German Federal Government Signals Energy Crisis Aid Is Not Sustainable 

By Charles Kennedy - Mar 21, 2023

Germany’s government has warned local authorities that the money it has been distributing amid the energy crisis since last year will not become a new norm.

“All of this burden sharing is based on decisions taken in exceptional political and economic situations,” deputy finance minister Luise Hoelscher said in the ministry’s regular monthly report, as quoted by Bloomberg.

“It’s clear that it cannot be the yardstick for coping with future challenges,” Hoelscher also said. “The financial situation of the federal government has in fact deteriorated considerably in recent years compared with the financial position of the states.”

The federal government of Germany incurred a budget deficit of more than $130 billion in 2022 (129.3 billion euro) largely as a result of pandemic aid and financial support for companies, households, and local governments amid the energy crunch that squeezed the country last year.

Despite the aid, the largest German state, North Rhine-Westphalia, was forced to declare an emergency situation last November in order to be allowed to take on new debt to survive.

North Rhine-Westphalia, home to 20 of the 50 largest German companies, declared an “extraordinary emergency situation” in order to be able to access more loans which would otherwise be denied to the state because of a rule on how much debt a state can borrow

Germany last year doled out as much as 270 billion euros, or close to $290 billion, to protect consumers from the worst effects of the energy crunch, topping the spenders’ list in Europe, including the UK.

The European Union’s total bill for energy aid to businesses and consumers came close to 700 billion euro, or about $720 billion. Some EU member states were not really happy with Germany’s generosity, accusing it of gaining an unfair advantage for its businesses thanks to its deeper pockets.

Venezuela Oil Minister Resigns Amid PDVSA Corruption Probe

By Charles Kennedy - Mar 21, 2023

Tareck El Aissami, Venezuela’s oil minister for three years, has resigned amid a corruption probe into state oil company PDVSA, Reuters has reported, noting six arrests have already been made.

The probe, which also covers the judiciary, has so far resulted in the arrests of two judges, a mayor, and three high-level government officials, the report noted, citing Venezuelan media and unnamed sources.

According to the same sources, some 20 PDVSA officials have also been placed under arrest in the past few days. These arrests are likely to have been made in relation to the investigation of oil cargoes that have been leaving the country without payments being made to the company, the Reuters sources said.

The Venezuelan state oil company suffered hefty losses because of those unpaid for cargoes and the affair led to a freeze of oil supply contracts early this year when the new head of the company, Pedro Rafael Tellechea, came into office.

At the time, Reuters reported that the payment problems have arisen because PDVSA has been forced to use the services of small middlemen companies to ship its oil abroad because of U.S. sanctions. These handle most of the shipments of Venezuelan crude abroad, but some is traded by three Western companies: Chevron, Eni, and Repsol, which were all granted a sanction waiver to do that.

Meanwhile, Venezuela’s oil industry, crippled as it is by U.S. sanctions, remains a big earner. In fact, Caracas said it expected income from oil exports to finance as much as 65 percent of the state budget for this year.

More specifically, the Venezuelan government has stipulated a budget of $14.7 billion for this year, of which $9.34 billion should come from PDVSA—up 14 percent from 2022. With current prices, this is quite unlikely to happen, so Venezuela would either have to boost production or hope prices start climbing again.

By Charles Kennedy for Oilprice.com

Goldman Sachs Sees Commodities Supercycle On The Horizon

By Julianne Geiger - Mar 21, 2023

Investment banker Goldman Sachs sees a commodities supercycle on the horizon triggered by China and a shift away from capital in the energy markets and energy investments.

The exodus from energy markets was brought on by panic in the banking sector, Goldman Sachs' head of commodities, Jeff Curie, said on Tuesday at the Financial Times Commodities Global Summit according to Reuters.

"As losses mounted, it spilled into commodities," Currie said, adding that it could take months to get capital back. "We will still get a deficit by June and it will drive oil prices higher."

"On copper, the forward outlook is extraordinarily positive. We'll be at the lowest observable inventories that have ever been recorded at 125,000 tonnes. We have peak supply occurring in 2024...Near term we put (the copper price) at $10,500 and longer term our price target is $15,000 a tonne."

Copper prices rose on Tuesday on signs of solid demand and a bit more calm in the banking sector. Three-month copper CMCU3 on the LME was trading at $8,833.50 a tonne as the banking panic subsided.

Federal regulators shut down Silicon Valley Bank when it was unable to meet withdrawal requests as panic ensued. They also shut down New York's Signature Bank, fueling the market panic even more. 

The SVB collapse likely means no more rate hikes, Goldman said previously. Higher rate hikes could curtail crude oil demand, so a pause in the hikes could lead to higher demand than what had been previously forecast.

Goldman Sachs has most recently estimated that the Brent crude oil benchmark will reach $94 per barrel in the coming months, with 2024's Brent prices reaching $97 per barrel.

By Julianne Geiger for Oilprice.com

Texas Adds HSBC To Blacklist Of Banks Boycotting Oil And Gas

By Charles Kennedy - Mar 21, 2023

 

Texas has added HSBC to its list of companies that boycott the oil and gas industry, which could ban Texas government entities from investing in Europe’s largest bank and its funds and other products.

HSBC ended up on Texas’ list after the bank recently updated its energy policy, Texas Comptroller Glenn Hegar said this week.

As part of a policy to support and finance a net-zero transition, HSBC will stop funding new oil and gas field developments and related infrastructure, the banking giant said in December.

Motivating the inclusion of HSBC on Texas’ blacklist, Comptroller Hegar said on Monday, “HSBC’s new energy policy is a prime example of a broader movement in the financial sector to push a social agenda and prioritize political goals over the economic health of their clients.”

“HSBC’s policy clearly makes the firm a suitable candidate for listing under Texas law,” Hegar added. 

Texas, the largest oil-producing state in America, is leading the campaign against the ESG movement. Last year, the Lone Star State published a list of financial firms that could be banned from doing business with Texas, its state pension funds, and local governments. 

At the core of the dispute lies the growing ESG investment trend, which many financial firms have embraced amid criticism from shareholders and investors that they sponsor fossil fuels.

Texas and other Republican-led oil and gas states, however, see the ESG trend as an implicit attack on fossil fuels and a boycott of conventional energy resources, the revenues from which make up a large portion of state budgets in energy-producing states. 

Texas has already blacklisted financial firms, including some ESG funds managed by Goldman Sachs and JP Morgan, and has said they would be banned from doing business with the state. The blacklist includes the world’s biggest asset manager BlackRock, as well as BNP Paribas, Credit Suisse, Danske Bank, Jupiter Fund Management, Nordea Bank, Schroders PLC, Svenska Handelsbanken, Swedbank, and UBS Group. The list of funds is much longer. It includes nearly 350 funds, including Goldman Sachs Bloomberg Clean Energy Equity ETF, Goldman Sachs ActiveBeta Paris-Aligned Climate U.S. Large Cap Equity ETF, and JPMorgan U.S. Sustainable Leaders Fund.   

By Charles Kennedy for Oilprice.com

Chinese Firm Set To Oust Glencore As World’s Top Cobalt Producer

By Charles Kennedy - Mar 21, 2023

China’s CMOC Group is expected to become the world’s biggest producer of cobalt—toppling Glencore from the top spot—after it opens a new mine in the Democratic Republic of Congo later this year, according to company filings and estimates by Bloomberg.

CMOC Group became one of the world’s dominant players in cobalt when it bought in 2016 the Tenke Fungurume mine in DRC, giving China a strong position in yet another mineral critical for the energy transition.  

Now CMOC is expected to open a new mine in DRC in the second quarter of this year, which would make it a larger producer of cobalt than Glencore.

Yet, cobalt supply from the operating Tenke mine hasn’t been exported since July 2022 due to a dispute over royalties between the Chinese firm and its Congo state-held junior partner in the venture. CMOC Group executives have signaled that the dispute could be resolved by the end of this month.

A price slump in the cobalt market in recent months was the result of a surge in supply and slower demand amid rising production in Indonesia, and an expected jump of cobalt supply out of the DRC once the CMOC Group royalty dispute is over.  

Production growth in the DRC, the world’s top cobalt supplier, and in Indonesia, a relatively new entrant in the cobalt production market, drove the surge in cobalt supply last year, according to a Darton Commodities report cited by Bloomberg.  

Another report from Darton Commodities, quoted by the Financial Times, expects that China’s share is set to hit 50% of global cobalt output in the next two years. China’s CMOC Group is the second biggest producer of cobalt in the DRC, the country providing 75% of the global supply currently. 

In cobalt refining, China’s grip on the market is even higher as it holds 77% of the global cobalt refining capacity, FT noted.   

Big Oil Wants In On The EV Boom

By Alex Kimani - Mar 21, 2023

• Big oil is investing heavily in EV charging stations.
• 
  
• Today, Shell operates a global network of 140,000 EV charge points, a number that dwarfs its 46,000 gas stations worldwide.
• 
  
• TotalEnergies announced that it would sell nearly 2000 gas stations in Europe.

Last year, the electric vehicle sector crossed a global milestone, with one out of ten vehicles sold being electric for the first time ever. While that slice of the market might not seem like much in the grand scheme of things, another alarming trend for legacy ICE vehicle makers like Ford Motor Co., Mercedes-Benz Group AG and BMW is that their total vehicle sales declined despite EV sales more than doubling. And now Big Oil has read the writing on the wall, and is making the necessary adjustments to face the new reality. To wit, giant oil and gas companies are investing heavily in EV charging stations and ditching their sprawling gas station empires. On Thursday, TotalEnergies SE (NYSE:TTE) announced that it was selling nearly 2,000 gas stations in Europe to Canadian convenience-store company Alimentation Couche-Tard (TSX:ATD:CA) (OTCPK:ANCTF) for €3.1 billion ($3.3 billion). The French mineral oil company revealed that it plans to sell its entire service station network in Germany and the Netherlands to Couche-Tard mainly due to the planned phasing out of internal combustion engines in Europe. Total also said that it will focus on hydrogen and charging stations in countries where the company is not the market leader.

Last month, British multinational BP Plc (NYSE:BP) agreed to acquire the operator of travel centers and truck service facilities, TravelCenters of America (NASDAQ:TA), in a deal valued at ~$1.3B. With 280 locations on U.S. highways, the acquisition will complement BP’s existing convenience and mobility business and also help expand its growing electric vehicle charging, biofuels, renewable natural gas (RNG) and hydrogen businesses.

Related: Vitol Revenue Skyrocketed 80% In 2022

But it’s Europe’s largest energy company that appears to have made the most progress in the EV chargepoint rollout. Two years ago, Shell Plc. (NYSE:SHEL) laid out a grand plan of how it will survive in a zero-emission, climate conscious world. The plan rests on five main pillars that include, among other things, a massive rollout of electric vehicle charging stations and the development of a significantly larger renewable energy generation portfolio. Today, Shell operates a global network of 140,000 EV charge points, a number that dwarfs its 46,000 gas stations worldwide. Shell has a target to have 500,000 charge points by 2025 in locations such as gas stations, homes and grocery store car parks.

Clean Energy Investments

Under mounting pressure from Europe’s no-nonsense climate activists, European oil and gas giants have begun doubling down on their clean energy investments. 

Last month, BP unveiled plans to spend $1B by 2030 on electric vehicle charge points across the U.S.

BP, which considers car rental company Hertz Global Holdings Inc. (NASDAQ:HZE) a "cornerstone" of its EV investment in the U.S., has announced plans to build EV charging infrastructure at Hertz locations in at least a dozen major U.S. cities. BP says that some of the fast-charging installations will include gigahubs locations, essentially large-scale fast charging hubs for car rental customers, rideshare and taxi drivers, and the general public at locations such as airports. BP already has 22K EV charge points worldwide and aims to have more than 100K globally by 2030.

Earlier this month, BP and Spanish electric utility company Iberdrola S.A. (OTCPK:IBDRY) launched a joint venture that will spend ~€1B by 2030 to build a network of fast and ultra-fast EV charging points in Spain and Portugal.

But BP is also investing heavily in other green businesses. Last month, the company announced that it intends to spend as much as €2B (~$2.12B) by 2030 at its Castellón refinery in Spain in a phased development of a green hydrogen plant of up to 2 GW of electrolysis capacity. BP aims to have its first hydrogen electrolyzer unit of 200 MW operational by 2027 with the unit producing 31.2K metric tons/year of green hydrogen.

Although investing in charge points and other clean energy infrastructure eliminates a significant degree of commodity and volatility risk, it comes with a price: margins at the convenience and EV-charging business are lower than in oil and gas exploration at 15% vs. 20%.

But Europe’s oil and gas supermajors are increasingly having little choice in the matter: last week, two of the U.K.'s largest pension funds threatened to vote against the renewal of top directors at BP and Shell unless both companies strengthen their commitments to tackling carbon emissions. The plan by Universities Superannuation Scheme and Borders to Coast is part of efforts to push oil companies and banks to accelerate delivery on their climate pledges. The two funds together oversee £130B (~$156.3B) in assets.

By Alex Kimani for Oilprice.com