Why AI Is The Future Of Offshore Oil Drilling

By Alex Kimani - May 21, 2023

• Generative AI for seismic imaging has broad and far-reaching implications.
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• Shell recently announced plans to use AI-based technology in its deep-sea exploration and production activities.
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• AI tech is also starting to play a big role in the renewable energy sector and aiding in the creation of smart grids.

Artificial Intelligence (AI) has emerged as some of the biggest secular megatrends of our time. AI is powering the fourth industrial revolution and is increasingly being viewed as a key strategy for mastering some of the greatest challenges of our time including climate change and pollution. Energy companies are employing AI tools to digitize records, analyze vast troves of data and geological maps, and potentially identify problems such as excessive equipment use or pipeline corrosion. One such company is Dutch energy giant Shell Plc (NYSE:SHEL). On Wednesday, Shell announced plans to use AI-based technology from big-data analytics firm SparkCognition in its deep sea exploration and production in a bid to improve operational efficiency and speed as well as boost production.

"We are committed to finding new and innovative ways to reinvent our exploration ways of working," Gabriel Guerra, Shell's vice president of innovation and performance, said in a statement.

According to Bruce Porter, chief science officer for Texas-based SparkCognition, Generative AI for seismic imaging has broad and far-reaching implications, adding that the technology can dramatically shorten explorations to less than nine days from nine months. The company’s Generative AI will generate subsurface images using fewer seismic data scans than usual and thus help with deep sea preservation. Fewer seismic surveys will in turn accelerate the exploration process, improve  workflow and save costs in high-performance computing.

But this is not Shell’s first foray into AI tech. Back in 2018, the company partnered with Microsoft to incorporate the Azure C3 Internet of Things platform in its offshore operations. The platform uses AI to drive efficiencies across the company’s offshore infrastructure, from drilling and extraction to employee empowerment and safety.

Shell is not the only Big Oil company employing AI in its operations. Back in 2019, BP Plc (NYSE:BP) invested in Houston-based technology start-up Belmont Technology which helped the company develop a cloud-based geoscience platform nicknamed “Sandy.” Sandy allows BP to interpret geology, geophysics and reservoir project information thus creating unique “knowledge-graphs” including robust images of BP’s subsurface assets. BP is then able to perform simulations and interpret results using the program’s neural networks.

In March 2019, Aker Solutions partnered with SparkCognition to enhance AI applications in its ‘Cognitive Operation’ initiative. Aker SparkCognition’s AI systems called SparkPredict to monitor topside and subsea installations for more than 30 offshore structures.

Four years ago, the Oil and Gas Authority (OGA) launched the UK’s first oil and gas National Data Repository (NDR). The massive repository contains 130 terabytes of geophysical, infrastructure, field and well data--the equivalent of around eight years’ worth of HD movies. This data covers more than 5,000 seismic surveys, 12,500 wellbores and 3,000 pipelines. NDR employs AI to interpret this data, with OGA hoping to uncover new oil and gas prospects as well as enable more production from existing infrastructure. The platform will also be used in the country’s energy transition, with reservoir and infrastructure data used to support carbon capture, usage and storage projects.

AI And Renewable Energy

AI tech is also starting to play a big role in the renewable energy sector and aiding in the creation of smart grids.

One of the biggest barriers to the United States realizing its dream of having a 100% renewable grid is the intermittency of renewable power sources. After all, our grids are designed for near-constant power input/output whereas the wind doesn’t always blow and the sun doesn’t always shine.  For the transition to renewable energy to be successful, our power grids have to become a lot smarter. 

Luckily, there’s an encouraging precedent.

A few years back, Google announced that it had reached 100% renewable energy for its global operations including its data centers and offices. Today, Google is the largest corporate buyer of renewable power, with commitments totalling 7 gigawatts (7,000 megawatts) of wind and solar energy. Google teamed up with IBM to search for a solution to the highly intermittent nature of wind power. Using IBM’s DeepMind AI platform, Google deployed ML algorithms to 700 megawatts of wind power capacity in the central United States--enough to power a medium-sized city.

IBM says that by using a neural network trained on widely available weather forecasts and historical turbine data, DeepMind is now able to predict wind power output 36 hours ahead of actual generation. Consequently, this has boosted the value of Google’s wind energy by roughly 20 percent.

A similar model can be used by other wind farm operators to make smarter, faster and more data-driven optimizations of their power output to better meet customer demand.

IBM’s DeepMind uses trained neural networks to predict wind power output 36 hours ahead of actual generation

Source: DeepMind

Houston, Texas-based Innowatts, is a startup that has developed an automated toolkit for energy monitoring and management. The company’s eUtility platform ingests data from more than 34 million smart energy meters across 21 million customers including major U.S. utility companies such as Arizona Public Service Electric, Portland General Electric, Avangrid, Gexa Energy, WGL, and Mega Energy. Innowatts says its machine learning algorithms are able to analyze the data to forecast several critical data points including short- and long-term loads, variances, weather sensitivity, and more.

Innowatts estimates that without its machine learning models, utilities would have seen inaccuracies of 20% or more on their projections at the peak of the crisis thus placing enormous strain on their operations and ultimately driving up costs for end-users.

Further, AI and digital solutions can be employed to make our grids safer.

Back in 2018, California’s biggest utility, Pacific Gas & Electric, found itself in deep trouble after being found culpable for the tragic 2018 wildfire accident that left 84 people dead and, consequently, was slapped with hefty penalties of $13.5 billion as compensation to people who lost homes and businesses and another $2 billion fine by the California Public Utilities Commission for negligence. Perhaps the loss of lives and livelihood could have been averted if PG&E had invested in some AI-powered early detection system like Innowats.

By employing digital and AI models, our power grids will become increasingly smarter and more reliable and make the shift to renewable energy smoother.

By Alex Kimani for Oilprice.com

China Dominates Global Steel Industry

By ZeroHedge - May 22, 2023

Steel is a critical component of modern industry and economy, essential for the construction of buildings, automobiles, and many other appliances and infrastructure used in our daily lives.

Visual Capitalist's Niccolo Conte create this infographic, using data from the World Steel Association, to visualize the world’s top steel-producing countries, and highlights China’s ascent to the top, as it now makes up more than half of the world’s steel production.

The State of Global Steel Production

Global steel production in 2022 reached 1,878 million tonnes, barely surpassing the pre-pandemic production of 1,875 million tonnes in 2019.

Country	2022 Production (in million tonnes)	Annual Production Change	Global Share
???????? China	1013.0	-2.0%	53.9%
???????? India	124.8	5.3%	6.6%
???????? Japan	89.2	-7.9%	4.8%
???????? United States	80.5	-6.5%	4.3%
???????? Russia	71.5	-5.8%	3.8%
???????? South Korea	65.9	-6.9%	3.5%
???????? Germany	36.8	-8.8%	2.0%
???????? Türkiye	35.1	-15.0%	1.9%
???????? Brazil	34.0	-6.5%	1.8%
???????? Iran	30.6	6.8%	1.6%
???????? Italy	21.6	-13.0%	1.1%
???????? Taiwan	20.7	-12.1%	1.1%
???????? Vietnam	20.0	-15.0%	1.1%
???????? Mexico	18.2	-1.9%	1.0%
???????? Indonesia	15.6	8.3%	0.8%
Rest of World	201.0	-11.2%	10.7%
World Total	1878.5	-3.9%	100.0%

2022’s steel production marked a significant reduction compared to the post-pandemic rebound of 1,960 million tonnes in 2021, with a year-over-year decline of 4.2%–the largest drop since 2009, and prior to that, 1991.

This decline was spread across many of the world’s top steel producers, with only three of the top fifteen countries, India, Iran, and Indonesia, increasing their yearly production. Most of the other top steel-producing countries saw annual production declines of more than 5%, with Turkey, Italy, Taiwan, and Vietnam’s production all declining by double digits.

Even the world’s top steel-producing nation, China, experienced a modest 2% decline, which due to the country’s large production amounted to a decline of 19.8 million tonnes, more than many other nations produce in a year.

Despite India, the world’s second-largest steel producer, increasing its production by 5.3%, the country’s output still amounts to just over one-tenth of the steel produced by China.

China’s Meteoric Rise in Steel Production

Although China dominates the world’s steel production with more than a 54% share today, this hasn’t always been the case.

In 1967, the World Steel Association’s first recorded year of steel production figures, China only produced an estimated 14 million tonnes, making up barely 3% of global output. At that time, the U.S. and the USSR were competing as the world’s top steel producers at 115 and 102 million tonnes respectively, followed by Japan at 62 million tonnes.

Almost three decades later in 1996, China had successively overtaken Russia, the U.S., and Japan to become the top steel-producing nation with 101 million tonnes of steel produced that year.

The early 2000s marked a period of rapid growth for China, with consistent double-digit percentage increases in steel production each year.

The Recent Decline in China’s Steel Production

Since the early 2000s, China’s average annual growth in steel production has slowed to 3.4% over the last decade (2013-2022), a considerable decline compared to the previous decade’s (2003-2012) 15.2% average annual growth rate.

The past couple of years have seen China’s steel production decline, with 2021 and 2022 marking the first time the country’s production fell for two consecutive years in a row.

While it’s unlikely China will relinquish its position as the top steel-producing nation anytime soon, it remains to be seen whether this recent decline marks the beginning of a new trend or just a brief deviation from the country’s consistent production growth          

By Zerohedge.com

ACCELERATIONISM

How The Pace Of Climate Change Keeps Surprising Us

By Kurt Cobb - May 22, 2023

• The pace of climate change seems to have accelerated over the last decade.
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• Turning the giant global economy in a new climate-friendly direction has proven harder to do than expected.
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• So even as the window for an energy transition shrinks, our ability to speed up that transition remains handicapped by our dependence on fossil fuels.
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This seems like the 10th time that I've read a story that says Greenland's glaciers are melting faster than previously thought and thus the consequences of climate change are moving much more quickly than we have estimated in the past. Even the pace of such stories has picked up. I found some in 2015, 2016, 2019, 2021 and 2022.

And, back in 2013 scientists reported that just a little to the north of Greenland, their models were showing that the median estimate for an ice-free arctic in summer was 2060. (Median means half the results were before 2060 and half the results of the model were after.) Those scientists were convinced at the time that their model might be underestimating the pace of climate change in the Arctic, suggesting that an ice-free arctic might come before 2050.

Fast forward to 2020 when a study suggested that an ice-free Arctic in summer might come as soon as 2035. Not surprisingly, the story notes that the finding is "one of the more direct signs that humans are warming the Earth's climate at an even more dramatic pace than expected."

When I wrote about our human tendency to underestimate the pace of human-induced climate change way back in 2006, few people imagined that climate change would progress as quickly as it has between then and now. The idea that we have time to get ready for climate change or that climate change is "slowing down" has turned out to be a grave miscalculation.

In addition, turning the giant global economy in a new climate-friendly direction has proven harder to do than expected. The reasons are well-known to those who understand how energy works in human society.

First, humans seek the cheapest, easiest-to-get energy before going on to more expensive alternatives, no matter how climate-friendly those alternatives are. Fossil fuels remain the cheapest and most reliable source of energy for most applications.

Second, in the past it has taken a generation and sometimes two for human society to move from one dominant fuel, for example, coal, to, in this case, oil. Anyone expecting renewable energy to quickly replace fossil fuels is not paying attention to the numbers and to the practical problems with renewable energy. In the case of wind and solar intermittency is a big problem. The wind doesn't blow all the time, and the sun disappears every night. In addition, the low power density relative to fossil fuels and the vast amount of land needed are also major issues.

It is theoretically possible to run a modern, technical society on renewable energy, just not this one. Our energy requirements would have to be pared down to a fraction of what they are today, and our buildings and energy infrastructure would have to be completely reworked—a task that would require huge amounts of fossil fuel energy since that is primarily the kind that we currently have. Fossil fuels provide more than 80 percent of the world's energy today.

So even as the window for an energy transition shrinks—that is, the time before climate change becomes catastrophic (and fossil fuel depletion become dire)—our ability to speed up that transition remains handicapped by our dependence on fossil fuels, by the power of the fossil fuel interests, and by the practical difficulties of remaking our infrastructure on such a short timeline.

The name of this conundrum is the rate-of-conversion problem. Can we make the transition to a sustainable society before we run low on the fossil fuel energy needed to build the new sustainable infrastructure AND before climate change creates conditions so chaotic that we cannot sustain such a build-out?

The relatively slow pace of the renewable energy build-out compared to the available time window suggests we will not finish the job in time to prevent a serious decline in the fortunes of future generations.

By Kurt Cobb via Resourceinsights.com

Why Green Energy Stocks Are Facing Headwinds

By Alex Kimani - May 22, 2023

• The Inflation Reduction Act stimulus continues to support clean energy stocks, but the first effect has largely been priced in.
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• Clean energy projects tend to be highly sensitive to interest rates because they require developers to borrow lots of capital up front to build projects.
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• The United States is on track to grow domestic solar panel manufacturing capacity 8-fold by the end of 2024.
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The clean energy sector has lately been struggling, with higher interest rates and a weakening economic outlook outweighing considerable backing by the Biden administration. The iShares Global Clean Energy ETF (NASDAQ:ICLN), the world’s largest green energy ETF and a catch-all bet on clean energy, has lost 4% in the year-to-date compared to a 10.3% gain by the S&P 500. The solar and wind energy benchmarks are not faring much better, either, with Invesco Solar ETF (NYSEARCA:TAN) down 2.9% YTD while First Trust Global Wind Energy ETF (NYSEARCA:FAN) has only gained 2.6%.

Clean energy projects tend to be highly sensitive to interest rates because they require developers to borrow lots of capital up front to build projects. To make matters even more complicated, the cost of electricity generated from renewable energy tends to be impacted much more by rising interest rates compared to electricity generated from fossil fuels. Indeed, a 2020 analysis from the International Energy Agency found that a 5% rise in interest rates increases the levelized cost of electricity from wind and solar by a third but only marginally for natural gas plants. These are the main reasons why cash poured into companies focused on renewable energy, electric vehicles, batteries and hydrogen producers when interest rates were low but the funding gusher has lately slowed to a trickle as interest rates continue increasing. Startup electric-vehicle makers such as Lucid Group (NASDAQ:LCID), Fisker Inc. (NYSE:FSR) and Rivian Automotive (NASDAQ:RIVN) have been particularly hard hit with their shares tumbling this year as the companies scramble for market share in an increasingly crowded space.

The renewable sector has not been helped by the sudden collapse of Silicon Valley Bank.

SVB was popular in the renewables world for its crucial role in supporting small-scale projects, including community solar projects which other institutions shunned due to the onerous legal and tax paperwork required to advance them loans.

“Since deposits were guaranteed, the risk has moved from small, early-stage companies that might have struggled to make payroll, to those that might be reliant on the bank’s credit facilities for infrastructure projects,’’ Mark Daly, head of technology and innovation at BloombergNEF, has said. According to BloombergNEF, it’s not yet clear how much financing SVB was offering to community solar developers. However, SVB’s website says it has committed $3.2 billion to innovation projects in clean energy, was leading or participating in 62% of financing in U.S. developments and had more than 1,550 customers in the broader climate technology and sustainability sector. 

BloombergNEF has estimated that between 2020 and 2022, SVB financed ~$357 million of residential solar, excluding community solar, by no means an insignificant amount.

Government Backing

But it’s not all doom and gloom, with the clean energy sector enjoying a period of ample government backing. 

Last August, the United States Congress passed the Inflation Reduction Act, hailed as the most important climate legislation in United States history. A major goal of IRA--the largest federal government spending increase on alternative energy in U.S. history--is to strengthen energy independence, reduce dependence on Chinese imports, and reinvigorate the industrial sector. 

“The act will immediately spur private investments in production capacity across the solar supply chain, including batteries, helping to create thousands of manufacturing jobs and support our energy independence," Abigail Ross Hopper, president and chief executive of the Solar Energy Industries Association, said in written remarks after the act was passed. 

The IRA is expected to provide some $1 trillion worth of incentives for clean technologies, and drive trillions more in investments. According to the American Clean Power Association, IRA could more than triple clean energy production, cut emissions by 40% by 2030, and create 550,000 clean energy jobs. 

But the economic impact is even bigger: the Blue Green Alliance has predicted that the IRA could add 9 million jobs in the next ten years while Energy Innovation modeling projects the IRA will increase GDP nearly 1% in 2030. Meanwhile,  Credit Suisse has predicted that the legislation could become America’s most significant investment in clean energy manufacturing and leverage tax dollars to generate roughly $1.7 trillion in new investment within a decade.

“Capital is very much still flowing into quality companies,” Shayle Kann, a partner at Energy Impact Partners. Has told the Wall Street Journal.

The Biden administration has also continued to support the domestic solar industry.

Last June, Biden waived tariffs on solar panels from Thailand, Vietnam Cambodia and Malaysia in a bid to create a "bridge" while U.S. manufacturing ramped up. 

The White House is firmly opposed to the attempt to overturn the waivers by Congress, pointing to an increase in domestic solar production as a sign that Biden's policy has been successful.

"This legislation would sabotage U.S. energy security. It would undermine our momentum in creating a massive new domestic industry. It would sideline workers who are fired up to build these projects and operate them across the country," Ali Zaidi, Biden's national climate adviser, has told Reuters.

The United States is on track to grow domestic solar panel manufacturing capacity 8-fold by the end of 2024, an official has told Reuters, adding that Biden will not issue an extension on the tariff waivers because domestic manufacturing has taken off.

"Given the strong trends in the domestic solar industry, the President does not intend to extend the tariff suspension at the conclusion of the 24-month period in June 2024," the White House said in a "Statement of Administration Policy" obtained by Reuters.

Republicans in Congress, sometimes with the support of Democrats, have frequently used the Congressional Review Act to block Biden administration regulations. Both chambers passed a resolution this Congress to eliminate a rule from the EPA and the U.S. Army Corps of Engineers to define the waters that fall under protection of the Clean Water Act. Biden vetoed that measure, and another about investment and the Labor Department but signed in March a resolution to block Washington, D.C., from overhauling its criminal laws.

Meanwhile, a growing boom in EVs and the lithium-ion batteries that power them is showing no signs of slowing.  Some 47 major new EV projects adding up to an estimated $49 billion in capital investment in the United States have been announced since the IRA was passed. Global EV sales are expected to continue expanding at a brisk clip, with the International Energy Agency estimating 35% growth for the current year.

By Alex Kimani for Oilprice.com

Returns vs Emissions: The Big Oil Shareholder Fight

By Irina Slav - May 22, 2023

• Oil majors are struggling to find a balancing point between the pro-return shareholders and the pro-emissions ones.
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• BP has toned down its renewables agenda this year.
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• Oil majors are increasingly focusing on profitability when it comes to greenlighting renewable energy projects.

Big Oil is in the middle of a war no one could have seen coming just a few years ago. On one side are investors that like the supermajors’ recent record profits generated thanks to higher oil and gas prices. On the other are climate activist investors focusing on emission reduction as the only priority of significance.

BP emerged from one battle three weeks ago at its annual shareholder meeting. The meeting was disrupted by protests that have become more or less a fixture of any event involving oil companies in Europe. It was also made challenging by investors who demanded an explanation on why they were not allowed to vote for BP’s new emission reduction targets.

These targets, by the way, are in fact oil and gas production cut targets, to go with a boost in low-carbon energy investments. The supermajor had planned to cut oil and gas output by 40% from 2019 by 2030 but earlier this year reduced this target to 25%. It also reduced its Scope 3 emission cut targets to 20-30% from 35-40%.

Naturally, this did not sit well with activist shareholders. When asked by a large investor why there was no vote on this matter, BP chairman Helge Lund said that “extensive engagement” with investors had suggested there was “little appetite” for a vote on emission reduction plans, per the FT.

Indeed, investors in Big Oil seem to be quite happy with the record profits their companies are bringing in and would like to see this state of affairs continue. At the same time, as the WSJ reported earlier this year, BP’s chief executive had suffered disappointment at the lower-than-expected returns of the company’s renewable energy business. This had led to a decision to dial back on BP’s wind, solar, EV, and hydrogen push.

Again, activist investors did not like this. The rest, however, who are the majority, did like it. Because, like the majority of Shell’s shareholders, who are meeting for their annual gathering this week, they want their dividends rising not falling because the company is spending billions on wind and solar. It may be a truth difficult to stomach but this does not change its nature.

Reuters reported last week, in anticipation of Shell’s AGM, that Shell will have quite a plateful this week as it seeks to find a balancing point between the pro-return shareholders and the pro-emissions ones.

In other words, this week’s meeting will likely see a clash between shareholders that want the company to keep doing what it’s doing with oil and gas, and reap the benefits, and those who want Shell to focus on reducing its emissions, with returns a distant second priority.

Per the Reuters report, the emissions-first camp is a small but loud one. It appears to be becoming louder, too, as the majority of investors stray from the righteous transition path.

It would be difficult not to stray when the Big Oil majors collectively ended the first quarter of this year with combined cash of some $160 billion, part of it ready to be distributed to shareholders. Because that’s what Big Oil does: it pays dividends. It buys back shares when the going is good. It rewards its shareholders to keep them on board.

Meanwhile, European Big Oil has one more problem to deal with and this is the problem of stock valuation. The situation is quite ironic but only to be expected. European supermajors are subjected to a lot more shareholder pressure than their peers in the U.S. As a result, their foray into renewables has been massive compared to what Exxon and Chevron are doing. And their stock valuations have reflected this by dropping.

Some have questioned the validity of this causal relationship by noting that stock trade is a lot more active in the U.S. than in Europe but these days nobody really trades physically on the floor of the NYSE or the London Stock Exchange via a broker. Millions, however, trade online, so trade volume shouldn’t really be a factor. Business strategy, on the other hand has always been a factor.

BP’s stock plunged three years ago when CEO Looney announced the company’s new strategy with a lot more investments in low-carbon energy at the expense of oil and gas growth. It recovered relatively quickly but that initial drop spoke volumes about shareholders’ thoughts on the company’s planned transition. And the reason the stock recovered? Oil prices.

It’s the same with all the Big Oil majors. A minority of shareholders with various degrees of financial clout insist that the companies prioritize emission reduction by virtually any means necessary. The majority would like to keep things quiet and chugging along, and the money coming in, not least because all the supermajors have already made commitments in the emission reduction department.

These are quite ambitious and most shareholders appear to be happy with them. The few that aren’t happy will likely continue to pressure the companies into making even more ambitious commitments. The problem they probably did not expect to encounter is the majority that wants its returns.

By Irina Slav for Oilprice.com