- ExxonMobil’s $60 billion Pioneer acquisition has become a defining moment for CEO Darren Woods as his first 5-year tenure was marred by activist investors, missed production targets, and COVID-19.
- In Exxon’s new 2027 strategy, the oil major pledges to pump more than 4.4 million b/d of oil in four years, adding 700,000 b/d from now on and increasing its lead ahead of the world’s publicly traded companies.
- The US major has also moved into carbon capture and storage with its $4.9 billion acquisition of Denbury, as well as made great strides in direct lithium extraction at its Arkansas plant.
- Even with oil prices edging lower, ExxonMobil is expected to remain the most profitable Western major in Q4, with analysts expecting Q4 net profits to trend sideways from the previous quarter around $9 billion.
2. Defying Slackening Upstream Activity, US Natural Gas Production Soars
- Natural gas production from the US lower-48 states reached an all-time high of 105.1 BCf per day last month, building on the previous record rate of 102.5 BCf per day in October.
- As shale oil production becomes gassier, the Permian basin and Appalachia’s Marcellus shale play have led the US market in incremental growth, despite an ongoing trend in lower drilling activity.
- US natural gas rigs continue to remain subdued (Baker Hughes indicates only 116 rigs currently active), down 25% since the beginning…
1. ExxonMobil Aims for Global Dominance
- ExxonMobil’s $60 billion Pioneer acquisition has become a defining moment for CEO Darren Woods as his first 5-year tenure was marred by activist investors, missed production targets, and COVID-19.
- In Exxon’s new 2027 strategy, the oil major pledges to pump more than 4.4 million b/d of oil in four years, adding 700,000 b/d from now on and increasing its lead ahead of the world’s publicly traded companies.
- The US major has also moved into carbon capture and storage with its $4.9 billion acquisition of Denbury, as well as made great strides in direct lithium extraction at its Arkansas plant.
- Even with oil prices edging lower, ExxonMobil is expected to remain the most profitable Western major in Q4, with analysts expecting Q4 net profits to trend sideways from the previous quarter around $9 billion.
2. Defying Slackening Upstream Activity, US Natural Gas Production Soars
- Natural gas production from the US lower-48 states reached an all-time high of 105.1 BCf per day last month, building on the previous record rate of 102.5 BCf per day in October.
- As shale oil production becomes gassier, the Permian basin and Appalachia’s Marcellus shale play have led the US market in incremental growth, despite an ongoing trend in lower drilling activity.
- US natural gas rigs continue to remain subdued (Baker Hughes indicates only 116 rigs currently active), down 25% since the beginning of 2023 and marking the lowest oil-to-gas drilling ratio since April 2020.
- S&P Global predicts December production will decline after a November peak, all the while supply-side pressures will continue to weigh on Henry Hub futures struggle to move above $2.7 per mmBtu.
3. Despite Shifting Acceptance, the West Confronts an Aging Nuclear Fleet
- Public opinion vis-à-vis nuclear energy is gradually starting to shift towards widespread acceptance after a lost decade of post-Fukushima fears, but the world’s nuclear industry has a much bigger problem now, aging.
- The COP28 summit in Dubai saw a 22-country-strong pledge to triple nuclear generation by 2050, although market analysts have downplayed that target as lead times in building reactors keep on increasing.
- The average age of the world’s nuclear fleet stands at 32 years, however as there are only 5 new reactors being built in the US and Europe, the problem is much more pertinent there – the average plant age in the US is 42 years, past the usual lifespan.
- State-owned nuclear companies in Russia and China are dominating the landscape of new builds as investors have to wait 14-15 years to recoup investments and private sector investors prefer quicker returns in a high-interest-rate environment.
4. Rebounding Lithium Stocks Signal End of Downward Spiral
- Following months of seemingly endless price declines, Chinese lithium producers have been buoyed by a sudden spike in share prices, suggesting the downward trend might be petering out.
- Lithium carbonate futures for January delivery traded on the Guangzhou Futures Exchange, the largest lithium market in China, have so far trended sideways around ¥92,500 per metric tonne ($13,000/mt).
- Whilst a rapid turnaround in prices is unlikely to happen anytime soon, the prospect of lithium companies positioning themselves for a gradual recovery might mean that high-cost mines will be idled soon.
- Declining feedstock prices have led to a decline in lithium-ion battery pack prices, reversing last year’s gains, with battery cell prices plunging to $107 per KWh, whilst an average battery pack costs $32 per KWh.
5. The Outlook for US Wind Worsens as Installations Slow Down
- US wind power installations fell for the third consecutive quarter in the three months ending in September, with 288 MW of new capacity being the slowest quarterly rate since Q2 2018.
- Strong growth in the pandemic years has set wind power on a strong growth trajectory but project impairments and inadequate PPA contracts have prompted investors to focus more on solar.
- Despite slackening investor appetite, electricity generation from wind power is set to surpass coal-fired output by 2026, although this is also due to coal capacity being increasingly decommissioned.
- According to WoodMac, the United States will only reach half of its 2030 target to install 30 GW of offshore wind capacity, adversely impacted by the roughly 8 GW of projects that were cancelled or stalled.
6. Chinese Global Expansion Pressures Cobalt Prices
- Chinese cobalt producers have been flooding the markets with new supply despite plunging prices, putting the premium on market share in the transition metal markets rather than high returns.
- CMOC Group (SHA:603993) is set to become the world’s largest producer this year, overtaking commodity giant Glencore (LON:GLEN), having boosted its output of the metal by 144% year-over-year in January-September 2023.
- Chinese cobalt producers have a competitive edge over other players in the industry thanks to cheap financing from Beijing, as well as low labor costs in DRC where both MMOC, MMG, and Jinchuan operate.
- The global supply of refined cobalt is expected to climb 23% this year, leading to a surplus of 74,800 metric tonnes in 2024, with high DRC production further boosted by a ramp-up in Indonesian output.
7. Coal Generation Might Be Peaking in 2023
- Global coal-fired power generation is on track to peak this year at 10,373 TWh, falling back marginally next year, as lack of investments and mandated plant closures ratchet up pressure on coal generators.
- Asia represents approximately 75% of global coal power generation and its share will increase over the next years, too, with more than 40 GW of new capacity added this year and a further 52 GW in 2024.
- Incremental Asian demand will be more than offset by an accelerating rate of coal plant closures across the United States (where coal still accounts for 20% of generation) and Europe.
- Gas power plants emit on average half of what coal-powered plants do (0.5 tonnes of CO2 per MWh for gas), which combined with low natural gas prices led many US coal generators to switch to natural gas – in the PJM market gas generation costs 50% less than coal.
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