The Week in Review – November 14 – 20

by Sophie Nguebana, Elisabeth Nguebana, Patrick Osborne, Alexander Geysman, Alberto Perego, Irina Mironova

UN Climate Talks in Marrakesh

The Conference of Parties, COP22 took place in Marrakesh. The participants of the meeting have discussed the way forward after Paris. At the same time, a group of climate-sceptics has gathered in Washington, D.C. to discuss the future of the US climate policy. The Energy Post comments, “The publication of the WEO this week couldn’t have been more timely and relevant. As it happens, the WEO presents three scenarios of our energy future (up to 2040) that exactly reflect the three dominant visions on energy in the world. It has a Trump scenario (business as usual unhindered by climate commitments), a Paris scenario (what will happen if all countries do what they have promised to do in Paris, but no more) and a 2-degrees scenario (what should be done to keep global warming limited to 2 degrees)”.

Karel Beckman. IEA in the Age of Trump: policies will determine where we go from here. Energy Post. November 16, 2016. http://energypost.eu/iea-policies-will-determine-go/

Green Expansion is the Largest Challenge to Traditional Energy Business?

Oil and gas producers risk to be left behind as the world is going through the process of energy transition. Producers are not investing enough in green technology. Reports from OPEC and the IEA, have said that even though demand for oil will be growing until at least 2040, “peak demand” could come within the next 15 years. There are some exceptions such as Total of France, which has invested $2.5bn in battery and solar companies, and is among the leaders in diversification. Also, Statoil of Norway, which has expanded into offshore wind power. They were both among ten oil and gas companies, which this month committed to jointly invest $1 billion USD over the next 10 years on clean energy technology. Others taking part in the Oil and Gas Climate Initiative include Royal Dutch Shell, BP, and Saudi Aramco. However, these are considered “baby steps” and more investment will be needed for green technologies. The absence of ExxonMobil and Chevron highlights the US majors’ greater caution on the issue compared with their European counterparts. In any case, all companies are facing a dilemma as Mr. Connell argued, “Moving too quickly could leave money on the table… but too slowly, and they could miss their window of opportunity”.

Andrew Ward. Oil groups not investing enough in green energy. Financial Times. November 18, 2016. https://www.ft.com/content/ba3719e6-ad41-11e6-ba7d-76378e4fef24 

November is the Month for WEO, OPEC and Other Outlooks

This week a series of outlooks were published. The general expectation in all of them: fossil fuels are here to stay. IEA in their World Energy Outlook put forward an important message: even if the Paris climate agreement were fully implemented, demand for oil would keep rising in the medium term. OPEC agrees. The Energy Research Institute of the Russian Academy of Sciences expects a hostile environment for Russian fuel and energy complex even though the world is still going to need its oil and gas.

International Energy Agency. World Energy Outlook 2016. http://www.iea.org/newsroom/news/2016/november/worldenergyoutlook-2016.html

OPEC. World Oil Outlook 2016. http://www.opec.org/opec_web/en/publications/340.htm

Energy Research Institute of the Russian Academy of Sciences. Global and Russian Energy Outlook to 2040 [in Russian]. https://www.eriras.ru/data/772/rus

US gas production projected to slow down

The US Energy Information Administration lowered its projections for natural gas production for the current quarter and the next one, as well as for the full-year 2016, predicting the annual output average would show a decline, before rebounding in 2017. Lower projections for US gas demand had an impact on these projections.

http://www.platts.com/latest-news/natural-gas/washington/eia-lowers-short-term-projections-for-us-gas-21017463 Maya Weber. EIA lowers short-term projections for US gas production, demand. November 8, 2016.

Will the US Halt Exploration of the Arctic?

Barack Obama has announced that oil exploration in some parts of the Artic will be halted until 2022. The decision stipulates that no new requests of oil exploration will be accepted for investigation in the seas of Chukchi and Beaufort in the next five years. According to the secretary of the Interior, Sally Jewell, this is due to the unique and threatened environment in these areas that is further endangered by the activities of the petroleum industry. This measure is expected to protect the crucial zones where animals find their food, and the whole Artic marine ecosystem. However, the decision is likely to be modified when the new Republican president is inaugurated next year. Donald Trump, who will take the Presidential post on the 20th of January 2017, is expected to favour the expansion of oil and gas extraction in the United States.

Olivier Milman. Artic, Obama puts Artic Ocean off limits for drilling in last-ditch barrier to Trump? The Guardian. November 18, 2016. https://www.theguardian.com/environment/2016/nov/18/obama-arctic-ocean-drilling-fossil-fuels-trump

Africa’s offshore exploration goes deep down

Recent data has shown that the number of offshore oil rigs in Africa has dropped to more than a decade record low of only 9, compared to 48 in 2014. In the last two years, only two successful deep-water explorations were conducted per year with numbers around 11 for the previous five years. Such a trend may cause a 46% drop of in African oil production by 2030. Country budgets that rely heavily on hydrocarbrons export such as Nigeria and Angola would be hit hardest. Deep-water exploration is a capital intensive affair and with current oil prices very few IOC’s choose to take high risks especially in unstable region’s.. Recent instabilities in the Niger Delta add more uncertainty to the pot. Experts say that only a change in the sub-Saharan investment climate can improve the situation.

Paul Burkhardt: Oil Wildcatters Flee African Deep Water to Weather Rout. November 18, Bloomberg https://www.bloomberg.com/news/articles/2016-11-18/oil-wildcatters-flee-african-deep-water-to-weather-market-rout

Mosambique to Enter the International LNG Market with help from ENI

Eni has approved investment for the Coral South phase one development in the deep waters of the Rovuma basin (Area 4), off the coast of Mozambique. The project involves the construction of six sub-sea wells connected to a FLNG (Floating Liquefied Natural Gas Facility) with a capacity of over 5 billion cubic meters (bcm) per year. The Coral field was discovered in May 2012 and defined in 2013 and contains about 450 bcm (16 Tcf) of gas. Eni is the operator of Area 4 with 50%, but other investors include Galp Energia (10%), KOGAS (10%) and Empresa National de Hidrocarbonetos (10%). CNPC owns 20% indirect interest in Area 4 through EEA (Eni East Africa). Eni is still waiting for the consent of its partners to give the green light on the final investment decision. This is the first project of developing the Coral field and one of the most important projects in Mozambique, especially as BP agreed on buying all Coral LNG output for a 20-year period.

Eni Approves Coral FLNG Investment, But FID Yet to Come. Natural Gas News. November 18, 2016. http://www.naturalgasworld.com/eni-approves-coral-investment-but-fid-yet-to-come-34501

Eni approves investment for Mozambique’s Coral FLNG development. World Oil. November 18, 2016. http://www.worldoil.com/news/2016/11/18/eni-approves-investment-for-mozambique-s-coral-flng-development

Russia-Japan: A Pipeline to Broker Peace

Japan is considering resurrecting a plan for a $6.7 billion pipeline to bring gas from Russia. This move could be considered as a preparatory step to welcome Putin’s visit to the country, planned for next month. The projected pipeline would be 1,500 km long, and would link Sakhalin Island and Tokyo. This development is also seen as a peace offering from Japan to Russia regarding the 70-year-old dispute over four islands in the Hokkaido area. Better relations with Russia are very auspicious for Japan so that it may diversify its energy supply. Russia should be keen as well to gain a good export market such as Japan, particularly in these times of low oil prices, and possible shale gas competition in Europe. The pipeline might transport up to 25 billion cubic meters a year of gas to Japan, which is the biggest buyer of LNG in the world at the moment. The Japanese market is worth 85 million tons of gas and $53 billion USD. Russia currently accounts for about 8.9 percent of these imports and is eager to improve its position. Both the countries seem to have a strong interest in building this pipeline. However, the political scenario behind this deal is set to be difficult with Japan probably insisting on regaining ownership over all the four islands.

Tsuyoshi Inajima and Emi Urabe. Japan Lawmakers Moot $6.7 Billion Russia Gas Pipe to Greet Putin November 9, 2016. http://www.bloomberg.com/news/articles/2016-11-08/japan-lawmakers-moot-6-7-billion-russia-gas-pipe-to-greet-putin

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