gallon gas tax has been modified to omit the tax suspension, instead instituting a windfall tax on the profits of gas suppliers. The money would be used to issue rebates to California drivers. The bill made it through committee with the windfall provision included and gas tax suspension excluded. The bill will now move forward.

Shell's (30%) and Siccar Point’s (70%) controversial Cambo oil and gas field has received an extension of its license for another two years. Shell still plans to exit the project, but Shell said the two-year extension will give it time to evaluate its options.

The European Commission sent inspections to several German energy companies, possibly as part of its investigation into possible ant-competitive behavior by Gazprom. The Commission said the companies may have violated EU competition rules.

Renewables

Shell has filed an appeal against the landmark Dutch ruling that ordered it to slash its emissions more quickly than Shell originally suggested - net zero by 2050.