COP29
Amid global challenges posed by climate change, this year’s regular COP summit - the 29th session of Conference of the Parties (COP 29) to the United Nations Framework Convention on Climate Change - will be hosted in Azerbaijan. The decision was made at the plenary session of COP28 that took place in Dubai on December 11, 2023. So far, Azerbaijan has hosted lots of international events and done it worthily. However, as President Ilham Aliyev said, COP29 is beyond all comparison with the events which have been organized thus far. Baku will become the center of the world for two weeks and host about 70,000-80,000 foreign visitors. Thus, 30 years after the signing of the Contract of the Century (Azeri-Chirag-Deepwater Gunashli PSA, dated September 20, 1994), Baku will become a decision-making center in the field of renewable energy. Perhaps, shaped here will be the future of the world oil-gas industry which also took start with the drilling of the first oil well close to Bibi Heybat settlement in the 19th century.
In line with this mission, 2024 was declared Green World Solidarity Year in accordance with the Azerbaijan Republic President Ilham Aliyev’s order. “Concurrently, Azerbaijan will underscore its standing as an oil and gas nation, emphasizing to the global community our commitment to green energy initiatives. The focal points of our current energy policy revolve around the development of green energy and the facilitation of its transport to global markets. This commitment reflects a tangible reality, and the international community will once again witness it”, President Ilham Aliyev said at the meeting regarding the hosting of COP29 in Azerbaijan.
Azerbaijan is one of the countries with the high potential of renewable energy sources. According to the data of Ministry of Energy, the technical potential of the country’s onshore renewable energy sources makes 135 GW and offshore is 157 GW. The economic potential of renewable sources of energy is 27GW, including wind energy - 3,000 MW, solar energy -23,000 MW, and the bioenergy potential – 380 MW. The potential of mountain streams is estimated at 520 MW.
Besides, President of the Azerbaijan Republic announced about creation of the green energy zone within the liberated territories of the Republic, and the action plan for 2022-2026 was approved. The plan is to make those territories a net zero-emission zone by 2050.
Temperature rise on Earth exceeds
projections for 2100
The hottest year in human history. Global warming is continuing firmly in 2024 after 2023, the hottest year ever recorded.
Meteorologists have confirmed what they forecasted back in the summer – the year 2023 was officially confirmed as the warmest year on record since 1850, BBC writes. Average annual temperature went 1.48°C above pre-industrial level and the mankind reached one of the two points mentioned in the Paris agreement, beyond which scientists predict climate change-driven catastrophic consequences for life on Earth.
On January 9, the EU’s Copernicus Climate Change Service (C3S) researchers published an annual climate survey which says the year 2023 has surpassed the previous record of 2016 by a wide margin.
“2023 marks the first time on record that every day within a year has exceeded 1°C above the 1850-1900 pre-industrial level for that time of year. Close to 50% of days were more than 1.5°C warmer than the 1850-1900 level, and two days in November were, for the first time, more than 2°C warmer”, says the survey.
As is known, in 2015, 197 nations came together to sign the Paris Climate Agreement and agreed to pursue all necessary efforts to cap the rise in average global temperatures at well below 1.5-2°C above pre-industrial levels by 2100.
As stated by scientists, to reach that goal, all the world countries must fully stop using fossil fuel by the year 2050, redirecting their economies to other tracks.
To reach the goals of the Paris agreement is becoming increasingly difficult. The last nine years have been the hottest on record, with a large margin.
“2023 was an “exceptional year, with climate records tumbling like dominoes. Temperatures during 2023 likely exceed those of any period in at least the last 100,000 years”, commented one of the officials of the Copernicus Climate Change Service, Samantha Burgess.
Warm ocean
The Copernicus data says that the last year’s global average sea surface temperatures (SSTs) remained persistently and unusually high in most ocean basins, and in particular in the North Atlantic, and played an important role in the record-breaking global SSTs.
The ocean plays a major role for world climate as it covers more than 70% of Earth’s surface and absorbed 90% of the warming that has occurred in recent decades. At a depth of several tens of meters there is as much heat as in the Earth’s whole atmosphere.
The warmer the ocean gets, the lower becomes its ability to absorb energy and sooth temperatures rise on the planet as a whole. There is no good news here: according to NASA, the last 10 years were the ocean’s warmest decade since at least the 1800s.
Each month between June and December 2023 was warmer than any other relevant month of previous years. The New Year has offered no relief.
“December 2023 was the hottest December on record. It is likely that the temperature over the 12 months ending in January or February will surpass 1.5°C above pre-industrial level”, NASA warns.
How is the wind energy sector doing
On January 3, bp and the Norwegian oil giant Equinor announced that they would halt developing a part of their wind farm project off the coast of New York. Inflation and high interest rates caused soaring costs. In 2023, both companies recorded $840 (about 120 billion yen) million-worth impairment losses due to the state’s offshore wind industry development.
A decision to cancel Empire Wind 2 project was made. It is one of three offshore wind farm projects that both companies implement jointly off the state coast. Its generative capacity is expected at 1.26 million KW upon commissioning.
The decision recognizes commercial conditions driven by inflation, high interest rates and supply chain disruptions. As the result, development costs rose higher than expected. In the USA, offshore wind power companies started recording losses one after another in the second half of 2023.
European energy giants Orsted, Equinor and BP announced about general losses, worth around 740 billion yen, on projects in the USA. Inflation, high interest rates and supply chain disruptions caused the rise of operating costs. BP’s executive said the U.S. offshore wind industry is “fundamentally broken”, which presents an obstacle for Biden’s administration aspiring to stimulate the development of renewable energy sources.
Oil-gas asset impairments
On January 8, Shell flagged that it expects impairment charges of up to $4.5 billion (around 650 billion yen) for the period between October and December 2023, mainly driven by the assets linked to its Singapore refining and chemicals hub. It is reported that Shell is looking to sell its Singapore-based assets amid the rising headwinds toward fossil fuels.
This is stated in the fourth quarter 2023 outlook, published on the same day. Shell’s crude oil refining capacity in Singapore totals 230,700 tons per day.
On January 4, the US oil giant Exxon Mobil (XOM.N) warned of a $2.5 billion writedown of its assets in California that it is going to record in the fourth quarter (Q4) earnings of 2023.
Operating income is anticipated at around $8.9bn, i.e. 30% below the $12.7 bn net profit for the same period of the previous year, and can decrease by 3% compared to the previous period.
Oil-gas assets in the south coast of California are expected to incur a $2.4 billion to $2.6 billion impairment charge because of the continuing challenges in the state regulatory environment.
The 4Q operating profit is expected to be by $2.2bn lower compared to the previous quarter indicator because of the decline of oil prices and decrease of fuel profitability. Meanwhile, it is expected that the price growth for natural gas will raise operating profits by around $600bn.
Contradictions
In fact, the lack of clearly defined scientific, technical, commercial and legal regulations spelling out the concept of environmentally sound production, as well as the absence of a single and coherent program of actions helping to focus business chains on global clean energy projects, lead to contradictions and at times to mutually opposing actions of certain market entities in the face of energy shortage as the concept of economy’s ‘energy security’ begins prevailing over its environmental component.
Alok Sharma, President of the Cop26 Glasgow climate summit in 2021, criticized the UK government, saying it was “not serious” about meeting its international climate commitments.
The oil-gas bill which will allow for an annual licensing regime for oil and gas exploration contracts is debated by the parliament deputies. As he stated, the Offshore Petroleum Licensing Bill, the central element of the King’s last year speech, “aims to boost the development of new oil and gas fields”.
Sharma’s comments came after another former minister Chris Skidmore resigned because of the bill.
Sharma told BBC Radio 4’s Today programme: “I will not be voting for this bill. The Bill is a “total distraction” and “a smoke and mirrors Bill which frankly changes nothing”.
He added: “What this bill does do is reinforce that unfortunate perception about the UK rowing back from climate action.”
“We saw this last autumn with the chopping and changing of some policies and actually not being serious about our international commitments”. Late in 2023, at Cop28 the UK government signed up to transition away from fossil fuels.
“This bill is actually about doubling down on new oil and gas licenses. It is actually the opposite of what we agreed to do internationally, so I won’t be supporting it.”
Confronted with the situation of “holding a tit (the oil-gas industry) in the hand, leaving a crane (the renewable energy sector) soaring in the sky”, Great Britain chooses to continue developing its offshore upstream sector.
Manipulation
In the meantime, oil prices drifted lower as Saudi Arabia – one of the major world oil producers – announced its decision to cut February prices for all grades of crude it is selling to buyers in all regions, including Asia, Northwestern Europe, the Mediterranean and North America.
In February, Saudi Arabia will cut prices for all crude oil grades sold to all the regions, public company Saudi Aramco said. In particular, official selling prices (OSP) for crude it is selling to Asian customers will be decreased by $2 per barrel, and as a result, Arab Light crude, the major grade of crude supplied to Asia, will cost $1.5 cheaper than the Oman/Dubai basket. It has been the minimum spread since November 2021.
The discount is applicable to supplies to Northwestern Europe, the Mediterranean and North America. Crude prices fell by 4% on this news.
According to Reuters, the price cut, the biggest in 13 months, is in line with market expectations, as refiners called for competitive prices from Saudi Arabia comparing to crude oil supplied from other Middle Eastern producers. Global crude prices declined in 2023 for the first time since 2020, the Agency emphasizes.
One can only guess the way such steps will affect the prospects of the oil-gas industry (oil refining, petrochemistry) and green energy transition.
Oil-gas output growth
International Energy Agency (IEA) has raised its forecast on world oil output for the year 2023: now, it expects world output to lift by 1.8 mb/d to 101.9 mb/d, says the monthly report of the agency. Last month, the agency forecasted oil production to increase by 1.8 million b/d to 101.8 million b/d for the year 2023.
“General growth of oil production by 1.8 mb/d will increase world supply to 101.9 mb/d in 2023, the highest level in history”, says the December report.
According to the agency, such indicators were driven by the growth of production in the USA, Brazil and Iran, which surpassed the early predictions.
For the year 2024, IEA sees a sharp production increase - by 1.2 mb/d, up to a new record level of 103.2 mb/d - at the expense of non-OPEC+ producers.
The Board of Directors of Gazprom PJSC, a potentially leading world gas producer, notes that the recovery of world demand for energy resources was observed during 2023. Meanwhile, geopolitical factors, prevailing of politically-driven decisions in the energy policy of a number of countries, high energy security risks and price volatility continue impacting negatively on the world energy sector.
The most striking crisis phenomena occurred in the European gas market where artificial destruction of demand for natural gas has been taking place for the first time in world energy history. According to preliminary estimates, gas consumption in far-off European countries fell by 34 bcm within 11 months of 2023 and remains on the level of 1996. Unlike 2022, gas production in this region started falling again. According to the results of 11 months of 2023, the output fell by 18 bcm, including production by a major producer (Norway) – by 9 bcm. Thus, energy security risks are rising considerably in the European countries, especially in winter months.
The substantial growth for gas demand has been registered this year in the Asia-Pacific region. China was the engine of the gas consumption growth. Global investments in exploration and production of hydrocarbons in 2023 amounted to 124% of the 2020 level. The company’s board of directors also noted that fossil fuels will remain the basis of the global energy mix in the long term, and the share of natural gas in the global energy mix will keep growing.
Amid the decline of Russian pipeline gas supplies, a surge in demand for LNG has occurred in the EU. By 2026, LNG producers will have commissioned new liquefaction capacities with the volume of over 100 mtpa, says the annual report of the International Group of Liquefied Natural Gas Importers (GIIGNL). Total capacities of LNG plants will rise by 21% to over 576.5 mtpa.
Liquefaction trains with a total capacity of 14.9 mtpa were commissioned in 2022. Total capacity of LNG plants across the world rose by 3% to 476.5 mtpa. General LNG supplies around the world increased by 4.5% up to 389.2 ml tons in 2022, says the report of GIIGNL.
According to GIIGNL report, LNG import to Europe grew by 59.5% up to 119.7 ml tons in 2022 that led to the decline of supplies to other regions. Import to Asia dropped by 7.6% down to 251.9 ml tons, North and South America – by 39.6% down to 10.9 ml tons. As the result, Asia’s share in the global import fell from 73% to 65%, and Europe’s share grew from 20% to 31%.
Amid this, Pakistan, Bangladesh and other countries encountered gas shortage due to the lack of pipeline gas imports, decrease of its domestic production and world price growth on LNG, says the report. The delay in launch of LNG supply to the Philippines and Vietnam was another reason for price growth. LNG supply to China fell by 20%, from 79.3 mln down to 63.3 mln tons.
High natural gas prices driven by political risks, and global energy security risks will slow down the growth of developing economies, raise inflation in the developed markets, limiting the expansion of global production and supply chains of high-value added goods, as well as slowing down production and global economic growth. This, in turn, increases risks and negatively impacts on investments in environmentally-clean projects, and creates a vicious circle of further growth of CO2 emissions, industrial pollution and rise of global temperature which have already exceeded projections made earlier by 2100.
