Upbeat Opec Elects New Secretary-General - Energy ...
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January 3, 2022
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CONTENTS Upbeat Opec Elects New Secretary-General
Upbeat Opec Elects
New Secretary- The Opec-plus alliance is entering the new year in an optimistic mood as it continues to gradually
General
increase its oil production.
Time Running Out to
Fix Brent Crude Opec meanwhile has unanimously elected Kuwait's Haitham al-Ghais to succeed Nigeria's
Benchmark
Mohammed Barkindo as the new Opec secretary-general in August.
Oil Prices Rise With
Opec In Focus
The Opec-plus Joint Technical Committee (JTC) met on Monday to review oil market fundamentals
Eni Nears Major ahead of the monthly Opec-plus ministerial meeting on Tuesday.
Mexico Offshore
Start-Up
Delegates told Energy Intelligence on Monday that the alliance is expected to continue its policy of
HollyFrontier Q4 increasing its production in monthly increments of 400,000 barrels per day as it reverses the big
Throughputs Hit by production cuts it made after demand collapsed in 2020.
Severe Weather
Brent crude was trading in the high $70s per barrel on Monday and a report prepared for the JTC
In Brief
and seen by Energy Intelligence painted a more bullish outlook than the one it presented ahead of
EU Proposes 'Green' the previous Opec-plus meeting.
Label for Gas
Qatar Awards That is due in part to a downward adjustment of the volume of oil likely to be released from
Offshore EPCI strategic stockpiles by the US and other consumer nations during the first quarter of the new year.
Contract
Yemen Rebels Seize Impact of SPR Sales
Ship
India's December Fuel A month ago the report reviewed by the JTC had assumed that some 70 million barrels of oil would
Sales Rise be released from strategic reserves in the first quarter of 2022 and that this would cause OECD
Reliance Industries to commercial oil stocks to rise.
Issue Bonds
Editor's Note: New However, that has now been revised down to 40 million bbl, with some 13 million bbl of that total
Year's Day Holiday being returned to strategic reserves by the third quarter of 2022.
Data Snapshot After Monday's JTC meeting, Opec ministers voted by acclamation to elect Kuwait's former Opec
Oil and Gas Prices, Jan. governor, Haitham al-Ghais, as Opec's next secretary-general.
3, 2022
"It was a very smooth vote today. All countries supported al-Ghais and there was no one else to
compete against him," said one delegate.
The Kuwaiti will take over from the widely admired Barkindo, who led Opec through the massive production cuts it made in
collaboration with its non-Opec allies in 2020 after the Covid-19 pandemic slashed demand.
Speaking to Energy Intelligence after Monday's meeting, al-Ghais expressed his gratitude for the appointment and vowed to maintain
the unity of the Opec-plus alliance, which includes Russia and other non-Opec producers.
Voice in Transition Debate
"I'm really humbled by the unanimous vote for Kuwait and for me personally and for all the support given by everyone. ... It means a lot
to me. It's a big burden on my shoulders, but I'm really up to it," al-Ghais said.
He said his top priorities will be to keep the cooperation between Opec and its non-Opec allies alive and ensure that the voice of oil-
producing nations is heard in the debate about the energy transition.With oil prices currently trading just shy of $80 per barrel, Opec-plus appears to be in a comfortable situation, with no reason to depart
from the steady monthly increases in its combined output that it has been making since last August.
"There is no reason to change the policy now. I expect that there will be a decision to keep the 400,000 b/d increment," said another
delegate.
The latest JTC report included an additional optimistic "high demand" scenario, whereas previous reports were limited to a base-case
and a low-demand scenario.
Energy Intelligence understands that some Opec-plus delegations had pressed for inclusion of a scenario that reflected the possibility
of an upside surprise for demand.
Inventories
The base-case scenario continues to show global oil demand growing by 4.2 million b/d in 2022 after an increase of 5.7 million b/d in
2021.
Under the base-case scenario, OECD commercial oil stocks are expected to come in at 143 million bbl below the pre-pandemic average
of 2015-19 in the first quarter of 2022 and 102 million bbl below the 2015-19 average in the second quarter.
By the third quarter of the new year, the projected deficit versus the 2015-19 average is projected to shrink to 77 million bbl, and by
the fourth quarter it would turn into a surplus of 24 million bbl.
Under the low-demand scenario, OECD commercial stocks would show deficits versus the five-year average of 99 million bbl and 49
million bbl, respectively, in the first and second quarters of 2022.
The high-demand scenario would result in deficits of 157 million bbl and 124 million bbl, respectively, for the first and second quarters.
According to the JTC report, demand for Opec crude is likely to fall by some 1.27 million b/d between the final quarter of 2021 and the
first quarter of 2022, but that is considerably less than the fall of 2.35 million b/d projected a month ago.
Meanwhile, some Opec-plus producers are still struggling to keep up with the recent increases in their oil production ceilings.
Amena Bakr, Dubai and Rafiq Latta, Nicosia
Time Running Out to Fix Brent Crude Benchmark
Shrinking production volumes pose an existential threat to Brent crude — the world's leading oil pricing benchmark.
But while there is broad agreement that Brent is in urgent need of a fix, there is very little agreement on how to go about it.
Dated Brent — the yardstick for pricing roughly two-thirds of the global oil market — is based on a basket of North Sea crudes whose
output has been declining steadily.
S&P Global Platts, which launched the benchmark in the 1980s, has tried to work around this by adding new crudes — most recently
Norway's Troll grade in 2017.
But the options for further expansion are limited, and as the world looks to transition away from oil and other fossil fuels, the clock is
ticking.
Brent in Name Only
The historical Brent field coughed up its last barrels of oil in March 2021.
The Brent stream is kept alive by about three 600,000 barrel cargoes of crude that are loaded every month, but they are now sourced
entirely from the commingled Ninian cluster of fields.
Oil production from the North Sea has been declining for years and the transition to low-carbon energy could accelerate that trend.
Norway's prolific Johan Sverdrup field could be the last major development in the region, due to its substantial reserves, low
production costs and relatively low carbon footprint.Operator Equinor expects the second phase of development to lift production to 755,000 barrels per day by the fourth quarter of
2022.
Options for a Fix
Johan Sverdrup has been proposed as a potential candidate to breathe new life into dated Brent, but despite its impressive production
volumes, the field is not seen as ideally suited to that role.
That's because dated Brent represents the value of light, low-sulfur crude in the North Sea, whereas Johan Sverdrup is a heavier,
higher-sulfur crude.
The market is also concerned that incorporating Johan Sverdrup into dated Brent would give too much power over pricing to the field's
operator Equinor.
There has also been talk of adding West Texas Intermediate (WTI) crude into the dated Brent formula, because its characteristics are a
fairly close match to the existing dated Brent crude basket.
When arbitrage dynamics are favorable, European refiners routinely buy cargoes of WTI to complement their light, sweet crude
regimen.
And US crude has been purchased by as many as 24 European countries, versus just 15 for Sverdrup.
Previous Effort Backfires
Platts did in fact try to bring WTI into its dated Brent assessment a few months ago, but was forced to back down when the initiative
was poorly received by the market.
However, BP recently voiced support for including WTI in dated Brent and the backing of such an important market player — on both
sides of the Atlantic — could give Platts the additional push it needs to make the plan work.
A source noted that this would serve BP well, given that the UK major is a producer of WTI. "They [BP] want WTI because they have
production and can use it to cover their partials and Brent contract requirements," the source said.
Meanwhile, ICE announced in November that its new Midland WTI American Gulf Coast futures contract — a revamp of its former
Permian WTI futures contract — would be launched in late January.
The initiative is meant to offer a US light, sweet crude contract that breaks the link with the historic Cushing delivery point in
Oklahoma, where storage constraints dragged prices into negative territory in April 2020.
Crucially, ICE has teamed up with major US midstream operators Enterprise and Magellan, which operate export terminals and
manage about 150 million barrels of storage capacity in the Houston area.
"One small step for ICE, one giant leap in the battle for oil benchmarks. I feel that this one might take off for real," said one trader.
A seaborne price assessment for WTI — free of onshore pipeline and storage constraints — could enable WTI Midland futures to
become a global pricing benchmark rather than a regional one for the US.
Julien Mathonniere, London
Oil Prices Rise With Opec In Focus
Oil futures moved higher on Monday, rallying ahead of an Opec-plus summit and on expectations of healthier demand.
In London, Brent crude for March delivery settled $1.20 higher at $78.98 per barrel.
In New York, February West Texas Intermediate (WTI) on Nymex closed up 87¢ at $76.08/bbl, while the March contract gained 97¢ to
end the session at $75.85/bbl.Opec and Omicron
“Opec [is] setting the stage that demand is going to be a bit stronger than originally anticipated,” said Phil Flynn of Chicago’s Price
Futures Group. “The demand picture that Opec downplayed last month, now they’re projecting it to be higher.”
Flynn and others said one key driver of that anticipation is the relative mildness of the Omicron variant of the Covid-19 pandemic,
which is on the cusp of entering its third year.
While infections are surging again and several countries cope with deeply strained medical capacity to treat patients, “it seems that the
current strain produces less severe symptoms than its predecessors, which might just help us to struggle through the fourth wave of
the pandemic with relative ease,” noted Tamas Varga of oil brokerage PVM.
Meanwhile, incoming Opec Secretary-General Haitham al-Ghais said Monday that maintaining the bloc’s alliance with other major
producers such as Russia is a top priority.
“It’s in the wider interest of the industry,” al-Ghais told Reuters.
Opec delegates will meet at a summit on Tuesday, where they are expected to stick to a 400,000 barrel per day increase in supply.
That clarity has helped put oil prices on firmer footing, Flynn said, although he noted that thin trading volumes such as those seen in the
wake of the New Year's holiday can exacerbate price movements.
SPR Moves
Meanwhile, the US Department of Energy (DOE) said that it has concluded the third exchange of crude oil from the nation's Strategic
Petroleum Reserve (SPR) since late November with integrated major Exxon Mobil — this one of 2 million bbl.
While the administration of President Joe Biden has framed the releases as a tool to address high gasoline prices at the pump, the
volumes are actually accelerations of previously mandated sales or exchanges, with the crude to be returned in cash or kind at a later
date.
The market has so far expressed scant interest in the SPR crude. To wit, the DOE noted that Monday’s announcement brings the total
released since late November to just over 7 million bbl, equivalent to less than half a day’s refinery throughputs in the world’s largest
economy.
Frans Koster, New York
Eni Nears Major Mexico Offshore Start-Up
Italian major Eni said a key floating, production, storage and offloading (FPSO) vessel has arrived in Mexican waters, signaling that
start-up is nigh for the main phase of its Area 1 project.
With a production capacity of 90,000 barrels per day, the Miamte FPSO will become the largest unit operated by a company other than
Mexican state oil firm Pemex in the country's offshore.
The FPSO's arrival marks a major milestone for the Area 1 project, which has faced a number of difficulties.
The project has been a particularly perplexing engineering challenge. Contractors Modec and its Sofec unit designed an FPSO with a
unique turret mooring system that would work in relatively shallow waters and be disconnected to allow it to move offsite during
severe weather. Most disconnectable turrets are designed for use in much deeper waters.
The Miamte was built across five different construction yards in three countries, with five modules built in Mexico.
When Area 1's development plan was approved in August 2018, full-field production was planned to kick off in late 2020. But a series
of construction delays and cost overruns stymied those plans even before the impact of the Covid-19 pandemic.
Eni was able to begin early production from smaller fixed platforms in Area 1 in 2019, with reported output of some 13,691 b/d in
November.
The company said it now expects production from the project to ramp up in early 2022.Eni captured Area 1 in a 2015 bid round that granted operators the rights to develop fields that Pemex opted not to bring forward to
production. It covers the fields of Amoca, Mizton and Tecoalli and sits in shallow water of about 105 feet.
Eni Strategy
Eni is among the operators that have found success off Mexico, where the 2013 energy reforms opened the doors to new operators
beyond the Pemex monopoly.
But that policy has swung back in the other direction since the election of President Andres Manuel Lopez Obrador, who has brought
the focus back to state-led entities and emphasized self-sufficiency, souring investor sentiment.
High-profile operators that had flocked to the country's underexplored areas have also drilled a range of high profile non-commercial
wells.
However, Eni has had more luck with the drillbit, hitting oil at the Sayulita-1 well in Block 10 in August. With 180 feet of net pay of
good-quality oil in upper Miocene reservoirs, the company estimates the find could contain in-place volumes of 150 million-300 million
barrels of oil.
That probe was a follow-up after the company drilled the Saasken-1EXP discovery last year. That well hit 80 meters of net pay with an
estimated gross resource of 200 million-300 million bbl.
Eni hinted that the success could pave the way for an eventual development, saying the results “confirm the value of the asset and open
the potential commercial outcome of Block 10.”
Kathrine Schmidt, Houston
HollyFrontier Q4 Throughputs Hit by Severe Weather
Independent refiner HollyFrontier warned investors Monday that its throughputs in the fourth quarter of 2021 missed expectations
by up to 10.6%.
In a filing with the US Securities and Exchange Commission, HollyFrontier noted that severe weather along the West Coast of both the
US and Canada hampered operations, leading to lower anticipated overall throughputs of 420,000 barrels per day in the last three
months of 2021.
During its third-quarter earnings call, HollyFrontier projected average throughputs of 450,000-470,000 b/d for the fourth quarter.
“In the West region, volumes were lower than expected at the Puget Sound Refinery due to unit downtime following the closing of the
acquisition of the refinery, the shutdown of the Trans Mountain Pipeline resulting from flooding in British Columbia … and recent
severe weather,” HollyFrontier CFO Richard Voliva III wrote in an 8-K filing dated Jan. 3.
A difficult return from maintenance at its Navajo refinery and weather impacts as well as economic run cuts in the Midcontinent also
affected overall downstream processing, Voliva added.
The filing highlights the immediate impacts to the energy industry of severe weather, which is occurring with greater frequency, a
trend scientists attribute in large part to global climate change.
Last year a freak freeze in Texas hampered operations industry-wide, a massive hurricane knocked out hundreds of thousands of
barrels per day of refining capacity in the US Gulf of Mexico and prompted one facility to shut down permanently, and a slew of
wildfires roiled jet fuel demand and delivery logistics.
Meanwhile, large portions of the US Northeast have experienced unseasonably warm weather so far this winter, interfering with
demand for heating oil.
“The synopsis of last year could not be complete without mentioning climate change ... [A] growing number of wildfires and floods
served us with a reminder that the rise in global temperature is a real threat,” said Tamas Varga of oil brokerage PVM.
Frans Koster, New YorkIN BRIEF
EU Proposes 'Green' Label for Gas
The EU has drawn up plans to label some natural gas and nuclear energy projects as "green" investments after a year-long battle
between governments over which investments are truly climate-friendly.
The European Commission is expected to propose rules in January deciding whether gas and nuclear projects will be included in the EU
"sustainable finance taxonomy."
This is a list of economic activities and the environmental criteria they must meet to be labeled as green investments.
By restricting the "green" label to truly climate-friendly projects, the system aims to make those investments more attractive to private
capital, and stop "greenwashing," in which companies or investors overstate their ecofriendly credentials.
Brussels has also made moves to apply the system to some EU funding, meaning the rules could decide which projects are eligible for
certain public finance.
A draft of the commission's proposal, seen by Reuters, would label nuclear power plant projects green if they include a plan to safely
dispose of radioactive waste.
Investments in natural gas power plants would also be deemed green if they produce emissions below 270g of CO2 equivalent per
kilowatt hour, replace a more polluting fossil fuel plant, receive a construction permit by Dec. 31, 2030 and plan to switch to low-
carbon gases by the end of 2035.
Gas and nuclear power generation would be labelled green on the grounds that they are "transitional" activities — defined as those
that are not fully sustainable, but which have emissions below the industry average and do not "lock in" the consumption of polluting
fuels. (Reuters)
Andrew Kelly, Houston
Qatar Awards Offshore EPCI Contract
QatarEnergy said it has awarded an engineering, procurement, construction and installation (EPCI) contract for the offshore portion of
its massive North Field LNG expansion project to engineering company McDermott.
The first phase of the project is expected to lift Qatar's LNG production capacity from 77 million tons/yr to 110 million tons/yr, with
first LNG expected in 2025.
The much-anticipated partner awards for Phase 1 of the expansion are expected to be announced in the first quarter of this year.
Exxon Mobil, TotalEnergies, Royal Dutch Shell, ConocoPhillips, Chevron and Eni have all been short-listed for equity stakes in Phase 1.
A decision on whether Qatar will proceed with the 16 million ton/yr second phase of the expansion is also expected in the first quarter
of this year.
Yousra Samaha, Dubai
Yemen Rebels Seize Ship
Yemen's Houthi rebels seized a UAE ship that was heading for the southwestern Saudi city of Jizan on Sunday. The incident took place
against the backdrop of a broad escalation in fighting.
Saudi authorities said the Rwabee had been carrying medical equipment and denounced the seizure of the vessel as an act of "piracy
and hijacking."
The Houthis said the ship had been transporting military equipment.Cross-border aerial attacks by both the Saudis and the Houthis have been occurring almost every day for several months.
But until December, incidents involving ships in the Red Sea had been less frequent than in early 2021.
The Red Sea is an important shipping route for oil tankers and other vessels. There is also valuable oil infrastructure along Saudi
Arabia's Red Sea coast at Jizan, Yanbu and Rabigh.
On Dec. 24, a drone attack was launched against Saudi Arabia's Abha airport, while the Saudi-led coalition reportedly destroyed an
explosive-laden boat launched by the Houthis from Yemen's Red Sea port of Hodeidah.
On Dec. 28, a US naval patrol stopped a boat on Yemen's south coast, and discovered a cache of arms.
Rafiq Latta, Nicosia
India's December Fuel Sales Rise
India's fuel sales rose in December, according to preliminary data from state-owned refiners.
However, demand will be tested in January as Covid-19 cases have picked up again, prompting several states to impose restrictions on
the movement of people.
Diesel sales grew 8.7% from November to 1.6 million b/d in December, while gasoline sales grew 3.3% to 728,000 b/d on the same
basis.
Gasoline sales have now exceeded the pre-pandemic level of 2019, but diesel sales are still about 1.6% below that level.
Jet fuel sales rose 6.5% month on month to 132,000 b/d and are up 25.7% year on year after the government allowed airlines to fly at
full capacity from mid-October.
However, sales of jet fuel remain 27% below the pre-pandemic level.
Sales of liquefied petroleum gas (used for cooking) also picked up as Prime Minister Narendra Modi's government completed the
second phase of a scheme to make the fuel available to poor households.
INDIA REFINED PRODUCT SALES OF STATE FIRMS
('000 b/d) Dec '21 Nov '21 M-o-M %Chg. Dec '20 Y-o-Y %Chg.
Gasoline 728 705 3.3% 698 4.3%
Diesel 1,584 1,457 8.7 1,561 1.5
Jet Fuel 132 124 6.5 105 25.7
LPG 935 918 1.9% 880 6.3%
Source: State refiners, Energy Intelligence calculations
Rakesh Sharma, New Delhi
Reliance Industries to Issue Bonds
India's Reliance Industries said it plans to raise $5 billion via a bond offering to refinance existing borrowings.
The Mumbai-based refiner had $34.5 billion of debt and $35 billion of cash and cash equivalents on Sep. 30.
Its plan to raise billions of dollars by selling a 20% stake in its oil-to-chemicals business to Saudi Aramco was scrapped in November.
Reliance's billionaire Chairman Mukesh Ambani announced plans last year to invest $10 billion in new energy ventures over a period of
three years.On Friday Reliance announced that it had acquired UK sodium-ion battery technology firm Faradion in a deal with an enterprise value
of $135 million.
Rakesh Sharma, New Delhi
Editor's Note: New Year's Day Holiday
Today's edition is published as a joint issue of Oil Daily and International Oil Daily due to the New Year's Day holiday.
DATA SNAPSHOT
Oil and Gas Prices, Jan. 3, 2022
Today's edition is published as a joint issue of Oil Daily and International Oil Daily. The usual review of oil and gas prices is not included
due to technical difficulties. Updated prices will be published as soon as they are available.
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