OIL
One of the major events of the 2014 year – the appearance of a new “old” player in the global oil market in June-July – has immediately and quite expectedly caused changes in prices.
For the first time since 1970s, in June the US Department of Energy issued special licenses to Pioneer Natural Resources Co. and Enterprise Products Partners LP to supply condensate to foreign buyers. In late July Enterprise sold a shipment of extra light oil, or condensate, to an Asian trader. It was the first US oil export deal after the 40-year embargo.
Japanese Mitsui & Co Ltd purchased 400,000 barrels to be supplied in late July or early August. Every day the USA is producing up to million barrels of condensate, which can go for export after slight refining – stabilization. This is twice as much as export from Qatar, which is nowadays the world’s largest condensate producer. Depending on the types of condensate, it can be used both as crude at petrochemical enterprises of China and Japan, and also to dilute heavy oil produced in Latin America.
Trades endeavour to sell condensate to Asia, where refineries are expected to come on stream in the IIIQ to process condensate into naphtha and other oil products. According to the data of Facts Global Energy, such refineries in the Asia-Pacific Region are capable to process up to 900,000 barrels of condensate per day.
After that, July saw a gradual decrease in oil prices in the global market, and the trend is continued even now. If in June Brent oil hit its maximum at $115 per barrel, after OPEC’s session on November 27 its price dropped from $74-76 to $70 per barrel.
Along with it , at the last session OPEC made no changes in the production level, which has been fixed at 30 million barrels per day since 2012. However, according to the western media sources, this limit has exceeded the set one for a five consecutive month, so in October the OPEC countries were producing 30.97 million barrels of oil per day, which amounts to approximately one third of global oil production. In 2014 oil production in the USA increased to 8.2 million barrels per day vs. 5 million barrels in 2010.
Thus, the USA made the major contribution to the production growth, OPEC thinks. UAE Energy Minister Al-Mazroui said: “The market experiences abundant supplies, which, however, do not come from OPEC”. Against the background of low 6 percent growth rates of the Asian economies (mainly China vs. 10% in 2008) the market is oversaturated. Nobody wants to reduce production and lose its share in the market. As a result, the price will fall down. Nobody knows where the bottom is, it is all about the margin of strength. If Middle Eastern producers enjoy quite high figures, energy budgets of such large producers as Russia, Iran and Venezuela and to a less degree Kazakhstan and Azerbaijan, which are reducing dependence of their economies on oil from year to year, will suffer most of all. If such situation lasts for a longer period, majors will have to suspend their expensive deepwater projects, launch additional refining capacities, and what is even sadder phase down exploration projects, slow down the pace of exploratory drilling, followed by a new circle of mergers and acquisitions, which already happened in the end of the last century. The latter one threatens to boomerang and bring deficit of supply and a subsequent circle of high prices. Most likely it will not happen because nowadays oil companies are technologically sustainable as never before, which is also proved by their growing market capitalization in comparison with the last year (see the Rating for Capitalization of Oil and Gas Companies page…). The crisis is also going to affect development of heavy oil, Canada’s oil sands, while US shale gas developers will have to continue improving their production technologies and shift to automated mini mobile drilling rigs. Prices and OPEC’s future activities, which serve as guidelines for oil traders most of all, will show who is going to win: technologies or emerged traditionalism. One should not ignore the latest news about the condition of the world’s largest economies. It is difficult to say what a price could be. However, if to summarize the outlooks, we can suggest perhaps a comparatively small (compared with the crises of 1999-2000, 2008) circle of falling that will end a stable period with small volatility of prices by March 2015.
The International Energy Agency (IEA) has considerably reduced its 2015 global oil demand forecast and expects a further decrease in prices. In the monthly report IEA predicts an increase in consumption by 700,000 barrels per day in 2014, with the figure rising by 1.1 million to 93.5 million barrels per day the next year. “The growth of consumption… perhaps has reached its lowest point. Though economic forecasts are lowered down, and the IMF has already reduced its predictions three times this year, it still expects a recovery of economy, but at slower and less stable pace as expected before”, the report says. “The decrease in prices was caused by both supply and demand.
Perhaps a further fall in prices will be required to either reduce supply or raise demand”, the IEA analysts write. According to the IEA estimates, in 2015 the supply from the non-OPEC states will go up by 1.3 million barrels per day, while the demand for OPEC oil is going to amount to 29.3 million barrels a day, which is 200,000 lower vs. IEA’s September forecast. In September the OPEC production rocketed to a 13-month peak, 30.66 million barrels a day, under the valid limit of 30 million. The IEA stressed Saudi Arabia’s intention to keep its market share through raising production and reduction of prices. “Riyadh, which reduced prices for a fourth consecutive month, seems to have a firm intention to keep its share of the more and more competitive Asian market”, the report runs.
GAS
This year the Asian energy market has been the place of gas industry’s major developments. A number of developments happened there is going to cause price changes, long-awaited by consumers, in the Asia-Pacific gas market.
- In particular, this May Russia and China signed the large export deal totalling $400bn. Under the 30-year contract, Gazprom shall supply 38 bcma of gas at the average price of $350 per 1,000 cubic metres ($9.8 million BTU), confirmed by Russian energy minister Alexander Novak, OGJ reports.
LNG importers Japan, China and India endeavour to reduce prices and form an Asian gas price index. Nowadays gas in this region costs $18-19/million BTU, which is about 4 times higher than in the USA and almost two times up vs. costs of European swap deals. As the world’s largest LNG consumer with the 75-percent market share, the Asia Pacific countries are keen to have a regional index-linked gas price. Japan remains the largest LNG market.
- In April 2014 the Japanese Government announced a turning away from the zero-nuclear energy policy.
- One more, third line (Line C) of the Central-Asia-China gas pipeline came on stream in June 2014. It is intended to transport natural gas, first of all from Turkmenistan. It totally sprawls as many as 1,830km. Line C’s design throughput capacity is 25 bcma. Of this, 10 bcma will be supplied from Turkmenistan, 10 bcma from Uzbekistan and 5 bcma from Kazakhstan.
By the end of 2015 the total capacity of the Central Asia-China gas pipeline is expected to rise to 55 bcma.
Gas pipeline’s Lines A and B were commissioned late in 2009 and in October 2010 respectively.
“These two lines are connected to the second line of the Chinese West-East gas pipeline. They transport 30 bcma of natural gas from Turkmenistan to China”, the statement runs.
CNPC has been purchasing gas from Central Asia since 2009 (after the commissioning of the first two lines of the gas pipeline).
China has the agreement with Turkmenistan that envisages an increase in supplies up to 65 bcm by 2020. To that end, an additional fourth Line D is being constructed to go through Uzbekistan, Tajikistan and Kyrgyzstan.
- At the same time China also announces a large rise in shale gas production. According to the report of the Ministry of Land and Resources of the People’s Republic of China, if in 2013 China produced 200 million cubic metres of shale gas, by 2015 China will have already increased the output up to 6.5 bcm. Sinopec takes lead in shale gas production in China. By 2015 it plans to raise production to 5 bcm. The company’s nearest competitor is PetroChina producing not more than 100 million cubic metres of shale gas per annum. To increase volumes of shale gas production is one of the key priorities for the Chinese economy.
In May the Government of China announced the intention to treble solar energy generating capacities until 2017 and achieve the production of 150 GW of electricity from wind farms over a three-year period.
The China’s National Development and Reforms Commission unveiled its goal to get 70 GW of produced solar energy in comparison with available 20 GW as of late 2013.
The statement also contains targets to get 11 GW of energy from biomass and 330 GW from hydropower. The Government of China stays committed to raising the NPP capacities to 50 GW and brining the natural gas supply to the level of 330 bcm by the beginning of 2017.
The main event of 2014 on the European continent was the start of construction of the Southern Gas Corridor of Azerbaijan, Turkey and the EU. Its first part was welded on September 20 near Baku.
Gas from Shah Deniz Stage 2 (the Azerbaijan sector of the Caspian Sea) will be exported to Turkey and European markets with the help of the Southern Gas Corridor – expansion of the South Caucasus Gas Pipeline and construction of Trans Anatolian Natural Gas Pipeline (TANAP) and Trans Adriatic Pipeline (TAP) gas routes.
As early as September 2013 the Shah Deniz Consortium responsible for operations on development of the Shah Deniz gas condensate field in the Azerbaijan sector of the Caspian Sea signed 25 year long-term gas supply contracts with nine European companies.
The gas purchase contracts for Shah Deniz 2 totalling $300bn. were signed in Baku with Shell, Bulgar gas, DEPA, Gas Natural Fenosa, EON, Gaz de France, Hera, Enel, and Axpo.
The first gas of the Southern Gas Corridor will go to Turkey in 2018 and to Europe in 2019.
The contract for development of the Shah Deniz field with the proved reserves of 1.2 trillion cubic metres was signed in June 1996 in Baku.
RES
In October 2014 the Council of Europe made a decision to set a binding target of 27% for alternative energy use, the same figure for energy efficiency and 40% for CO2 emissions to be achieved until 2030.
- In 2016 Tesla Motors Supercharger’s filling stations chain will cover entire Europe. Charging stations (still very small in number) will appear in Russia, Ukraine and Moldova. Tesla Supercharger units recharge battery cans of electric vehicles much quicker. The capacity of one Supercharger unit is approx 120 KW, and the battery can of Model S electric car is recharged by half for only 20 minutes and by 80% for 40 minutes. It will take 75 minutes to completely recharge a battery can.
- Solar energy will be generated in Tunisia Sahara and transported to Europe via a separate cable across the bottom of the Mediterranean Sea.
TuNur project will not use photocells. A large number of mirrors shall reflect solar rays in the desert to heat water or molten salt to 500 degrees Celsius. Formed steam shall rotate a turbine to generate electricity.
Electricity will be transported through power lines from the desert to Tunisia and from there through a submarine connector cable to Northern Italy, and from there across Europe. The project, for which an appropriate site in Sahara is searched now, has already spent over 10 million Euros. The site under construction of this energy facility will occupy 100 km2.
The developers estimated that TuNur would generate electricity twice as much as modern nuclear power plants.
According to the International Energy Agency’s (IEA) forecasts, the total amount of investments into renewable energy will keep on growing until 2020 but at a slower pace as in recent years.
The IEA, the Paris-based energy consultancy for 29 countries, said about 22% of electricity around the globe is now generated by renewable energy sources. This percentage will grow to about 26% by 2020 and even higher provided that governments work harder to encourage private financing.
The report runs the financing of environmentally friendly energy reached a peak of $280bn. in 2011, and in 2013 the figure was $250bn. However, this level is likely to slow down to an average figure of $230 bn. already by 2020. Partially, the reason is expensive technologies and foot-dragging policies of the governments across the globe that interfere with accepting of laws, which could make such investments more attractive.
