Is The ESG Investing Boom Already Over?

By Alex Kimani - Jun 15, 2023

• After peaking at $17.1 trillion in 2020, ESG assets in the United States dropped sharply to just $8.4 trillion in 2022.
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• Oil and gas companies are pushing back against activist proposals in their boardrooms.
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• Last week, CEO Darren Woods urged regulators to stop focusing on certain energy sources.

Over the past decade, green and socially-responsible investments, aka ESG (Environmental, Social, and Governance) investing, have emerged as one of the biggest investment megatrends in modern times. For years, trillions of dollars in new global funds flowed into the market each year, with UBS predicting that carbon-reducing tech would hit $60 trillion of investment by 2040 in the U.S. 

Unfortunately, the ESG boom now appears to be languishing in investment purgatory. After peaking at $17.1 trillion in 2020, ESG assets in the United States dropped sharply to just $8.4 trillion in 2022, and the bleeding continues. In the current year, no less than four ESG funds have been liquidated: SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND), SPDR Bloomberg SASB Emerging Markets ESG Select ETF (REMG), SPDR Bloomberg SASB Developed Markets Ex US ESG Select ETF (RDMX) and the Invesco US Large Cap Core ESG ETF (IVLC). 

Meanwhile, their surviving peers continue to record large capital outflows: In the first five months of the year, seven popular ESG focused funds have cumulatively recorded outflows to the tune of $8.35B. 

• iShares ESG MSCI USA ETF (NASDAQ:ESGU) -$7.24B
• iShares MSCI USA ESG Select ETF (NYSEARCA:SUSA) -$287.16M
• iShares Global Clean Energy ETF (NASDAQ:ICLN) -$417.97M
• First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) -$115.69M
• Invesco Solar ETF (TAN) -$243.94M
• Vanguard ESG U.S. Stock ETF (ESGV) -$30.32M
• iShares ESG Aware MSCI EAFE ETF (ESGD) -$14.34M.

Talking points around ESG have also dwindled markedly: According to FactSet, just 74 companies in the S&P 500 cited the term "ESG" during their latest earnings conference call transcripts, less than half the 156 times the term was cited in 2021 Q4 earnings conference calls.

A similar trend has also been observed across the rest of the world, including in Europe where ESG standards are much stricter.

Shifting Sentiment

The year 2021 proved to be a watershed moment for oil and gas companies in the global transition to clean energy, with Big Oil losing a series of boardroom and courtroom battles in the hands of hardline climate activists.

In May 2021, ExxonMobil lost three board seats to Engine No. 1, an activist hedge, in a stunning proxy campaign. Engine No. 1 demanded that Exxon needs to cut fossil fuel production for the company to position itself for long-term success. "What we're saying is, plan for a world where maybe the world doesn't need your barrels," Engine No.1 leader Charlie Penner told the Financial Times. Engine No. 1 enjoyed a stunning victory thanks to support from BlackRock Inc. (NYSE: BLK), Vanguard and State Street who all voted against Exxon’s leadership.

Related: 

Next was its close peer Chevron Corp. (NYSE:CVX) with no less than 61% of Chevron shareholders voting to further cut emissions at the company’s annual investor meeting and rebuffing the company’s board which had urged shareholders to reject it. 

Finally, a Dutch court ordered Shell Plc (NYSE:SHEL) to cut its greenhouse gas emissions harder and faster than it had previously planned. Never mind the fact that Shell had already pledged to cut GHG emissions by 20% by 2030 and to net-zero by 2050. The court in The Hague determined that wasn’t good enough and demanded a 45% cut by 2030 compared to 2019 levels. The past two years have been especially challenging for Shell shareholders after the company announced a major dividend cut with the quarterly dividend falling to 16 cents from 47 cents, the first dividend cut since WW11. Meanwhile, the company’s debt had ballooned massively from $1bn in 2005 to $73bn in 2020.

Luckily for these oil and gas supermajors, last year, investor sentiment shifted in their favor.

In May 2022, Exxon recorded a major victory after its shareholders supported the company's energy transition strategy at the annual general meeting. Only 28% of the participants backed a resolution filed by the Follow This activist group urging faster action to battle climate change; a proposal calling for a report on low carbon business planning received just 10.5% support while a report on plastic production garnered a 37% favorable vote.

Following in the footsteps of its larger peer, in June, Chevron shareholders voted against a resolution asking the company to adopt greenhouse gas emissions reductions targets, indicating support for the steps the company already has taken to address climate change.

Just 33% of shareholders voted in favor of the proposal, according to preliminary figures disclosed by the company, a sharp turnaround from last year when 61% of shareholders voted to support a similar proposal.

Last week, CEO Darren Woods urged regulators to stop focusing on certain energy sources, such as renewable energy, to save the climate, warning that it would be a “huge mistake to be picking winners and losers and focusing on specific technologies”. Instead, “we need to look more broadly and let the markets figure out which solutions deliver the most emissions reductions at the lowest cost," Woods told Nicolai Tangen, the CEO of Norway's Wealth Fund, one of the largest mutual funds in the world, on his podcast. An attempt to move away from oil and gas immediately, with unchanged global demand, could be disastrous for clean energy, Woods suggested, adding that if we produce less LNG, for example, something else–like coal–would have to step in to fill the demand gap. 

According to Woods, Europe should follow the U.S. approach to climate policy, arguing that the continent risks driving companies away by regulating too hard. Woods told Bloomberg that one of the most important things the Americans (and ExxonMobil) are doing is developing technologies to capture and store carbon

Overall, it appears that overcoming carbon-lock is proving to be a much more formidable task than earlier thought.

By Alex Kimani for Oilprice.com

Iraqi Kurdistan Has Lost $2 Billion Due To Its Oil Exports Saga

By Tsvetana Paraskova - Jun 15, 2023

• The Kurdistan Regional Government has lost $2 billion due to the nearly three-month-long suspension of its oil exports via Turkey.
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• Kurdistan has not exported oil from the Turkish port of Ceyhan on the Mediterranean since March 25 due to a dispute over who is in charge of exports.
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• Iraq is now waiting for a final go-ahead from Turkey, but chances are low that exports will resume soon.  
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The Kurdistan Regional Government (KRG) has lost $2 billion from oil revenues due to the nearly three-month-long suspension of Kurdish crude oil exports via Turkey, according to estimates by Reuters.

Iraq and the semi-autonomous region of Kurdistan have not exported crude oil from the Turkish port of Ceyhan on the Mediterranean since March 25, due to ongoing disputes about who is in charge of exports.  

Iraq, OPEC’s second-largest producer after Saudi Arabia, is currently exporting oil only via its southern oil export terminals. Around 450,000 barrels per day (bpd) of exports from the northern fields and from the semi-autonomous region of Kurdistan continue to be shut in due to a dispute over who should authorize the Kurdish exports.  

Kurdistan’s crude oil exports—around 400,000 bpd shipped through an Iraqi-Turkey pipeline to Ceyhan and then on tankers to the international markets—were halted on March 25 by the federal government of Iraq.

The suspension of oil flows out of northern Iraq and Kurdistan via Ceyhan forced companies to either curtail or suspend production because of limited capacity at storage tanks.

Iraq exported on average 3.3 million bpd of oil in May, flat compared to April.

Iraq is now waiting for a final go-ahead from Turkey, but the two sides have yet to start talks on the resumption of exports via the pipeline and the port of Ceyhan.   

Earlier this week, sources with knowledge of the plans told Reuters that Iraq and Turkey were expected to start talks at technical level by early next week on resuming the northern oil exports from Iraq and Kurdistan via Ceyhan.

However, chances are low that the crude oil exports could be restarted soon, the sources added.

“This does not mean exports will immediately restart as this decision requires high-level political talks,” an official at Iraqi state-owned North Oil Company told Reuters.  

AI’s Energy Consumption: A Silent Threat To Environmental Sustainability?

By Felicity Bradstock - Jun 15, 2023

• AI's increasing integration in daily life and industries requires vast computing power and electricity, raising concerns about its environmental impact due to high energy consumption. 
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• The methods employed for AI learning, such as deep learning, necessitate significant power usage, differing from human learning in its need for "brute force" statistical techniques. 
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• Companies such as Google and Microsoft currently don't disclose the energy consumption of their AI programs, leading to a call for transparency and government regulation to align with climate policies.
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As energy companies look to modernize their operations to cut costs and make them more efficient, many are turning to technologies such as machine learning, robotics, and Artificial intelligence (AI). But as with any new technology, it’s important to consider the whole picture. While the use of AI and other tech could help to improve operations, both in fossil fuels and green alternatives, just how much energy does it take to power AI? 

There has long been a discussion over the impact of AI on the planet, but with all the buzz around impressive new technologies, it has mostly faded into the background. In 2020, researchers at OpenAI in San Francisco presented to the world an algorithm capable of learning that could move a robotic hand to manipulate a Rubik’s Cube. This marked a huge step forward in AI technology. At this point in time, it required over 1,000 computers and a dozen machines running specialized graphics chips to crunch complex calculations over months to achieve this feat. The process consumed approximately 2.8 gigawatt-hours of electricity according to estimates, equating to the output of three nuclear power plants for an hour – although this was not confirmed by the company. 

AI technology is advancing at a staggering rate, following decades of heavy investment. But with this progress comes concerns about what impact it could have on the environment. While the output may appear simple, as machines learn to answer questions, recognize images, and play games, the power required to carry out these tasks is immense. The running of AI requires huge amounts of computing power and electricity to create and solve algorithms. Sasha Luccioni, a postdoctoral researcher at Mila, an AI research institute in Canada, explained: “The concern is that machine-learning algorithms, in general, are consuming more and more energy, using more data, training for longer and longer.” Related: Saudi Aramco Buys Carbon Credits At Largest-Ever Auction

And over the last few years, AI has gradually become more integrated into our everyday activities, such as answering questions via Alexa or Siri, routing Google Maps, or identifying people through photos, all available on our phones and home computers. But few people consider how much power it takes to complete these seemingly simple tasks. We often compare machines to humans when it comes to these types of tasks, assuming computers can answer questions just as our brains can, with relatively little effort. However, AI doesn’t learn information in a structured way, it doesn’t understand human concepts such as cause-and-effect, context, or analogies, meaning that it requires a deep learning “brute force” statistical technique approach to work. 

A deep learning model is trained very differently from our brains. For example, for it to identify an image of a cat, it is shown thousands of photos of cats that have been labeled by humans. The model does not understand that a cat is more likely than a dog to climb a tree or perform other feline activities and will only associate these objects if they are in the images. To make the model understand the image, it needs to be shown all the possible combinations until it learns. 

Until now, the response to the use of AI in energy operations to make them more efficient and reduce costs, has been overwhelmingly positive. But now, experts worry that the high energy demands of these types of technologies may have been widely overlooked. If AI is used in energy projects to support modernization and decarbonization, it may be causing more harm to the environment than we realize. While it could revolutionize trillion-dollar industries, from energy to retail, the creation of AI technologies such as chatbots and image generators will require a huge amount of electricity, which could add to the world’s carbon emissions. 

At present, there is a lot of ambiguity around the amount of energy it takes to power AI programs. For example, if you ask ChatGPT this question, it responds along the lines of “As an AI language model, I don’t have a physical presence or directly consume energy.” The complexity of AI programs means they consume much more energy than other forms of computing, but the companies that are building these programs, such as Google and Microsoft, are not disclosing how much. At present, we know very little about how much electricity and water it takes to train and power their AI models and what sources of energy are used to run their data centers. 

We’re seeing more and more companies incorporate AI into their operations as it becomes more widely available. Sasha Luccioni, the climate lead for the AI company Hugging Face, explained: “This exponential use of AI brings with it the need for more and more energy.” Luccioni added, “And yet we’re seeing this shift of people using generative AI models just because they feel like they should, without sustainability being taken into account.” 

The rapid advancement in AI technology has led companies across all sectors to incorporate AI programs into their operations, as they look to evolve. This can be viewed as positive, as companies are embracing technology and modernization, which could make operations more efficient. However, the issue of energy use in AI and similar technologies is often not being considered, meaning that companies are rapidly adopting AI programs without assessing their impact on the environment. Going forward, it is important that information about energy use in AI become more transparent and that governments regulate the sector in line with their climate policies. 

By Felicity Bradstock for Oilprice.com

China At The Forefront Of Nuclear Weapon Expansion

By ZeroHedge - Jun 13, 2023

• SIPRI's recent figures show that China added an estimated 60 nuclear weapons to its deployed or stored arsenal from January 2022 to January 2023.
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• SIPRI states that China is significantly modernizing and expanding its nuclear arsenal, and is expected to deploy as many intercontinental ballistic missiles as Russia or the USA in the coming decade.
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• Despite China's growing nuclear stockpile, Russia and the United States still possess the most nuclear warheads, with a combined total of over 8,000. Including retired weapons and those planned for dismantlement, this figure exceeds 11,000.

Released today, the latest figures from SIPRI reveal an annual increase in the global number of stockpiled nuclear warheads.

As Statista's Martin Armstrong shows in the infographic below, China is at the forefront of this upwards tick, adding an estimated 60 weapons to its collection of deployed or stored nukes between January 2022 and January 2023.

You will find more infographics at Statista

As detailed by SIPRI,

"China is in the middle of a significant modernization and expansion of its nuclear arsenal. Its nuclear stockpile is expected to continue growing over the coming decade and some projections suggest that it will deploy at least as many intercontinental ballistic missiles as either Russia or the USA in that period. However, China’s overall nuclear warhead stockpile is still expected to remain smaller than that of either of those states."

Despite China's stockpile growth, Russia and the United States still have by far the largest amount.

A hangover of the Cold War, the two countries have a combined arsenal of more than 8,000 warheads.

Including those retired and earmarked for dismantlement, the figure rises to over 11,000.

By Zerohedge.com

LA REVUE GAUCHE - Left Comment: Search results for PERMANENT ARMS ECONOMY 

Shell Under Fire For Doubling Down On Oil And Gas

By Tsvetana Paraskova - Jun 16, 2023Earlier this week, Shell laid out plans to raise its dividend by 15% and emphasized the importance of continuing to invest in oil and gas.

Some institutional investors are now reviewing their investments in Shell as they see the new strategy as running counter to their goals.

Shell’s CEO, echoing the voice of many others in the oil industry, emphasized that oil and gas will be around for a long time to come.

Institutional investors in Europe are disappointed with Shell’s new strategy to continue investing in oil and gas production and selectively pour capital into renewable energy solutions, to the point of some investors considering removing it from their portfolios.

Earlier this week, Shell laid out plans to raise its dividend by 15%, effective from the second quarter 2023 interim dividend, as the UK-based supermajor pledged to grow its gas business and extend its position in the upstream.

“It is critical that the world avoids dismantling the current energy system faster than we are able to build the clean energy system of the future. Oil and gas WILL continue to play a crucial role in the energy system for a long time to come with demand reducing only gradually over time,” Shell’s chief executive Wael Sawan said on Shell’s Capital Markets Day on Wednesday.

“Continued investment in oil and gas is critical to ensure a balanced energy transition,” Sawan added in the pivot to ensure today’s energy needs, similar to what BP announced earlier this year.

Shell will continue to be committed to oil and gas, with a focus on LNG growth, where it is the world’s leading trader, the company’s top executives said, but also reiterated the commitment to net-zero emissions by 2050.

But fund and pension managers in Europe are unhappy with Shell’s new strategy. The UK’s largest fund manager, Legal & General Investment Management (LGIM), will ask Shell to detail how it plans to reach net zero by 2050 if it grows its upstream and LNG businesses.

“There is a sense that oil and gas companies want to keep their options open in case the world misses the net zero by 2050 deadline,” Stephen Beer, senior manager for sustainability and responsible investment at LGIM, told Bloomberg in an interview.  

“In our engagements with Shell, following its recent announcements, we will be assessing how it matches with our expectations.”

Another institutional shareholder, the Church of England Pensions Board, is now “reviewing our remaining investments in the company,” Laura Hillis, director for climate and environment at the Church of England Pensions Board, told Bloomberg.

“The new CEO has set a path that will increase Shell’s absolute emissions and goes against the previous path the company was pursuing,” Hillis added.  

Oil And Gas Is Too Profitable For Shell To Ignore

By Irina Slav - Jun 14, 2023

• Shell is reportedly planning to cancel its annual oil output reduction target of between 1% and 2%, with new CEO Wael Sawan expected to announce plans for increased spending on oil and gas.
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• Shell and other major oil companies have found that transitioning to alternative energies such as wind, solar, and hydrogen hasn't yielded the expected returns, while oil and gas continue to be more profitable than anticipated.
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• Amidst mounting pressure from activists, Shell's shift in strategy signals a return to its core business, underscoring the belief that oil and gas will continue to play a key role in the energy mix.

One of the world’s largest oil and gas companies—and a favorite target of climate activists and activist investors—is making something of a U-turn on its plans for the future.

Shell, which was sued into cutting its oil output, is going back to oil and gas in a big way, and talking openly about its bottom-line change of heart. 

Several days ago, Reuters reported that Shell was going to scrap its oil output reduction plans. Not only had it already hit its reduction targets through asset sales, the report said, but it was enjoying the returns its oil business was making.

Citing unnamed sources close to the company, Reuters reported that the new chief executive of the company, Wael Sawan, was this week going to announce a cancellation of an annual oil output reduction target of between 1 and 2%. Some expect him to also announce plans for more spending on oil and gas, according to a Wall Street Journal report.

Sawan, who took office early this year, had said earlier that the transition should not advance at the expense of oil and gas profits. In fact, it has become pretty obvious that the transition cannot advance at all without oil and gas used to power the equipment used to mine critical minerals and metals, process them around the world, and produce the panels, turbines, and infrastructure necessary for a shift to low-carbon energy.

Yet the transition has failed to live to the promise Big Oil executives assumed was a safe one. First BP and now Shell are either downsizing—BP—or scrapping some of their wind, solar, hydrogen and biofuels—Shell—plans. Because they are not making the returns that were expected of them. But oil and gas are making more than probably expected.

Gas appears to be particularly attractive, according to a recent Bloomberg report. Citing more unnamed sources, Shell has been urging its LNG teams to boost business in India and China, motivating them with the promise of higher bonuses for successful deals in both these and also other countries.

“We have always known that gas is crucial for the energy transition, but our new strategy is built around a new belief — that gas will continue to play a key role in the energy mix,” Shell executive VP for LNG told Bloomberg.

This is quite a departure from the mostly deafening silence coming from European Big Oil majors in the past couple of years as activist pressure doubled and tripled, prompting them to start talking about emission reduction plans, tracking and recording, and output cuts.

Apparently, judging by how activists’ climate resolutions fared at this year’s AGMs of the European supermajors, most shareholders did not want Shell, BP, and TotalEnergies to focus on emissions and output reduction. They wanted them to focus on returns—and if these returns are fatter from the core oil and gas business then that must be expanded.

On Wednesday, CEO Wael Sawan will present the new strategy of Shell at the New York Stock Exchange. Per the WSJ, there are expectations that he will announce a return to a focus on oil and gas production on the grounds that the transition will leave whole nations behind unless the world goes easy on the reduction of oil and gas consumption.

If the presentation indeed does that, chances are it will get activists angry—angry enough to sue again, perhaps. This makes Sawan’s defense of Shell’s core business all the more meaningful: it is a reality check that was long overdue, not only for Shell but for all the European supermajors. It’s oil and gas that makes the money, not wind and hydrogen.

U.S. Pipeline Giant: Energy Transition Will Need More Natural Gas Infrastructure

By Tsvetana Paraskova - Jun 16, 2023

U.S. natural gas infrastructure will have to expand so that gas can serve as a backup power generation fuel amid soaring wind and solar capacity in the energy transition, says the chief executive of the pipeline giant handling one-third of U.S. gas deliveries.

Natural gas will continue to be needed to prevent blackouts if weather is not cooperative with renewable power generation, Williams’s CEO Alan Armstrong told the Financial Times.  

“Nobody’s ever going to be comfortable saying: ‘Oh, we’re willing to risk that for five days, we don’t have wind or solar and we’re not going to have a back-up’,” Armstrong told FT.

As the number of electric vehicles (EVs) rises and the “electrify everything” drive increases, power grids will need more flexibility amid surging intermittent sources such as wind and solar power. That’s why natural gas will play a role in the shift to cleaner energy, the top executive of the pipeline giant said.

The U.S. Administration, on the other hand, is looking to make the grid zero-emissions by 2035.  

Last year, natural gas accounted for 39.8% of U.S. utility-scale electricity generation, the largest share of any source, followed by coal at 19.5%, nuclear at 18.2%, and wind at 10.2%. In total, about 60% of all U.S. electricity generation was from fossil fuels—coal, natural gas, petroleum, and other gases. About 18% was from nuclear energy, and about 22% was from renewable energy sources including hydropower, EIA data showed.

During the quarterly Q1 call with Wall Street analysts last month, Williams’s Armstrong said that access to abundant and low-cost natural gas reserves depends on having the appropriate infrastructure to move energy when and where it is needed.

“We are seeing and feeling today the impacts of inadequate infrastructure with consumers bearing the brunt of these actions in the form of high utility bills, unnecessary blackouts and energy-driven inflation,” Armstrong told analysts.

China Steps Up Game With 1st ‘Floating Oil Factory’ 

By Alex Kimani - Jun 16, 2023, 

China has delivered its first smart floating production storage and offloading (FPSO) with land-sea integrated operation system, marking a breakthrough in the country's application of the digital twin technology. The offshore oil and gas FPSO with a storage capacity of 100,000 tons is the first of its kind in China and employs diverse cutting-edge technologies including artificial intelligence (AI), edge computing, cloud computing, big data and the internet of things (IoT). The ship can process oil and gas on the sea thus eliminating the need for piping from offshore rigs to onshore factories.

The ship is equipped with more than 8,000 sensors that monitor temperature, pressure and liquid level data and transmits it to the server room. In addition to the on-board system, China has also built a digital twin of the ship onshore in the smart control center in Shenzhen City, a full 1,000 kilometers away from the real ship. The digital twin, a virtual replica of the offshore ship, will be used to monitor the production process in real-time.

Floating oil and gas processing and storage platforms are becoming increasingly popular. Last year, Demand for LNG floating storage and regasification units (LNG-FSRUs) recorded a sharp increase as Europe scrambled to fill its gas stores ahead of winter. Demand for LNG imports  intensified after the ruptures on the key Nord Stream pipeline system quashed any prospect of Russia turning its gas taps back on. This forced dozens of countries in Europe to turn to FSRUs or floating LNG terminals, which are essentially mobile terminals that unload the super-chilled fuel and pipe it into onshore networks.

Currently, there are 48 FSRUs in operation globally, with Rystad Energy revealing that all but six of them are locked into term charters. 

According to energy think-tank Ember, the EU has lined up plans for as many as 19 new FSRU projects at an estimated cost of €9.5bn. 

The biggest beneficiaries are Korean shipbuilding, for whom FSRUs are a major revenue-generator. South Korea is the definitive world leader in the FSRU sector, and recently built the country's first ammonia FSRU.

By Alex Kimani for Oilprice.com

China Is Quickly Becoming The World’s Largest Refiner

By Irina Slav - Jun 15, 2023

• IEA: China is on its way to becoming the country with the greatest oil refining capacity in the world.
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• China overtook the United States to become the world’s largest refiner last year.
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• China’s total refining capacity could total 19.7 million barrels daily by 2028.
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In its new medium-term report on oil that came out last week, the International Energy Agency predicted that oil demand will peak by 2028.

This is not the first time the IEA is predicting peak oil and the reason is also the same as the reason for previous predictions to this tune: a surge in EV adoption that would displace demand for fuels.

Yet the new IEA report also mentioned something else that would probably make politicians in Europe and North America who want to ban internal combustion engines quite happy.

What the report mentioned was that China is on its way to becoming the country with the greatest oil refining capacity in the world. And this would make it the single biggest supplier of things like gasoline and diesel to the world. With the power to dictate prices.

This is what Reuters columnist Clyde Russell noted this in a column dedicated to this part of the IEA report. “China's refined product exports are subject to quotas granted by Beijing, which acts more in what it deems the interests of the domestic economy and markets, rather than what the global markets may be signalling,” Russell wrote.

The IEA itself also recognised China’s growing role as fuel supplier to the world by pointing out that “Crucially, our forecast for product balances is heavily dependent on higher Chinese product exports, especially for diesel.”

China overtook the United States to become the world’s largest refiner last year, the IEA also noted in its report, but it is not stopping there. Instead, refiners in China are building even more capacity, with the total set to reach 19.7 million barrels daily by 2028. Of this, more than 3 million barrels daily will be spare capacity, the IEA said.

The presence of this spare capacity suggests that China may be planning to really become the world’s fuel supplier after European and U.S. refiners shut down their facilities under the weight of ICE phase-out mandates or convert them to biofuel production plants. Because China knows that you can’t ban ICE cars and switch entirely to EVs.

China is not only the world’s biggest refiner of oil. The country is also the biggest market for electric vehicles in the world. The IEA forecast that by 2028, there will be more than 155 million EVs sold in total globally. More than half of these cars, the report added, will be sold in China.

Already, China accounts for more than half of global EV sales. Yet at the same time it is building more oil refining capacity. On the face of it, this may look odd and possibly even irrational. It could indeed be a miscalculation and China could end up with several million barrels in unused and unusable oil refining capacity as demand for fuels slumps.

On the other hand, it might be the same thing that China is doing with wind, solar, and coal. One of the other things that the country is the biggest in is wind and solar generation capacity. At the same time, it is also the most active builder of new coal plants, too. Because, as stated by government officials, China is all in on all energy and is not picking favourites.

China is going to become the world’s refiner. The size of its exports will depend on what the ruling party decides should be exported. And this means that China will have its hand on the global fuel price lever the way OPEC has its hand on the crude oil price lever.

Those ICE bans in the EU, Britain, and California might end up being a necessity rather than a transition-happy whim. And even then, there will be no escape from dependence on China: the biggest producer and processor of battery minerals in the world.

By Irina Slav for Oilprice.com

China Bets On Ultra-Deepwater Oil And Gas

By Alex Kimani - Jun 15, 2023

• China’s CNPC is venturing into ultra-deepwater oil and gas exploration.
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• Deepwater production remains the fastest-growing upstream oil and gas segment.
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• Xinhua: CNPC will drill a test borehole of up to 11,000 meters.

The China National Petroleum Corporation (CNPC), the government-owned parent company of  PetroChina, and Cnooc (OTCPK: CEOHF) has kicked off ultra-deepwater exploratory drilling for oil and gas as the country looks to wean itself of foreign oil. 

According to Chinese news agency Xinhua Global Service, CNPC will drill a test borehole of up to 11,000 meters (36,089 feet), the country’s deepest ever, which will help it better understand the Earth’s internal structure better, as well as to test underground drilling techniques.

CNPC’s borehole depth is not far from Qatar’s world record of 12,289 meters (40,318 feet) for a petroleum well depth that was drilled in the Al Shaheen Oil Field in 2008 or Russia’s Kola Superdeep well that reached a depth of 12,262 meters (40,230 feet).

In the oil and gas exploration and production (E&P) industry, deepwater is defined as water depth greater than 1,000 feet while ultra-deepwater is defined as depths greater than 5,000 feet. 

Deepwater Boom

But China is not the only country willing to drill to ridiculous depths in the pursuit of energy security.

Deepwater oil and gas production is set to increase by 60% by 2030, to contribute 8% of overall upstream production, according to a new report from Wood Mackenzie, as cited by Rig Zone. 

Ultra-deepwater production is set to continue growing at breakneck speed to account for half of all deepwater production by 2030.

Deepwater production remains the fastest-growing upstream oil and gas segment with production expected to hit 10.4 million boe/d in 2022 from just 300,000 barrels of oil equivalent per day (boe/d) in 1990. Wood Mackenzie has predicted that by the end of the decade, that figure will pass 17 million boe/d.

Norway's Aker BP (NYSE:BP) (OTCQX:AKRBF) is the latest oil major to make an ultra-deepwater discovery. At a total depth of 8,168 m, Aker BP says the well is the longest exploration well drilled in offshore Norway. The much bigger than expected oil discovery was made in the Yggdrasil area of the North Sea.

Preliminary estimates indicate a gross recoverable volume of 40 million-90 million barrels of oil equivalent (boe), much higher than the company’s earlier projection of between 18 million and 45 million boe. The discovery will significantly enhance the company’s resource base for the Yggdrasil development, which previously was estimated at 650M gross boe.The oil discovery is located within production licenses 873 and 442: In license 873, with Equinor ASA (NYSE:EQNR) and PGNiG Upstream Norway as partners. The plan for development and operations (PDO) for this project was submitted to Norwegian authorities in December 2022, with production scheduled to start in 2027.

In 2021, U.S. oil and gas major Exxon Mobil (NYSE: XOM) made a big deepwater oil and gas find. Exxon announced that it had made two more discoveries at the Sailfin-1 and Yarrow-1 wells in the Stabroek block offshore Guyana, bringing discoveries on the block to more than 30 since 2015.  Exxon revealed that the Sailfin-1 well was drilled in 4,616 feet of water and encountered 312 feet of hydrocarbon-bearing sandstone, while the Yarrow-1 well was drilled in 3,560 feet of water and encountered 75 feet of hydrocarbon-bearing sandstone.

Exxon did not disclose how much crude oil or gas it estimates the new discoveries to contain, but hiked a previous output forecast for the third quarter from older discoveries in the region. 

The supermajor has boosted development and production offshore Guyana at a pace that "far exceeds the industry average”. Exxon’s two sanctioned offshore Guyana projects, Liza Phase 1 and Liza Phase 2, are now producing above design capacity and have already achieved an average of nearly 360K bbl/day of oil. The supermajor expects total production from Guyana to cross a million barrels per day by the end of this decade.

Exxon said a third project, Payara, is expected to launch by year-end 2023 while a fourth project, Yellowtail, could kick off operations in 2025. 

Exxon is the operator of the Stabroek block where it holds a 45% interest while partners Hess Corp. (NYSE: HES) and Cnooc hold a 30% and 25% interest, respectively. Exxon’s oil and gas production is well below record levels, averaging 3.7M boe/day, nearly 9% below 4.1M boe/day set in 2016.

By Alex KImani for Oilprice.com