Week in Review October 24 – October 30

by Sophie Nhuebana, Timothy Abraham, Elisabeth Nguebana, Glenda Pavon, Alberto Perego, Bogdan Polishchuk, Patrick Osborne 

Photo by Jerry D. Mathes III

Russia Prepares for Deep Budget Cuts

Russia is preparing to slash government spending across the board over the next three years as it struggles to bring down the budget deficit because of lower oil prices and recession. Deep cuts are looming for health, education, and even defense – which is slated for a 27 percent reduction in expenditures next year. This illustrates how badly the country’s public finances have been hurt by the oil price slide. The government forecasts that gross domestic product will drop by 0.6 percent this year. The Duma may resist cuts to military spending. Analysts have calculated that, by 2019, real military spending could be more than 15 percent lower than in the peak year of 2015. The planned sale of shares in Rosneft may help to reduce the deficit. The overall squeeze on budget would bring spending on health and education to its lowest levels as a percentage of GDP since 2006. By contrast, the country’s defense spending remains high by international standards, accounting for 23.7 percent of total federal budget expenditure and 4.7 percent of GDP this year.

Kathrin Hille. Russia prepares for deep budget cuts that may even hit defense. Financial Times. October 30, 2016. https://www.ft.com/content/806400be-9e94-11e6-891e-abe238dee8e2

OPEC Failing to Find Workable Solutions

On Friday, October 28, the experts of OPEC gathered in Vienna to discuss the methods of implementation of their agreement on the reduction of production. The methods were not agreed upon and Iran’s production level was the main bottleneck in the discussion. The second biggest producer of OPEC, Iraq, asked to be exempted from the cut because of the current war against the Islamic State. Iran, Libya and Nigeria also asked for an exemption because all of them have problems such as conflicts and sanctions. The Committee has no decision-making power, and will simply make some recommendations for the next plenary session to be held on November 30.

Le Monde: Failure of the Discussions About the OPEC’s Agreement Methods. October 29th, 2016. http://mobile.lemonde.fr/proche-orient/article/2016/10/29/petrole-echec-des-discussions-sur-les-modalites-de-l-accord-de-l-opep_5022287_3218.html

OPEC Bulletin Commentary October 2016. http://www.opec.org/opec_web/en/press_room/3803.htm?emailid=5655d14ccb56e60fc6447e23&segmentId=7e94968a-a618-c46d-4d8b-6e2655e68320

International Energy Agency Publishes Medium Term Market Report for Renewables

The International Energy Agency’s Medium-Term Renewable Energy Market Report came out on October 25, 2016. One of the main findings of the report is that in 2015, a record amount of generating capacity based on renewables was installed; total RES-based installed capacity now exceeds that of coal-fired power generation. China is the main growth market for renewables.

International Energy Agency. IEA raises its five-year renewable growth forecast as 2015 marks record year. October 25, 2016. https://www.iea.org/newsroom/news/2016/october/iea-raises-its-five-year-renewable-growth-forecast-as-2015-marks-record-year.html?emailid=5655d14ccb56e60fc6447e23&segmentId=7e94968a-a618-c46d-4d8b-6e2655e68320

Wireless Charging for Electric Vehicles

In June, Mercedes-Benz announced bringing new wireless charging technology for its electric vehicles in 2018. Mercedes will be the first automaker to bring wireless charging to market with the S550e luxury hybrid. Earlier in October, Mercedes announced it would use technology made by San Diego, California based Qualcomm. Qualcomm acquired the wireless charging company, Halo, in 2011 and has been developing wireless charging for electric racing vehicles since 2014. After several years of testing on racing cars, the technology is ready for the mainstream market. The Qualcomm Halo technology has already been tested and successfully used on several consumer electric vehicles: the Nissan Leaf, BMW i3, BMW i8, and the Honda Accord. One of the limits of electric vehicles is the need to plug them in to recharge them, which this technology would eliminate. Wireless charging has the potential to decrease the size in electric vehicle batteries, because it would allow for the cars to be charged in small amounts but at more frequent intervals. Another company, Evatran, is working on developing a wireless charging system for Tesla and plans to develop one for the Chevy Volt as well. However, at this time Mercedes is the only manufacturer to confirm wireless charging on a production vehicle. The Mercedes wireless charging for the S550e sedan will involve parking on a special pad and use resonant magnetic induction to transfer energy from the pad to the vehicle. SAE standard guidelines may provide a small hurdle for the wireless technology, as the industry strives to create a standardized method of electric vehicle charging. However, achieving an industry wide standard would only serve to make the technology more widely available and secure, so that manufacturers and the market alike can benefit.

Julia Pyper. Wireless Charging: Coming Soon to an Electric Vehicle Near You. Greentechmedia.com. October 27, 2016.

https://www.greentechmedia.com/articles/read/wireless-charging-coming-to-an-electric-vehicle-near-you 

Ecuador Begins Drilling in UNESCO-Protected Amazon

The Yasuni area is national park in Ecuador protected by UNESCO. An oil play worth 1,67 billion barrels lays under the soil of this Amazonian forest. The play is being developed by Petroecuador, Ecuador’s national oil company. Back in the 1950’s, several American companies developed oil extraction fields in the Western parts of the Ecuadorean Amazon rainforest, with catastrophic results for the environment. The main danger feared by environmentalists is widespread deforestation due to the new roads, oil contamination of water and soil, and the possible clashes between the local nomadic tribes of Waorani Indians and oil workers. President Correa and Petroecuador have reported that the site is producing 23,000 barrels per day since extraction started one month ago, and that the extraction operations will be as environmentally friendly as possible. Among the reasons to not fear for the local biosphere, they mention that gas flaring is not allowed, which eliminates CO2 emission in the area. Horizontal drilling enables extraction from multiple sites using only one well, which minimises the footprint. Colonization by people is clearly banned by the governmental edict. Moreover, the three oil pipelines built through the forest have been carefully buried, and the area around them has been revegetated. However, all these measures are met with skepticism by environmentalists, who are concerned that building new roads in such an area will unavoidably lead to colonization, deforestation and game depletion.

John Vidal. Oil drilling underway beneath Ecuador’s Yasuní national park. 26th October, 2016.

https://www.theguardian.com/environment/2016/oct/26/oil-drilling-underway-beneath-ecuadors-yasuni-national-park

Dakota Access Pipeline: ‘The Black Snake that Travels Four States’

There are protests of a proposed pipeline through tribal lands in North Dakota. According to the article: “Energy Transfer Partners, the company building the $3.8 billion pipeline said it would not tolerate the “lawless behavior” of protestors trespassing private lands. Recently, an arsonist—presumably against the pipeline—set fire to equipment used by contractors building DAPL causing $2 million USD in damage. What are the concerns and factors at play here? It is tempting to write off this incident as an example of “First World problems” – especially when considering that most of the Third World would clamor to have pipelines built if it meant access to energy. However, perhaps there are other factors at play here. A protest of the plan to lay down the pipeline might be a bargaining chip, that if successful, could lead to concessions to the locals living along the proposed pipeline route. Whether this is a political play or purely an environmental concern is open to interpretation, but the fact remains that laying down pipelines remains a messy business just about everywhere in the world.

Zainab Calcuttawala. DAPL: Law Enforcement Prepares for Forced Removal of Protestors. OilPrice.com. October 26, 2016. http://oilprice.com/Latest-Energy-News/World-News/DAPL-Law-Enforcement-Prepares-For-Forced-Removal-Of-Protestors.html 

ExxonMobil Loses its Top Credit Rating

The recent decline in oil prices and its uncertain future may have large consequences for ExxonMobil. Due to the low prices, ExxonMobil might be forced to ‘eliminate almost 20% of its future oil and gas prospects’, as reported by the Wall Street Journal. The Financial Times clarifies, “ExxonMobil might have to ‘de-book’ about 19 percent of its reported proved reserves at the end of the year and could take non-cash charges for writing off the values of some of its assets”. A combination of environmental concerns and low energy prices might be responsible for the possible elimination. Earlier this year Exxon lost its AAA bond rating it has held since 1930, creditworthiness only held by two other companies: Microsoft and Johnson and Johnson.

Bradley Olson and Lynn Cook. Exxon Warns on Reserves as It Posts Lower Profit. The Wall Street Journal. October 28, 2016. http://www.wsj.com/articles/exxon-mobil-profit-revenue-slide-again-1477657202

Ed Crooks. Hold the Champagne. FT Energy Source Weekly Briefing, November 4, 2016. https://www.ft.com/content/1d719e1e-9f41-11e6-86d5-4e36b35c3550

Total third quarter results shows resilience amid oil price slump

Total is probably one of the more resilient oil groups, as it has shown higher than expected third-quarter profits. Indeed, Total has successfully managed to cut its costs in 2016 and hold up relatively good results compared to its peers such as ENI and Statoil. Patrick Pouyanné, Total CEO, said that Total has realised great performance this quarter mainly due to its austerity policy. Total has reduced annual operating costs by $2.7bn since 2014 and has promised a further $1.3bn of savings by 2018. Additionally, Total cash flows rose 13 percent to $4.5bn and production rose by 4 percent following the start-up of new fields in Angola, Argentina, UK and the resumption of output by the Kashagan project in Kazakhstan.

Total résiste mieux que prévu au troisième trimestre, accélère ses économies. Le Parisien. October 28, 2016. http://www.leparisien.fr/flash-actualite-economie/total-resiste-mieux-que-prevu-au-troisieme-trimestre-accelere-ses-economies-28-10-2016-6262200.php

Andrew Ward. Total results shows resilience amid oil price slump. Financial Times. October 28, 2016. https://www.ft.com/content/5eca0db8-9cfa-11e6-8324-be63473ce146

 

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