In the past few days, oil traders around the world have been eyeing three major events closely in order to catch a glance at the direction in which the oil prices would be heading.
On Friday, in the Austrian capital city of Vienna, an Iranian delegation headed by Abbas Araqchi was discussing the EU promised Instrument in Support of Trade Exchanges (INSTEX) with the 4+1 group headed by the Secretary General of the European External Action Service (EEAS), Helga Schmid.
The outcomes of this meeting could play a significant role in determining the oil market statistics in the near future.
In the same day, thousands of miles away, in the Japanese city of Osaka, the G20 summit was underway in which heads of the world’s two biggest economies namely, China and U.S. were attending. Many were hopeful that on the sidelines of this summit the two sides would hold talks and resolve some of the issues regarding their long lasting trade war.
Three days later, one of the world’s most important event pertaining to the oil market was also underway. Members of the Organization of the Petroleum Exporting Countries (OPEC) along with Russia and other allies gathered in Vienna to discuss market policies and statistics and more importantly to decide whether to extend a deal reached two years ago for cutting their production by 1.2 million barrels per day.
The gathering between OPEC and Russia along with other oil producers, a group known as OPEC+, is still ongoing today in the European city of Vienna.
INSTEX and 4+1 meeting
On Friday, after months of ups and downs, the EU representatives, known as 4+1, announced that the INSTEX has become operational and the first transaction has been processed through the mechanism. “INSTEX now operational, first transactions being processed and more EU Members States to join.” Helga Schmid, said in a tweet on Saturday.
With the EU trade mechanism going operational, Iran expects Europe to buy its oil through this mechanism and so with the Iranian oil being re-injected into the European markets, most definitely the global oil markets will be affected.
After the breakout of the news about the INSTEX going operational, Iranian media and press reported that Iran expects Europe to buy it oil through ISTEX along with basic goods and medicine trade.
Mostafa Kavakebian, an Iranian lawmaker and a member of the Iranian delegation attending the Vienna meeting, urged Europe on Saturday to include oil in the INSTEX as well as financial transactions.
The news was welcomed by Europe. Seven European countries—Austria, Belgium, Finland, the Netherlands, Slovenia, Spain and Sweden—in a joint statement expressed their support for the efforts for implementation of INSTEX while Russian Deputy Foreign Minister Sergei Ryabkov also expressed Moscow’s willingness for joining the countries that will regulate trade exchanges with Iran through the mechanism.
The impact of INSTEX on the oil market is not yet very tangible, however if the EU agrees to buy oil from Iran, it could change a lot in the oil market statistics and the impact on the prices would be significant indeed.
U.S., China and G20 gathering
In the past two years, a trade spat between the world’s two biggest economies has causes lots of worrisome among the oil traders, since the rising tensions between the U.S. and China has been weighing on the oil prices and the skepticism over the global demand has been overshadowing the oil markets.
The two sides have held several round of talks, however so far no truce is expected to be reached between them as they have been imposing increasingly severe tariffs on each other’s imports.
One the sidelines of the G20 meeting on Saturday, however, sign of significant progress in relations were appeared as Chinese President Xi Jinping and U.S. President Donald Trump agreed to a ceasefire and restarting talks.
The exchange of olive branches between the United States and China during the G20 meeting, has offered some hope that the long-lasting dispute between the world’s two largest economies can be resolved and a dimming outlook for the global oil demand is not something to be afraid about.
According to Reuters, the European Union and South American bloc Mercosur have also agreed a free trade treaty on Friday, which could also be a driving force for the global economy.
Now, after the G20 meeting, oil traders are more optimistic about the future of the oil markets, and with more good news coming from OPEC gathering venue in Vienna, oil prices are once again heading toward new highs.
OPEC+ gathering underway
OPEC, Russia and some other allies are gathering in Vienna in two consecutive days, to mainly decide on the extension of an output cut deal which started in 2017 and has been prolonged up to date.
On Sunday, Russian President Vladimir Putin said he agreed with Saudi Arabia to extend existing output cuts of 1.2 million barrels per day (bpd) by six to nine months.
Later that day, Iraq also joined the alliance, expressing its approval of a decision on extending the deal for another six to nine months.
Oil markets which had gathered enough momentum on the previous positive signs from Vienna and Japan, reacted strongly to the news on Monday.
Reuters reported on Monday that “oil prices rose more than $1 a barrel after Saudi Arabia, Russia, Iraq backed an extension of supply cuts for another six to nine months ahead of an OPEC meeting.”
Although OPEC, Russia and other producers are due to gather today to make the final decision, however the market seems to be given enough green light which the prices are seen to be following their upward trend toward the end of this week.
From our partner Tehran Times
Amid Russia-Ukraine Crisis, Trans-Saharan Gas Pipeline Offers Hope for Europe
Europe is still looking for reliable alternative sources of energy especially gas, as its energy relations fell nosedive with Russia. It has been exploring energy sources from Asian region down to Africa. But while African energy sources exist, it largely lacks infrastructure to transport it up to Europe. And transporting gas would have to go across borders which requires some kind of regulations and clearance agreements between the African countries.
The Trans-Saharan gas pipeline (also known as NIGAL pipeline and Trans-African gas pipeline) was first proposed back in the 1970s. The inter-governmental agreement on the pipeline was signed by Energy Ministers of Nigeria, Niger and Algeria on 3 July 2009 in Abuja. It has not materialized, among many factors, due to lack of finance and multiple complicated government bureaucracy. But Europe’s demand is pushing for fixing some solutions and resolving obstacles to realize this project.
Nigerian authourities said that Russia’s Gazprom has negotiated with Nigeria about its possible participation in the project. Experts described this interest as a business strategic step to gatekeep and control the flow of gas from Africa into Europe. Russia would be interested either tactically delay the project. Its aim is to be the leading supplier, and any other competitors must be placed under tight-monitoring and control.
Charles Robertson, Global Chief Economist at Renaissance Capital, questioned in an email discussion how Russia can heavily invest in Africa’s energy sector, especially in the exploration and production of oil and gas to be exported to Europe.
“Russia or Kazakh oil competes with Libyan, Angolan or Nigerian oil. Russia or Kazakh gas competes with Algerian or Egyptian gas. Russia can supply food – but that’s mainly needed by north Africa,” he wrote, and concluded: “By forging strong cooperation, the European Union (EU) has more of the industrial machinery that Africa might need to industrialize, although Chinese machinery may be more appropriate for the technical level of industry in Africa.”
Russian companies have exited mega-projects in Zimbabwe, and also went out from Botswana, Cameroon and Sierra Leone. Russians were not chosen after the project bidding process in Mozambique. There are, therefore, other reliable potential foreign corporate investors such as Indian company GAIL, France’s Total S.A., Italy’s Eni SpA and Royal Dutch Shell have expressed interest in participating in the project.
Differences exist though. According to the Algerian Energy Minister Chakib Khelil – “only partners that can bring something to the project, not just money, should be there. On the other side, Energy Ministers of Algeria and Nigeria have said that “if things go well, there will be no need to bring international oil companies into the project” and “if the need for partnership in the project arises, not every partner will be welcome on board on the project.”
Mahamane Sani Mahamadou, Minister of Petroleum for the Republic of Niger; Mohamed Arkab, Minister of Energy and Mines, Algeria, and Chief Timipre Sylva, Minister of State for Petroleum Resources of Nigeria as well as the Director Generals of National Oil Companies (NOCs) of the three African countries held thorough discussions on the implementation of the the multi-billion Trans-Saharan Gas Pipeline (TSGP) in June 2022, in Abuja, capital of the Federal Republic of Nigeria.
According to reports, a Steering Committee made up of the three Ministers and Director Generals of the NOCs, established during the two-day meeting, will be responsible for updating the feasibility study for TSGP and will meet at the end of July 2022 in Algiers to discuss how to progress with the TSGP project.
The Ministry of Petroleum of Niger commends all parties for this significant step, viewing both the establishment of the taskforce and roadmap as key drivers towards making the TSGP as reality. With energy poverty increasing across the African continent due to limited investments in energy projects, delays in exploration, production and infrastructure rollout, the Covid-19 pandemic and global energy transition-related policies, the TSGP project will bring in a new era of energy reliability for Africa.
With the 4,128 km pipeline running from Warri in Nigeria to Hassi R’Mel in Algeria via Niger, the pipeline will not only create a direct connection between Nigeria and Algeria’s gas fields to European markets but will bring significant benefits for Niger.
With over 34 billion cubic meters of gas, Niger, in its own rights, also has the potential to become a gas exporter, and with Europe expanding energy ties with Africa, the TSGP project will mark a new era of improved regional cooperation in Africa, enhancing gas monetization and exports while scaling up Niger-exports to Europe via Algeria.
Meanwhile, with the pipeline making headway, opportunities for the country to increase domestic gas utilization on the back of new reserves from Niger and Nigeria have arisen. With Niger seeking to improve electricity access and ensure energy affordability through increased exploitation of gas, the TSGP initiative will be a game changer.
The pipeline will enable up to 30 billion cubic meters of natural gas to be traded yearly enhancing regional and international energy trade, enabling Niger to expand the role of natural gas in its energy mix and address energy poverty.
The efforts of Afreximbank for the creation of an African Energy Bank is a huge testimony of how Africa can enhance cooperation and leverage domestic solutions to optimize its oil and gas market, notes Sebastian Wagner, Executive Chair of the Germany Africa Business Forum. “What we want to see is African financiers rallying towards supporting the rollout of TSGP. Increased oil and gas exploration, production and assets development is what will bring Africa out of energy poverty by 2030,” Wagner acknowledged in comments.
With gas emerging as the energy of the future, the US$13 billion TSGP project could lead to socioeconomic growth by unlocking massive investments across the energy sector. It will simultaneously help create jobs in various industries including energy, petrochemicals and manufacturing whilst optimizing energy production and positioning Africa as a global energy hub.
The pipeline will start in the Warri region in Nigeria and run north through Niger to Hassi R’Mel in Algeria. In Hassi R’Mel the pipeline will connect to the existing Trans-Mediterranean, Maghreb–Europe, Medgaz and Galsi pipelines.
These supply Europe from the gas transmission hubs at El Kala and Beni Saf on Algeria’s Mediterranean coast. The length of the pipeline would be 4,128 kilometres (2,565 mi): 1,037 kilometres (644 miles) in Nigeria, 841 kilometres (523 miles) in Niger, and 2,310 kilometres (1,440 miles) in Algeria.
Reports say the pipeline to be built and operated in partnership between the NNPC and Sonatrach. The company would include the Republic of Niger. Initially NNPC and Sonatrach would hold a total 90% of shares, while Niger would hold 10%.
The annual capacity of the pipeline, previously estimated at US$10 billion, would be up to 30 billion cubic meters of natural gas. The pipeline was originally expected to be operational by 2015. In the year 2019, the project is still in the prospecting phase. Now, it is unknown what next as there are also safety concerns about the project itself and the future practical operations.
Nigeria, Niger and Algeria are among the least secured areas in the region because of various active terrorist movements that destabilize the all technical processes and construction of gas pipelines across Africa. That, however, the Trans-Saharan gas pipeline is still seen as an opportunity to diversify the gas supplies to the European Union.
How ASEAN should step up to accelerate sustainable energy within the region
ASEAN is favored to be the 4th largest economy in the world by 2030 after showing impressive economic growth in the last decade. However, to reach that goal, ASEAN member states need to make sure that they can provide reliable access to energy to support industrial development. Unfortunately, as the region still imports 40% of its primary energy supply with fossil fuels becoming the largest share, the promise of ASEAN economic growth is currently at stake.
Over the years, ASEAN has been known for its heavily reliant on fossil fuels to meet domestic demand. ASEAN Center for Energy has reported that more than 80% of ASEAN’s energy mix in 2017 was fueled by fossil energy with oil accounting for 38,2% of total share and followed by gas (23.2%), and coal (22.3%). Vietnam and Indonesia, as the largest oil and coal producers respectively, have become important players for energy-importing countries such as Thailand, Philippines, and Malaysia. This long historic record on fossil consumption has posed a threat for Southeast Asia to become the slowest region in the world to shift to renewables.
But even so, it doesn’t mean that the ASEAN member states haven’t made any efforts at all. Vietnam might have shown the greatest accomplishment in accelerating the energy transition compared to other countries. Between 2016-2020, Vietnam has successfully doubled its production of renewables from 17.000 to over 35.000 megawatts. The rapid growth of solar panels in just four years has even made Vietnam become the third-largest solar market globally by 2020. Furthermore, ASEAN has also witnessed promising growth in the use of hydropower. Lao PDR, as traversed by The Greater Mekong, has powered 98.8% of its national electricity with hydropower generators in 2017. It even exports its energy to Thailand, Vietnam, and Cambodia through the transmission lines and is looking for expansion to Malaysia and Singapore, aiming to become Southeast Asia’s battery.
Seeing these potentials for sustainable energy deployment, the next question would be whether it is enough to push ASEAN to phase out the fossil fuel industry. Unfortunately, the same report from ASEAN Center for Energy has estimated that fossil fuel would still provide the majority of energy supply in 2040 even if ASEAN member states adopt a progressive scheme such as APAEC Targets Scenario. This is because energy security still presents a sensitive issue for Southeast Asia, where fossil fuels are perceived to be more reliable and cheaper than renewables. In consequence, while ASEAN will witness an enchantment of renewables in the following years, it will also see the growing trend in the use of clean coal technology, especially in major producer countries like Indonesia and Malaysia. Even Vietnam, which is considered the most successful country in accelerating renewables, will continue to rely on coal due to such perception of fossil fuels. As long as fossil fuels are still reckoned to be the main asset of energy security, ASEAN won’t go far with its transition.
The incapability of ASEAN member states to undertake adequate transition on their own, makes regional cooperation becomes crucial. So far, the two most noticeable cooperation that promotes energy interconnections within the region are ASEAN Power Grid (APG) and Greater Mekong Subregion (GMS) Program. APG has been run under APAEC since 1999 to facilitate cross-border electricity trade and enhance the integration of Member States’ power systems. To date, 7 of 16 power interconnection projects have been completed mainly in The Upper West System (or in the Greater Mekong Subregion) and The Lower West System which covered Thailand, Peninsular Malaysia, Singapore, and Indonesia. However, most interconnection projects are still based on bilateral agreements and thus have no integrated regional power architecture. One program conducted on a multilateral basis is Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP), yet the trading is still limited to a unidirectional flow of electricity. The energy cooperation under GMS also presents a similar problem where all projects still occur on bilateral deals.
Although bilateral cooperation carried out under APG and GMS has helped the member states to fulfill their domestic demand, implementing a more integrated power grid with a multilateral trading system will enhance the region’s energy security. This is because a regional power transmission grid with multilateral exchange offers more alternative resources and geographic diversification that will lower the systemic risks on renewables infrastructure. For example, countries with abundant clean energy like Lao PDR can transfer their hydropower to areas of deficit such as Malaysia and Singapore. Whilst, at the same time, surplus energy from one country can be sold to another through the power grid. This is where the multilateral trading regime becomes relevant to improve the accessibility and stability of energy consumption. Additionally, an interconnected power grid can also attract more investment as large-scale renewables will become more profitable.
It is therefore very timely for ASEAN to step up the game by accelerating the construction of an integrated power grid across the region. Without a strong commitment and sufficient transition, Southeast Asia’s economy could plummet by 11% by the end of the century. An integrated power grid might be the best possible scenario to prolong ASEAN’s economic growth in the future.
The Insane Energy Policies of the Biden Administration
With the projected loss of over 5 million barrels of oil a day due to sanctions against Russia, as a result of Russia’s invasion of Ukraine, the world faces an artificial energy crisis. This crisis will throw the world’s economy into turmoil, and possibly throw the world into a prolonged economic slump.
With the United States now relaxing sanctions against Venezuela in order to increase oil flow into the world energy market, and going hat in hand to the right wing Saudi Arabian government, the past policies of the United States are in a state of disarray. By appealing to right wing governments in Saudi Arabia and Venezuela, the Biden Administration is allowing these governments to benefit from the Russia-Ukraine War, and punishing the American people by refusing to develop the ample supplies of shale oil that is in the United States.
What is glaringly absent from the Biden Administration’s energy policies is ignoring, and refusing to allow oil companies to develop the massive oil shale deposits in the Green River Formation. The Green River Formation contains up to 4.3 trillion barrels of shale oil, which could be easily developed, and at a cost far below the average cost of developing either the current shale oil fields or the normal method of extracting oil from other traditional oil fields.
With the Biden Administration freezing oil drilling on federal land, the energy policy by the Biden Administration is quite literally insane.
The Green River Formation
The Green River Formation is located at the Green River in western Colorado, eastern Utah, and southwestern Wyoming.
The energy resources of the Green River Formation are not a true oil, but a form of pre-oil called kerogen. Kerogen is insoluble in water and in other organic solvents such as benzene or alcohol. However, when the kerogen is heated under pressure it breaks down into recoverable gaseous and liquid substances resembling petroleum. It is possible to break down this substance into synthetic oil.
Unlike normal processes of extracting shale oil called fracking, a process called pyrolysis is used. Pyrolysis occurs in the absence or near absence of oxygen. The rate of pyrolysis increases with temperature. “Pyrolysis transforms organic materials into their gaseous components, a solid residue of carbon and ash, and a liquid called pyrolytic oil (or bio-oil). Pyrolysis has two primary methods for removing contaminants from a substance: destruction and removal.”
The Hydraulic Fracturing Method
Hydraulic fracturing is used to recover oil and natural gas in oil shale deposits, where traditional oil drilling methods are not capable of recovering the oil in the rock strata. Hydraulic fracturing is also known as “fracking.” In order to recover the oil using fracking, a well is drilled into the rock strata containing the recoverable oil and natural gas. Then water, sand, and chemicals are injected into the well under high water pressure to continue to fracture the rock strata.
This then forces the oil and natural gas out of the well and is recovered into holding containers for further processing.
A huge amount of water is used during the fracking process. This is called the water cost. In a normal fracking procedure, between 1.5 to 9.7 million gallons of water are used to complete the fracking process for just one well. The water used during fracking becomes too polluted to be able to be used for human consumption. While the water used in fracking can be treated to return it to a potable status, the cost of doing so is so high, that typically the contaminated water is pumped into an underground chamber and removed from the rainwater cycle.
The technology to develop the Green River Formation does not use typical fracturing methods, so the water cost for the extraction is minimal. Because of the dramatically lower water cost, the breakeven point for extracting the kerogen is much less than traditional fracking.
The Green River Formation is a national security issue
The economic and political consequences of Russia invading Ukraine are now becoming clear.
One of the more obvious consequences has been the rapid rise in the price of oil. As of June 13, the spot price of oil was $121.60 a barrel. Despite pleas from the Biden administration to Saudi Arabia to increase oil production, the Saudis have refused to do so. The United Arab Emirates appears to be siding with the Saudis and have also declined to raise oil production.
The Saudis are unhappy with the Biden administration’s efforts to renegotiate the Iran nuclear deal. They are also convinced that they have more in common with Russia in the current international environment. The Saudis are also angered by the pullback of support by the United States for its war in Yemen. This would appear to be the death knell of the agreement between the United States and Saudi Arabia where the U.S. guaranteed the national security of Saudi Arabia, while the Saudis guaranteed a steady supply of oil.
With the world upended because of Russia’s invasion of Ukraine, and the need for Europe to have steady oil and natural gas supplies, it is essential that the United States tap its vast oil shale reserves in the Green River Formation. This would help stabilize the energy security of the United States and its European allies. It would also make the United States 100% energy secure and free the United States from the cauldron of Middle East politics.
It should be noted here that this type of action by the United States would not be adding to the use of fossil fuels in the world. The exploitation of the Green River Formation would simply be displacing the use of fossil fuels from other sources of oil.
The cost of extracting this energy source cannot be accurately estimated. However, since the current technology available consumes less water because of the volatilization of water effect, the water cost is minimal, and so the breakeven cost of extracting a barrel of oil is significantly less than conventional fracking methods.
Reuters has estimated that the breakeven point for shale oil produced by fracking is $50. As noted above, fracking has a high-water cost. Since the current technology has a much lower water cost, it can be safely estimated to have a breakeven point of between $25 to $35 per barrel. If economies of scale are used, the cost could fall to as low as $15 to $25 a barrel.
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