Global financial turmoil. Stocks fell yet again on Thursda
Volf
21.12.2018 kl 20:09
734
Friday, December 21, 2018
Global financial turmoil. Stocks fell yet again on Thursday, following the Federal Reserve’s decision to hike interest rates and maintain a rate tightening course in 2019. The S&P 500 fell 1.6 percent and the Dow Jones Industrial Average was off 2 percent. The Euro Stoxx 50 fell by 1.4 percent on Friday, and the index is set to enter a bear market after falling 20 percent from its November 2017 peak. The global financial upheaval, which could presage a growing economic slowdown, presents a major threat to oil prices.
U.S. government shutdown. At the time of this writing, the U.S. was hurtling towards a government shutdown over budget disagreements, with a midnight deadline Friday. An agreement is still possible, but the potential shutdown was seen as another contributor to financial turmoil this week.
Saudi Arabia increases production cuts. Saudi Arabia could increase the size of its production cut after watching oil prices spiral downwards. According to the Wall Street Journal, Saudi Arabia will cut by 322,000 bpd from October levels, rather than 250,000 bpd. That would limit output to 10.311 mb/d for six months. The report offers a mixed message, however, since Saudi Arabia has already signaled that it could lower output to 10.2 mb/d in January.
OPEC+ to release country quotas. OPEC+ is set to release country-specific production quotas, recognizing that the lack of detail in Vienna earlier this month has hurt its efforts to convince the market. “In the interests of openness and transparency, and to support market sentiment and confidence, it is vital to make these production adjustments publicly available,” OPEC Secretary-General Mohammad Barkindo told OPEC members in a letter.
Trump admin cuts deal with Iraq. The Wall Street Journal reported that the Trump administration has granted Iraq a waiver extension, allowing it to continue to import natural gas from Iran for another three months. In return, Iraq has seemingly pledged to allow American energy companies greater access in the country, including GE (NYSE: GE) and Orion Gas Processors LLC for power generation, and ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) for oil production.
OPEC members suffering from low oil prices. With Brent in the mid-$50s, the budgets for OPEC members will come under strain, and perhaps only Kuwait can see its budget breakeven. Low prices could sow unrest in several OPEC member states. “At current prices, too much attention on shale, not enough on OPEC,” Olivier Jakob, managing director at Swiss consultant Petromatrix GmbH, told Bloomberg. Libya and Algeria, for instance, need oil prices above $100 per barrel. Even Saudi Arabia needs oil north of $80 per barrel for its budget to breakeven.
North Sea oil emerges from downturn. Many obituaries were written for the North Sea during the 2014-2016 oil market downturn, but the region is starting to see a bit of rebound. A series of M&A deals this year have led to an injection of new investment. There are still formidable hurdles in the medium- and long-term, but S&P Global Platts reports on signs of hope for the aging oil basin.
China avoids U.S. oil. China is still holding off on buying much American oil, despite the three-month trade truce between the two countries. “Chinese companies have little incentive to buy U.S. crude due to the wide availability of crude supplies today from Iran and Russia,” Seng Yick Tee, an analyst at Beijing-based consultancy SIA Energy, told Reuters. “Even though the trade tension between China and the U.S. had been defused recently, the executives from the national oil companies hesitate to procure U.S. crude unless they are told to do so.”
ExxonMobil shelves Canada LNG project. ExxonMobil (NYSE: XOM) has scrapped its plan for its WCC LNG export terminal in Canada. The move comes shortly after Royal Dutch Shell (NYSE: RDS.A) gave the greenlight for its massive LNG export project on Canada’s coast. Exxon’s project was further behind, and the oil major is instead focusing on a handful of LNG projects in Papua New Guinea, East Africa and with Qatar.
Poland signs 20-year LNG deal with U.S. company. Poland’s state-owned natural gas company inked a 20-year agreement to import LNG from the U.S., a business decision that also affects geopolitics in Europe. Polish Oil & Gas Company, or PGNiG, signed a deal with Sempra Energy’s (NYSE: SRE) Port Arthur LNG facility, importing 2 million metric tons of LNG per year. The project has not received an FID yet, but the agreement with Poland could move it forward. The U.S. government has long pushed LNG exports as a vehicle to pry away Eastern Europe from dependence on Russia.
U.S. southwest explores gas pipeline. The governors of Arizona, New Mexico and Mexico’s state of Sonora signed an agreement on Wednesday to explore a potential natural gas pipeline to move Permian gas to the Gulf of California. The non-binding agreement encourages the states to explore and promote investment for a pipeline and possible LNG export terminal in the Gulf. “Asia’s burgeoning demand, New Mexico’s abundant supply, and Arizona and Sonora’s strategic location and transport networks all combine to present an opportunity for continued regional growth,” the agreement says.
Colorado drillers could see stiffer regulation. Democrats tightened their grip in Colorado in the mid-term elections, which could usher in a period of stricter regulation on oil and gas. Even though voters rejected a public referendum on greater setback distances for shale drilling, the legislature could aim for greater local control, handing towns and cities the ability to put restrictions on drilling. Just this week, the state’s regulator expanded setback distances near school properties to include playgrounds and not just the school buildings, a modest change, but one that foreshadows other restrictions.
Shell spends $175 million to develop offshore wind. Royal Dutch Shell (NYSE: RDS.A) spent $175 million on the rights to develop offshore wind projects on the U.S. Atlantic Coast. The Anglo-Dutch oil major said that its offshore expertise from oil and gas can be translatable to offshore wind.
Global financial turmoil. Stocks fell yet again on Thursday, following the Federal Reserve’s decision to hike interest rates and maintain a rate tightening course in 2019. The S&P 500 fell 1.6 percent and the Dow Jones Industrial Average was off 2 percent. The Euro Stoxx 50 fell by 1.4 percent on Friday, and the index is set to enter a bear market after falling 20 percent from its November 2017 peak. The global financial upheaval, which could presage a growing economic slowdown, presents a major threat to oil prices.
U.S. government shutdown. At the time of this writing, the U.S. was hurtling towards a government shutdown over budget disagreements, with a midnight deadline Friday. An agreement is still possible, but the potential shutdown was seen as another contributor to financial turmoil this week.
Saudi Arabia increases production cuts. Saudi Arabia could increase the size of its production cut after watching oil prices spiral downwards. According to the Wall Street Journal, Saudi Arabia will cut by 322,000 bpd from October levels, rather than 250,000 bpd. That would limit output to 10.311 mb/d for six months. The report offers a mixed message, however, since Saudi Arabia has already signaled that it could lower output to 10.2 mb/d in January.
OPEC+ to release country quotas. OPEC+ is set to release country-specific production quotas, recognizing that the lack of detail in Vienna earlier this month has hurt its efforts to convince the market. “In the interests of openness and transparency, and to support market sentiment and confidence, it is vital to make these production adjustments publicly available,” OPEC Secretary-General Mohammad Barkindo told OPEC members in a letter.
Trump admin cuts deal with Iraq. The Wall Street Journal reported that the Trump administration has granted Iraq a waiver extension, allowing it to continue to import natural gas from Iran for another three months. In return, Iraq has seemingly pledged to allow American energy companies greater access in the country, including GE (NYSE: GE) and Orion Gas Processors LLC for power generation, and ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) for oil production.
OPEC members suffering from low oil prices. With Brent in the mid-$50s, the budgets for OPEC members will come under strain, and perhaps only Kuwait can see its budget breakeven. Low prices could sow unrest in several OPEC member states. “At current prices, too much attention on shale, not enough on OPEC,” Olivier Jakob, managing director at Swiss consultant Petromatrix GmbH, told Bloomberg. Libya and Algeria, for instance, need oil prices above $100 per barrel. Even Saudi Arabia needs oil north of $80 per barrel for its budget to breakeven.
North Sea oil emerges from downturn. Many obituaries were written for the North Sea during the 2014-2016 oil market downturn, but the region is starting to see a bit of rebound. A series of M&A deals this year have led to an injection of new investment. There are still formidable hurdles in the medium- and long-term, but S&P Global Platts reports on signs of hope for the aging oil basin.
China avoids U.S. oil. China is still holding off on buying much American oil, despite the three-month trade truce between the two countries. “Chinese companies have little incentive to buy U.S. crude due to the wide availability of crude supplies today from Iran and Russia,” Seng Yick Tee, an analyst at Beijing-based consultancy SIA Energy, told Reuters. “Even though the trade tension between China and the U.S. had been defused recently, the executives from the national oil companies hesitate to procure U.S. crude unless they are told to do so.”
ExxonMobil shelves Canada LNG project. ExxonMobil (NYSE: XOM) has scrapped its plan for its WCC LNG export terminal in Canada. The move comes shortly after Royal Dutch Shell (NYSE: RDS.A) gave the greenlight for its massive LNG export project on Canada’s coast. Exxon’s project was further behind, and the oil major is instead focusing on a handful of LNG projects in Papua New Guinea, East Africa and with Qatar.
Poland signs 20-year LNG deal with U.S. company. Poland’s state-owned natural gas company inked a 20-year agreement to import LNG from the U.S., a business decision that also affects geopolitics in Europe. Polish Oil & Gas Company, or PGNiG, signed a deal with Sempra Energy’s (NYSE: SRE) Port Arthur LNG facility, importing 2 million metric tons of LNG per year. The project has not received an FID yet, but the agreement with Poland could move it forward. The U.S. government has long pushed LNG exports as a vehicle to pry away Eastern Europe from dependence on Russia.
U.S. southwest explores gas pipeline. The governors of Arizona, New Mexico and Mexico’s state of Sonora signed an agreement on Wednesday to explore a potential natural gas pipeline to move Permian gas to the Gulf of California. The non-binding agreement encourages the states to explore and promote investment for a pipeline and possible LNG export terminal in the Gulf. “Asia’s burgeoning demand, New Mexico’s abundant supply, and Arizona and Sonora’s strategic location and transport networks all combine to present an opportunity for continued regional growth,” the agreement says.
Colorado drillers could see stiffer regulation. Democrats tightened their grip in Colorado in the mid-term elections, which could usher in a period of stricter regulation on oil and gas. Even though voters rejected a public referendum on greater setback distances for shale drilling, the legislature could aim for greater local control, handing towns and cities the ability to put restrictions on drilling. Just this week, the state’s regulator expanded setback distances near school properties to include playgrounds and not just the school buildings, a modest change, but one that foreshadows other restrictions.
Shell spends $175 million to develop offshore wind. Royal Dutch Shell (NYSE: RDS.A) spent $175 million on the rights to develop offshore wind projects on the U.S. Atlantic Coast. The Anglo-Dutch oil major said that its offshore expertise from oil and gas can be translatable to offshore wind.
Volf
21.12.2018 kl 20:12
729
Plastic Pollution And Oil Demand
Plastics pollution burst into the public consciousness in 2018, and is unlikely to retreat any time soon.
Policy momentum to address plastics pollution has in fact been building for some time. According to the UN report Single-Use Plastics, A Roadmap for Sustainability, the number of new regulations on single-use plastics entering into force at the national level in 2017 leapt to 17, up from 10 the year before and just 5 the year before that.
Another UN study, Legal Limits on Single-Use Plastics and Microplastics, published in December, found that 127 of the 192 countries reviewed had some form of legislation to regulate the use of plastic bags, 27 countries had banned either specific products or put restrictions on the use of particular plastics, 27 had instituted taxes or fees relating to plastic bags, and 43 had some elements or characteristics of extended producer responsibility contained within legislation.
And, in October, the European Parliament voted in favour of a directive on the reduction of the impact of certain plastic products in the environment -- possibly the most significant plastics regulation to date. Aimed at marine plastics pollution, the directive is expected to come into force from 2021 and affects a plastics-consuming population of more than 500 million.
For an oil industry grappling with the potential consequences of transport electrification, plastics regulation looks like a direct hit on their new posterchild, petrochemicals. In many long-term forecasts, petrochemicals is already the strongest single element of future oil demand growth.
The potential demonization of plastic is thus a serious issue for the industry.
Oily business
Plastics are predominantly made from hydrocarbons, the primary feedstocks being naphtha and LPG, which are derived from oil, and ethane, which is derived from natural gas. Synthetic gas from coal is used to make chemicals and petrochemicals in some places, mainly China, but this makes up only a small proportion of the market and is an emissions heavy process.
Biomass is a relatively new source of petrochemical feedstock. Germany’s Nova Institute estimates that bio-based polymer production capacity will rise from 4.5 million tons in 2017 to just 5 million tons by 2022. This represents about 1.3% of virgin polymer and resin production. Making a polymer from biomass does not mean that it is necessarily more recyclable than any other polymer, while at scale biomass-to-plastics will have to navigate the same food-versus-fuel problems as biofuels.
There are also a variety of other chemical inputs, for example chlorine, which is used to make polyvinyl chloride, but the bottom line is that this is an oil-intensive business and will remain so for decades to come.
Production volumes
According to trade body Plastics Europe, in 2016, the world produced 335 million tons of virgin polymer and resin. That figure excludes PP&A fibres of somewhere in the region of 62 million tons. PP&A fibers, used for example to make clothing, are rarely recycled.
When additives are taken into account, the mass increases by about 6.5%. Additives are necessary to give plastics particular properties, such as colour, stability or fire retardation. Assuming annual market growth of around 4% a year, 2018 should have seen some 457 million tons of plastic products enter the global economy.
According to the landmark study, Production, use, and fate of all plastics ever made, published in Science Advances in 2017, “If production were to continue on this curve, humankind will have produced 26,000 Mt (million tons) of resins, 6000 Mt of PP&A fibers, and 2000 Mt of additives by the end of 2050.”
The study estimates that based on current end-use patterns and waste management trends, 12,000 Mt will have been discarded in landfills or the natural environment by 2050. In short, if left unaddressed, the problem of plastics pollution will only get worse. The current jump in regulatory activity is thus only the beginning.
Like climate change, plastics pollution has catastrophic disaster potential. The rising level of plastics in marine animals is well documented and it is not impossible to imagine species loss or the collapse of an important food chain.
Regulation impact
However, the impact to date of plastics regulation on oil demand is relatively small. There is nothing yet that threatens to derail the upward curve in petrochemicals demand.
Take plastic microbeads, which have been a particular focus of environmental groups. The latest UN study found that as of July, only eight out of the 192 countries surveyed had bans. These ‘bans’ are far from comprehensive, although they do cover major economies, including the US, UK, France, Canada, Italy and South Korea.
Microbeads are tiny pieces of plastic used in various industries. However, the bans in the US and UK, have focused only on ‘rinse-off’ cosmetics, such as shampoo, exfoliates and toothpaste. If microbeads were banned from all rinse-off cosmetics in the EU, it would still remove less than 1,000 tons of plastic demand a year, the equivalent of just over 11,000 barrels of oil.
Even if microbeads in all cosmetics were banned globally this would still represent less than 0.002% of estimated global plastics production in 2018.
Total microbead consumption is significantly larger than the figures for cosmetics as they are used in paints/coatings, detergents, oil and gas drilling fluids, agricultural polymer coatings for seeds, industrial abrasives and sewage water treatment.
There is no good data on what tonnage of microbeads is used in these areas, but use in the EU could be up to eight times or more than in cosmetics, if agricultural polymers are included, according to one study.
“8.5 billion straws!”
Media representations of such bans often imply much greater effect than is really the case. Take for example the EU’s directive on single use plastics. This will ban plastic straws, cotton buds, plastic cutlery, stirrers and balloon sticks.
Headlines tend to focus on the huge amounts of items used. Although the methodology of the number is suspect, the UK government has used a figure for annual plastic straw consumption of 8.5 billion a year.
Big numbers make great headlines, so here are some more. One ton of plastic makes about 240,000 straws, 3 million stirrers or 12.25 million cotton buds.
The single use plastics directive also targets reductions in the use of food containers, drinking cups and lids and plastic bottles.
Although the directive is a significant piece of legislation, if a 20% reduction in these items’ use is achieved across the EU, the effect on oil demand would be to displace just over 22,000 b/d. When set against global demand growth for petrochemicals of about 4% -- more than 500,000 b/d a year – it hardly represents a body blow to the industry.
Plastics pollution burst into the public consciousness in 2018, and is unlikely to retreat any time soon.
Policy momentum to address plastics pollution has in fact been building for some time. According to the UN report Single-Use Plastics, A Roadmap for Sustainability, the number of new regulations on single-use plastics entering into force at the national level in 2017 leapt to 17, up from 10 the year before and just 5 the year before that.
Another UN study, Legal Limits on Single-Use Plastics and Microplastics, published in December, found that 127 of the 192 countries reviewed had some form of legislation to regulate the use of plastic bags, 27 countries had banned either specific products or put restrictions on the use of particular plastics, 27 had instituted taxes or fees relating to plastic bags, and 43 had some elements or characteristics of extended producer responsibility contained within legislation.
And, in October, the European Parliament voted in favour of a directive on the reduction of the impact of certain plastic products in the environment -- possibly the most significant plastics regulation to date. Aimed at marine plastics pollution, the directive is expected to come into force from 2021 and affects a plastics-consuming population of more than 500 million.
For an oil industry grappling with the potential consequences of transport electrification, plastics regulation looks like a direct hit on their new posterchild, petrochemicals. In many long-term forecasts, petrochemicals is already the strongest single element of future oil demand growth.
The potential demonization of plastic is thus a serious issue for the industry.
Oily business
Plastics are predominantly made from hydrocarbons, the primary feedstocks being naphtha and LPG, which are derived from oil, and ethane, which is derived from natural gas. Synthetic gas from coal is used to make chemicals and petrochemicals in some places, mainly China, but this makes up only a small proportion of the market and is an emissions heavy process.
Biomass is a relatively new source of petrochemical feedstock. Germany’s Nova Institute estimates that bio-based polymer production capacity will rise from 4.5 million tons in 2017 to just 5 million tons by 2022. This represents about 1.3% of virgin polymer and resin production. Making a polymer from biomass does not mean that it is necessarily more recyclable than any other polymer, while at scale biomass-to-plastics will have to navigate the same food-versus-fuel problems as biofuels.
There are also a variety of other chemical inputs, for example chlorine, which is used to make polyvinyl chloride, but the bottom line is that this is an oil-intensive business and will remain so for decades to come.
Production volumes
According to trade body Plastics Europe, in 2016, the world produced 335 million tons of virgin polymer and resin. That figure excludes PP&A fibres of somewhere in the region of 62 million tons. PP&A fibers, used for example to make clothing, are rarely recycled.
When additives are taken into account, the mass increases by about 6.5%. Additives are necessary to give plastics particular properties, such as colour, stability or fire retardation. Assuming annual market growth of around 4% a year, 2018 should have seen some 457 million tons of plastic products enter the global economy.
According to the landmark study, Production, use, and fate of all plastics ever made, published in Science Advances in 2017, “If production were to continue on this curve, humankind will have produced 26,000 Mt (million tons) of resins, 6000 Mt of PP&A fibers, and 2000 Mt of additives by the end of 2050.”
The study estimates that based on current end-use patterns and waste management trends, 12,000 Mt will have been discarded in landfills or the natural environment by 2050. In short, if left unaddressed, the problem of plastics pollution will only get worse. The current jump in regulatory activity is thus only the beginning.
Like climate change, plastics pollution has catastrophic disaster potential. The rising level of plastics in marine animals is well documented and it is not impossible to imagine species loss or the collapse of an important food chain.
Regulation impact
However, the impact to date of plastics regulation on oil demand is relatively small. There is nothing yet that threatens to derail the upward curve in petrochemicals demand.
Take plastic microbeads, which have been a particular focus of environmental groups. The latest UN study found that as of July, only eight out of the 192 countries surveyed had bans. These ‘bans’ are far from comprehensive, although they do cover major economies, including the US, UK, France, Canada, Italy and South Korea.
Microbeads are tiny pieces of plastic used in various industries. However, the bans in the US and UK, have focused only on ‘rinse-off’ cosmetics, such as shampoo, exfoliates and toothpaste. If microbeads were banned from all rinse-off cosmetics in the EU, it would still remove less than 1,000 tons of plastic demand a year, the equivalent of just over 11,000 barrels of oil.
Even if microbeads in all cosmetics were banned globally this would still represent less than 0.002% of estimated global plastics production in 2018.
Total microbead consumption is significantly larger than the figures for cosmetics as they are used in paints/coatings, detergents, oil and gas drilling fluids, agricultural polymer coatings for seeds, industrial abrasives and sewage water treatment.
There is no good data on what tonnage of microbeads is used in these areas, but use in the EU could be up to eight times or more than in cosmetics, if agricultural polymers are included, according to one study.
“8.5 billion straws!”
Media representations of such bans often imply much greater effect than is really the case. Take for example the EU’s directive on single use plastics. This will ban plastic straws, cotton buds, plastic cutlery, stirrers and balloon sticks.
Headlines tend to focus on the huge amounts of items used. Although the methodology of the number is suspect, the UK government has used a figure for annual plastic straw consumption of 8.5 billion a year.
Big numbers make great headlines, so here are some more. One ton of plastic makes about 240,000 straws, 3 million stirrers or 12.25 million cotton buds.
The single use plastics directive also targets reductions in the use of food containers, drinking cups and lids and plastic bottles.
Although the directive is a significant piece of legislation, if a 20% reduction in these items’ use is achieved across the EU, the effect on oil demand would be to displace just over 22,000 b/d. When set against global demand growth for petrochemicals of about 4% -- more than 500,000 b/d a year – it hardly represents a body blow to the industry.