David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Putin Demands Ruble Payment for Gas, Escalating Energy Conflict

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    “Gazprom would need to ask buyers to agree to change the payment terms in contracts,” said Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd. “It reopens the contracts, and buyers could ask for shorter-terms for instance.”

    Some 58% of Gazprom’s gross gas sales abroad were in euros as of the third quarter of last year, according to the producer’s most recent bond prospectus. Another 39% were in U.S. dollars. The press office of gas giant Gazprom PJSC declined to comment on whether its long-term supply agreements allow a switch to ruble payments.

    Russia announced earlier this month a list of 48 states deemed hostile. They included the U.S., Japan, all European Union members, Switzerland and Norway. As a result, the bulk of Russian gas exports now go to “unfriendly” nations.

    “At the same time, I want to emphasize that Russia will definitely continue to supply natural gas in line with the volumes and prices and pricing mechanisms set forth in the existing contracts,” Putin said.

    In the first 15 days of March, Gazprom exported an average of 500 million cubic meters per day to countries outside the former Soviet Union, including those in the EU, China and Turkey. Of the total, flows toward Europe averaged 384 million cubic meters per day, the producer’s data showed.

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    Oil Surges With Growing Supply Fears as EU Considers Russian Ban

    This article by Julia Fanzeres for Bloomberg may be of interest to subscribers. Here is a section:

    In weeks prior, the EU sanctioning Russian oil “seemed unrealistic given their reliance on Russian energy supply,” said Rohan Reddy, a research analyst at Global X Management, a firm that manages $2 billion in energy-related assets. If sanctions were instilled, “it would basically shave off a full 4-5% of global oil supply,” as “Europe bought up around 40-45% of Russia’s total oil production in 2021.”

    The global oil market has been thrown into turmoil by Russia’s invasion of Ukraine, with the U.S. and Europe imposing sanctions on Moscow and crude buyers shunning the country’s cargoes. Brent neared $140 a barrel earlier this month to hit the highest since 2008, before seeing a massive pullback that briefly put the market into bear territory. Prices have seen unprecedented volatility, with frequent intraday swings of about $10 and broader commodity markets seizing up amid a widespread liquidity crunch.

    The rally in oil prices has spurred importing nations to pressure other producers to step up supply, including members of the Organization of Petroleum Exporting Countries. During the weekend, Japan urged the United Arab Emirates to increase exports. Meanwhile, oil giant Saudi Aramco plans to raise spending as it seeks to boost output.

    Saudi Arabia said it cannot be held responsible for any drop in oil output if it doesn’t get more help to deter attacks from Yemen. Yemen’s Houthi rebels attacked at least six sites across Saudi Arabia late Saturday and early Sunday, including some run by Aramco. Saudi Arabia has been facing calls from oil-consuming nations such as the U.S. to increase supply output.

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    Saudi Arabia Considers Accepting Yuan Instead of Dollars for Chinese Oil Sales

    This article from the Wall Street Journal may be of interest to subscribers. Here it is in full:

    Saudi Arabia is in active talks with Beijing to price its some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the U.S. dollar's dominance of the global petroleum market and mark another shift by the world's top crude exporter toward Asia.

    The talks with China over yuan-priced oil contracts have been off and on for six years but have accelerated this year as the Saudis have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom, the people said.

    The Saudis are angry over the U.S.'s lack of support for their intervention in the Yemen civil war, and over the Biden administration's attempt to strike a deal with Iran over its nuclear program. Saudi officials have said they were shocked by the precipitous U.S. withdrawal from Afghanistan last year.

    China buys more than 25% of the oil that Saudi Arabia exports. If priced in yuan, those sales would boost the standing of China's currency.

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    Powering Up

    Thanks to a subscriber for this report from Aviva which may be of interest. Here is a section:

    For the grid to work, supply must match demand – all the time. “There are already times when we produce so much green electricity, we don’t know what to do with it,” says Hartman. “That can be in the middle of the day when the sun is shining, or in the middle of the night when we are not using so much electricity, but we are producing a lot from wind turbines.” At certain times, energy goes to waste; producers are paid to take capacity offline.

    On the other hand, the vagaries of the weather mean generation can fall short of expectations as well. For instance, on rare occasions both Germany and the UK have experienced ‘not much sun’ and ‘not much wind’, so respective energy outputs slumped at the same time. Hence the hive of research activity around energy storage. Behind it is a key idea: if storage can be made cheap enough, dense enough and extensive enough, it becomes viable to operate an energy mix with a much higher percentage of renewables.

    This is driving deployment of grid-scale storage; something companies like Tesla, LG Chem and Samsung are anticipating as they construct battery megafactories around the world15 (see Figure 4). Combining renewables with large, preassembled battery units to store excess power, with energy fed back into the grid when demand requires it, has taken off.

    The relative attractiveness of this has shifted “seismically” recently, according to energy consultancy Wood MacKenzie.17 Producing energy using solar and wind power already undercuts natural gas on a levelised cost basis (see Figure 5) and recent discoveries suggest further efficiency gains are possible.

    Henry Snaith, professor of physics at the University of Oxford, describes solar “being in 1965 in silicon technology terms,” for example, with “lots of room to improve”. (In Search of Wild Solutions has more details.) Now battery costs have fallen rapidly as well, so ‘solar PV + large-scale battery storage’ are cheaper than ‘solar PV + natural gas’ as back-up to meet peak demand.

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    Apple Supplier Foxconn in Talks to Build $9 Billion Factory in Saudi Arabia

    This article from the Wall Street journal may be of interest to subscribers. Here is a section:

    The Saudis are conducting due diligence and benchmarking the offer against others that Foxconn has made for similar projects globally, one of the people said.

    Besides Saudi Arabia, Foxconn is also talking with the United Arab Emirates about potentially siting the project there, one of the people said.

    The Taiwan-based company has looked to diversify its manufacturing sites amid rising tensions between China and the U.S. that put it in a potentially vulnerable spot.

    Riyadh wants the company to guarantee that it would direct at least two-thirds of the foundry's production into Foxconn's existing supply chain, one of the people said, to ensure there are buyers for its products and the project is ultimately profitable.

    Foxconn is seeking large incentives including financing, tax holidays and subsidies for power and water in exchange for helping set up a high-tech manufacturing sector in the kingdom, the people said, as Saudi Arabia seeks to diversify its economy away from oil.

    The Saudis could offer direct equity co-investment, industrial development loans, low-interest debt from local banks and export credits to compete with other jurisdictions that Foxconn might consider, said another person familiar with the talks.

    Saudi authorities and Foxconn didn't respond to requests for comment.

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    Biden's Demands for Oil Collide With Drillers Reining In Output

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    U.S. shale producers expect the oil price spike to be short-term, and shareholders don’t want companies investing capital in robust drilling programs delivering new production in 18 months, Pioneer Natural Resources Co. Chief Executive Officer Scott Sheffield said Wednesday. Oil futures indicate companies would get lower prices for crude that begins flowing in 12 to 18 months. 

    The administration’s approach assumes oil producers will turn on a dime in response to pleas from the same people “telling everybody that they are going to be obsolete in 30 or 40 years,” said Benjamin Salisbury, director of research at Height Capital Markets. 

    Investors in shale also have brushed aside arguments that drillers should crank up production because it’s their patriotic duty. Many still bear scars from the last boom-and-bust cycle, when companies chased production growth, ultimately contributing to a glut that drive down prices. 

    “The upstream industry is not a public service industry,” said Ben Dell, founder of Kimmeridge Energy Management. “For 10 years we made no money. The industry is profitable for two months, and the argument is that we’re supposed to price down the product or give away margins to support the consumer.”

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    A New World Energy Order Is Emerging From Putin's War on Ukraine

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    “The U.S. can try to make Saudi Arabia increase production, but why would they accept a break in the alliance, which is key for them?” said Paolo Scaroni, former chief executive officer of Italian oil company Eni SpA. 

    There’s a political dynamic at play to explain the kingdom’s fidelity to Moscow beyond the gusher of oil revenue. 

    Where Donald Trump cultivated a particularly friendly relationship with Saudi Arabia — making his first foreign trip as U.S. president to Riyadh — ties have turned colder under President Joe Biden. On the campaign trail, Biden pledged to make the kingdom a “pariah,” in part because of the killing of columnist Jamal Khashoggi. He will only deal with the elderly King Salman, relegating Mohammed bin Salman to interact with more lowly officials despite being the kingdom’s defacto ruler. 

    By contrast, Riyadh’s OPEC+ partnership with Moscow calmed years of distrust between the two oil rivals, and saved the kingdom from relying exclusively on Washington.

    “Saudi Arabia doesn’t want to switch horses mid-race when they do not know if the other horse is actually going to show up,” said Helima Croft, chief commodities strategist at RBC Capital Markets. 

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    Ukraine Open to Neutrality But Won't Yield Territory, Aide Says

    This article from Bloomberg may be of interest. Here is a section:

    Ukraine is open to discussing Russia’s demand of neutrality as long as it’s given security guarantees, though it won’t surrender a “single inch” of territory, a top foreign policy aide to President Volodymyr Zelenskiy said.

    “Surely, we are ready for a diplomatic solution,” Ihor Zhovkva, Zelenskiy’s deputy chief of staff, said in an interview with Bloomberg Television on Wednesday. 

    The aide reinforced Ukraine’s demand for security guarantees “from the U.S., from Great Britain, from Germany” and others -- “only security guarantees from Russia will not be enough,” though he declined to spell out what those measures would entail. 

    Preconditions for talks with Russian President Vladimir Putin would be a cease-fire and the withdrawal of Russian troops, Zhovka said.

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    Satellite outage knocks out thousands of Enercon's wind turbines

    This article from Reuters may be of interest to subscribers. Here is a section:

    Germany's Enercon on Monday said a "massive disruption" of satellite connections in Europe was affecting the operations of 5,800 wind turbines in central Europe.

    It said the satellite connections stopped working on Thursday, knocking out remote monitoring and control of the wind turbines, which have a total capacity of 11 gigawatt (GW).

    "The exact cause of the disruption is not yet known. The communication services failed almost simultaneously with the start of the Russian invasion of Ukraine," Enercon said in a statement.

    The company said it had no further information on who or what may have caused the disruption.

    Enercon has informed Germany's cybersecurity watchdog BSI and is working with the relevant providers of the satellite communication networks to resolve the disruption, which it said affected around 30,000 satellite terminals used by companies and organisations from various sectors across Europe.

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