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

MONOPOLY CAPITALI$M

Tesla’s New Charging Standard Makes Competition Near-Impossible

By ZeroHedge - Jun 14, 2023Tesla's NACS, now supported by Ford and GM, accounts for 72% of the U.S. market, outpacing its closest competitor, the CSS.

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• Despite current federal funding favoring the CCS format, there's flexibility for NACS to meet the minimum standards for government funding, paving the way for increased infrastructure.
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• The support for NACS is likely to increase the number of charging stations, with major companies such as ABB, Blink Charging, and Chargepoint, among others, announcing their backing. Ford and GM will start adding NACS to their vehicles from 2024-2025.
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Now that Ford and GM are joining forces with Tesla on charging infrastructure, the industry tide seems to be turning to one accepted standard: Tesla's North American Charging Standard (NACS) port.

Brilliantly using an analogue to the old Blu-ray vs HD DVD wars of days past, The Verge highlights how Tesla is shouldering its way to the front of the line when it comes to EV charging protocols.

Combined with Ford and GM, Tesla's standard now makes up 72% of the U.S. market. Its closest competitor, the CCS, gets the ill fated comparison to HD DVD, the now defunct video format from years past.

With Ford and GM agreeing to use that charging standard, it’s a bit like Samsung saying they will use the Apple lightning charger on its phones.”

CCS is still on the dole from the U.S. government, however, as federal funding remains limited to the CCS format, the report says. 

White House spokesperson Robyn Patterson told the Verge that there are minimum standards chargers must meet to get funding, but that NACS could meet this threshold: “Those standards give flexibility for adding both CCS and NACS, as long as drivers can count on a minimum of CCS.”

Guidehouse Insights principle research analyst Sam Abuelsamid added: “I’m guessing that lobbyists from GM and Ford are talking DOE to get those rules changed ASAP.”

Here are the charging station companies that have announced support for NACS, according to a newly released report from electrek:

• ABB
• Blink Charging
• Chargepoint
• EVgo
• FLO
• Tritium
• Wallbox

Tesla has 45,000 charging stations around the world, 12,000 of which are in the U.S. Tesla owners also receive a J1772 adapter with their car that allows them to access more than 53,000 other Level 2 stations in North America. 

The number of stations will likely increase now that Ford and GM are adding NACS natively to future vehicles, beginning in 2024-2025.

Edmunds executive director of insights Jessica Caldwell concluded: “Behind cost, consumers’ biggest concern when considering an EV purchase involves charging as it’s an overwhelming unknown to so many."

She finished: "And for EVs to truly take off, there needs to be some standardization so consumers feel comfortable knowing they have ample charging locations to turn to and won’t be left stranded on the side of the road.”

How Chinese Military Equipment Found Its Way Into The Ukraine War

By RFE/RL staff - Jun 14, 2023

• Chinese-made military equipment, including a multipurpose vehicle model called the Tiger, has been spotted in use on the Ukrainian battlefield, raising suspicions about China's covert role in the conflict.
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• While there's no concrete evidence of China providing formal military aid to Russia, Chinese exporters have reportedly supplied components of weapon systems to sanctioned Russian defense companies, indicating a possible loophole in sanction enforcement.
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• Recent investigations have traced the flow of Chinese components into Iran, then to Russia, and finally used against Ukraine, highlighting the complex supply chains that can circumvent sanctions.
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It's been a constant since Moscow's full-scale invasion of Ukraine in 2022, but Chinese parts and components -- as well as drones and some weapons -- are finding their way onto the battlefield and helping Russia's military.

Finding Perspective: The issue was pushed back into the spotlight following a video posted to Telegram by Chechen leader Ramzan Kadyrov showcasing an array of new military equipment, including eight Chinese-made unarmed armored personnel carriers.

The vehicles appeared to be a multipurpose model called the Tiger or China Tiger and the video brought renewed scrutiny of Chinese weaponry helping the Kremlin's war effort -- a possibility raised by Western governments and experts for some time.

It's difficult to determine when or how the Chinese vehicles ended up in Chechnya, or how they might be deployed on the battlefield -- if at all.

While the equipment is no doubt Chinese-made, multiple military experts I spoke with said it was unlikely this was from a formal sale, saying that the Tiger is widely exported around the world -- including across Africa and to Tajikistan -- and that Kadyrov states in the video that "we regularly purchase military equipment that helps our fighters be more effective in solving the tasks assigned to them."

Why It Matters: There is no evidence so far that China has provided any formal military aid, such as shipments of ammunition or full weapons systems.

Doing so would bring major reputational costs to Beijing and China has instead pivoted to taking up a diplomatic position around the war to frame itself as a peacemaker.

Still, Chinese exporters have supplied components of weapons systems and dual-use technology to sanctioned Russian defense companies.

A new report from The Wall Street Journal found that Iranian drones used by Russia in Ukraine had new Chinese parts that were made this year.

The revelation shows that new Chinese components are continuing to flow into Iran, where they then make their way to Russia. According to an investigation, the Chinese part was made in January, shipped to Iran, installed, and then sent to Russia and used against Ukraine in April.

While this stops short of full-blown military support, it highlights the complexities of supply chains and the multitude of ways countries can still skirt sanctions.

Another recent investigation by the Organized Crime and Corruption Reporting Project tracked an export path for Chinese drones from China to Russia to the battlefield via the Netherlands and Kazakhstan through a collection of Russian-owned companies.

Expert Corner: Slovakia, Elections, And Taiwan

Readers asked: "Along with the Czech Republic, Slovakia has been one of Taiwan's strongest supporters in Europe. The country is set to hold parliamentary elections in late September amid rising populism and growing pro-Russian, anti-Ukraine rhetoric on the political spectrum. How might that affect relations with Taipei?"

To find out more, I asked Matej Simalcik, the executive director of the Central European Institute of Asian Studies in Bratislava:

"There's still time until the elections and the polling is not yet conclusive about what the result may be or what kind of constellation of parties can form a coalition. But at the moment, the election could go either way and that could impact relations with China and Taiwan, even though neither are big election topics in Slovakia.

"In general, you can divide Slovak politicians into three groups when it comes to China. The first are those that are pragmatically pro-Chinese and see it as a source of economic benefits. The second are more ideologically inclined towards China. These two groups are mixed and matched across several political parties, but share elements of their worldview when it comes to economics and politics that tends to favor Chinese interests. The third group are those that are opponents of China ideologically while calling for some form of limited trade relations.

"Should the opposition form a government [likely led by former Prime Minister Robert Fico's Smer-SD party] then we'd see the first two groups have a larger voice. It's also important to observe that many of these politicians that tend to be pro-Chinese are also pro-Russian and they don't back China out of sheer goodwill. It's generally a very cold political calculus where they can use China in a way that fits into their anti-West narratives related to domestic politics or the war in Ukraine."

By RFE/RL