Oil & Energy
Could An Energy Crunch Lead To A Worldwide Financial Crisis?
There is a case that can be made that the present day liquidity profile and reduced capital investment in upstream sources for new supplies of petroleum, match the similar scenario of the 2008-9 financial crisis. In recent times, and partially as a result of the global pandemic, huge infusions of cash have been pumped into the market to achieve a number of objectives. Commodities began an extreme pricing upswing last year as a result of this cash infusion and pent-up demand from the shut-down phase of the pandemic. As a result, not only are there strong parallels to 2008, but current conditions are even more exaggerated as we approach 2022, thanks to continued governmental and financial intervention in the markets. In this article, we will examine some of the key causes of the 2008 financial meltdown, and compare them against relevant data in the present day. We will then tie that to current data on petroleum supplies and production to make our final case about the likelihood of a severe global financial crisis.
Lack of capital investment in upstream petroleum supplies
If you follow the news you will become quickly and acutely aware that things are different on the global energy front. Strikingly different from just a year ago. One of the things that drives the conversation is the speed at which the market has flipped from assuming that oil would be plentiful and low priced well into the future to just the inverse. There was even a catch-phrase to describe this scenario, used as recently as March of 2020-Lower For Longer.
So what happened? As you can see below spending on fossil fuels has declined precipitously from 2014, reaching a bottom only last year. Estimates vary from between $600 bn to $1.0 Trillion of capital has been lost to oil and gas extraction since 2014.
Two primary reasons have been the cause of most of this capital restraint. The first is prices well below an acceptable rate of return for oil companies for much of this period. Lower for Longer carried an enormous financial impact onto the balance sheets of oil producers, and they did what oil companies do when oil prices drop. They stopped spending…on oil and gas. Even now, with prices that are much higher, domestic oil companies are choosing to pay down debt, buy back their stock, and raise dividends as opposed to increasing their capital budgets. This was discussed in detail in an OilPrice article in September.
The second principle chilling effect on global fossil fuel investment has been the action of governments and activist shareholders to foster so-called “green energy” alternatives through edicts, tax subsidies, and regulatory barriers. Following the Paris Accords, signatories have moved swiftly to reward investment in these alternative energy sources, primarily-wind, solar, and biomass. This, despite the fact that many of these alternative technologies are still evolving, and lack supporting infrastructure. We have in effect, “jumped” into the pool and then checked for water. We explored the actions by European governments in this OilPrice article.
International companies like, Shell, (NYSE:RDS.A), (NYSE:RDS.B) and BP, (NYSE:BP) are doing some of the same things, but also are diverting capital to renewable energy projects in an effort to reduce the carbon footprint of their operations. In a moment of candor and clarity, in response to an activist investor pushing the company to spin off its legacy assets, Shell CEO, Ben van Beurden said-
The needs of Shell’s customers, and the company’s efforts to pivot away from fossil fuels, were better served by keeping its range of assets and businesses. In particular, he said the company’s legacy oil-and-gas assets were needed to fund its investments in lower-carbon energy.
These companies are also scaling down their carbon-based operations, monetizing assets up and downstream. Shell in particular has led the way with their sale of their Permian assets to ConocoPhillips, (NYSE:COP). BP is considering further steps, but has not made any big moves in this regard recently. These actions will result in their portfolios becoming less carbon intensive as the alternative energies they are investing in now, come online mid-decade. Will they be as profitable? Doubts have emerged, but this is a question for a future article.
One need not worry about the financial viability of these green energy projects, over the short run at least, as there are ample government stipends in place to pay all or part of their costs. Domestically, and across the pond, governments have paved the road for a green energy transition. The market has already decided about this capital shifting as relates to these companies, bidding up their share prices by about half since the first of the year.
The problem for world energy consumption is that oil remains a fundamental driver of energy security globally and demand is running ahead forecasts with demand above 100 mm BOPD. Prices have gone higher. Much higher, and that could be problematic for the stability of the financial system if the thesis we are constructing comes into play.
The great global liquidity influx and a commodity boom
Liquidity or lack thereof is stuff of which financial crises are made. If you hark back to 2008-the last financial crisis that wasn’t related to the now winding down pandemic, an increasingly seized up financial system brought global markets to their knees as it metastasized. Liquidity in the form of massive government intervention righted the ship and by early 2009 green shoots were appearing in the market.
Two of the things that precipitated the financial crisis of 2008 were a leveraged asset bubble in housing and a maturing commodities super-cycle. Growth in commodities brought on by the Chinese economic boom led to oil topping out at nearly $150 per bbl in 2008. This boom continued to mid-2014, with oil regaining $110 bbl before succumbing to OPEC’s desire to retake market share from U.S. shale producers, and lower growth in the Chinese market. Oil became plentiful as OPEC opened the taps, and prices stayed low for the next 6-years.That is one key difference from 2008 that will tend to extend and exacerbate a downturn if it occurs. Oil is not plentiful and prices are spiking.
Climate policy will directly impact economic growth
We are already beginning to see the second-order effects of the climate policies being adopted in the wake of the Paris Accords and its offspring the COP-26 love fest in Glasgow this year. I am referring, of course to the energy crisis in the UK, brought on by unanticipated underperformance of wind farms, and under-investment and early retirement of petroleum energy sources, over the last few years. This has all been pretty well documented, and I am not going to belabor them further now.
By: David Messler
Oil & Energy
NPDC, Belema Oil Worst Gas Flaring Offenders In Feb – NNPC
Indigenous company, Belema Oil, Seplat and Nigerian Petroleum Development Company, an arm of the Nigerian National Petroleum Company (NNPC) were the worst offenders in the oil and gas sector in gas flaring in February, 2023.
The three companies flared 100 per cent of their gas output, according to gas utilisation data released by the NNPC.
They were followed by Agip Energy and Natural Resources, which flared 95.93 per cent of its total gas output, and First Exploration and Production Limited, which flared 95 per cent of its total gas output.
The gas utilisation data showed that oil and gas companies operating in Nigeria produced 149.263 billion standard cubic feet (SCF) of gas in February, a 6.72 per cent drop, compared with 160.013 billion SCF produced in January.
A breakdown of the total gas output for February 2023 showed that associated gas stood at 107.702 billion SCF, while non-associated gas output stood at 41.561 billion SCF.
According to the NNPC, 93.52 per cent of the gas produced was utilised, while 6.48 per cent was flared.
Specifically, 139.589 billion SCF of gas was utilised in February 2023, dropping by 7.25 per cent when compared with 150.493 billion SCF of gas utilised in the previous month, while 9.674 billion SCF of gas was flared, up by 1.62 per cent, from 9.520 billion SCF flared in January 2023.
The NNPC stated that 9.084 billion SCF of gas was used as fuel gas; 45.977 billion SCF was allocated to the Nigerian Liquefied Natural Gas, NLNG; while 5.247 billion SCF was allocated to the Escravos Gas to Liquid, EGTL, plant.
In addition, 2.353 billion SCF of gas was used for Natural Gas Liquids/Liquefied Petroleum Gas, LPG; domestic gas sales by the Nigerian Gas Company and others gulped 23.222 billion SCF, while 53.705 billion SCF was used by gas re-injection and gas lift make-up.
In the Joint Venture segment, Mobil Nigeria recorded the highest gas output, with 25.668 billion SCF, followed by Shell with 24.203 billion SCF; TotalEnergies produced 23.481 billion SCF of gas; while Chevron recorded gas output of 20.683 billion SCF.
However, despite producing the highest quantity of gas in the month under review, Mobil flared 6.26 per cent of its total gas output; Shell flared 4.19 per cent of its total output; Total Energies flared 2.37 per cent of its total output, while Chevron flared 9.03 per cent of its gas output.
In the Production Sharing Contract (PSC) segment, Star Deepwater – Agbami Floating Production, Storage and Offloading (FPSO) produced 12.744 billion SCF of gas, out of which 1.06 per cent was flared; while TotalEnergies Upstream Nigeria’s Akpo FPSO produced 11.975 billion SCF of gas and flared 1.22 per cent of the total.
Oil & Energy
STRYDE To Deploy Seismic Receiver Nodes Onshore Nigeria
Seismic acquisition technology and solutions provider, STRYDE, has been awarded a contract worth over $1 million for the supply of 10,000 seismic receiver nodes and its “Nimble” node receiver system for an onshore oil and gas project in Nigeria.
STRYDE’s seismic sensor technology will be utilised on an upcoming 3D seismic survey conducted by Nigerian geoscience solutions provider, ATO Geophysical Limited, as part of an onshore oil and gas exploration project in Nigeria.
The seismic survey is due to begin in Q2 2023 and will be the first commercial deployment of STRYDE’s Nimble System in the country as it continues its international expansion within the energy sector.
STRYDE, who are the creators of the world’s smallest and lightest seismic node, will enable ATO to deliver high-density seismic data for the exploration of new reservoir locations in the grasslands and marshlands of Nigeria, for a local oil and gas operator.
Until recently, the country has typically relied on bulky, expensive, and complex cabled geophone receiver systems to acquire seismic data, which traditionally incurs significantly high CAPEX and OPEX costs, more exposure to HSE risk, higher technical downtime, and inefficiencies in the seismic acquisition programme.
With the introduction of cable-less receiver technology like STRYDE’s miniature sensor, geophysical providers and operators can now acquire high-quality data much more efficiently and with less cost, risk, and environmental footprint.
The supply of its node management solution will enable further efficiencies on the survey to be unlocked by allowing ATO to rotate up to 2,160 nodes per day, enabled by the system’s unique capability to simultaneously charge and harvest data from 360 nodes in under four hours.
This system is also equipped with STRYDE’s state-of-the-art software for efficient seismic survey field operations, data harvesting, and quality assurance, allowing ATO to produce processing-ready seismic data fast than ever before.
Head of Business Development, MENA, at STRYDE, Sam Moharir, commented on the transition to nodal technology: “ATO Geophysical Limited needed to have access to cost-effective technology that could also overcome challenges associated with the terrain they were due to operate in’’.
“With cabled systems traditionally being more physically challenging to deploy in remote, large, and complex terrain, STRYDE Nodes™ offer a more efficient and practical solution for improving seismic survey efficiencies through the elimination of restrictive and heavy cabled geophones”.
The Managing Director of ATO Geophysical Limited, Thomas Ajewole, said: “As a leading seismic data acquisition expert in Nigeria, we look forward to partnering on our first project with STRYDE and capitalizing on the benefits of its technology by providing our customers with a more efficient and cost-effective solution to onshore seismic data acquisition.
“As we continue to support the exploration of new oil and gas projects in the region, STRYDE Nodes present an exciting opportunity to acquire high-resolution seismic data required to image the subsurface and pinpoint new reservoir development opportunities for our customers”.
STRYDE’s CEO, Mike Popham, said: “STRYDE is excited to be enabling our first seismic surveys in Nigeria with ATO. This builds upon our successful history of seismic projects across Africa, including Zimbabwe, Namibia, and Kenya.
“We’re proud to see our nodes increasingly being utilized around the world for a range of industrial applications, replacing expensive, cumbersome, and impractical alternative systems with our dynamic technology”.
In addition to providing seismic solutions in the oil and gas market, STRYDE also supports new energy industries including Geothermal, CCUS, Hydrogen, and Mining, providing an affordable solution to a typically expensive phase of any exploration project.
Oil & Energy
NNPCL Clears $3.8bn JV Cash-Call Arrears Owed IOCs
The Nigerian National Petroleum Company Limited (NNPCL) says it has cleared the outstanding $3.8 billion joint venture cash-call debts owed to International Oil Companies (IOCs) operating in the country.
NNPCL’s Executive Vice President, Upstream, Adokiye Tombomieye, disclosed this as he lamented that inadequate JV cash call funds was stunting the growth of the oil and gas industry.
Tombomieye made the disclosure while speaking during a panel session on upstream opportunities at the fourth edition of the Nigerian Oil and Gas Opportunity Fair (NOGOF) 2023, organised by the Nigerian Content Development and Monitoring Board (NCDMB) in Yenagoa, Bayelsa State.
Represented by the Chief Upstream Investment Officer, NNPCL, Mr Bala Wunti, he disclosed that the country’s oil production has maintained significant increase following measures to tackle crude oil theft.
Tombomieye warned that the NNPCL would no longer deal with portfolio companies, and urged investors to avoid acting as middlemen.
He disclosed that the company had leveraged its financial autonomy derived from the Petroleum Industry Act (PIA) to work out and execute a payment plan for the cash call debt while balancing its energy security obligations to the nation.
“This, by no small means, re-energised the JVs to recalibrate their focus towards sustaining production and increasing their spending to procure the necessary services required to do so”, the NNPCL Chief said.
Also speaking on the panel, the Managing Director of TotalEnergies EP Nigeria Limited, Mr Mike Sangster, announced that the final investment decision on the company’s upcoming Ubeta gas project would be taken in the first quarter of 2024.
Sangster, represented by the Executive Director, JV Assets, TotalEnergies, Mr. Obi Imemba, said Ubeta was its last discovered but undeveloped well in the Oil Mining Lease, OML, 58.
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