Nigeria Unable To Benefit From High Oil Prices

By Julianne Geiger - Jul 22, 2022, 

Nigeria’s debt has exceeded its revenue in the first four months of the year despite high oil prices, Nigeria’s Budget Office has revealed on its website.

Oil-rich Nigeria, unlike other crude oil producers, has found it impossible to reap the benefits of today’s high oil prices, with oil revenues coming in 61% below target during the period. That’s despite crude oil trading at highs not seen in years.

Nigeria’s crude oil production was relatively steady at 1.376 million bpd in the first quarter of this year compared to the previous quarter, according to OPEC’s Monthly Oil Market Report, and 34,000 bpd below the same quarter last year. While Nigiera’s production slipped further in June 2022 to 1.238 million bpd, Nigeria’s oil revenue problem didn’t stem from a drop in production.

Instead, Nigeria continues to battle oil theft, pipeline vandalism, and most critically, high gasoline prices, which the country subsidizes.

The severe revenue shortfall does not allow Nigeria to service its debt.

The cost of Nigeria’s gasoline subsidy will be about 10 times what it had originally budgeted, Nigeria’s President Muhammadu Buhari revealed in an April letter to lawmakers. That cost of that subsidy is expected to be just south of $10 billion.

Unlike other major oil producers that have benefited handsomely from higher crude oil prices, Nigeria has negligible refining capacity, forcing it to import nearly all of the gasoline it consumes. And Nigeria must pay today’s high costs for that gasoline while continuing to sell it onto the consumer for much less in order to keep prices at 39 cents.

The value of Nigeria’s petroleum imports far outweighs the value of its petroleum exports—to the tune of $43 billion.

Nigeria has toyed with the idea of ending the gasoline subsidies, but the specter of fuel protests caused the President to scrap those plans. 

By Julianne Geiger for Oilprice.com

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China’s Secret Debt Deals With Tajikistan Are A Cause For Concern

By Eurasianet - Jul 21, 2022,

At the start of 2022, Tajikistan owed as much as $1.98 billion to state-run Export-Import Bank of China.

Political scientist Parviz Mullojanov warns that, “amassing Chinese debt is playing with fire.”

The burden of the debt is already forcing Tajikistan to give away the family silver – or family gold, to be more accurate.

A ubiquitous sign seen around Tajikistan’s capital speaks volumes about the country’s reliance on its eastern neighbor: “Assistance from China for a common future.”

The words are typically emblazoned on buildings and buses paid for with loans and grants issued by Beijing.

One prime example is the new premises of parliament. That complex, which is going up where the headquarters of the Soviet-era Communist Party used to stand, is being completed with a $250 million grant.

Another $120 million in handouts have been given by China to build a new city hall.

In theory, this all comes without strings attached, but analysts are not convinced.

“This all feels very disturbing,” Tajik political scientist Parviz Mullojanov told Eurasianet. “This is a very dangerous trend, especially as there are also large debts. Amassing Chinese debt is playing with fire. At any moment now, this could serve as a pretext for political and geopolitical expansion.”

The numbers tell an eloquent story.

Of the $3.3 billion that Tajikistan owed to international creditors at the start of 2022, 60 percent – $1.98 billion – is owed to the state-run Export-Import Bank of China, better known as Eximbank. Sri Lanka’s massive liabilities before China have made international headlines in recent months, and yet, what that country owes to Beijing accounts for only 10 percent or so of its foreign debt pile.

The bulk of Tajikistan’s annual debt repayments are, unsurprisingly, earmarked for China, but the rate at which money is being paid back will be far from reassuring for the country’s bean-counters.

Of the $131.9 million repaid by Tajikistan in 2021, $65.2 million went to China in one form or another. Almost $22 million of the money paid to China was interest accrued.

In terms of interest payments, only the Eurobond issued by Tajikistan’s Finance Ministry in 2017 proved more costly last year. That bill was $35.7 million.

Chinese debt has usually been extended for the purposes of building or overhauling transport infrastructure or energy projects. Work is more often than not implemented by Chinese companies themselves.

Secret deals

Because Chinese debt agreements are shrouded in secrecy, working out the terms, even the size of the credit, is complicated.

To take one example, Eximbank in 2014 agreed to extend credit to complete the Vahdat-Yovon railway, a link between the center and south of the country. When the Dushanbe to Kulob route – of which that Vahdat-Yovon section constitutes one part – was inaugurated by President Emomali Rahmon in August 2016, all Tajik state media noted was that the project cost 985 million somoni ($125 million at the rate of the time) to finish. Khovar state news agency did not state where any of the money had come from or who had done the construction.

But in early 2015, first deputy Finance Minister Jamoliddin Nuraliyev told reporters that Eximbank had contributed a loan of at least $68 million at preferential rates toward completion of the Vahdat-Yovon railroad. The tender for the contract was reportedly handed to the state-owned China Railway Construction Corporation without even the semblance of an open bidding process.

Another important project mostly underwritten by Eximbank was the epic effort, which started in 2006 and ended in 2013, to overhaul the high-altitude Dushanbe-Chanak road from the capital to the northern Sughd province. The Beijing-based lender’s contribution on that occasion was an almost $290 million loan. Once again, a Chinese company – the colossal engineering company China Road and Bridge Corporation – got the contract, meaning the money was in effect quickly re-routed back into China, although the debts remained in Tajikistan.

As a China Road and Bridge Corporation executive told Chinese state media in 2019, his company has built 728 kilometers of road worth a total of $779 million in Tajikistan.

The relatively pristine Dushanbe-Chanak route is undoubtedly a boon to Tajik motorists, although many drivers grumble at the fact that they are required to pay tolls to a company registered in the British Virgin Islands. How much of those collected tolls, if any, go toward servicing foreign debts is a mystery, like so much else that has to do with Chinese debt.

Mullojanov argued that this approach was part of a well-understood strategy.

“China has a standard policy for all countries: They need to employ their own workforce, so they send their own people and industrial resources to do all the projects. China needs a market for its industry,” Mullojanov said.

Other analysts have taken a more benevolent view of Beijing’s loan agenda, however.

Marina Rudyak, a scholar at Heidelberg University’s Institute of Chinese Studies, said that her analysis of Chinese official and academic discourse shows that Beijing believes debt will in the final analysis lead to economic growth and, accordingly, less debt.

“It is, you could argue, a more need- and want-centered than a risk-centered perspective,” Rudyak wrote in emailed remarks. “For Tajikistan in particular, I think we have to consider the role China ascribes to it in particular in the Afghanistan context. It needs a stable Tajikistan and will probably pour as much money as it believes it takes to keep it stable, even with prospects of loan defaults, because the alternative of Tajikistan collapsing into a new civil war or similar is much more costly.”

Paying in kind

In the short term, however, the burden of the debt is forcing Tajikistan to give away the family silver – or family gold, to be more accurate.

In 2016, Xinjiang-based company TBEA put the final touches to work on a 400-megawatt power plant in Dushanbe known as TETs-2. The Tajik government only contributed $17.4 million to the $349 million project. The rest came from TBEA itself. Three years later, to pay off that debt, Tajikistan simply gave TBEA the concession to develop its Upper Kumarg and Eastern Duoba gold mines, both located in the northern Ayni district. The decision was green-lit by the rubber-stamp parliament. China-based news website Securities Times at the time cited TBEA chairman Zhang Xin as saying that if the mines did not contain sufficient gold to cover their costs, Tajikistan would grant a development license to yet another deposit.

Related: How China Could Trigger The Next Sharp Selloff In Crude

Warming to this approach, parliament later that same year voted to exempt another Chinese company, Kashgar Xinyu Dadi Mining Investment, from all types of taxes and customs duties for a period of seven years. The miner was also granted development rights over a silver deposit in the high-altitude Pamir region.

It is not known for certain what Kashgar Xinyu Dadi Mining Investment did to earn such generous treatment, but the whispered speculation is that it was in return for the Chinese government underwriting the parliament and Dushanbe city hall projects.

The question that arises perennially is how much Tajikistan will be prepared to give away as it continues struggling to settle all its liabilities.

Critics of the government point, for example, to the contentious matter of how Tajikistan in 2011 ceded around 1,100 square kilometers of land, equivalent to around 1 percent of the country’s territory, to Beijing. This means Tajikistan went, according to official data, from covering an area of 143,100 square kilometers to 142,000 square kilometers.

Tajik officials at the time insisted this development had marked a major victory for them as China had as part of a territorial dispute dating back to the Soviet era demanded around 5.5 percent of land that Tajikistan has claimed as its own.

Curiously, though, Tajikistan has shrunken even further since 2011. Poring through State Statistics Agency data, local news outlet Your.tj found that Tajikistan only covered 141,400 square kilometers, implying that another 600 square kilometers of territory – a chunk of land not much smaller than Singapore – had gone missing. It is unclear where this land went, but precedent suggests China might be a strong candidate.

By Eurasianet.org

Eurasianet is an independent news organization that covers news from and about the South Caucasus and Central Asia, providing on-the-ground reporting and critical perspectives

The Uncertain Future Of Oil And Gas Firms In The North Sea

By Felicity Bradstock - Jul 19, 2022

• Despite a drastic shortage of energy in Europe, oil and gas firms are reluctant to invest in oil and gas operations in the North Sea.
• Arguably the most prominent deterrent to supporting oil and gas investment in the North Sea is the size and organizational ability of environmental activists in the region.
• For some companies, it is the windfall tax that oil and gas companies face in the region that make the extraction of oil and gas from the North Sea unattractive.

Major oil firms are turning their backs on North Sea oil for various reasons. Environmental organizations have been putting increasing pressure on the U.K. government to curb oil activities in the North Sea, particularly following the COP26 climate summit last year. And now the U.K.’s Windfall tax is discouraging oil companies from investing in operations in the region. Meanwhile, there is still plenty of optimism around oil and gas discoveries, demonstrating the potential for the continuation of lucrative oil activities in the North Sea. So, will the potential for more oil finds outweigh the challenges being faced in these waters?  Last month when U.K. business secretary Kwasi Kwarteng tweeted that a new oil project would be going forward in the North Sea, it was met with staunch opposition. He said, “Jackdaw gasfield – originally licensed in 1970 – has today received final regulatory approval. We’re turbocharging renewables and nuclear but we are also realistic about our energy needs now. Let’s source more of the gas we need from British waters to protect energy security.”

The blasé nature of the tweet shocked environmentalists, hundreds of whom took to the streets in protest of the development within 24 hours of the announcement. Activists blocked government offices in Glasgow and threw red paint to represent blood. The rapid organization of the response to the tweet demonstrated the vast opposition to the expansion of oil and gas activities in the North Sea. And the demonstrations are no longer made up of just climate warriors but also of senior religious figures, business representatives, activists, community groups, and major NGOs. 

The most prominent of the anti-oil campaigns in the region was last year’s Stop Cambo movement, aimed at deterring oil giant Shell and Siccar Point Energy from developing their Cambo oilfield. If developed, Cambo is expected to produce 170 million barrels of oil in its first phase, operating until around 2050. Climate activists pointed out that the development of a new oilfield was contradictory to the U.K.'s aim to achieve net-zero carbon emissions by the mid-century. 

And it’s not just in the U.K., as German and Dutch environmental groups ask a Dutch court to halt the development of a gas field in the North Sea. Dutch firm ONE-Dyas has been granted approval by Dutch authorities to develop its N05-A gas field in the waters, which straddles Germany and the Netherlands. While the platform is expected to run off of wind energy, NGOs worry that it will increase future dependence on fossil fuels across the two countries. The project is expected to start providing gas to Dutch and German towns by 2024, with the potential to produce 13 billion cubic meters of gas. 

Related: Germany: Return Of Coal And Oil Power Plants Is Only Temporary

Meanwhile, in the U.K. it’s not only environmentalists opposing operations. Oil companies themselves are unsure about production opportunities following the introduction of a windfall tax in the face of rising consumer bills. U.K. Chancellor Rishi Sunak announced the new tax in June as a means of raising nearly $6 million from oil and gas firms that have been making huge profits during the energy crises. Funds will go towards cutting household bills. 

But several oil and gas firms see the scheme as “seriously flawed”. The CEO of Harbour Energy, Linda Cook, addressed Sunak in a letter in which she asked him to revise the energy profits levy (EPL) proposal. Cook wrote, “While I appreciate the scale of the cost of living crisis in the UK, the EPL as currently proposed is, in effect, retrospective and disproportionately impacts the independent oil and gas companies which have recently invested the most to help ensure UK domestic energy supply.” Shell, BP, and Equinor have all also warned of a slowing of investments should the tax go ahead. 

And a professor from Aberdeen University, Alex Kemp, believes that several oil and gas firms in the region will choose to put off removing and breaking up North Sea oil and gas assets until the windfall tax has run its course. He explained, “Decommissioning costs incurred in the period 2022-2025 will not be relieved against EPL although it is a profit tax. This may well mean that decommissioning activity in the UKCS is at least to some extent postponed until after 2025.” Although the government recently said rebates for retiring assets would not be taxed.

But some are still optimistic as new discoveries offer hope. Just this month, UK-headquartered oil and gas firm United Oil & Gas (UOG) announced its recent discovery was valued at $40 million on a risked basis, or $130 million on an unrisked basis. The Maria discovery is located in License P2519 in the Central North Sea, a license which is believed to hold 6 million barrels of oil equivalent. This shows the potential for future oil and gas developments in the region, even though there are several challenges facing operations. 

As growing climate concerns from environmentalists put pressure on the U.K. government to restrict new oil and gas activity in the North Sea, energy firms are also critiquing the new Windfall tax for discouraging investment in the area. However, recent discoveries show that there is still oil and gas potential in the North Sea, the question is whether companies are willing to invest in the face of so many challenges. 

By Felicity Bradstock for Oilprice.com

Coal’s dominance in China will endure for a decade or more

Bloomberg News | July 21, 2022 | 

Port Zhuhai, China. (Stock Image)

For those dismayed at the searing heat afflicting much of the planet, some sobering news from the world’s biggest coal industry: the dirtiest fossil fuel will remain China’s mainstay source of energy for a decade or more.


“Coal’s dominant role is unlikely to change in the next 10 to 15 years,” Zhang Hong, deputy general secretary of the China National Coal Association, told a briefing on Wednesday.

China, which produces more than half the world’s coal, has said consumption won’t peak until 2025. By that time, annual demand will have risen 4% to 4.3 billion tons, according to Zhang. In 2030, the nation will still be burning some 4 billion tons of the fuel, scarcely less than is being used now. And as the government opens up even more mines, capacity is likely to be kept well above projected demand at 5 billion tons, he said.

For all of China’s massive build-up of clean energy, climate action remains hostage to energy security, particularly after last year’s crippling power shortages and the spike in prices caused by Russia’s invasion of Ukraine.

At the same briefing, Wang Zhixuan, an official with the China Electricity Council, called the inherent intermittency of renewables a “gray rhino,” or an obvious but neglected risk, that could topple the grid if coal isn’t there as a backstop. “Safely switching energy is the basis to phasing out coal,” he said, and the country’s climate goals can’t be achieved by “one-time fixes.”

In the meantime, the fuel’s importance only grows. Capital spending on thermal power generation rose 72% in the first six months of the year, according to the CEC, dwarfing other energy sources. And more projects are on the way as the authorities speed up new approvals. The nation’s biggest coal producer said last week that net income could increase by as much as 60% in the first half.

 

The World’s Largest Economies Are Ramping Up Coal Consumption

By Ag Metal Miner - Jul 21, 2022,

• Russia’s invasion of Ukraine has sparked an unprecedented squeeze on energy supplies.
• Many countries are ramping up coal to keep up with rising energy demands.
• Even some EU countries that were otherwise planning to exit coal usage are now seeing an increase in production and fossil-powered energy generation.

Despite the best efforts to the contrary, short-term global reliance on coal has only increased. The main reason is, of course, Russia’s invasion of Ukraine. Indeed, energy is getting harder and harder to come by, and most countries are falling back on reliable – if dirty – sources. How will this affect coal imports and exports in the near term? First, we need to consider the facts.

Energy Issues Have Left Many Nations with No Other Choice

In the US, coal production has risen significantly from last year. Though higher prices were not converting to an increase in supply, the Energy Information Administration stated that production is up 6% from the first quarter of 2021. However, they added that the figure should even out at a 3% increase for the year. This is mainly because both US domestic coal consumption and exports were down by 4% in the first quarter of 2022.

On the contrary, global use of coal has been on the rise due to the energy crisis in Europe. China, too, has ramped up coal production and consumption to help drive its struggling economy. Furthermore, the European Union (EU), facing a possible curtailment in gas supply from Russia, recently received the green light from Brussels to increase its use of coal over the next decade. The European Commission estimated that 5% more coal would be used. However, that figure could shoot higher in the short term.

With Russia Out of the Picture, EU Countries Are Desperate for Coal

According to this Reuters report, some EU countries that were otherwise planning to exit coal usage are now seeing an increase in production and fossil-powered energy generation. In fact, the current demand for coal is so strong that even the Taliban Government in Afghanistan has hiked the price from US $90 to $200 per ton. The move came after Pakistan evinced interest in importing Afghan coal. The news came much to the discomfort of China, where some energy firms threatened a blockade of Afghan coal imports and exports.

Related: Halliburton Q2 Income Surges As Global Drilling Activity Rises

This short-term demand for coal has also raised questions about earlier commitments by various nations to curb production in favor of “green” energy sources. According to this report, the EU had previously been committed to its net-zero emissions goals for 2050. The 27-member group had planned to increase its reliance on nuclear power and renewable sources. However, European energy grids are still heavily reliant on Russian natural gas and coal. With Russia now a pariah state, many EU countries are scrambling for new coal sources.

And while no European nation has yet reversed its commitment to phase out coal by 2030, Germany, Austria, France, and the Netherlands recently announced plans to enable increased coal power generation in the likelihood that Russia halts its gas supplies.

China and India are Both Boosting Coal Imports

Earlier this year, Beijing capped coal prices and pushed for more coal production. Already, the country’s 60% power requirement comes from coal. Of course, coal miners were reportedly quick to take advantage of the price cap to up production. Now, China has decided to increase its reliance on low-cost coal to help boost its economy and push past temporary power shortages.

Meanwhile, India, the world’s second-biggest coal importer, saw record thermal coal deliveries this June. In fact, the country’s thermal coal imports were up 35% to 19.22 million tons in June this year. That’s 56% above levels seen in June 2021. Many will note that thermal coal is mainly used to generate electricity. It is not classified as a metallurgical or “coking” coal.

Over the past few years, India has been reducing the amount of thermal coal sourced from Australia. Meanwhile, the country has increased imports of cheaper, lower-quality coal from Indonesia. All in all, it seems to fit the overarching global trend.

Due to extraneous circumstances, nations around the world are rushing to source coal at extremely competitive rates. Quality be damned.

By AG Metal Miner

Keystone Force Majeure Cuts Oil Flows To U.S.

By Tsvetana Paraskova - Jul 19, 2022,

• TC Energy, the operator of the Keystone Pipeline, declared force majeure on Monday.
• The operator cited a power outage in South Dakota as the main reason for the force majeure status.
• The company did not provide a timeline for restoring crude flows to full capacity.

TC Energy, the operator of the Keystone Pipeline, declared force majeure on Monday following a power outage in South Dakota, which reduced the flows on the link carrying crude from Canada to the U.S.

TC Energy said in a statement late on Monday that it was made aware of a non-operational incident resulting from third-party damage to the power supply to a facility on the Keystone Pipeline System near Huron, South Dakota. The system continues to operate safely, but it is operating at a reduced rate due to damage to the third-party power utility.

“Initial damage assessments have been completed with no material impact to TC Energy owned facilities,” the company said.

As a result of the power outage, TC Energy declared force majeure on the Keystone Pipeline, but did not provide a timeline for restoring crude flows to full capacity.   

“Repairs are being undertaken and we are working to restore full service as soon as possible. A timeline for full-service restoration is not available at this time,” the company said.

The 2,687-mile Keystone Pipeline System plays a key role in connecting Alberta’s crude oil supplies to U.S. refining markets in Illinois, Oklahoma, and Texas, as well as connecting U.S. crude oil supplies from the Cushing, Oklahoma, hub to refining markets in the U.S. Gulf Coast through the Marketlink Pipeline System.

The reduced flows of crude from Canada to the United States comes days after U.S. President Joe Biden returned from his trip to the Middle Eastern without receiving a specific commitment from the top OPEC producers to boost oil supply in the near term.

Meanwhile, gasoline prices in the U.S. continued to fall for a fifth consecutive week, to a national average of $4.51 per gallon as of July 18, according to data compiled by fuel-savings app GasBuddy. 

“Barring major hurricanes, outages or unexpected disruptions, I forecast the national average to fall to $3.99/gal by mid-August,” said Patrick De Haan, head of petroleum analysis at GasBuddy.

In the past three days, South Carolina and Texas became the first two states to see state average gasoline prices return to below $4 per gallon, according to GasBuddy.

By Tsvetana Paraskova for Oilprice.com

 

Too Hot For Solar Power: Europe's Heat Wave Makes Solar Panels Less Efficient

By Tsvetana Paraskova - Jul 20, 2022,

• Extreme heat is reducing the efficiency of solar panels in Europe.
• Power output during the heat wave has dropped below the levels that are typically reached during the spring.
• While solar output has been relatively high in recent days, it hasn't broken any records.

The record-breaking heat wave in Europe doesn't mean record solar power generation, as extremely high temperatures actually reduce the efficiency of solar panels.  

As temperatures in the UK hit the highest-ever on record at over 40 degrees Celsius (104 F) this week, solar power output hasn't set records and is unlikely to do so amid very high temperatures, scientists say.

On Tuesday, a provisional temperature of 40.3 C (104.54 F) was recorded at Coningsby in the UK, the UK's Met Office said, adding that it was the first time on record temperatures in the UK have exceeded 40°C.  

However, power output during the heat wave has dropped below the levels that are typically reached during the spring when there is sunshine, but temperatures are cooler.

"It's because of this balance between irradiance and temperature that the record for peak half-hourly generation is always in April or May, because that's when we get sunny but relatively cool weather," Jamie Taylor, a senior data scientist at Sheffield University, told the BBC.

While solar output has been relatively high in recent days, it hasn't broken any records, according to trade association Solar Energy UK.

"The heat itself brings down the efficiency of solar panels slightly," Solar Energy UK's chief executive Chris Hewett told the BBC.

"So don't expect to see records set," Hewett added.

During very high temperatures, a very high number of the electrons on the solar panel are excited, which reduces the generated voltage and the panel's efficiency.

Hot weather could reduce the efficiency of solar panels by between 10 percent and 25 percent, according to U.S. solar equipment distributor CED Greentech.

"It may seem counter-intuitive, but solar panel efficiency is affected negatively by temperature increases. Photovoltaic modules are tested at a temperature of 25 degrees C (STC) – about 77 degrees F., and depending on their installed location, heat can reduce output efficiency by 10-25%. As the temperature of the solar panel increases, its output current increases exponentially, while the voltage output is reduced linearly," CED Greentech notes. 

By Tsvetana Paraskova for Oilprice.com