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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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U.S. Shale To Set Production Record In March

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In this week’s newsletter, we will take a quick look at some of the critical figures and data in the energy markets. 

Chart of the Week

European Gas Correction Mechanism Kicks In, Just As Prices Collapse

- The EU’s gas market correction mechanism is set to come into effect tomorrow, February 15, triggering a regulatory intervention whenever front-month TTF prices exceed the LNG reference price by more than €35 per MWh.

- However, just as the mechanism is kicking in, natural gas prices in Europe have reached 18-month lows thanks to a combination of regular LNG arrivals and warmer winter weather, trending at €53-54 per MWh ($18/mmBtu). 

- Simultaneously, the Intercontinental Exchange has come up with an alternative to the EU-controlled TTF prices as a hedge against regulatory intervention, to be launched from February 20 onwards.  

- Seeing the alignment between futures prices and the EU’s reference price, it seems increasingly unlikely that the market correction mechanism is going to be triggered anytime soon. 

Market Movers

- Portugal’s national oil company Galp (ELI:GALP) sold all its exploration and production assets in Angola to local firm SOMOIL for $830 million, undergirding its upstream focus on Brazil. 

- French oil major TotalEnergies (NYSE:TTE) announced its sixth oil discovery in Suriname’s offshore Block 58, with its Sapakara South-2 well-confirming reserves of some 200 MMbbls at the larger Sapakara play.

- The revision of BP’s (NYSE:BP) cut in hydrocarbon production by 2030 and its newly confirmed intent to produce more oil for longer have angered climate-focused investors who will challenge the decision at the May 2023 shareholder vote. 

Tuesday, January 24th, 2023

The White House’s unsuccessful attempt to cancel the fiscal year 2023 sale of 26 million barrels of crude kept in US strategic petroleum stocks has provided an unexpected downside for oil price this week, with the ICE Brent-WTI spread widening further to $6.5 per barrel. On the other side, OPEC’s monthly report confirmed its upbeat view of 2023 global oil demand, with the IEA publishing its report on Wednesday. 

US Shale to Set New Output Record in March. According to the EIA’s latest Drilling Productivity Report, crude output from the US’ seven biggest shale basins will rise to a record 9.36 million b/d in March on higher Permian production, up 75,000 b/d from this month, setting a new all-time high. 

Saudi Arabia Warns Against ESG Bias. Saudi Aramco CEO Amin Nasser stated that environmental, social and governance (ESG) investments are a move in the right direction, however, if implemented with a bias against conventional energy projects they would undermine future energy security.

Russia to Cap Discounts to Its Crude. The Russian government is seeking to mandate the lowest possible discounts for its oil exports, setting the price floor for its benchmark Urals grade at a $20 per barrel discount to dated Brent to maximize government revenues from crude sales. 

US to Sell Another 26 MMbbls of SPR Oil. In accordance with a federal budget mandate enacted in 2015, the Biden administration will be prompted to sell 26 MMbbls of crude from the US strategic petroleum reserves this month, pushing overall SPR stocks as low as 345 MMbbls.

Iron Ore Prices Are Cooling Off. Increasing steel stocks and portside iron ore inventories in China (the latter rising to the highest since September 2022, coming in at 138.5 million tonnes) are weighing heavily on global iron ore prices, breaking off their three-month rally, with the May Dalian contract falling back to $120 per metric tonne. 

China to Sign Longest-Ever LNG Deal. China’s national oil and gas company CNPC (SHA:601857) is nearing a 30-year LNG supply deal with QatarEnergy that would lock in key volumes from the North Field expansion project, making it the longest term deal ever to be signed. 

Exxon Starts Building Guyana Pipeline. US oil major ExxonMobil (NYSE:XOM) has started work on a $1 billion gas-to-shore pipeline stretching from the offshore Stabroek Block some 130 miles towards the continent, set to feed a 300 MW power plant expected to be commissioned in 2024.

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Egypt to Double Down on Upstream Licensing. In its quest to discover another supergiant field akin to the 30 TCf Zohr, the Egyptian government is planning to hold three oil and gas licensing rounds in 2023, with the first auction already offering acreage in the Mediterranean Sea. 

US to Form Critical Mineral Alliance. According to Bloomberg, the Biden administration is in talks with Japan and Britain to form a narrow critical minerals-focused coalition, potentially also joined by the EU, to counter China’s dominance in market segments like lithium, cobalt or graphite refining. 

Freeport LNG Exports First Cargo Since Blast. As the BP-chartered (NYSE:BP) Kmarin Diamong LNG carrier departed the Freeport LNG facility earlier this week, the embattled liquefaction plant saw its first LNG export cargo since an explosion and fire halted all operations on June 8. 

Iran Builds New Tankers for Venezuela. Building on the blossoming relationship with Tehran, Venezuela is reportedly finalizing a deal to contract two oil tankers, to be named India Urquia and India Mara, from Iran’s Marine Industrial Company as part of a revived 2006 deal.

Pakistan to Quadruple Coal Capacity. After Europe’s increased LNG buying made liquefied gas too expensive for Pakistan, the South Asian country is planning to quadruple its coal-fired generation capacity to 10 GW (currently at 2.3 GW) to reduce power costs. 

EU Wants Egypt to Maximize LNG Output. The European Union has brokered a deal between Israel and Egypt that could see Israeli offshore gas being sent to the latter’s liquefaction facilities in Idku and Damietta, however, its prospects are murky as the interconnection requires infrastructure upgrades.

By Charles Kennedy for Oilprice.com

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