El Taladro Azul Published originally in Spanish in LA GRAN ALDEA
M. Juan Szabo y Luis A. Pacheco
A week full of geopolitical and energy news in which the main market players made themselves felt in one way or another. Saudi Arabia announced that it would extend its production cuts until the end of the year, while Russia promised to do the same by limiting its exports: they temporarily withdrew almost 1.5 MMbpd from circulation, a significant volume for the global physical market.
However, these announcements, already expected by the market, were not what impacted the market, but the continuous reductions in inventories. In the first instance, in the US, reported weekly by the American Petroleum Institute (API) and the Energy Information Administration (EIA), and drainage in other latitudes. Thus, it is confirmed that the supply from production has not been able to keep up with the growing demand, which does not subside. The macroeconomic data from China and the expectations of pressure on growth due to restrictive measures by the Central Banks in the rest of the developed economies don't seem to worry the market.
The weekly data on the fourth consecutive drop in U.S. crude oil inventories, combined with another drop in gasoline stocks, both to their lowest levels this year, provided support for the market's bullish trend. Indeed, inventories in the US fell by 6 MMbbls—in Cushing alone the drop was 2 MMbbls, while gasoline inventories were reduced by 5.0 MMbbls.
The synchronized actions of Mohamed Bin Salman (Saudi Arabia) and Vladimir Putin (Russia) do not obey the same motivations, although their effects are similar. Saudi Arabia seeks, in the first instance, to increase crude oil prices to obtain additional income, operating its oil system at optimal levels; the underlying objective is to help its plan to raise $50 billion through the already planned additional placement of shares of the state oil company, Aramco, on the Riyadh stock exchange. Russia, for its part, seeks to maximize its income only through price, since its production is declining and there is little it can do to reverse it.
The G20 Leaders’ Summit took place at the Bharat Mandapam Convention Center in New Delhi, India, on September 9 and 10, under the motto “One Earth, One Family, One Future”. This meeting is the culmination of all the G20 processes and meetings held throughout the year between ministers, senior officials, and civil societies. At the end of the New Delhi Summit, a G20 Leaders' Declaration was adopted, stating the leaders' commitment to the general priorities discussed and agreed upon during the respective ministerial and working group meetings.
Chinese President Xi Jinping snubbed the summit by not attending and sending his Prime Minister Li Qiang. The president of Russia, Vladimir Putin, did not attend either, and although no official reason was given, there is speculation that the international condemnation of the invasion of Ukraine exposes him to uncomfortable situations that do not give him any returns; Foreign Minister Sergei Lavrov represented Russia in the event.
Some analysts conclude that the message behind Xi's absence is that China is ending its participation in the traditional world order. Xi seems to be aligning its country and its bloc of partners as an alternative opposite to the US, its partners, and the international institutions in that environment.
The Summit had no explicit energy objective, but the issues of energy security, energy transition, and supply of high-demand materials appear visibly in the final declaration. The consensus statement also avoided condemning Russia for the war in Ukraine but called on all states not to use force to seize territory.
Trade relations between the US and China are becoming increasingly complicated. A recent Wall Street Journal report states that Chinese government officials are now prohibited from using iPhones and foreign-branded devices for their work and in official quarters, due to potential security risks. The move suggests that China, one of Apple's biggest markets, is willing to dispense with big U.S. companies in the fight to boost local technology. The report weighed heavily on Wall Street stock indexes, with Apple shares falling 3.6%.
Returning to the topic of oil, in a display of doublespeak, the Biden administration announced it would cancel oil and gas “leases” at a federal wildlife refuge that were purchased by an Alaska state development agency in the final days of the Trump administration. On the other hand, the administration is making efforts to encourage increases in crude oil production outside the US, to mitigate the increase in oil prices and its effect on gasoline prices.
In short, the growing global polarization, originally generated by the Russian invasion and now sponsored by China, the inconsistencies in Western energy policies, and the supply control strategies by OPEC+, confronted with stubborn energy demand, have pushed prices.
At the close of the markets on September 8, Brent Crude Oil was trading at $90.44/BBL, breaking the barrier of $90/BBL, while WTI was also in record territory for the year, trading at $87.23/BBL.
Energy Transition
Liquefied Natural Gas (LNG): A Catalyst for the Energy Transition
Of the triad of fossil fuels that today dominate the way the modern world uses energy (82.3% in 2022), natural gas stands out as the one with the lowest emissions, and it is, therefore, considered a transition fuel, especially in electricity generation: today it represents around 24% of total primary energy.
Unlike coal and petroleum and their derivatives, which can be easily transported in their natural state in various ways, natural gas (mainly a mixture of methane, CH4, ethane, and C2H6) can only be transported by gas pipelines. If the consumers who need this energy source are located far from the gas fields, the construction of gas pipelines is impractical or too expensive, which limits the marketing range to countries with land contiguity.
Liquefied natural gas (LNG) is natural gas that has been cooled to extremely low temperatures (-260 °F or -162 °C). This transformation reduces its volume approximately 600 times, making it more practical and profitable to transport and store, especially by sea, in a liquid state. LNG is odorless, colorless, non-toxic, and non-corrosive. Hazards include flammability after vaporization to a gaseous state, freezing, and asphyxiation.
Historical Development
The history of LNG dates to the late 19th and early 20th centuries, when scientists and engineers began experimenting with the properties of natural gas. In 1867, the French engineer, Louis-Paul Cailletet, was the first person to liquefy oxygen, and hydrogen, in the atmosphere, using instantaneous cold obtained with the sudden decompression of the gas. In the early 20th century, American chemist and engineer, Walter O. Snelling, conducted experiments that led to the successful liquefaction of natural gas in a controlled environment, laying the foundation for practical applications. In 1915, Godfrey Cabot patented a method of storing liquid gases at very low temperatures. It consisted of a thermos bottle-type design that included a cold inner tank inside an outer tank; the tanks being separated by insulation. In 1937, Lee Toomey patented a large-scale natural gas liquefaction process. The goal was to store natural gas in liquid form, so it could be used to reduce peak energy loads during cold weather.
During World War II, LNG gained importance for military applications. The Germans, in particular, used it to power vehicles and submarines. LNG turned out to be a dense energy source that was easier to transport and store than compressed natural gas (CNG). In addition, it was less volatile than gasoline or diesel, which reduced the risk of explosions.
After the war, the focus shifted from military to civilian applications. LNG was recognized as a versatile energy source for heating, cooking, and industrial processes, especially in areas lacking gas pipelines. The first large-scale commercial LNG plant was built in Cleveland, Ohio, in 1940. This plant was used to store natural gas for use during periods of peak demand. In 1959, the first LNG tanker, the “Methane Pioneer”, transported LNG from the United States to the United Kingdom. This marked the beginning of the global LNG industry.
The 1960s marked a major turning point for LNG as a global product. Algeria became the first country to export LNG in 1964 when it shipped a small amount to the United Kingdom. In 1969, the Arzew plant in Algeria began regular exports of LNG to Europe, ushering in a new era in LNG trade. This led to the construction of numerous liquefaction and regasification facilities around the world to facilitate international trade.
The 21st century has seen an exponential increase in LNG production, driven by technological advances, the shale gas revolution in the United States, and the emergence of new LNG producers such as Qatar and Australia. More recently, Russia's invasion of Ukraine and subsequent economic sanctions have given a boost to the use of LNG, no longer for reasons of geographical proximity, but for security of supply considerations.
In 2021, the European Union (EU) imported 83% of its natural gas. Before the war, EU natural gas imports from Russia via pipeline and LNG accounted for almost 50% of the total. This figure fell significantly in 2022 to around 12%.
Technology
The processes of natural gas liquefaction, storage, transportation, and subsequent regasification involve technologies that are known, but of some complexity:
The cascade process, in which natural gas is cooled by another gas that in turn has been cooled by another gas, hence its name. The Linde process, although a variation of the Linde process is sometimes used, called the Claude process. In this process, the gas is cooled by continuously passing it through an orifice where it expands, until it cools to temperatures at which it liquefies. This process was developed by James Joule and William Thomson and is known as the Joule-Thomson effect.
· Before liquefaction can occur, raw natural gas must undergo treatment to remove impurities, contaminants, and substances that could freeze at cryogenic temperatures, such as water, carbon dioxide, sulfur compounds, and heavy hydrocarbons. Once natural gas is pretreated, the gas is compressed to increase its pressure. The compression of the gas raises its temperature and facilitates its cooling in the later stages of the process.
· The compressed natural gas then enters the cooling phase. This involves the use of multiple refrigeration cycles and heat exchangers to achieve the desired low temperatures, typically around -260 °F (ca. -162 °C). Various cooling methods are employed, including the use of cryogenic refrigerants such as propane or ethylene, which condense and vaporize in a closed-loop system to absorb heat and maintain low temperatures.
· At these extremely low temperatures, natural gas begins to condense and change from a gaseous state to a liquid state. This phase transition occurs because gas molecules lose thermal energy and slow down, allowing attractive forces to dominate and form a dense liquid structure. The resulting LNG is stored in cryogenic tanks that maintain the ultra-low temperatures necessary to maintain the liquid state.
· LNG is transported in specialized cryogenic vessels, often called LNG carriers or LNG tankers. These ships have insulated cargo tanks and use a small portion of the LNG as fuel for propulsion. The remaining LNG cargo remains in a cryogenic state during transport, minimizing losses. Moreover, today, LNG can be transported overland, on a small scale, in specialized tank cars.
· Upon reaching its destination, the LNG is regasified for distribution and use. Regasification involves the use of heat exchangers to transfer heat to the LNG, raising its temperature and allowing it to return to its gaseous state.
The liquefaction process is energy-intensive, mainly due to the need to cool the gas to cryogenic temperatures. To improve efficiency and reduce energy consumption, LNG facilities typically employ advanced technologies, such as optimized refrigeration cycles and the use of waste heat from the liquefaction process to preheat incoming natural gas.
Naturally, the most important countries in the global LNG market are those that have extensive reserves of natural gas, but that have also been able to develop the infrastructure for its liquefaction and export. Qatar, the United States, Australia, and Russia are among the largest producers and exporters.
Country | LNG Production (2000) MTPA | LNG Production (2021) MTPA |
Qatar | 7.0 | 77.1 |
Indonesia | 16.6 | 34.3 |
Malaysia | 18.2 | 27.7 |
Algeria | 5.4 | 25.0 |
Nigeria | 12.3 | 22.8 |
Australia | 7.7 | 77.6 |
Trinidad and Tobago | 9.6 | 15.3 |
USA | 2.5 | 53.2 |
Russia | 0.4 | 33.5 |
Oman | 4.5 | 14.7 |
Natural gas has emerged as a bridge fuel in the transition to renewable energy sources, as the ideal complement to intermittent renewable energies such as wind and solar, providing a reliable source of energy when renewable energy generation is low. In that sense, since LNG is a globally traded product, it allows consuming countries to access a wider range of suppliers, which promotes competition, price stability, and greater energy resilience, making LNG a vital component of the global energy landscape.
Venezuela
Political and Other Events
The primary elections to select the opposition candidate who will compete in the presidential elections in 2024 have become a nightmare for the Maduro regime.
Without the implosion of the primaries, surely the regime's preferred scenario, a series of direct and indirect attacks are being deployed. Investigation of the origin of the funds for the process, inquiries into the personal lives of the members of the commission of primaries, and lawsuits in court for the alleged disclosure of personal data in the registration process. Moreover, threats and intimidation of business owners as well as of state and municipal authorities that allow public spaces to be used as voting centers are becoming the norm.
Within the same opposition, some seem to bet that the primaries will succumb to give way to a selection by consensus, which would generate important centrifugal forces in the actors who today fight to maintain a united front.
On the other hand, the regime is trying to improve the economic situation and its international image. They are trying to extend the benefits of the OFAC licensing system, keeping alive a kind of negotiation with the Biden administration, which they perceive to be more willing to make concessions as the price of crude oil rises. In this same direction, the negotiations with the government of Trinidad and the Shell company, to develop the Dragon Field in the north of Paria and supply natural gas to the Atlantic LNG liquefaction plant, seem to be advancing.
The plan, as presented, is a project of mutual benefits, but it has been complicated by the requirement that PDVSA be compensated for the investments previously made in the Dragon block and related unfinished infrastructure. In any case, if the project materializes, it would represent a milestone in the gas development of Venezuela: 44 years after its discovery, this would be the first gas of Venezuelan origin to reach remote destinations such as Europe.
Continuing on the economic level, the regime is deploying an interesting strategy with China, in the past one of its great political and economic supports. The initial shipment of Vice President Delcy Rodríguez and the Minister of Oil, Colonel Tellechea, has been followed by Nicolás Maduro and his entourage.
According to Maduro, his “historic” visit aims to “strengthen cooperation and the construction of a new world order,” taking advantage of the growing disagreement between the Asian giant and the United States. The reality is perhaps simpler and revolves around convincing the Chinese government to forget the regime's past abuses and to invest again in Venezuela, in principle in the oil industry, which remains in a critical situation. We'll see how “generous” the Chinese feel towards their unreliable ally.
Hydrocarbons Sector.
The week has passed without major changes in oil activity.
Production: Production in the first days of the month has remained at 744 Mbpd, distributed geographically as shown below:
• West: 129 (Boscán 53)
• East: 156
• Belt: 459 (Chevron 75)
· Total: 744 (Chevron 128)
Chevron's production remained at the same levels as last month, 128 M bpd, while maintaining deferred production at only 10 Mbpd, just 7% less than its potential.
Refining: The only new development in national refining is that the Cardón catalytic cracking plant (FCC) is producing usable naphtha for the gasoline mixture. The refineries together processed 306 Mbpd of crude oil and intermediate products, obtaining 54 Mbpd of gasoline, and 78 Mbpd of diesel, in addition to about 140 Mbpd of residual fuel for export.
Exports: Although it is too early in the month to project export levels, the only element that could change anything is a slightly lower export from Chevron, given that inventories were exported in addition to monthly production last month. Additionally, exports to Cuba could return to the usual average of 50 Mbpd. On the products side, there is availability of residual to be able to export about 80 Mbpd.
Due to the increase in oil prices, foreign exchange earnings could increase proportionally, helping to reduce official interventions in the exchange market and providing some slack for public spending.
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