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The oil market crisis

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The Covid-19 pandemic triggered a crisis or rather a real collapse in the oil barrel price, down from approximately sixty US dollars just before the coronavirus spread to the current twenty dollars – with downward peaks before the end of April 2020, still significantly lower than the current twenty dollar average.

The origin of the price collapse is obvious, i.e. the closure of the purchasing countries’ economies and the major crisis in the car market, in particular, with the lockdown of all public and private mobility.

 Moreover, for many producing countries, twenty dollars a barrel is a price well below break-even points and sometimes below the mere production cost.

Fifty-sixty US dollars a barrel is less than the cost of oil extraction in the Arctic, for example, and less than what is necessary to break even European and Brazilian biofuel production, but also US and Canadian shale oil. In Great Britain the oil barrel cost is 52.50 US dollars, while in Saudi Arabia the cost for producing an oil barrel is still 10 US dollars approximately.

Saudi Arabia, however, also needs much higher prices, at least from eighty US dollars per barrel upwards, to rebalance its public budget and seriously invest in production diversification, not to even mention the social stability of this country and, in other ways, that of the Russian Federation.

 World demand has therefore plummeted, with a reduction of 29 million barrels per day from the over 100 ones a year ago.

This also means that storage capacity has reached the saturation point, with countries selling directly at sea, with a view to avoiding the high and unpredictable costs of overproduction and, by now, even at direct agreement low prices.

 According to some specialized analysts, oil production will fall by at least 9.3 million barrels per year, until the time in which the coronavirus epidemic stops significantly. But this is a very optimistic forecast.

As is already seen, the most predictable effects of collapse in oil prices will most likely be the bankruptcy of small and medium-sized oil companies in the United States and Canada, where the banks had also strongly supported these companies with debt.

 The economic, financial and social repercussions on these countries’ productive systems will be immediate and hard to manage.

 Some extraction of US and Canadian “zombie” companies has continued, in view of cashing immediate liquidity, but, obviously, this cannot last very long.

It is hard to speak about public support for oil companies, considering their international corporate structure and, above all, because of the large mass of liquidity that would be greatly needed and would inevitably be drawn from other budget items, which are more socially necessary and with a strong psychological and hence electoral impact.

Nevertheless, the whole economy of producing and of typically consuming countries – which, for various wrong or short-term choices, have never established their own “OPEC” – will be severely affected by the vertical fall in oil prices, even though the US IAEA supported and legitimized the cut in production last April. The initial sign of an inevitable agreement between producers and consumers in the future, also at financial and investment level.

Furthermore, some producing countries have considerable financial funds to stand up to the fall in the oil barrel price, probably even until the end of the pandemic, but this is certainly not the case with other producers.

 Saudi Arabia, the UAEs and Kuwait can last relatively long, albeit stopping their plans for economic expansion and diversification in the short term. Just think here of the Saudi Vision 2030 plan.

 Iraq, Iran and Venezuela – with Iraq which is currently one of Italy’s largest exporters – will certainly have to withstand periods of extreme social crisis and even political legitimacy.

 In Africa, Nigeria and Libya will face further political and social crises of unpredictable severity – in addition to internal wars by proxy, as in Libya.

 China itself, the current largest oil buyer, has stopped as many as 10 oil shipments by sea from Saudi Arabia.

The tax break-even point reveals the complex internal dynamics and trends of manufacturers: Saudi Arabia is at 91 US dollars; Oman at 82; Abu Dhabi at 61; Qatar at 65; Bahrain at 95. Iraq is currently at 60 US dollars, but it should be noted that Iran is now at 195 US dollars, Algeria at 109 and Libya at 100- to the extent to which Libyan oil exports can work after General Haftar’s closure of oil wells- while Nigeria is at 144 US dollars and Angola has only acost + tax per barrel of 55 US dollars.

Currently Russia has a strong need for a tax per barrel of at least 42 US dollars, while Mexico 49 and Kazakhstan 58 US dollars.

 In order to survive, the US, Canadian and Norwegian oil companies need an oil barrel cost of 48, 60 and only 27 US dollars, respectively, to simply break even.

 Russia will probably be able to survive(“for ten years”, as it says, but probably exaggerating) a pandemic crisis, which has also hit its own population hard, by using its Strategic Fund, which is currently worth 124 billion US dollars.

Every year of crisis, however, is likely to cost Russia 40-50 billion US dollars.

 Not to mention jobs, which could be reduced by over a million in Russia.

 Saudi Arabia, too, is very liquid, and predicts a loss of over 45 billion US dollars at the end of the pandemic.

 If Saudi Arabia makes another deal with Russia and manages to raise the oil barrel price to 40 US dollars, it is supposed to reduce losses to 40 billion US dollars annually.

Iraq, the second largest Middle Eastern exporter, covers 90% of its public spending with oil revenues.

 In Iran and Iraq, the closing down of private companies has caused the almost total closure of oil production since last March.

Moreover, Iraq has no sovereign funds. Mexico has already started to implement “austerity” measures, although it has stated there will be no closures or staff cuts in the public sector.

 The Nigerian GDP will certainly go below zero. Nigeria was the economy recording the greatest development rate in Africa, but since May it has had 50 million barrels unsold.

 The unemployment rate will rise from 25% to well over 25 million people, but Nigeria has a very small Sovereign Fund that owns 2 billion US dollars.

There are very large differences among producing countries. There are countries with a financial power potentially able to further stand up to the collapse of oil prices and countries with an internal social and economic situation on the verge of collapse, as well as other economies floundering in a very severe crisis.

Just think of the Lebanon, which had already defaulted before the fall in oil prices. Obviously neither Saudi Arabia nor Iran will help it any longer.

 This means that the producing countries with a more “liquid” financial situation can start buying oil assets – not at a very low cost – from their fellow OPEC competitors or even outside that OPEC protectionist framework, while the countries without long or short liquidity, will quickly be economically colonized by the strongest ones and this would make their economic autonomy irrelevant. Especially if they are, like Iraq, truly oil dependent countries.

 The GDP for the current year, however, is expected to slightly decrease in Kuwait (-1%) while Algeria and Iraq are expected to immediately fall to a -5%, which could be fatal not only for their economy but also for their social stability.

 Libya, just to remind us of a key country for our security, as well as for oil, will record an expected fall in GDP of almost -58%. 

 It is easy to understand what will happen and how much impact it will have on Italy.

  The International Monetary Fund has also predicted a quick rebound in prices beyond the oil break-even point for the whole oil area between Africa and the Middle East as early as 2021, but the forecast seems to be completely unfounded, given the multi-year length of the buyers’ crisis and hence the inevitable fall in producers’ prices.

 Even if the coronavirus crisis were to end in a month, which is highly unlikely, the economic outlook would not change radically even for 2021.

 The fact is that, according to all the most reliable projections, the GDP of non-producing countries will fall even faster than that of oil-producing countries.

 Certainly there is the temporary relief and redress of public accounts in the Middle East and North Africa (MENA) non-producing countries, which is estimated at around 3-4% of their GDP, but these are countries like Morocco and Jordan having little economic weight in their respective geo-economic regions.

 There is also another factor to consider: the producing countries’ crisis adds to the much longer-standing crisis in the African countries exporting not oil, but food products.

I am here referring to Jordan, Mauritania and Morocco – which is still a leading country in the world production of citrus fruits, with companies cooperating with the United States – and to the wine-producing Tunisia.

 The FAO sugar index has fallen to -14.6% – more than ever over the last 13 years.

 The FAO index for vegetable oil is -5.2%. The dairy prices are currently falling by 3.6% and meat prices by 2.7%. Wheat prices, however, are expected to remain stable, although storage, and hence the future final cost, will increase from now on.

Certainly the “rich” producing countries, i.e. those with greater liquidity reserves, have already begun to inject liquidity and implement tax rebates.

 Saudi Arabia has tripled VAT from 5 to 15%. It has also issued 7 billion US dollars of public debt securities that will fall due in 5, 10 and 40 years respectively, with a 5% planned restriction of public spending, and as many as 13.3 billion US dollars in support of small and medium-sized enterprises, with the nationalisation of 14,000 jobs in the most technologically advanced sectors.

Just to give an example of the most capitalized oil exporting country.

 It is not even said that soon the Saudi and Emirates’ sovereign funds do not want to acquire – at selling-off prices – even the U.S. and Canadian shale oil industries undergoing an evident crisis.

Both in countries in crisis and in those with greater financial resources investment will be well diversified in the health or in the large infrastructure sectors. Investment will be made also in research and in the expansion of the oil sector, which will certainly start working again – as and probably more than before – at the end of the pandemic.

 There will probably be an economic and financial rebalancing between the United States and Saudi Arabia, which have similar interests, both in the purchase of shale oil companies in crisis, obviously, but also in a closer direct financial relationship, considering that Saudi Arabia still holds 177 billion US dollars of North American public debt securities.

 A record amount which could increase rapidly.

 Obviously, in the darkest phase of the crisis, the objective of the financially sound OPEC countries will be diversification from oil to more technologically advanced and expanding sectors, such as health and pharmacology, particularly abroad, but again without neglecting the oil sector.

 While maintaining the same – or almost the same – current investment in the oil sector, which cannot but take off again in the short to long term.

 For the other less financially sound countries, it will be about implementing great political reforms, which may at least stabilize the countries floundering in severe economic crisis, or having their oil assets quickly sold by the richest Arab countries, which will thus have a much greater power of pressure vis-à-vis consumer countries when the oil recovery starts.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Azerbaijan seeks to become the green energy supplier of the EU

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image source: azernews

Recently, Georgia, Azerbaijan, Hungary and Romania signed an agreement to build a strategic partnership regarding green energy.   According to the document of the text, these four countries will be working together to develop a 1,195 kilometer submarine power cable underneath the Black Sea, thus effectively creating an energy transmission corridor from Azerbaijan via Georgia to Romania and Hungary.   For Europe, this is a golden opportunity that must be seized upon.

According to the International Monetary Fund, “Europe’s energy systems face an unprecedented crisis. Supplies of Russian gas—critical for heating, industrial processes and power—have been cut by more than 80 percent this year.  Wholesale prices of electricity and gas have surged as much as 15-fold since early 2021, with severe effects for households and businesses.  The problem could well worsen.” 

For this reason, Europe should switch as soon as possible to green energy supplies, so that they will rely less upon Russian gas and oil in the wake of the Ukraine crisis.   This will enable Europe to be energy independent and to fulfill its energy needs by relying upon better strategic partners, such as Azerbaijan, who are not hostile to Europe’s national security and the West more generally.  

By having this submarine power cable underneath the Black Sea, Azerbaijan can supply not only Hungary and Romania with green energy, but the rest of Europe as well if the project is expanded.   Israel, as a world leader in renewable energy, can also play a role in helping Azerbaijan become the green energy supplier of the EU, as the whole project requires Azerbaijan to obtain increased energy transmission infrastructure.  Israel can help Azerbaijan obtain this energy transmission infrastructure, so that Azerbaijan can become Europe’s green energy supplier.    

According to the Arava Institute of the Environment, “Israel, with its abundant renewable energy potential, in particular wind and solar, has excellent preconditions to embark on the pathway towards a 100% renewable energy system. Accordingly, Israel has already made considerable progress with regard to the development of renewable energy capacities.”   The Israeli government has been pushing hard for a clean Israeli energy sector by 2030.   Thus, Israel has the technical know-how needed to help Azerbaijan obtain the infrastructure that it needs to become the green energy supplier of Europe following the crisis in the Ukraine.

Given the environmental conditions present in Azerbaijan, which has an abundance of access to both solar and wind power, with Israeli technical assistance, Azerbaijan can help green energy be transported through pipelines and tankers throughout all of Europe, thus helping to end the energy crisis in the continent.   In recent years, Europe has sought to shift away from oil and gas towards more sustainable energy.     

With this recent agreement alongside other European policies, these efforts are starting to bear fruits.   In 2021, more than 22% of the gross final energy consumed in Europe came from renewable energy.   However, different parts of Europe have varying levels of success.   For example, Sweden meets 60% of its energy needs via renewable energy, but Hungary only manages to utilize renewable energy between 10% and 15% of the time.    Nevertheless, it is hoped that with this new submarine power cable underneath the Black Sea, these statistics will start to improve across the European Union and this will enable Europe to obtain true energy independence, free of Russian hegemony.  

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Energy Technology Perspectives 2023: Opportunities and emerging risks

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The energy world is at the dawn of a new industrial age – the age of clean energy technology manufacturing – that is creating major new markets and millions of jobs but also raising new risks, prompting countries across the globe to devise industrial strategies to secure their place in the new global energy economy, according to a major new IEA report.

Energy Technology Perspectives 2023, the latest instalment in one of the IEA’s flagship series, serves as the world’s first global guidebook for the clean technology industries of the future. It provides a comprehensive analysis of global manufacturing of clean energy technologies today – such as solar panels, wind turbines, EV batteries, electrolysers for hydrogen and heat pumps – and their supply chains around the world, as well as mapping out how they are likely to evolve as the clean energy transition advances in the years ahead.

The analysis shows the global market for key mass-manufactured clean energy technologies will be worth around USD 650 billion a year by 2030 – more than three times today’s level – if countries worldwide fully implement their announced energy and climate pledges. The related clean energy manufacturing jobs would more than double from 6 million today to nearly 14 million by 2030 – and further rapid industrial and employment growth is expected in the following decades as transitions progress.

At the same time, the current supply chains of clean energy technologies present risks in the form of high geographic concentrations of resource mining and processing as well as technology manufacturing. For technologies like solar panels, wind, EV batteries, electrolysers and heat pumps, the three largest producer countries account for at least 70% of manufacturing capacity for each technology – with China dominant in all of them. Meanwhile, a great deal of the mining for critical minerals is concentrated in a small number of countries. For example, the Democratic Republic of Congo produces over 70% of the world’s cobalt, and just three countries – Australia, Chile and China – account for more than 90% of global lithium production.

The world is already seeing the risks of tight supply chains, which have pushed up clean energy technology prices in recent years, making countries’ clean energy transitions more difficult and costly. Increasing prices for cobalt, lithium and nickel led to the first ever rise in EV battery prices, which jumped by nearly 10% globally in 2022. The cost of wind turbines outside China has also been rising after years of declines, and similar trends can be seen in solar PV.

“The IEA highlighted almost two years ago that a new global energy economy was emerging rapidly. Today, it has become a central pillar of economic strategy and every country needs to identify how it can benefit from the opportunities and navigate the challenges. We’re talking about new clean energy technology markets worth hundreds of billions of dollars as well as millions of new jobs,” said IEA Executive Director Fatih Birol. “The encouraging news is the global project pipeline for clean energy technology manufacturing is large and growing. If everything announced as of today gets built, the investment flowing into manufacturing clean energy technologies would provide two-thirds of what is needed in a pathway to net zero emissions. The current momentum is moving us closer to meeting our international energy and climate goals – and there is almost certainly more to come.”

“At the same time, the world would benefit from more diversified clean technology supply chains,” Dr Birol added. “As we have seen with Europe’s reliance on Russian gas, when you depend too much on one company, one country or one trade route – you risk paying a heavy price if there is disruption. So, I’m pleased to see many economies around the world competing today to be leaders in the new energy economy and drive an expansion of clean technology manufacturing in the race to net zero. It’s important, though, that this competition is fair – and that there is a healthy degree of international collaboration, since no country is an energy island and energy transitions will be more costly and slow if countries do not work together.”

The report notes that major economies are acting to combine their climate, energy security and industrial policies into broader strategies for their economies. The Inflation Reduction Act in the United States is a clear example of this, but there is also the Fit for 55 package and REPowerEU plan in the European Union, Japan’s Green Transformation programme, and the Production Linked Incentive scheme in India that encourages manufacturing of solar PV and batteries – and China is working to meet and even exceed the goals of its latest Five-Year Plan.

Meanwhile, clean energy project developers and investors are watching closely for the policies that can give them a competitive edge. Relatively short lead times of around 1-3 years on average to bring manufacturing facilities online mean that the project pipeline can expand rapidly in an environment that is conducive to investment. Only 25% of the announced manufacturing projects globally for solar PV are under construction or beginning construction imminently, according to the report. The number is around 35% for EV batteries and less than 10% for electrolysers. Government policies and market developments can have a significant effect on where the rest of these projects end up.

Amid the regional ambitions for scaling up manufacturing, ETP-2023 underscores the important role of international trade in clean energy technology supply chains. It shows that nearly 60% of solar PV modules produced worldwide are traded across borders. Trade is also important for EV batteries and wind turbine components, despite their bulkiness, with China the main net exporter today.

The report also highlights the specific challenges related to the critical minerals needed for many clean energy technologies, noting the long lead times for developing new mines and the need for strong environmental, social and governance standards. Given the uneven geographic distribution of critical mineral resources, international collaboration and strategic partnerships will be crucial for ensuring security of supply.

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How is Venezuela benefiting from the sale of Petroleum Coke to India

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Production and Supply of Venezuelan Oil

Venezuela, a nation on South America’s northern coast, has long been recognised for its oil output and demand; in 2016, Venezuela produced 2,355,423,55 barrels of oil per day, putting it 12th in the world. Venezuela, a nation where oil continues to have a dominating and fundamental role in fortunes. Oil sales account for more than 99% of export revenues and one-quarter of GDP. In 2013, the price of oil barrels sold by Venezuela was $100 per barrel, but it dropped to $30 per barrel in 2016. Venezuela has supplied oil to several nations, including the United States, China, and others. In 1959, India established diplomatic ties with the nation. Only a few nations, such as India and Venezuela, trade in a single commodity, and that is exactly what the relationship between India and Venezuela is. Although 75% of India’s oil imports come from the Middle East area, the Middle East has provided just 59% of oil since 2014, which is 16% less than in 2017 as the remainder was supplied exclusively by Venezuela, which can be seen as a result of the diversification strategy by the Indian government. Although the Indian market has been critical for the Northern country in Latin America because it is the second-largest cash-paying customer yet when the United States imposed sanctions on Venezuela in 2019, Venezuela was forced to look to other countries such as Russia and China when it ceased oil exports to India.

Venezuela, India, and Petroleum Coke

Petroleum coke which is a carbonaceous substance produced during the oil refining process. Venezuela has supplied petroleum coke to a number of nations, including China and Bolivia. Even before Covid19, the biggest exporter of Petroleum Coke from Venezuela was Bolivia, and by 2020, Venezuela was the world’s 107th largest exporter of Petroleum Coke. Although the Supreme Court has banned the use of Pet Coke in the states of Haryana, Uttar Pradesh, and Rajasthan in 2017, the CPCB (Central Pollution Control Board) directed for its use in all states, despite the fact that a tonne of Pet Coke is more expensive than coal and produces more energy when burned, and Pet Coke can also be used as a replacement for coal because when Pet Coke is turned into fuel, the calorific value is at 8000 Kcal/Kg, which is twice the Kg which is twice the value of average coal which is used in the generation of electricity, not only that but Pet Coke also has a low volatile matter and when evaporated there are no losses, it is also easy to transport when compared to the liquid fuels. For the first time, Indian companies started to import significant volumes of Petroleum coke from Venezuela since the beginning of 2022, as for the past couple of months and since March 2022, India has been suffering from electricity shortage due to coal crisis, as there has been a surge in coal prices globally to record high prices ever since the Russia-Ukraine war began, many countries such as India and even many of the developed countries in Europe have also been suffering because of the conflict as Russia which controls the Nord Stream which supplies gas to Europe has been shut down by Russia giving excuses such as “maintenance of the pipeline” this conflict could be disastrous for countries like UK, Germany and many other which directly depend on the Russian gas supply to not just run factories but which also helps to keep people homes warm enough, many countries are worried that this may lead to a winter recession in European countries and due to this many countries have started to open their coal plants, in times like these the supply of Pet Coke from countries like Venezuela to countries like India could be a major helping factor and for the past few months, Indian companies have been importing significant amounts of Pet Coke from Venezuela in massive quantities, as using Pet Coke can be beneficial for India as the Russia Ukraine war, which is affecting so many countries, with the supply of Pet Coke, India will not have to rely on the supply of coal to run its energy plants. Many cement factories in India got 1,60,000 tonnes of Pet Coke between April and July, with another shipment of at least 80,000 tonnes sent in August. Prior to buying from Venezuela, the Asian behemoth had to depend on nations such as the United States or Saudi Arabia.

Conclusion

Both countries understand that if Venezuela continues to export huge amounts of Pet Coke to India, it will benefit not only India but also the South American country because when India used to import oil from Venezuela, India was the second largest importer of oil for Venezuela, and now if India starts importing the same amount of Pet Coke from Venezuela, it could provide relief to the country that has been suffering for the past three years ever since the USA has pu The nation has been selling Pet Coke at a $50-$60 discount compared to the US stuff. Venezuela has been stockpiling Pet Coke for a long time because it may help the Latin American country solve its infrastructure woes and is making strides by supplying not only to the Indian market but if Venezuela could supply more to the global markets as it has been producing more than 25 million tonnes of Pet Coke on a daily basis. If the commerce between Petroleum Coke continues, India will not have to depend on any country such as the US or Russia, since the Russia-Ukraine conflict has made it difficult for countries such as India to side with any of the nations, and for Venezuela, it will assist the country to grow its economy again.

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