1. The Permian pipeline glut
- The Permian basin is producing a little over 4.1 mb/d, but has 3 mb/d of excess pipeline capacity.
- "We are going to need significant consolidation in the midstream space overall, and particularly in these basins where the oversupply is as dramatic as it is," Tyler Rosenlicht, a portfolio manager at investment firm Cohen & Steers Inc., told the WSJ.
- Permian pipelines and local refineries can take 7.3 mb/d. But capacity will jump to 8.3 mb/d in 2021. By that time, only half of the available pipeline capacity will be used, down from a utilization rate of 96 percent in 2018.
- Ultimately, falling Permian production and rising pipeline capacity is making the gap larger.
- Enterprise Products Partners (NYSE: EPD) canceled its 450,000-bpd Permian pipeline this month. "In the medium-term, we don't need it, and they don't need it," the company's chief executive said.
2. Falling costs for batteries
- For a long time, the $100 per kWh price point for battery packs has been held up as a key threshold needed to make electric vehicles equal on price with the internal combustion engine.
- That goal is now very close to becoming a reality. In March, LG Chem said it might hit that point soon.
- As of 2019, the average lithium-ion battery pack costs $156/kWh. BloombergNEF sees that falling to $131/kWh this year. The $100/kWh threshold could be reached industry-wide by 2023-2024.
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1. The Permian pipeline glut
- The Permian basin is producing a little over 4.1 mb/d, but has 3 mb/d of excess pipeline capacity.
- "We are going to need significant consolidation in the midstream space overall, and particularly in these basins where the oversupply is as dramatic as it is," Tyler Rosenlicht, a portfolio manager at investment firm Cohen & Steers Inc., told the WSJ.
- Permian pipelines and local refineries can take 7.3 mb/d. But capacity will jump to 8.3 mb/d in 2021. By that time, only half of the available pipeline capacity will be used, down from a utilization rate of 96 percent in 2018.
- Ultimately, falling Permian production and rising pipeline capacity is making the gap larger.
- Enterprise Products Partners (NYSE: EPD) canceled its 450,000-bpd Permian pipeline this month. "In the medium-term, we don't need it, and they don't need it," the company's chief executive said.
2. Falling costs for batteries
- For a long time, the $100 per kWh price point for battery packs has been held up as a key threshold needed to make electric vehicles equal on price with the internal combustion engine.
- That goal is now very close to becoming a reality. In March, LG Chem said it might hit that point soon.
- As of 2019, the average lithium-ion battery pack costs $156/kWh. BloombergNEF sees that falling to $131/kWh this year. The $100/kWh threshold could be reached industry-wide by 2023-2024.
- By 2030, battery packs will only make up about 15 percent of the total cost of an EV, down from 30 percent today.
3. Inventories weigh on oil market
- Total OECD stocks increased by 13.5 million barrels in July, bringing stocks back up to record levels.
- That came after a three-month drawdown, and the increase undercuts bullish sentiment.
- As of July, global stocks stood at 3,225 million barrels, an all-time high. That is also 255 million barrels above the five-year average.
- The stocks cover 72.1 days of forward demand, or 9.9 days above the five-year average.
- The data also includes an 86.6-million-barrel increase in crude and products floating at sea.
4. LNG outlook rebounding
- Natural gas prices plunged below $2/MMBtu in the United States just days ago, but rebounded mid-week.
- However, globally, gas markets are tightening up a bit after a historic glut that led to dozens of cancelled LNG cargoes.
- Spot prices at the Title Transfer Facility, the LNG trading hub in Europe, have climbed four-fold since May. TTF prices for October delivery are above $4 per MMBtu, up from under $1/MMBtu in May.
- JKM prices - prices for LNG in Asia - are trading at $4.70/MMBtu for November delivery, up from under $2/MMBtu a few months ago.
- The number of U.S. LNG cargoes being cancelled has narrowed substantially as the economic window has opened back up.
5. Non-OPEC supply losses
- Russia, the U.S. and Canada are expected to account for the largest declines in liquids production.
- The U.S. is expected to lose nearly 1 mb/d this year, according to OPEC, which is actually an improvement over last month's projection.
- For 2021, OPEC sees U.S. liquids production growing only modestly, rising by 0.23 mb/d to an annual average of 11.48 mb/d. The figure includes condensates.
- Meanwhile, OPEC expects Norway and Brazil to add the most non-OPEC supply this year, adding 0.30 mb/d and 0.24 mb/d each.
6. Shale priorities: Production and debt
- The chart above is the result of a Dallas Fed Energy Survey question: "Which of the following is your firm's primary goal over the next six months?" The question was posed to E&P executives.
- Maintain production was the top response at 18 percent, along with "grow production" at 16 percent. But "reduce debt" and "find additional sources of capital" each received 16 percent.
- The survey showed that the sector's decline in the third quarter moderated. The Dallas Fed's business activity index remained in negative territory with a reading of -6.6, up from a -66.1 reading in the second quarter.
- Executives expressed concern about low prices, and the extensive uncertainty surrounding the pandemic and also the U.S. presidential election.
7. Carbon capture tech is essential
- The world will not be able to hit carbon emissions reduction targets without carbon capture, according to a new report from the IEA.
- One particularly challenging sector to decarbonize is heavy industry. For now, 40 percent of current steel-making facilities are expected to still be online in 2050.
- Carbon capture utilization and storage (CCUS) can allow existing facilities to remain online, achieving emissions reductions while also "avoiding the economic and social disruption of early retirements," the IEA noted. An example of the challenge is Germany's plan to retire its coal fleet by 2038, which is accompanied by a 40-billion-euro compensation package for coal mine and power plant owners, as well as for effected communities.
- CCUS projects have so far only attracted $27 billion worth of investment, and needs to be scaled up, the IEA said.
- The amount of CO2 captured and removed needs to rise to 800 million tonnes per year, up from 40 million tonnes currently.