ANOTHER REASON TO GO RENEWABLE

North Sea Oil Production Could Fall By 80% By 2030

By Felicity Bradstock - Apr 06, 2023

• Offshore companies reduce their spending in the North Sea, leading to a decrease in oil production.
• Without additional funding, the UK may become reliant on foreign fossil fuels to meet its energy demands.
• The introduction of a windfall tax has been blamed for the lack of interest in British waters.

According to the industry body Offshore Energies UK, investments in the North Sea have dipped significantly. This could result in much lower oil production by the end of the decade unless the government can attract greater investment to the sector. While environmental groups are praising the drop in funding, energy experts are concerned about what this means for the U.K.’s energy security, with some suggesting it may have to rely on foreign fossil fuels to meet its needs. 

Offshore Energies found that 90 percent of offshore firms had reduced their spending in the North Sea, amounting to billions in total. It determined that the lower level of investment could result in a decrease in production of 80 percent by 2030, equivalent to 500 million fewer barrels of oil if the government cannot attract more funding to the waters. This could lead the U.K. to rely on imports of oil and natural gas. 

The introduction of a windfall tax has been blamed for the lack of interest in British waters. The government introduced the tax last year as energy companies saw record profits as oil and gas prices rose sharply. This was largely in response to supply shortages and sanctions on Russian gas. Headline tax rates for companies rose from 40 percent to 75 percent, although several companies still posted profits. BP announced it had seen record profits of $22.7 billion in 2022. However, many companies believe it could be cheaper to invest in oil and gas operations in countries where taxes are significantly lower. Others have shifted investments to new ‘low-carbon’ oil operations, in a move away from traditional oil-producing regions. Other reasons for the reduction in investment include high levels of inflation, expensive material costs, and a lack of access to finance. 

Several environmental groups are suggesting the investments bound for the North Sea could be better used in renewable energy projects. This would both help the U.K. to ensure its energy security as well as accelerate the green transition by cutting fossil fuel use and carbon emissions. However, several industry experts see fossil fuels as playing a huge part in the U.K.’s mid-term energy security. Ross Dornan from Offshore Energies stated, “By the mid-2030s, according to the Climate Change Committee, oil and gas will still provide half our energy needs.” Therefore, "We should be aiming to get as much as possible of that energy from our own resources - meaning the North Sea,” Dornan explained. Dornan highlighted the need for the U.K. to attract investment in the sector or become reliant on other countries for its oil supply. 

Earlier in the year, Amjad Bseisu, CEO of the North Sea company EnQuest, stated that the U.K. is fiscally unstable, which has led the government to indulge in “short-termism” by introducing windfall taxes to the detriment of its oil and gas industry. In response to the rise in taxes, Bseisu said that Asia had become the company’s biggest growth area, instead of the U.K. or Europe. Although the windfall tax responds to 2022’s rising consumer energy bills and high oil and gas profits, it is expected to remain at the increased rate until 2028, which could deter energy companies from investing further in British oil and gas operations. 

Bseisu and other industry leaders believe it is vital for the U.K. to make the North Sea attractive to investors and maintain its oil and gas activities to bring in the revenues needed to fund the green transition. Without money from oil and gas, the government may not have the funds it needs to accelerate the rollout of renewable energy and related technologies. Further, it may need to spend more on oil and gas imports if its domestic production falls short of the country’s rising energy demand. 

Other countries, such as the U.S., have avoided introducing a windfall tax, having instead concentrated on boosting national production to ensure energy security. Revenues from the oil industry are expected to support the rollout of President Biden’s ambitious 2022 climate policy, the Inflation Reduction Act. The joint aim of accelerating the development of the U.S.’s green energy capacity while also decarbonising through carbon capture and storage technologies and other schemes will help the country to continue producing oil and gas as it speeds up its green transition. However, this too has been criticised, as many environmental groups believe Biden is offering too much support for oil and gas in contradiction to his climate pledges. 

Countries around the globe appear to be finding it hard to manage their energy security, needing to decrease consumer costs, move away from oil and gas, and increase their green energy production. The U.K.’s windfall tax has been blamed for deterring greater investment in North Sea oil and gas operations, which could negatively affect the country’s energy security. But at the same time, environmental organisations are suggesting the money could be better used in renewable energy projects. And other approaches, such as U.S. President Biden’s backing of domestic fossil fuel production, have received similar criticism. So, it seems that striking the right balance between mid-term fossil fuel production to ensure energy security and a long-term green transition is more complex than some originally thought. 

By Felicity Bradstock for Oilprice.com 

Mexico To Buy 13 Power Plants From Spanish Energy Major

By Charles Kennedy - Apr 05, 2023

Mexico is set to buy 13 power plants currently operated by Spain’s utility major Iberdrola in a deal worth some $6 billion.

The purchase, Reuters reports, is part of the Lopez Obrador government’s ambition to return control over Mexico’s electricity market to government hands.

In a video, President Andres Manuel Lopez Obrador said the deal will give state-owned utility Comision Federal de Electricidad majority control over the Mexican electricity 

Mexico’s government has been on the nationalization path since coming into office. This has led to growing tensions with the United States, which has repeatedly warned its southern neighbor to open up its market instead of closing it to private businesses. 

What the Lopez Obrador government has been doing is essentially reversing as many policies introduced by the previous government as possible. This has naturally caused an outcry in international business circles as their access to potentially lucrative projects in Mexico, including oil and gas but also wind and solar, as well as power plant operation, has shrunk.

This has created uncertainty and the potential for an acceleration in the outflow of investment. International law firm White & Case last year wrote in a report that electricity and mining are among the most vulnerable industries to stringer government control.

“The Mexican energy sector is roiled by an environment of uncertainty and regulatory brakes to execute new and ongoing investments. Potential damage to existing foreign investments in the electricity and mining sectors could result from the amendments to the Electricity Law, the Lithium Mining Reform, and secondary regulations,” the report said.

No wonder then that Iberdrola has considered it wise to reduce its exposure to the Mexican market with the power plant deal, which is expected to be finalized in five months.

Exxon Ends Major Drilling Campaign In Brazil After Failing To Find Oil

By Tsvetana Paraskova - Apr 05, 2023

After years of failing to make a major oil discovery offshore Brazil, ExxonMobil has ended a major drilling campaign there, but hasn't ruled out further exploration in the country, The Wall Street Journal reported on Wednesday, citing sources with knowledge of the plans.

Exxon, the first oil and gas company to set up operations in Brazil in 1912 under the name of Standard Oil Company of Brazil, bought deepwater acreage back in 2017, hoping to find oil in the prolific offshore basins where other majors and Brazilian state oil firm Petrobras have found huge oil reserves.

Exxon, however, hasn’t been successful in its years-long exploration campaign and has ended that campaign, according to the Journal’s sources.

In 2021, Exxon drilled two wells in the Opal and Tita blocks. According to Brazilian oil industry regulator ANP, Exxon found traces of oil and gas in the Tita block, Bnamericas reported in November 2021. Exxon paid the equivalent of $560 million to secure a majority stake in the block in a tender held in 2018.  

Exxon and partners have spent $4 billion on securing drilling rights in blocks offshore Brazil in tenders over the past five years. Yet, the supermajor has not made that one major discovery that would lead to sanctioning a project to pump oil.  

The drilling setback is rare for Exxon, which struck so much oil offshore Guyana, which borders Brazil to the north, that it helped make it the latest oil-producing and oil-exporting nation in late 2019.

Despite the end of the Brazilian drilling campaign, Exxon has not given up on exploration offshore the country.

“We continue to work with our co-venturers to analyze the data acquired from the extensive drilling program to assess the potential for future exploration activities in those blocks,” Exxon’s spokeswoman Michelle Gray told the Journal. 

In December, Exxon said in its latest corporate plan that more than 70% of capital investments by 2027 would be deployed in strategic developments in the U.S. Permian Basin, Guyana, Brazil, and LNG projects around the world.  

By Tsvetana Paraskova for Oilprice.com

Another Russian Energy Oligarch Dies Under Mysterious Circumstances

By Julianne Geiger - Apr 05, 2023

It’s a bad time to be an energy-related Russian oligarch with yet another mysterious death.

The body of Igor Shkurko, age 49, was found in his cell yesterday in a Yakutsk detention center. Shkurko was the First Deputy General Director/Chief Engineer of the Russian energy company Yakutskenergo and had been accused of taking a £5,000 bribe—an allegation that Shkurko denied. Russian authorities have so far proffered no explanation for his death, although they stated that there were no signs of “criminal death.”

Shkurko was also a member of the Putin-affiliated United Russia political party, with his membership suspended following the bribery allegations.

Shkurko’s death is just one in a string of Russian oligarchs that have died under mysterious circumstances since Russia’s invasion of Ukraine—many of them energy-related oligarchs.

In early 2022, Vladislav Avayev, former Kremlin official and vice president at Russian bank Gazprombank—the bank at the center of Russia’s rubles-for-gas payment scheme—was found dead in his Moscow apartment. Authorities said he killed his wife and daughter and then himself.

Days later, Novatek’s Sergey Protosenya and his family were found dead in Spain. Authorities said Protosenya hanged himself after stabbing his mother and daughter.

Leonid Shulman and Alexander Tyulyakov—former Gazprom executives—were also found dead in 2022. Both had left suicide notes.

In May, the death toll continued to mount with perhaps the strangest death yet, with former Lukoil board member and executive Alexandr Subbotin dying from cardiac arrest after allegedly willfully ingesting toad poison administered by a local shaman to alleviate a hangover.

Russian oil tycoon Mikhail Waford was also found hanged in March.

In September, Lukoil’s chairman Ravil Maganov died after falling out of his hospital window. A TASS news outlet source said that he took his own life by jumping out of the window.

To date, no official link has been found between these Russian energy oligarch deaths.

By Julianne Geiger for Oilprice.com

TIT 4 TAT

China Considers Prohibiting Exports Of Rare Earth Magnet Technology To The U.S.

By ZeroHedge - Apr 05, 2023

If China thought the trade war with Trump was bad, little did they know how much worse it would get under Joe "Big Guy" Biden.

As Rabobank's Michael Every wrote this morning, "don’t forget President Biden is already running a US trade policy far more protectionist than his predecessor’s" and the latest example of that came this morning when Japan decided to join United States and the Netherlands in restricting exports of chipmaking gear to China, as the cold chip war between China and the west enters an exciting new phase.

Of course, Beijing wasn't going to just sit there and do nothing as the US piled sanction upon sanction in hopes of sending China back into the stone age, and many expected that China would retaliate by squeezing the west where it had the most leverage, namely by limiting exports of another key tech supply-chain product: rare earth metals, and where China is the world's dominant producer.

Well, it appears they were right because as the Nikkei reports, China is considering "prohibiting exports of certain rare-earth magnet technology in a move that would counter the U.S.'s advantage in the high-tech arena." To do this, officials will file amendments to a technology export restriction list, which was last updated in 2020. In total, there are 43 amendments or additions in the draft list first announced in December by the commerce and technology ministries. Officials have finished taking public comments from experts, and the changes are expected to go into force this year.

The revisions would "either ban or restrict exports of technology to process and refine rare-earth elements. There are also proposed provisions that would prohibit or limit exports of alloy tech for making high-performance magnets derived from rare earths."

As regular readers know, high performance magnets are used in a wide range of applications, such as motors for electric vehicles and various high-tech military devices.

The last time China suspended exports of rare earths, was in 2010 when it halted shipments to Japan following tensions surrounding the Japan-administered Senkaku Islands, which Beijing claims and calls the Diaoyu. Japan specializes in making high-performance magnets from rare earths while the U.S. produces products that use the magnets. That episode led to a heightened sense of alarm in Japan and the U.S. on the economic security front.

Since then, Washington has moved to forge a rare-earth supply chain on U.S. soil. And while China's share of all rare earths produced globally dropped to roughly 70% last year from about 90% a decade earlier, according to the U.S. Geological Survey, China still remains the dominant producer of rare earths.

Furthermore, China still holds a tight grip on processing rare earths. Ironically, most rare earths extracted in the U.S. go to China for refining before being shipped back to the U.S. Good luck with that going forward.

Understandably, amid the heightened China-U.S. tensions, both Washington and Tokyo are developing rare-earth supply chains that are less dependent on China. The two countries are sharply restricting exports of advanced semiconductor technology to China with the aim of blunting the nation's rise in the high-tech field.

The Chinese government, meanwhile, is looking to turn the country into a high-tech manufacturing superpower that can compete with the U.S. Because China is behind when it comes to advanced semiconductors, "they're likely going to use rare earths as a bargaining chip since rare earths are a weak point for Japan and the U.S." said a source in the resources industry.

"Japan intends to endeavor to strengthen supply chains for critical minerals and other commodities," Japanese Chief Cabinet Secretary Hirokazu Matsuno told reporters Wednesday. "We'll continue to closely monitor the institutional impact from China," Matsuno added.

By Zerohedge.com

Canadian Oil Is Top Choice Among Oil Importers

By Charles Kennedy - Apr 05, 2023

When it comes to where the world gets its oil, a new global poll shows that importers favor Canadian crude, the majority’s top choice for reasons that are both democratic and environmental. 

Some 24,000 people surveyed across 28 countries put Canada at the top of the list of preferred oil suppliers, citing the reputation and reliability of a country so far removed from any conflict zones or risky geopolitical maneuverings. 

“That really reflects the reputation our country has as a place that does things the right way, not just producing oil and gas, but all the other elements of environment, social and governance considerations,” Global News cited Richard Masson, chair of the World Petroleum Council in Canada, as saying. 

Canada was chosen as preferred supplier by 55% of respondents, while Norway ranked second at 53%, followed by the U.S. at 52%.

The Middle East was favored by 40% of respondents, followed closely by Mexico, with Venezuela, Russia and China making up the bottom of the ranking, according to the Financial Post. 

Overall, 52% of those surveyed indicated that the peoples’ choice awards for oil supply generally go to Canada, Norway and the United States, which the report notes “have strong records of democracy and environmental safety”, rather than Russia or Saudi Arabia.

Geopolitical instability and an energy crisis has created a situation in which people are much more aware of the origins of their energy, Ipsos said in its report.  

“When we’re seeing a lot of conflict in areas that have traditionally produced oil, such as Russia, and concerns around countries such as China, the poll demonstrates that globally the world is looking to Canada and other countries like us to produce and supply the oil that they need,” Masson said. 

Still, it is a high-level ranking for a country that only produces around 4% of the world’s oil, most of which is sold to the United States.