El Taladro Azul Published originally in Spanish in LA GRAN ALDEA
In Dubai, within the framework of COP 28, the enemies of fossil fuels raised their accusing fingers against oil producers. In China, a slowdown in oil demand was reported for the fourth quarter. The market did not seem to pay much attention to the OPEC+ production cuts, while supply from non-OPEC countries showed signs of recovery. Although on their own, none of this news was enough to affect the movement of prices, the sum of them reinforced the atmosphere of pessimism of recent weeks, and oil, under siege, continued its downward march.
Hence, in the middle of the week, crude oil price levels have not been seen since June. On Friday, the market took some breath and prices had a slight rebound, but without being able to avoid ending up, for the seventh consecutive week, on the decline. Only a major event in the geopolitical or oil industry, affecting supply, could at this time change the market inertia.
At the COP28 summit, at least 80 countries are pushing for an agreement calling for an end to the use of fossil fuels, while scientists urge more ambitious action to avoid what they argue would be the worst impacts of climate change. Last Friday, a draft of what could be a final agreement for COP28 was circulated that included options in that direction. For his part, a few days earlier, OPEC Secretary General Haitham Al Ghais had sent a letter to the group's members urging them to oppose such an agreement. OPEC insists on its position that the goal should be to reduce emissions, not force the type of energy that should be used.
Not very flattering news continues to come out of China: Data from the General Administration of Customs revealed that its crude oil imports in November fell 9.2% compared to the previous year. High inventory levels, weak economic indicators, and slowing orders from independent refiners pointed to a potential decline in demand. The data also shows a drop, for the third consecutive month, in exports of petroleum products: almost 2% less month-on-month, and 17% compared to the same month in 2022.
However, for the medium term, the Economic and Technological Research Institute (ETRI), part of the state-owned CNPC, published a study predicting an increase in demand from China, with a peak at the end of this year. decade of about 16 MMbpd: the petrochemical sector represents 30% of that demand. The ETRI forecast also includes a prediction of a significant decline in oil demand by 2060.
In the US, a dichotomy that is difficult to explain continues to appear in its oil figures. While the EIA publishes record production figures of around 13.2 MMbpd, the number of active drilling rigs continues to decline. Baker Hughes reported, in its weekly drill count, that the number of active oil drills fell to 503 (-2 week-over-week and -122 year-over-year). Active drills aim, in the best of cases, to maintain production, since the improvements introduced in the drilling and completion of wells, an argument used by some to explain the dichotomy, require incremental time to generate new production. Additionally, in many of the basins, the drilled locations do not have the same productivity as they did a few years ago. In any case, the announcement of these production levels exacerbates the negativity of the market.
On the other hand, data released by the US Department of Labor showed stronger-than-expected job growth, signs of underlying labor market strength that should support more robust oil demand.
Some analysts point to the increase in Non-OPEC+ production as another element that contributes to the uncertainties facing the oil market. The reality is that only Guyana appears with significant increases in production this year; Brazil and Argentina could add some additional production next year, which would be offset by declines in Colombia, Ecuador, and the United Kingdom. In the short/medium term, we do not see new supply developments.
In any case, the direction that the market is taking has caused serious concern in Russia, or at least that is what can be deduced from Putin's lightning trip to the United Arab Emirates, Saudi Arabia, and Iran, to meet with their leaders and surely discuss the oil policies of OPEC+: the continued fall in prices threatens Russian finances, already weakened by its war in Ukraine.
We had already commented that markets doubt OPEC+'s promises to collectively reduce production by 2.2 million barrels per day at the beginning of next year; A week after the announcements, doubts persist. The possibility that producers will act to protect their interests and not comply with the vague commitments announced undermines confidence that OPEC+ can regulate the market.
Thus, and despite the pessimism that has infected the oil market, oil prices rose on Friday, in response to the US labor market and news about purchases to refill the strategic reserve; That momentary optimism was not enough to avoid another weekly decline - the seventh in a row. Brent and WTI crude oil, at the closing of the markets, on Friday, December 8, were trading at $75.84/bbl and $71.23/bbl respectively.
To summarize our analysis of the recent events surrounding the hydrocarbon industry, we maintain that:
· The market continues to be in deficit (demand 101.8 and supply 100.3 MBPD), although with the lower energy consumption in China, which is currently equivalent to about 800 MBPD, the gap has decreased slightly.
· The US strategic reserve is at its lowest levels since the 1980s, having been drained to prevent prices from rising in response to supply shortfalls.
· The increase in supply in some non-OPEC+ countries has its counterpart in falls in production levels in other countries; particularly in the case of the US, growth appears to be due more to the particularities of the way EIA numbers are gathered and published than to real barrels.
· OPEC+ announced that it will maintain the cuts as they were in the last few months, although Russia may stick to its previously unfulfilled agreed cuts.
· During the first quarter of 2024, supply and demand will be in a delicate balance that could be modified by a soft landing in the US and the results of the current expansive government policy in China, which could cause demand to exceed The expectations
· For the rest of 2024, demand will return to the path of growth until closing the year with global demand of 103.2 MMbpd, unless fears of the recession that never came in 2023 are revived.
Hence, Brent Crude prices, over the next year, will show volatility due to the uncertainties that persist in the environment, but within a band of $85/bbl to $95/bbl, we believe it corresponds to the levels at which different interests of producers and consumers can complement each other.
VENEZUELA
Political Events.
December begins with what is an abrupt change in the direction of the regime's domestic and international policy. The results of the opposition primaries and the consultative referendum on December 3 indicate clear discontent; the population presents the regime with a scenario in which, in reasonably clean elections, they could be removed from power.
Faced with this reality, the regime seems to abandon the policy of improving the economic situation based on the liberalization of sanctions, and on a monetary policy that paved the way to allow abundant public spending during the electoral campaign. In an unexpected, although perhaps not entirely surprising, turn, the country once again experiences repression of the opposition and nationalist rhetoric, assuming the cost of an international conflict and a probable reactivation of economic sanctions, particularly by the US.
This new strategy operates in two fields. On the one hand, taking the border conflict with Guyana to extremes: At a meeting of the Federal Government Council, the new official map of Venezuela was approved, which includes the claim area as Venezuelan territory, decreeing the founding of a new state. Additionally, Maduro instructed PDVSA and the CVG to grant exploration licenses for oil, gas and minerals in the new state – instructions, by the way, purely nominal, given the organizational and financial disrepair of these two state companies.
Guyana denounced Venezuela's threats and harassment to the UN Security Council, whose president, Antonio Guterres, offered his good offices to mediate the crisis. The president of Brazil was also present in the conflict, calling for sanity and peace.
Venezuelan President Nicolás Maduro will meet Guyana's President Mohamed Irfaan Ali on Thursday amid a territorial dispute between the two countries, according to a letter from the Prime Minister of Saint Vincent and the Grenadines.
The announcement of the bilateral meeting came after Maduro spoke with Ralph Gonsalves, prime minister of Saint Vincent and the Grenadines, who also serves as president pro tempore of the Community of Latin American and Caribbean States (CELAC), and the secretary general of the UN, Antonio Guterres on Saturday. President Lula has been invited as an observer.
The other component of the new tactics adopted by the regime is a return to repression. The public prosecutor accused a group of opposition politicians, mostly around leader María Corina Machado, of being involved in an alleged plot against the consultative referendum, allegedly financed by ExxonMobil – the old “bogeyman” of the Latin American left.
At the economic level, public spending continues to be limited and intervention in the exchange market continues, to keep inflation and the exchange rate, Bs./$, at bay.
However, the question remains as to how the change in political strategy will affect US sanctions and investment appetite, given the tension in sentiment and the possible increase in country risk. Even Chevron, the regime's biggest ally, must be weighing its options regarding its operational and financial presence in Guyana and Venezuela.
Hydrocarbons Sector.
Undaunted by the political noise, oil operations within the country proceed without major shocks. Already close to closing 2023, we can observe the difficulty in increasing production, despite the efforts in operations and official forecasts.
Production: During this last week, 751 Mbpd were produced. The geographical distribution is shown below in Mbpd:
· West 136 (Chevron 54)
· East 151
· Orinoco Belt 464 (Chevron 82)
· Total 751 (Total Chevron 136)
Mixing is continued. of crude oil in the Sinovensa plants, in the Orinoco belt, and the PetroMonagas upgrader, in Jose. Diluents are in relatively short supply, but there are shipments in transit. Crude oil inventories are increasing due to low export levels.
Refining: The national refining system is processing and reprocessing 275 MBPD of crude oil and intermediate products, and produces 64 MBPD of some type of gasoline and about 78 MBPD of diesel. The imported gasoline received from Chevron and ENI/Repsol complements the domestically produced gasoline to supply the domestic market.
Exports: Exports have been impacted by the changes related to OFAC licenses, which had limited volumes and prices until last November. At the beginning of this month, Merey crude oil began to be exported to the Reliance company of India, apparently using tankers chartered by Chevron and Repsol, which may increase the flow of money to Venezuela. It is announced that during December, a total of 4.0 MMBBLS will be exported to India. We have no indications about the price, but we must assume that it is related to the market price and not to the discounted price of the sanctioned crude oil. The placement of crude oil in China's independent refineries has been complicated by trying to sell crude oil at market prices since the subsistence of these refineries depends on acquiring low-cost crude oil and bitumen – this in turn has an impact on the figures of import from China that we already mentioned.
Although it is early in the month, exports are expected to average about 540 Mbpd, of which 150 Mbpd corresponds to volumes produced and mixed by the joint ventures operated by Chevron, 24 MBPD to barter carried out by Chevron, 130 MBPD to India, 66 MBPD by barter with ENI/Repsol, 28 to CUBA and the remainder, about 142 MBPD to China. Additionally, about 80 MBPD of products will be exported, mainly residual fuel.
ENERGY TRANSITION
CARBON CAPTURE
With growing concerns about global climate change, carbon capture and storage (CCS) has become a much-discussed, and for some, critical technology in the pursuit of a sustainable, low-carbon future. At the UN Climate Change Conference, COP 28, currently taking place in Dubai, with an agenda full of controversial issues, Carbon capture has provoked an unusual and bad-tempered confrontation between senior officials of the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC).
Ahead of the conference, in a report on the hydrocarbon industry, the IEA called on oil and gas producers to abandon “the illusion that implausibly large amounts of carbon capture” are the solution to reducing emissions and meeting net-zero targets. OPEC Secretary General, Haitham Al Ghais, responded byaccusing the IEA of pointing fingers, vilifying producers, and using an “extremely narrow framing” of the challenges to achieving net-zero that downplays safety and security. energy affordability. "The truth that needs to be told is simple and clear to those who wish to see it. It is that the energy challenges before us are enormous and complex and cannot be limited to a binary issue," said Al Ghais.
Carbon capture has become an indicator of a broader political and diplomatic battle over the future of oil, gas and coal production, in a world theoretically committed to achieving net-zero emissions by 2050.
What is carbon capture?
Carbon capture in its most basic definition is the capture and storage of CO₂ emissions produced by industrial processes and energy generation facilities before they are released into the atmosphere. This technology aims to prevent the build-up of greenhouse gases, particularly CO₂, in the atmosphere, which is argued to contribute significantly to climate change.
In the vast majority of these processes, the captured CO₂ gas is compressed so that in the liquid state it can be transported to a storage site, usually through a pipeline. Once at the destination, the CO₂ is pumped, through wells, more than 2,500 feet deep into geological formations such as depleted oil and gas fields, as well as formations containing unusable salt water.
In the 1970s and 1980s, the first discussions about the potential impact of carbon dioxide on climate change began, generating greater interest in mitigating CO₂ emissions. Researchers and scientists began to explore the possibility of capturing CO₂ from industrial processes and power plants. In the 90s, the first pilot projects were developed to test the viability of carbon capture technologies. The Sleipner Project in Norway, started in 1996, was one of the first commercial-scale projects to inject captured CO₂ underground for storage.
The adoption of the Paris Agreement in 2015 further emphasized the importance of reducing greenhouse gas emissions. Many countries included carbon capture and storage in their nationally determined contributions (NDCs) as part of their efforts to meet emissions reduction targets.
There are three main methods of carbon capture: post-combustion, precombustion, and oxycombustion.
Post-combustion: Post-combustion carbon capture is the most applied method and involves capturing CO₂ emissions after the combustion of fossil fuels. In this process, CO₂ is separated from other combustion gases using liquid solvents or solid adsorbents that selectively absorb or adhere to the CO₂. The CO₂ rich solvent or adsorbent is then separated from the flue gases, and the CO₂ is subsequently released for storage or use.
Precombustion: Precombustion carbon capture occurs before the actual combustion of fossil fuels. It involves converting hydrocarbons into hydrogen and CO₂, then separating the CO₂ from the hydrogen. The resulting hydrogen can be used as a clean fuel, while the captured CO₂ is stored or used in various industrial processes.
Oxycombustion: This process involves burning fossil fuels in an environment enriched with oxygen instead of air. This creates a flue gas with a higher concentration of CO₂, making it easier to capture. The captured CO₂ can be stored or reused, while the remaining nitrogen can be separated for various applications.
Likewise, direct air capture (DAC) is a technology designed to capture carbon dioxide (CO₂) directly from ambient air, once all emissions mitigation measures have been used. Unlike carbon capture methods that capture CO₂ emissions at their source, DAC targets existing CO₂ in the atmosphere. This technology plays a crucial role in addressing the challenge of reducing atmospheric CO₂ concentrations to mitigate climate change.
Challenges and barriers:
One of the main challenges facing the widespread adoption of carbon capture technologies is the associated cost. Implementing these technologies requires significant investments in infrastructure, research and development, and operating expenses. Governments, industries, and researchers are working to reduce these costs through innovation and policy support.
The process of capturing, transporting, and storing CO₂ requires additional energy, leading to a potential reduction in the overall efficiency of power plants and industrial facilities. Balancing the energy requirements of carbon capture with the benefits it provides remains a complex challenge that researchers and engineers are actively addressing.
To achieve significant reductions in CO₂ emissions, large-scale carbon capture infrastructure needs to be implemented. This requires significant planning, investment and coordination between governments, industries and communities. Developing the necessary infrastructure, including pipelines for CO₂ transportation and storage facilities, presents logistical challenges that must be addressed to ensure the success of carbon capture initiatives.
Uses for CO₂
Once carbon dioxide (CO₂) is captured, there are several uses, ranging from storage to creating valuable products. Here are some common uses:
One of the main destinations of captured CO₂ is geological storage. CO₂ is injected into geological formations, such as depleted oil and gas fields or deep saline aquifers, where it can be stored safely underground. This prevents the released CO₂ from contributing to atmospheric concentrations of greenhouse gases. The obvious corollary is that captured CO₂ can be used to improve oil recovery in mature oil fields. Injection into these fields helps increase the amount of recoverable oil and can contribute to their economic viability.
On the other hand, the captured CO₂ can be used as raw material to produce various valuable products using carbon. Some examples include feedstock for synthetic fuels; chemicals and polymers; incorporation into construction materials such as concrete, providing an environmentally friendly alternative; carbonation of drinks. CO₂ is, along with ammonia, an essential part of the manufacture of urea, while in the atmosphere it is essential in the photosynthesis of plants; far from the image of complete villainy that is intended to be conveyed.
Benefits of carbon capture:
The main benefit of carbon capture is its potential to significantly reduce greenhouse gas emissions, particularly CO₂, which contributes greatly to global warming. By preventing the release of CO₂ into the atmosphere, carbon capture plays a crucial role in mitigating climate change and meeting emissions reduction targets set in international agreements.
Carbon capture enables the continued use of fossil fuels, particularly in sectors where viable alternatives are currently limited. This is essential for industries such as steel, cement, and petrochemicals, which contribute greatly to global CO₂ emissions. Carbon capture provides a transition solution that allows these industries to reduce their carbon footprint while developing cleaner technologies.
Reducing emissions continues to be the main, most effective, and preferred response in the scenarios being handled. However, decarbonization alone could be insufficient to reduce “hard-to-reduce” residual emissions that may persist in the medium term. Once decarbonization options have been exhausted, direct air capture (DAC) could play a vital role in neutralizing residual emissions; therefore, most Paris Agreement-aligned scenarios project substantial DAC capabilities. To accomplish this, as demonstrated by the disagreements at COP 28 that we already discussed, we must abandon dogmas and understand that the future depends on a range of solutions.
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