Daily Energy Report

US vs Russia gas market competition in Europe, India fuel demand, OPEC+ cuts, 500 EVs on fire, India Growing Refining, Austria gas discovery, Britain smacked by energy reality, and more.

Chart of the Day: US and Russia competition in the European gas markets  

Summary

Figure (1) above shows how the natural gas market shares of the US and Russia changed after the Russian invasion of Ukraine. The comparison is between the second half of 2022 and the first half of 2023. It shows a major reduction in the share of Russian gas, but a relatively small increase in the share of US natural gas (All LNG). However, the increase in the US share is much larger because the US LNG exports to Europe in the second quarter of 2022 increased substantially.

EOA’s Main Takeaway

We are posting this chart after a video from 2014 of former Secretary of State, Condoleezza Rice, speaking at a conference surfaced. She mentioned exactly what happened in the last two years. The idea here is that the US wanted to reduce Europe’s dependence on Russian gas and increase its dependence on US gas long ago, thanks to the shale revolution. This is important because it explains the Russian animosity toward shale oil and gas and why Russia refused to cooperate with Saudi Arabia since 2015 on production cuts. They know that the shale oil plays are producing massive amounts of gas that will be converted to LNG and then shipped to Europe. Lower oil prices mean lower production in general, which will also lower gas production. Putin underestimated the power of private ownership and the will to generate wealth. Now 40% of EU gas imports come from the US. It was zero several years ago.

Here is a link to the video from 2014 that was posted by www.attaqa.net. Despite the Arabic language, the video is in English. LINK:

Story of the Day

Bloomberg: Britain Is Back-Pedaling on Johnson Climate Politics

Summary

The UK, a global leader in climate change politics, is facing fresh challenges with green policies directly affecting people's day-to-day lives, such as transportation and heating. Recently, a narrow electoral win by the ruling Conservatives in a London suburb brought to light controversies surrounding the 'Ultra Low Emission Zone', a charging zone for the most polluting cars. The event led some Conservative politicians to suggest rolling back the government’s green initiatives, particularly those impacting daily lifestyles. The UK is striving to replace gas boilers and petrol engines with heat pumps and electric cars over the next decade, a task complicated by high costs and poor communication. While the UK government is committed to its net-zero 2050 target, some policy measures to achieve this, such as insulation standards for new homes and energy efficiency in privately rented homes, are rumored to be under threat.

EOA’s Main Takeaway

This is an example of Back-Pedaling that we have been highlighting since last year. The issue is as simple as this: it takes a long time to implement CO2 emissions reductions. Politicians have expedited a process that is ineffective on one hand and causes a lot of pain and massive losses on the other, without making a meaningful dent in emissions reductions. It’s also unclear that even if massive CO2 emissions reductions were achieved that these reductions would have a noticeable impact on the climate.

That is why we emphasize the point that the narrative is changing and why COP28 in the UAE this year could be a historic event. That is why we are bullish on oil and gas in the medium and long term. Actual demand will be higher than current expectations. However, even conservative politicians will continue to give lip service to climate change policies.

News of the Day

Baker Hughes: US Rig Count Declined by 5

Summary

The total rig count DECREASED by 5 from 669 to 664, according to Baker Hughes (see Figure 2). The oil-directed rig count decreased by 1 WoW to 529, the lowest since March 2022. Companies reduced rig count in the Eagle Ford by 2, and in the Barnett and the Williston by 1 each. The Permian added 1 and the Gulf of Mexico added 2.  

As for the gas-directed rig count, it declined by 3 from 131 to 128. Companies reduced the rig count by one in each: The Marcellus, Utica, and non-tight plays.

EOA’s Main Takeaway

We expect the rig count in the Permian to start rising again as oil prices increase above $80/b. At this point, the rig count is where it was before the Russian invasion of Ukraine. We repeat our question: Should we look at this as a return to normalcy and any reaction from now on as a function of costs and prices rather than political events?

Bloomberg: Big Oil Shows It Can Still Deliver When Prices Ebb

Summary

In Q2, Exxon Mobil Corp., Chevron Corp., Shell Plc, and TotalEnergies SE reported significantly lower year-on-year profits. However, despite being ordinary, the quarter was essential in showing that Big Oil can deliver decent returns even with oil trading at $70 rather than $100. The oil industry, often criticized in the climate crisis era, needs to maintain investor support through dividends and buyback programs. While geopolitical factors like the Russian invasion of Ukraine previously boosted returns, the industry now needs to demonstrate its business acumen and financial strength. The Q2 results showed that despite more than a 50% drop in profitability, the major oil companies could still return significant money to investors. They also indicated that they should be able to sustain their buyback programs for the rest of the year. However, despite these returns, energy trades at the lowest price-to-earnings valuation of any sector in the S&P 500 index, indicating that shareholders are making outsized demands on oil majors.

EOA’s Main Takeaway