ADIPEC Days III & IV: Connecting minds. Transforming Energy

Over the course of Wednesday and Thursday - days III & IV - of ADIPEC 2024 that put us on the home stretch towards the conclusion of global event, conversations turned to a collaborative transformation of the energy mix. 

It was acknowledged that a blend of human ingenuity, finance and technology, with conducive inter-governmental policies would go a long way. 

Hence, event participants got to grips with how to make it happen along with flagging some tangible examples of successful private investments, public-private partnerships and international collaboration. 

Familiar industry subjects were also under the microscope on both days - including but not limited to - stepping up efforts on achieving global carbon neutrality, crucial role of natural gas in a future energy mix, infrastructure for alternative fuels for transportation at ports and airports, tackling methane emissions, and emerging hydrogen energy solutions. 

Speaking of hydrogen, yours truly hosted a panel on Day III titled 'Asia's role in defining the hydrogen market' with panellists - The Right Honourable Abang Johari Tun Openg, Premier of Sarawak, Malaysia, Hiroshi Matsuda, Chief Regional Officer, EMEA, Mitsubishi Heavy Industries, Koji Yamamoto, SVP, JOGMEC, Shoichi Kaganoi, SVP, Hydrogen & CCUS Development, INPEX and Karine Boissy-Rousseau, VP Green Gases, TotalEnergies.

We discussed how Asian countries are positioning themselves within the global hydrogen economy, focusing on their advances in production technologies and infrastructure, and the geopolitical implications of their evolving roles as both importers and exporters in the hydrogen market.

Afterall, as Asian nations start to configure their hydrogen markets, the region provides a compelling case for the development of new technologies to produce lower cost hydrogen, as well as investments in a rapid expansion of enabling infrastructure for international hydrogen trade.

And the Oilholic brought his ADIPEC 2024 engagements to a close with a panel on the 'strategic role of NGOs in unlocking energy investment for emerging economies' on the final day of the event.  

Eminent panellists for this session included Maha Attia, Head of the Strategic Planning Committee and Assistant Vice-Chairman for Foreign Trade at the Egyptian Natural Gas Holding Company (EGAS), Madadh MacLaine, Secretary General, Zero Emissions Ship Technology Association, Huda Al Houqani, Director, Abu Dhabi Sustainability Group (ADSG) and Michel Abi Saab, General Manager, Emerge.

We discussed how non-governmental organisations (NGOs) are fostering energy sector growth in developing countries by overcoming regulatory and infrastructural barriers, and how strategic collaboration with NGOs can unlock significant investment potential in emerging markets.

By collaborating with governments and industry, NGOs help to refine policies and showcase scalable clean energy projects, making emerging markets more attractive to energy companies and financial institutions. These strategic partnerships not only advance sustainable development but also enable organisations to navigate complex regulations, secure funding, and confidently enter high-growth markets.

Finally, global events like ADIPEC cannot of operate in isolation from international developments, none bigger than the 2024 US presidential election that saw Donald Trump reelected. News of the return of Trump reverberated midway through the week-long event. 

Goes without saying, his presidency will likely have a profound impact on global energy markets, as summed up by yours truly in a Forbes piece. And on that note its time to bid goodbye to Abu Dhabi folks, until next year. So keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo I: Energy AI exhibition at ADIPEC 2024. Photo II: Gaurav Sharma hosting a panel on hydrogen markets in Asia at ADIPEC 2024 on 06.11.24. (Courtesy: dmgevents) Photo III: Gaurav Sharma hosting a panel on the strategic role of NGOs in unlocking energy investment for emerging economies at ADIPEC 2024 on 07.11.24. (Courtesy: dmgevents)

All about crude "market stability"

The Oilholic arrived at the first day of the OPEC International Seminar to find the oil producers' group in a belligerent mood led by kingmaker Saudi Arabia. The kingdom's energy minister Prince Abdulaziz bin Salman said recent OPEC+ actions demonstrate the strength of the partnership and teamwork with Russia. 

Furthermore, he uttered two words that shaped the entire day - "market stability". Addressing delegates, Abdulaziz said his country will do whatever it takes to ensure it, and looks like Riyadh is not ditching its stance of unilateral voluntary oil production cut of 1 million barrels per day (bpd) in a huff. Though Abdulaziz did go to some length to say the Kingdom's current stance does imply it was returning to its 1980s swing producer status.

His address followed that of several of his OPEC ministerial peers repeatedly mentioning the need for "market stability" - cue a higher crude price, perhaps one that's above $81 per barrel the Saudis need to balance their budget. UAE Energy Minister Suhail Al Mazrouei chimed in by adding that if anything OPEC deserves an even larger market share in a "balanced" energy market, and added that market commentary on the group's intentions had been a tad er....unbalanced. 

And not to be outdone, Azerbaijan's Minister of Energy Parviz Shahbazov quipped that if OPEC+ or OPEC didn't hypothetically exist as groups, "we would need to create them" across the energy value chain, and not just oil, in the interests of well, you guessed it - "market stability". 

But one of the main reasons a higher oil price that OPEC+ craves is proving elusive is down to the 6 million bpd of Russian oil that is still finding its way to the market despite a near absence of Western buyers, and India and China duly obliging by importing copious amounts it. 

Canada, Guyana, US, Brazil and Norway are all also pumping more. But the biggest weight on the crude price is the uncertain economic climate and the hawkish stance of global central banks, especially the US Federal Reserve. More to follow from Vienna, but that's all for the moment folks! Keep reading, keep it crude! 

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© Gaurav Sharma 2023. Photo © Gaurav Sharma, July 5, 2023.

Various media missives on energy market

The last fortnight has just zipped by with so much going on in the energy market that the Oilholic did not get time to pen his thoughts here (apologies!). However, here are a plethora of thoughts for various publishing outfits on various energy related subjects. 

First off, despite all the geopolitical pressures, worries of an escalating trade war continues to be the dominant bearish sentiment in the market and could turn mildly bullish if resolved. So here are some thoughts on Forbes in defence of those with bearish oil price forecasts who some say are being complacent, alongside a note on the prospects of US Midstream stocks. 

And a take on why Formula E versus Formula 1 motorsports offer a microcosm of the tussle for human mobility. Away from Forbes here is yours truly's article on the Big Data tsunami that is heading the oil and gas industry's way via Rigzone.

Finally, here's a take on the cybersecurity challenge the energy industry faces on Energy Post (behind paywall). More on this mad, mad crude market soon. Keep reading, keep it 'crude'!

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© Gaurav Sharma 2019.

On IPWeek 2019 & BP Boss' US shale take

A fascinating few days of debates and deliberations at the Energy Institute's International Petroleum Week 2019 came to a close in London earlier today.

For yet another year, the Oilholic was delighted to have spoken and moderated at the event as part of the Gulf Intelligence Middle East Energy Summit. Industry 4.0, investment climate, US shale and OPEC were all under the radar. Delegates were fairly evenly split on the direction of the oil price; but yours truly maintains that the phase of range-bound crude prices is here to stay. 

From where this blogger sits, it is appearing hard for Brent to escape the $65-75 per barrel range, and for the WTI to escape the $55-65 range this year. 

There were interesting soundbites aplenty, but BP Boss Bob Dudley's quip that US shale is a price responsive "brainless" market stood out among them all. Here's the Oilholic's full report and analysis on it for Forbes. That's all for the moment folks! Next stop - Houston, Texas for IHS CERAWeek 2019. Keep reading, keep it crude!

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© Gaurav Sharma 2019. Photo: Gaurav Sharma at IPWeek 2019; with Chris Midgley, Global Director of Analytics for S&P Global Platts © Gulf Intelligence. 

Just boring variation not a crude rally or slump

Week-on-week, the picture remains one of a crude oil market in which benchmark prices are firming up, yet both Brent and WTI futures remain within that very predictable range of $60-80 per barrel (see chart left, click to enlarge). 

A fortnight ago, bolstered largely by the tightening of US sanctions on Iran or rather the perception of tightening, Brent began a two-week climb towards $80 per barrel, as the WTI strengthened above $70. 

Yet again, bullish prophets hit the airwaves suggesting a $90 per barrel Brent price in light of tightening of a crude market with "very little spare capacity." In some market quarters it is being debated that global spare capacity is now less than 1 million barrels per day (bpd). 

The Oilholic thinks the bulls ought to calm down a bit. Agreed, US President Donald Trump's squeeze on Iranian oil exports is making buyers nervous, particularly India and Japan. And in 2019, it would be reasonable to expect Tehran's production to be well below its current 3.6 million bpd+ production mark to around 2.4 million bpd. 

However, Saudi attempts to compensate (or over-compensate) for a decline in Iranian output would not go unnoticed in Moscow. Russia has already indicated that it would like to raise production, and amicable as things might be with OPEC, if they want to, they would increase production. 

The market's problem right now is that it is missing strong breakout factors - both bearish and bullish ones. Bearish threats of global trade wars, direction of emerging markets, and an unraveling of the OPEC and non-OPEC agreement continue to lurk around. Similarly, bullish factors such as the industry under-investing (a very visible concern) and running out of spare capacity to mitigate supply shocks also persist. 

So price positive as well as negative sentiments are still not strong enough to decisively pull oil futures one way or another, with US turning less and less to the global supply pool courtesy of rising domestic production. Therefore smart money says what we've seen over the last two weeks was not a rally and nor has there been any noticeable slump. All that has transpired is variation within a predictable floor and ceiling. That's all for the moment folks! Keep reading, keep it 'crude'!

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© Gaurav Sharma 2018. Graph: © Gaurav Sharma, September 2018.

Grappling with volatility in a barmy crude market

The oil market is not making a whole lot of sense at present to a whole lot of people; the Oilholic is admittedly one of them. However, wherever you apportion the blame for the current market volatility, do not take the convenient route of laying it all at China’s doorstep. That would be oversimplification!

It is safe to say this blogger hasn’t seen anything quite as barmy over the last decade, not even during the post Lehman Brothers kerfuffle as a US financial crisis morphed into a global one. That was in the main a crisis of demand, what’s afoot is one triggered first and foremost by oversupply. 

As one noted in a recent Forbes column, the oversupply situation – not just for oil but a whole host of commodities – merits a deeper examination. The week before we saw oil benchmarks plummet after the so-called ‘Black Monday’ (August 24) only for it recover by Friday and end higher on a week-over-week basis compared to the previous week’s close (see graph above, click to enlarge)

This was followed on Monday, August 31 by some hefty gains of over 8% for both Brent and WTI. Yet at the time of writing this blog post some 48 hours later, Brent had shed over 10% and the WTI over 7% on Tuesday but again gained 1.72% and 1.39% respectively on Wednesday.

The reasons for driving prices down were about as fickle as they were for driving them up and subsequently pulling them down again, and so it goes. When the US Energy Information Administration (EIA) reported on Monday that the country’s oil production peaked at just above 9.6 million barrels per day (bpd) in April, before falling by more than 300,000 bpd over the following two months; those in favour of short-calling saw a window to really go for it.

They also drew in some vague OPEC comment (about wanting to support the price in tandem with other producers), knowing full well that the phoney rally would correct. The very next day, as the official purchasing managers’ index for Chinese manufacturing activity fell to 49.7 in August, from the previous month’s reading of 50, some serious profit-taking began.

As a figure below 50 signals a contraction, while a level above that indicates expansion, traders found the perfect pretext to drive the price lower. Calling the price higher based on back-dated US data on lower production in a heavily oversupplied market is about as valid as driving the price lower based on China’s manufacturing PMI data indicative of a minor contraction in activity. The Oilholic reckons it wasn’t about either but nervous markets and naked opportunism; bywords of an oversupplied market.

So at the risk of sounding like a broken record, this blogger again points out – oversupply to the tune of 1.1-1.3 million bpd has not altered. China’s import level has largely averaged 7 million bpd for much of the year so far, except May. 

Yours truly is still sticking to the line of an end of year Brent price of $60 per barrel with a gradual supply correction on the cards over the remaining months of 2015 with an upside risk. Chances of Iran imminently flooding the market are about as likely as US shale oil witnessing a dramatic decline to an extent some in OPEC continue to dream off.

But to get an outside perspective, analysts at HSBC also agree it may take some time for the market to rebalance fully. “The current price levels look completely unsustainable to us and a combination of OPEC economics and marginal costs of production point to longer-term prices being significantly higher,” they wrote in a note to clients.

The bank is now assuming a Brent average of $55.4 per barrel in 2015, rising to $60 in 2016 and $70-80 for 2017/18. Barclays and Deutsche Bank analysts also have broadly similar forecasts, as does Moody’s for its ratings purposes.

The ratings agency sees a target price of $75 achieved by the turn of the decade, but for yours truly that moment is bound to arrive sooner. In the meantime, make daily calls based on the newsflow in this barmy market. That’s all for the moment folks! Keep reading, keep it crude!

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© Gaurav Sharma 2015. Graph: Oil benchmark Friday closes, Jan 2 to Aug 28, 2015 © Gaurav Sharma, August 2015.

Oil markets & producers on a tricky skating rink

So we had a crude oil price plunge early January, followed by a spike that promptly "un-spiked", only to rise from the ashes and subsequently go down the path of decline again. Expect further slippage, more so as the last week of profit taking takes place before the March futures contracts close, which in ICE Brent’s case would be February 13.

Amid the ups and downs of the last six weeks, headline writers were left tearing their hair on a daily basis switching from "Brent extends rally" to "Oil slides despite OPEC talk of a floor" to "Falling Premiums" to "Crude oil getting hammered" and back to "Oil jumps". All the while commentators queued up with some predicting a return to a US$100 per barrel Brent price "soon", alongside those sounding warnings about a drop to $10.

The actual market reality is both here and nowhere, as we enter a period of constant slides and spikes between $40 and $60. There are those who say the current oil price level cannot be sustained and supply-side analysts, including the Oilholic, who say the current oil production levels cannot be sustained. Both parties are correct – a price spike and a supply correction will happen in tandem, but not overnight.

It will take at least until the summer for sentiments about lower production levels to feed through, if not longer. More so, as many are gearing up to produce more with less, for example in Western Canada where fewer wells would be dug this year, but the production tally would be higher than the previous year. Taking a macro viewpoint, all the chatter of bull runs, bear attacks and subsequent rallies is just that – chatter. Market fundamentals have not materially altered.

Despite the latest Baker Hughes data showing fewer operational rigs compared to this point last year, the glut persists and there is some way to go before it alters. Roughly around 5% of current global oil production is taking place at a loss. Yet producers are biting the bullet wary of losing market share. It'll take a lot longer than a few weeks of negative rig data in the new year, before someone eventually blinks and makes a substantial impact on production levels. The Oilholic reckons it will be around June.

Until then, expect the market to continue skating in the $40 to $60 rink. In fact, there is some justification in OPEC Secretary General Abdalla Salem El-Badri’s claim that oil prices have bottomed out. While we could have a momentary dip below $40, something which the Western Canadian Select has already faced. However, by and large benchmark prices have indeed found resistance above $40. 

Having said so, the careful thing to do between now and (at least) June would be to not get carried away by useless chatter. When Brent shed 11.44% in the first five trading days of January, only to more than recover the lost ground by the end of the month (see chart on the right, click to enlarge), some called it a mini-bull run.

Percentages are always relative and often misleading in the volatile times we see at the moment, as one noted in a recent Tip TV broadcast. So mini-bull run claims were laughable. As for the eventual supply correction, capex reduction is already afoot. BP, Shell, BG Group and several other large and small companies have announced spending cuts. A recent Genscape study of 95 US exploration and production (E&P) companies noted a cumulative capex decline of 27%, from $44.5 billion last year to a projected $32.5 billion this year.

Meanwhile, Igor Sechin, the boss of Russia’s Rosneft has denied the country would be the first to blink and lower production in a high stakes game. Quite the contrary, Sechin compared the US shale boom to the dotcom bubble and rambled about the American position not being backed up by crude reserves.

He also accused OPEC along familiar lines of conspiring with Western nations, especially the US, to hurt Russia. Moving away from silly conspiracy theories, Sechin does have a point – the impact of a lower oil price on shale is hard to predict and is currently being put to test. We’ll know more over the next two to three quarters.

However, comparing the shale bonanza to the dotcom bubble suggests wilful ignorance of a few basic facts. Unlike the dotcom bubble, where a plethora of so-called technology firms put forward their highly leveraged, unproven, profit lacking ventures pitched to investors by Wall Street as the next big thing, independent shale oil upstarts have a ready, proven product to sell in barrels.

Of course, operational constraints and high levels of leveraging remain burdensome in a bearish oil market. While that might cause difficulties for fringe shale players, established ones will carry on regardless and find ways to mitigate exposure to volatility.

In case of the dotcom bubble, where some had nothing of proven tangible value to sell, independents tipped over like dominos when the bubble burst, apart from those who had a plan. For instance, the likes of Amazon or eBay have survived and thrived to see their stock price recover well above the dotcom boom levels.

Finally, in case of US shale players, ingenuity of the wildcatters catapulted them to where they are with a readily marketable product to sell. There is anecdotal evidence of that same ingenuity kicking in tandem with extraction process advancements thereby making E&P activity viable even at a $40 Brent price for many if not all.

So it's not quite like Pets.com if you know what the Oilholic means. Sechin’s point might be valid but its elucidation is daft. Furthermore, US shale players might have troubling days ahead, but trouble is something the Russian oil producers can see quite clearly on their horizon too. Additionally, shale plays have technological cooperation aimed at lowering costs on their side. Sanctions mean sharing of international technology to sustain or boost production as well as lower costs is off limits for the moment for Russia.

On a closing note, its being hotly disputed these days whether and by how much lower oil prices boost global economic activity, as one noted in a recent World Finance journal video broadcast. Entering the debate this week, Moody’s said lower oil prices might well give the US economy a boost in the next two years, but will fail to lift global growth significantly as headwinds from the Eurozone, China, Brazil and Japan would dent economic activity.

Despite lower oil prices, the agency has maintained its GDP growth forecast for the G20 countries at just under 3% in both 2015 and 2016, broadly unchanged from 2014. Moody's outlook is based on the assumption that Brent will average $55 in 2015, rising to $65 on average in 2016. 

It assumes that oil prices will stay near current levels in 2015 because demand and supply conditions are "unlikely to change markedly" in the near future, as The Oilholic has been banging on many a blog post including this one. That’s all for the moment folks! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2015. Photo: Danger of slipping sign. Graph: Oil Benchmark Prices, January 2015 © Gaurav Sharma