Daily Energy Report
Fossil fuels power UK, Exxon buys Pioneer, Saudi response to Gaza conflict, LNG links Qatar & France, US presses EV metals, Putin signals cut extension, NATO & Baltic Pipeline damage, and more.
Chart of the Day: More than 40% of Power Generation in the UK in 2022, came from “Fossil Fuels!”
Figure (1) above shows sources of power generation in the UK in 2022. Despite massive spending on renewable energy since 2010, estimated at £120 (about $148 billion), fossil fuels still generate more than 40% of total electricity. However, even these numbers are deceptive because they do not include government subsidies and tax breaks.
EOA’s Main Takeaway
The UK imports about 50% of its gas consumption. Natural gas is used for heating in certain regions such as Wales and England and the rest in power generation as indicated in the chart. About three-quarters of imports come from Norway. The rest comes from other countries, mostly in the form of LNG. The UK has three terminals that import LNG, mostly from Qatar and the US, Isle of Grain, South Hook, and Dragon.
The two interconnection pipelines that join the UK to Belgium and the Netherlands are used bi-directionally for imports and exports. Although the UK does not import gas from Russia and stopped LNG imports, it might receive Russian gas indirectly if it imports gas from the Netherlands via pipelines.
The chart and other information show that it will be extremely difficult (impossible?) for the UK to achieve NET Zero as planned by 2050. In the same way the government retreated on ICE car sales, it will delay the date for Net Zero. It cannot replace such a huge amount of gas and coal in 25 years or find ways to counter its emissions to reach Net Zero.
Excluding private generation, the situation is worse. The role of coal in public generation is higher than what is shown in the chart above.
What is stunning here is that shifting heating from gas to electric in England and Wales means higher gas and coal consumption!
The main takeaway here is that in case of a severe winter in Europe, the UK will have no choice but to import Russian LNG.
Story of the Day
Exxon Mobil has agreed to acquire Pioneer Natural Resources for almost $60 billion, marking the largest oil-and-gas deal in 20 years. The purchase, priced at $253 a share, positions Exxon as a major force in the U.S. fracking industry, notably in West Texas where Pioneer has extensive drilling operations. The merged companies will have around 16 billion barrels of oil equivalent in the Permian region, promising longer horizontal drilling and reduced environmental impact.
EOA’s Main Takeaway
We covered this in a Note that we sent to all subscribers. We received pushback against the point of shifting investment from exploration in new areas to existing reserves and production because it is a stock deal, not a cash deal. Our response is twofold:
The Exxon stock buyback was massive and what is planned is large. Therefore, it is still a cash deal but indirectly. Hence, it is not an additional investment that will bring additional reserves and production.
Even if this point is ignored, the rest of the points are still valid.
We reiterate our view that the deal is bullish for oil within any time frame.
News of the Day
Bloomberg: How Will the Saudis Play Their Oil Hand Now?
(Javier Blas Opinion) The Hamas attack on Israel disrupted a major diplomatic initiative between Saudi Arabia, the US, and Israel but didn't alter Riyadh's significant influence on the global oil market. Since October 2022, Iranian oil production increased by up to 700,000 barrels daily, primarily smuggled into China, benefiting from a passive US stance. This has financially empowered Iran, which supports Hamas and offers weapons to Russia. However, given the increased global scrutiny and the likelihood of the US clamping down on Iranian exports, Saudi Arabia could potentially increase its oil production while maintaining high prices.
EOA’s Main Takeaway