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Hello Power Up readers! European nations are still trying to figure out how to keep gas prices lower for winter without pushing demand higher- although even if they do, a cold winter will make it very hard for Europe to avoid gas rationing. And it’s not just the United States that is annoyed with OPEC. Here’s what is going on:
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Winter in Berlin. Bundle up. REUTERS/Annegret Hilse
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The European Commission is set to present a proposal on capping gas prices on Tuesday, which would impose a "dynamic" price cap for natural gas that would put curbs on how much prices can move around in one day.
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The Europeans have been pulling out all stops to get ready for the winter - storage levels are now at 92% - but there’s one variable they can’t predict: the weather. Early forecasts aren’t encouraging, as the European Centre for Medium-Range Weather Forecasts (ECMWF) on Thursday said Europe could face a cold snap that would sap precious storage and boost prices.
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"There is still a very significant risk of having a cold outbreak. And if anything, the risk is slightly higher than usual," Carlo Buontempo, director of the Copernicus Climate Change Service at ECMWF, told Reuters.
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Weather may remain mild for a few more weeks - which will help Europe continue to keep storage full and as natural gas prices have ebbed somewhat of late due to high levels of storage. It’s what’s after that which matters.
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Technicians at an oil rig in Gujarat, India. REUTERS/Amit Dave
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Much attention has been focused on U.S. ire at the Organization of the Petroleum Exporting Countries and its allies known as OPEC+ after the group elected to cut production targets by 2 million barrels per day. But the United States isn’t alone.
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India, which imports more than 4 million bpd of oil - and has been generally reliant on shipments from OPEC producers -, is looking to diversify its sources of crude as well.
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India buys about 85% of its crude needs from overseas, and the country’s Oil Minister Hardeep Singh Puri said late last week that the OPEC+ decision will “hurt large importers like India, which spent around $120 billion last year on the import of petroleum products.” He also warned that the output cuts could tip the world into recession, a point the International Energy Agency made last week.
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India has had its issues with Saudi Arabia before, when the government voiced its disapproval of the kingdom charging an Asian premium on oil supplies. Last year, Indian state refiners briefly cut oil imports from the kingdom.
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IEF's Joseph McMonigle, at the 12th IEA IEF OPEC Symposium on Energy Outlooks in Riyadh in February. REUTERS/Ahmed Yosri
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Joe McMonigle has been head of the 71-member International Energy Forum, based in Riyadh, since 2020. He spoke with Power Up late last week.
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Was OPEC+’s decision to cut production justified?
“It’s a tale of two markets - the physical markets which are quite tight because of the supply deficit and we have the paper markets which for a couple of months now have been pricing in really bad economic news. All of the three monthly reports that are issued by the various energy agencies - the IEA, OPEC and EIA - say demand will be lower. What OPEC is trying to do is adjust production to these forecasts of lower demand and be proactive.”
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What is the biggest problem facing the energy industry going forward?
“We’ve made structural changes through government policies that have been designed to reduce supply, and until we address those structural changes I think we’re going to be continuously in a supply deficit.”
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Is the relationship between the U.S. and Saudi Arabia strained or damaged?
“Even though the press reports were talking about a strained relationship, there was a lot going on behind the scenes that was just not reported about, and I suspect that will continue. I think both sides have a lot in terms of common objectives. The main objective of IEF as an energy agency is to foster dialogue between producers and consumers, and we will be doing our part of that over the next several months and I have no doubt that the U.S. and Saudi Arabia will be part of those discussions.”
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Emissions! It is London, after all. REUTERS/Peter Nicholls
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Lately there’s been backlash against ESG - Environmental, Social and Governance investing principles, especially in the energy sector. Texas, for example, has taken aim at firms for what they see as stringent rules that are sapping the flow of capital to the industry.
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However, according to the latest Haynes and Boone study, more firms are taking steps to comply with ESG mandates. Overall, out of a universe of 30 companies, all of them have adopted ESG policies of some kind, up from spring 2021, when 70% had such policies, the law firm said. However, fewer than 25% of those companies have announced net zero emissions commitments. A total of 83% are disclosing some greenhouse gas emissions data, compared with 53% a year-and-a-half ago.
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“Many oil and gas companies are publicly disclosing historical GHG emissions data but are not committing to net zero,” said Stephen Grant, a partner with Haynes and Boone in Houston.
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"I would like to clarify that the latest OPEC+ decision, which was unanimously approved, was a pure technical decision, with NO political intentions whatsoever."
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Suhail al-Mazrouei, United Arab Emirates energy minister, on Twitter, after the United States suggested OPEC had cut its production targets for political reasons.
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This graphic shows the progression of carbon capture projects; data from the Global CCS Institute.
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The pipeline for projects to capture and store carbon emissions has grown by about 44% in past twelve months to 244 million tonnes a year - but that’s still far short of where the world needs to be to meet the International Energy Agency’s net zero scenario.
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The Global CCS Institute, a think tank, said Monday in its annual report that of 196 CCS projects, 30 are in operation, 11 are under construction and another 153 are in development.
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The IEA’s estimate is that the world needs 7.6 billion tonnes a year in CCS capacity by 2050. Some industry sources told Power Up that the recent passage of the U.S. Inflation Reduction Act will spur more investment due to the inclusion of tax breaks on carbon sequestration; the same can be said for certain programs in Europe.
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