El Taladro Azul Published originally in Spanish in LA GRAN ALDEA
BETTER DEMAND PROSPECTS AND LOW INVENTORIES BOOST OIL PRICES
Over the past few months, all kinds of apocalyptic projections about demand and a global recession have been neutralizing geopolitical risks and OPEC+'s efforts to support prices. That narrative, a sort of virtual retaining wall, seems to have finally given way to an increasingly optimistic demand outlook and the persistent and growing geopolitical risk, boosting barrel prices. For the oil industry, the stars have aligned almost all the forces in one direction, for now.
Basics
· The tenacious growth in demand and the lag in supply forced the International Energy Agency (IEA) to revise its forecasts. Since the IEA decided to be the promotor of the energy transition, deviating from its original objectives, its forecasts have underestimated oil demand and overestimated supply, so they have had to periodically review their forecasts. This is precisely what it did in its March review: it increased its annual oil demand growth forecast from 1.2 to 1.7 MMbpd, concluding that during 2024 the oil market will be undersupplied.
· Weekly U.S. crude and product inventories released by the EIA fell despite increased refining capacity utilization. Global inventories also show a reduction, despite the growth of floating inventories due to disruptions in shipping through the Red Sea.
· In the US, despite a modest increase in drilling activity, — 7 units according to Baker Hughes — the reality remains that there are 125 fewer active rigs than last year. Much of the inventory of DUC wells (drilled uncompleted wells) was used to achieve production growth in the US. 2023. Consequently, US production will most likely remain close to 13 MMbpd. Internationally, Baker Hughes reports a drop of 25 rigs compared to the previous week.
· OPEC+ maintained its discipline of the cuts recently extended until mid-year, although an increase in Libyan production is expected, after apparent agreements between the two factions that are vying for control of the country.
Geopolitical
· Russia's invasion of Ukraine, as we highlighted last week, has become extraterritorial, no longer limited to just Ukraine. Russian territory, particularly its energy and manufacturing infrastructure, is now at stake. This week, Ukrainian drones targeted Russian refineries. As recently as Saturday the 16th in the early morning, the Syzran refinery was on fire following a Ukrainian attack. According to calculations by the Reuters agency, Ukrainian drone attacks on Russian oil refineries have paralyzed up to 370,500 barrels per day (bpd) of Russia's refining capacity so far in the first quarter of the year, 7% of the total. Under normal conditions, this would mean a higher level of Russian crude oil exports; However, the complexities of crude oil transportation logistics and the most recent US sanctions have made it difficult to charter enough tankers to handle the change. Russian exports may suffer a reduction.
· Hamas finally put on the table a ceasefire offer in exchange for exchanging Israeli hostages for Palestinian prisoners. Hamas communicated its latest proposal through mediators Qatar and Egypt. Prime Minister Netanyahu considered the proposal unrealistic but announced that an Israeli team would soon travel to Doha to continue talks. Israel, meanwhile, is preparing a plan to evacuate civilians from Rafah and defeat the remaining Hamas battalions – a regional escalation of the conflict remains a distinct possibility.
· The Houthis announced an expansion of their objectives to include plans to attack ships, which, avoiding the Bab Al-Mandeb Strait and the Red Sea, take the Indian Ocean route towards the Cape of Good Hope. An increase in the risk of navigation in the area.
Regarding monetary policies, there is speculation that the Bank of Japan will end its negative interest rate policy by raising them for the first time since 2007. In the US, confidence is growing that the FED will begin to dismantle its monetary restrictive policy. Moreover, it looks like the UK and eurozone will start cutting rates later in 2024 as inflation comes under control. These measures naturally aim to support energy demand.
With the situation of global inventories, the alerts of supply deficit throughout 2024, and the tangled geopolitical situation, which tends to complicate oil transportation routes, prices could only rise. They ended the week at levels not seen since September 2023, and above the average prices for the last 12 months.
The gradual increase in prices during the week is due to the succession of events, starting with the announcements of inventories and demands in the US by the EIA, followed by the IEA rectification, plus the attacks on Russian refineries. The apparent discipline of OPEC+ has as its counterpart an alleged excess production capacity, which functions as a kind of small brake on the rise of prices.
Thus, at the close of the markets, on Friday, March 15, Brent Crude Oil was trading at $85.35/bbl, while WTI was trading slightly above $81/bbl.
In other news
· Britain's government plans to build gas generation plants or renovate existing ones to improve its energy security and address the risk of blackouts. As part of efforts to meet climate targets and secure supply, Britain is seeking to increase its nuclear and wind power capacity, but according to Energy Minister Claire Coutinho, more gas generation will also be needed to provide backup: “Without gas to support renewables, we face the real prospect of blackouts… We will not allow ourselves to be put in that position.”
· The consortium led by ExxonMobil announced its first discovery of 2024, in its Stabroek block in Guyana. This is the Bluefin exploratory well that identified 197 feet (ca. 60 m) of net oil sand. Some media suggested that the discovery was located in undefined waters, but it is located in the southeast of the block near the border with Suriname.
· India's state-run filling station system will reduce gasoline and diesel prices starting Friday, ahead of the expected announcement of a date for national elections. An electoral policy that compromises post-electoral finances.
· President Biden's administration indicated that it is not happy with the proposed purchase of US Steel by Nippon Steel for $14.0 billion, using nationalist arguments motivated by the November presidential elections.
VENEZUELA
Political/Economic Situation
Looking ahead to the presidential elections in July of this year, all the regime's efforts are aimed at trying to leverage an electoral economy and divide and demotivate the opposition. There has been an increase in international pressure to alleviate the obvious electoral advantage. The European Parliament urged the regime to allow María Corina Machado (MCM) to participate in the elections, and the US continues to warn of the consequences of breaches of the Barbados Agreement.
Another key element that is not collaborating with the regime's electoral campaign is the national electrical system. Scheduled power outages and blackouts are becoming more and more frequent, negatively affecting the productive apparatus – including oil – and reminding the population of the inefficiency of the regime.
On the opposition side, MCM remains faithful to its strategy, insisting that the people chose her to represent them. Numerous names of potential replacements have been floated, probably coming from the official rumor mill to promote internal conflicts in the opposition.
In the economic area, public spending is increasing, as is typical of an election year, and more and more funds are being set aside to be used for the CLAP fund program. The Bs./$ exchange rate remained constant and annualized inflation dropped below 60%.
Hydrocarbon Sector
Electrical problems have represented the element that most impact Venezuelan oil activity. This Friday, large areas of Caracas suffered from prolonged blackouts, but those that affected oil activity corresponded to a catastrophic failure in the generators of the Cardón refinery, which caused the complete stoppage of the two refineries and their surroundings. Electrical outages also hit the Jose terminal due to failures in the transmission lines that connect to the Guri generating complex. The state of Zulia, as usual, had episodes of instability and random blackouts.
In the Orinoco Belt, specifically in the PetroPiar Joint Enterprise, an explosion occurred that forced the closure of around 8.0 Mbpd (thousands of barrels per day). While issues with Merey 16 crude oil production continue to influence export levels and inventory management; Presumably, the situation has improved partially due to the use of Russian Ural crude oil.
The diluent situation remains uncertain. Shipments of diluent brought by Chevron have been offloaded for their consumption, and processes are being implemented to improve the recirculation of shipping diluent at the PetroPiar upgrader and blending plants. Talks have also resumed to restore supplies of Iranian condensate. PDVSA is beholden to supply crude oil to pay overdue debts to Iran, although it is currently shipping one shipment monthly.
Crude oil production could not recover the levels achieved a couple of weeks ago and averaged 767 Mbpd, distributed throughout the national geography, as follows:
· West 145 (Chevron 57)
· East 148
· Faja del Orinoco 474 (Chevron 85)
· TOTAL 767 (Chevron 142)
Chevron's production remained constant, with a small increase in the Boscán field in western Venezuela, offset by a drop in production in the Orinoco belt due to the PetroPiar accident.
OPEC's monthly report indicated that, according to its secondary sources, Venezuela's production in February was 820 Mbpd, a difference of almost 60 Mbpd compared to our figures. Typically, the difference we observe is around 30 Mbpd, which is explained by the inclusion in OPEC figures of diluents used at the well level as controlled production. The other 30 Mbpd, we believe, is explained by the 30 Mbpd that we report as drained from inventories. The main estimation tool for secondary sources is the movement of tankers leaving Venezuelan terminals and satellite photos of the content of storage tanks. In any case, we will be reviewing the sources of both numbers.
Refining has been affected by the total shutdown of the Paraguaná Refining Complex. On Thursday the 14th, a catastrophic failure in electricity generation at the Cardón refinery impacted the electricity supply of the complex, including Amuay and its surroundings. After solving the origin of the problem, and despite doubts about the state of the electric generator to maintain continuous operation, the scheduled start-up began plant by plant, in an attempt to return to normal. However, the average processing for the week is less than 120 Mbpd, with gasoline production of 40 Mbpd and diesel of 58 Mbpd; Gasoline imports will undoubtedly have to be increased this month to avoid a major supply crisis.
Exportation continued its course, sorting out electrical problems and the availability of Merey crude oil. It is estimated, according to loading programs, that March exports could average 660 Mbpd of crude oil.
ENERGY TRANSITION
Geothermal energy – Heat as an Ally[1]
Thermal energy is the energy that a body or system possesses due to the temperature of its molecules or atoms. This energy is related to the movement and vibration of the particles that constitute the body or system. When the particles move faster, the thermal energy is greater, and when they move slower, the thermal energy is lower.
In general, thermal energy refers to the total internal energy of a system, which includes the kinetic energy of the molecules and the potential energy associated with the interactions between them. Thermal energy can be transferred between systems through heat, work, or mass transfer. Thermal energy is a fundamental form of energy in our daily lives, as it is used in processes such as heating, cooling, generating electricity, and cooking food, among others.
The subsoil beneath our feet contains the key to a clean and sustainable energy source: geothermal energy. This renewable resource, which harnesses heat trapped within the planet, has fascinated and served humanity for centuries. Early civilizations revered hot springs and used their heat for bathing and therapeutic purposes. Roman engineers took advantage of hot water to heat places like Pompeii. The Icelandic sagas mention geysers as early as the 12th century. The modern era of geothermal energy began in the early 20th century with the first geothermal power plant in Larderello, Italy, in 1904. Since then, technological advances have unlocked the potential of geothermal resources on a larger scale.
Geothermal energy exists in various forms, from superheated steam near volcanic areas to reservoirs of hot water far below the surface. Technology plays a crucial role in capturing and utilizing this heat. Dry steam power plants, which directly use steam from geothermal vents, were the first technology. Flash steam systems use hot water pumped from underground and convert it into steam to drive turbines. Binary cycle plants use an organic fluid with a lower boiling point, creating steam from hot water that would not vaporize on its own. Enhanced geothermal systems (EGS ) create artificial reservoirs by fracturing underground rocks and injecting water to extract heat. Finally, geothermal heat pumps take advantage of the ground's constant temperature to efficiently heat and cool buildings. In their most basic form, they capture heat from the subsurface, using it to vaporize a fluid that is then used to drive a turbine.
Geothermal resources are not evenly distributed throughout the world. Tectonically active regions, such as the “Ring of Fire” surrounding the Pacific Ocean, have abundant high-temperature resources, making countries such as Indonesia, the Philippines, and New Zealand geothermal powerhouses. In contrast, continental regions with less recent volcanic activity require EGS technology to access deeper, lower-temperature resources, presenting an exciting challenge for countries such as the United States and Europe.
In 2022, the total installed geothermal energy capacity globally reached approximately 16,127 MW, generating around 67.2 TWh of electricity annually. Below is a table showing the top 10 countries using geothermal energy for electricity generation, based on their installed capacity:
Range | Country | Installed Capacity (MW) | Electricity Generation (GWh) | Share of total geothermal electricity (%) |
1 | USA | 3,794 | 36,800 | 23.1% |
2 | Indonesia | 2,356 | 21,000 | 13.2% |
3 | Philippines | 1935 | 20,400 | 12.7% |
4 | Iceland | 907 | 24,000 | 15.0% |
5 | New Zealand | 1,018 | 10,200 | 6.4% |
6 | Türkiye | 842 | 8,400 | 5.3% |
7 | Kenya | 830 | 7,900 | 4.9% |
8 | Mexico | 755 | 7,500 | 4.7% |
9 | Italy | 642 | 6,400 | 4.0% |
10 | Ethiopia | 523 | 5,200 | 3.3% |
Source: ThinkGeoEnergy Top 10 Geothermal Countries 2022 – Power Generation Capacity (MW) [ https://www.thinkgeoenergy.com/thinkgeoenergys-top-10-geothermal-countries-2022-power-generation-capacity-mw / ]
- Leading the pack with 3.68 GW, the United States uses geothermal energy for both electricity generation and direct-use applications such as heating greenhouses and aquaculture facilities.
- Indonesia has great geothermal potential due to its volcanic activity. The government actively promotes its development to meet the growing energy demand.
- The Philippines, rich in geothermal resources, aims to reach 4.7 GW by 2040, highlighting its commitment to the clean energy transition.
- Iceland, a world leader in geothermal utilization, harnesses this energy source for more than 90% of its heating and 25% of its electricity, demonstrating its immense potential as a reliable and sustainable energy source.
- New Zealand uses geothermal energy extensively for both electricity generation and industrial applications, demonstrating its versatility beyond energy production.
Like any development project, geothermal energy carries potential environmental and social impacts. Geothermal plants emit greenhouse gases, although significantly less than fossil fuel alternatives. Water use and the potential for land subsidence require careful management. Furthermore, community participation and ensuring equitable benefits are crucial for sustainable development.
Geothermal energy extends beyond electricity generation and has immense potential for various industries.
- Food Processing: Utilizing geothermal heat for greenhouses and other controlled-environment agricultural environments enables year-round production, reduces dependence on fossil fuels, and minimizes agricultural waste.
- Aquaculture: Geothermally heated ponds create ideal conditions for fish farming, increasing production and reducing dependence on wild fish populations, critical for sustainable food security.
- Direct use: From district heating and deicing systems to industrial processes such as paper drying, geothermal heat provides a clean and efficient alternative to conventional heating methods.
While geothermal energy offers numerous advantages, including reliability, baseload power generation, and minimal emissions, it faces challenges that must be addressed for broader adoption.
- High upfront costs: Drilling deep wells and installing power plants can be expensive, making it more difficult to invest compared to other renewable sources with lower upfront costs.
- Geographic limitations: Geothermal resources are not evenly distributed, limiting accessibility in some regions.
- Environmental and Social Concerns: Improper management can lead to land subsidence, water contamination, and possible seismic activity, requiring careful mitigation strategies and community involvement.
As the world strives to achieve carbon neutrality, geothermal energy is emerging as a reliable base load renewable source, playing a crucial role in the global energy transition. It offers not only clean electricity, but also a platform for sustainable food production.
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