Daily Energy Report
Libya crude exports decline, US crude exports decline, Nat gas prices, China subverts US solar law, Russia refining, Egypt buys winter gas, China refining tax rules, and more.
Chart of the Day: Libya’s Exports Declined by 600 KB/D
Reuters: Libya Still Cut Off from Foreign Banks, Ousted Central Banker Says
XM: Libyan Factions Have Not Reached a Final Agreement on Central Bank Crisis, UN Libya Mission Says
Bloomberg: Libyan Oil Flows Slide Further as UN Fails to Break Bank Impasse
Summary
Libya's crude exports have sharply decreased due to a standoff over control of the central bank. Exports fell from 468,000 barrels a day at the beginning of the month to 314,000 barrels a day over the past week. The central bank dispute arose after Libya's prime minister replaced the bank governor, leading eastern authorities to halt oil production and exports. Sadiq al-Kabir, who was ousted by political factions, remains in exile and says the bank is cut off from the international financial system, with over 30 international institutions halting transactions. Despite this, the new board appointed by western Libyan factions controls internal systems like salary payments. Kabir hopes to be reinstated through UN-backed talks involving Libya's parliament and High State Council. However, as of Thursday, the UN Libya Mission said rival factions had not reached a final agreement. Meanwhile, oil output has dropped by more than half to 450,000 barrels per day, down from over 1 million, although limited exports continue.
Libya’s oil exports declined by about 800 kb/d then recovered where the loss was 600 kb/d last week, according to data from Kpler, as shown in Figure (1). The impact of field closure on world oil markets is larger than in the past as we explain below. In a recent X Spaces discussion we mentioned the real reason for the dispute of the Central Bank that was not covered by anyone accept us. Details below.
EOA’s Main Takeaways
The unusual quick response from the Biden Administration and the United Nations proves our point that what is reported in the media is a veneer covering a major issue that no one wants to talk about. We believe it is over the $70 billion sovereign wealth fund that the UN might unfreeze at any time. The assets have been frozen since 2011. However, the Biden administration does not want to see an increase in oil prices before the election and is doing everything it can to maintain the flow of Iranian, Russian, and Venezuelan crude.
The impact on the global oil market is not only the loss of quantity, but also extends to crude quality and the heavy concertation of exports in a few countries.
The impact of the current decline in exports is larger than the previous blockade simply because the substitutes that existed during the previous cut off from the US and Nigeria does not exist today. Also, demand was declining significantly during the previous blockade. That is not the case today.
European countries will be impacted the most, especially Italy. Figure (2) shows Libya’s crude exports by destination. Data from Kpler shows that about 72% of Libyan crude exports go to Europe. One-third of Libyan exports go to Italy.
The recent wave of bearish sentiment in the oil market appears to ignore the impact of Libya’s cut off. But the impact of the decline in exports is large in terms of quantity and quality and will start showing up in the market soon, especially that crude exports from non-OPEC+ members such as the Brazil, Norway, and the US have been declining.
Story of the Day
EIA: US Crude Oil Exports Are Declining
Summary
Figure (3) shows trends in US crude exports. After hitting a record high last year, exports have been declining.
EOA’s Main Takeaway
As US production growth declined, it is no surprise that US crude exports also declined. One issue that has not gotten enough attention is the impact of the Canadian Transmountain Pipeline on US exports from the Gulf of Mexico: Canadian crude exports from the Gulf are counted as US exports! If a diversion is taking place from South to West, the amount of crude oil exported is less. Here is the irony: With no diversion, lower shale production growth means that the share of Canadian oil in US exports will increase.
We mentioned above that the impact of the loss of Libyan oil this time is larger than in the past. One of the reasons is the decline in US crude exports. Quality wise, US oil from shale is a substitute for Libyan crude.
We might see media reports in the coming weeks talking about the increase in Chinese and Indian imports from Saudi Arabia and the UAE. The media will, somehow, link it to Russia. In reality, the increase in demand for light crude from Saudi Arabia and the UAE is to substitute for the decline in imports from the US.
Finally, US crude exports are expected to decline this week and the following week because of Hurricane Francene. The map below from the EIA shows the path of the hurricane and the energy installations and oil and gas platforms in its path. Please note that even if some ports are not in its direct path, tankers will be delayed, leading to a decline in imports and exports. For more details, see: https://www.eia.gov/todayinenergy/detail.php?id=63104
News of the Day
WSJ: Why Natural Gas Will Stay Under Pressure
Summary
US natural gas prices are at historic lows due to an oversupply caused by warm winters and high production levels. Oil production in the Permian Basin continues, adding to the gas glut, with many producers paying to get rid of the gas. Further supply will come from a new pipeline and delayed LNG export projects. Without a cold winter, prices are expected to remain low until at least 2026.
EOA’s Main Takeaway
As we explained before, it is a shale oil problem! Shale oil wells produce a lot of gas. When oil prices are high, they produce as much as they can and dump the natural gas on the market at any price, even negative. That is why we concluded in the past that production cuts by natural gas producers in the Marcellus and Haynesville may not raise prices because of the associated gas from the Permian and other oil plays. The mild winters have added insult to injury.
Bloomberg: China’s US Solar Outposts Undermine Homegrown Firms, Report Says
Summary
Chinese solar-panel makers are increasing US investments, strengthening Beijing’s dominance instead of reducing US reliance on foreign panels. A report by Horizon Advisory highlights how Chinese firms are exploiting tax credits from the Inflation Reduction Act to gain market advantage and avoid tariffs. It calls for limiting these incentives and expanding security reviews of foreign investments to protect US solar manufacturing.
EOA’s Main Takeaway
This is an after-the-fact report. We predicted and then we reported it when it happened.
Why didn’t the politicians ban foreign investment in US solar manufacturing firms as part of the law? In fact, ignoring the reaction of other side to policies of the US and the EU has become very common, even in oil and gas. Producer reaction is so important that ignoring it creates wrong outlooks, costly energy, and reactionary policies that make the situation worse. One of the basic pillars of any medium- and long-term outlook is to incorporate the producers’ reaction to various US and EU policies.
Reuters: Russia's Idle Oil Refining Capacity in September Seen Up 34% vs August, Data Shows
Summary
Russia's offline oil refining capacity is expected to rise by 34% in September due to technical outages, drone attacks, and seasonal maintenance. This increase typically boosts crude oil exports, with loading from Baltic ports adjusted higher by 0.2 million tons to 6.2 million tons. Ukrainian drone strikes on Russian oil infrastructure have had minimal impact, according to the Kremlin.
EOA’s Main Takeaway
The impact of Ukrainian drones on Russian refineries has had an impact. Maintenance programs and technical problems exacerbated the problem. The result was lower refining utilization, lower exports of products, and a ban on exports of certain petroleum products. However, Kpler data shows the decline in petroleum product exports is about 250 kb/d.
Reuters: Egypt's Tender for 20 Winter LNG Cargoes Fully Awarded, Sources Say
Summary
Egypt has awarded a tender for 20 LNG cargoes to meet winter demand. This marks Egypt's first winter LNG tender since 2018, and the country has returned to being a net importer of natural gas. The tender covers deliveries between October and November 2024, with offers coming in at a competitive rate, 30%-40% lower than expected. Egypt's gas production is projected to decline further by 2028.
EOA’s Main Takeaway
This is an update to a story we covered earlier regarding Egypt wanting to buy 20 LNG tankers to meet winter demand. The significance of this is that it is “new” demand for LNG: Egypt has not only flipped from LNG exporter to LNG importer, but it will also be importing LNG for the first time in the winter months. In short, this bullish for LNG.