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David Ernsberger (S&P Global Commodity Insights) interviews Gary Ross, CEO/Founder, Black Gold Investors/PIRA Energy Group at APPEC 2023.Conferences LIVE
Perspectives X Dr Sanjay Kuttan Learn more at APPEC 2024Conferences LIVE
Perspectives X Hannah Hauman Learn more at APPEC 2024Conferences LIVE
India offers potential for long-term oil demand growth as the economy is set to grow at a robust pace, shifting the focus from China where oil demand could peak much earlier, delegates said at the Asia Pacific Petroleum Conference 2023 organized by S&P Global Commodity Insights."China has been supporting the global crude demand for the past 20 years, but in the coming three to five years, China's demand is going to peak and then it will start to decline. The global market has to look at India or other countries for demand resilience," FGE Chairman Fereidun Fesharaki told a panel on China, India and Russia.S&P Global Commodity Insights shared similar views on the trend."Peak oil demand in China will come earlier than in India where demand may continue to keep growing for much longer given the relative lower base, economic expansions and a young population," said Kang Wu, global head of demand research at S&P Global.Indian refiners attending APPEC also said the country's peak oil demand was nowhere near as it is still pursuing refinery expansion plans."China's demand will taper off a little but countries like India are coming up and the demand is growing. India will continue to require oil and gas maybe for a couple of decades, although it would transition and move over to renewables by that time," said Vivek Tongaonkar, finance director and CFO at Mangalore Refinery & Petrochemicals.Postpandemic recoveryOn the short-term outlook for oil demand, speakers said 2023 would turn out to be the last year of demand recovery from COVID-19. From 2024 onward, the rate of growth would start to slow down."This year, world oil demand will grow by 2.4 million b/d but next year it could be 1.2 million b/d," Fesharaki said.Kang from S&P Global highlighted slightly different numbers, saying world oil demand is expected to increase by 2.2 million b/d in 2023, with China contributing about 942,000 b/d. Jet fuel demand, which is estimated to rise 1 million b/d in 2023, will be the main driver of the global oil demand recovery from COVID-19."Looking into 2024, global jet fuel demand is expected to increase by about 440,000 b/d, primarily driven by international airlines. While the global oil demand growth will slow to around 1.67 million b/d next year before a likely demand peak in 2027," Kang added.Asia's total oil demand is forecast to increase 3.8%, or 1.39 million b/d, year over year to 38.1 million b/d in 2023, according to S&P Global.Russian crude flowsRussia has sprung to become India's top crude oil supplier in 2023. India received 1.82 million b/d of crude oil from Russia, accounting for approximately 37.2% of total crude imports from January to August. This is a jump from the same period last year when India imported only around 470,000 b/d crude oil from Russia, constituting roughly 10.2% of total imports, S&P Global data showed.India was actively buying Russian crude because of the discounts offered as well as the ability of the country's refiners to process those crudes, APPEC delegates said."Indian refineries have very high Nelson Complexity Index. They are well positioned to process both heavy and sour crudes, as well as Russian crudes. Although heavy and sour crudes are preferred, the discounts on Russian crude have been good enough to attract those volumes to the country," Sanjay Choudhuri, finance director at Numaligarh Refinery Ltd., said.India's crude oil imports from Russia are projected to constitute 35%-40% of overall imports in 2023, which could translate to around 1.9 million to 2.2 million b/d, as long as Russian prices remain competitive compared to alternative sources, such as the Middle East and Africa, according to S&P Global.Russian volumes to China have also grown following the Russia-Ukraine war but at a much lower rate than prewar levels."Before the war, China was anyway importing about 1.6 million-1.6 million b/d of Russian oil. Now, it has risen to about 2 million b/d/ So the growth is not that huge, compared to what we have seen in India. The bulk of the incremental growth in China has come due to buying by the independent refiners," Kang said.But he added that the overall volumes of Russian oil flowing to China and India may have reached the peak and there may not be bandwidth for the two countries to take in more.Russian seaborne oil exports fell to an 11-month low in August, according to tanker tracking data, as heavy refining maintenance hit oil products exports while output cut pledges and Black Sea tensions continued to limit crude flows. Total Russian shipped crude and oil products exports averaged 5.27 million b/d, the lowest since September 2022 and 650,000 b/d below prewar levels, according to S&P Global Commodities at Sea data.Russia-origin seaborne crude shipments averaged 3 million b/d in August, little changed on the month, but about 800,000 b/d lower compared with the April-May average and below the average prewar levels of 3.1 million b/d, CAS data showed. Crude shipments to India, currently Russia's biggest oil buyer, fell to a six-month low in August, the data showed.Learn more at APPEC 2024 | Singapore | September 30 - October 3, 2024
Asian and Persian Gulf refineries will continue to depend heavily on Middle Eastern crude grades as their staple diet, regardless of price swings and changes in key benchmark spreads, because there's a limit to how much light sweet US crude would be able to take up the refiners' crude slate, industry executives and trading sources said at the Asia Pacific Petroleum Conference 2023 organized by S&P Global Commodity Insights.OPEC and its allies are expected to maintain the tight supply strategy for a lengthy period and aggressive output cuts led by top producing members, including Saudi Arabia, have supported benchmark crude prices and the Dubai price structure, industry executives and refinery sources said during early panel discussions and networking sessions Sept. 4."The [OPEC+ production cuts] have been relatively successful ... Benchmark Platts Dated Brent has been pretty stable between $72/b and $88/b for nearly a year now," said Vitol CEO Russell Hardy during a panel discussion."The prices are going to the point of equilibrium where sour crude economics, which should always be better than sweet economics, have sort of evened up.""Prices have been elevated due to the OPEC+ [production cut] activities ... Saudi Arabia is clearly meeting its goal," said Ben Luckock, cohead of oil trading at commodities trading house Trafigura during a panel discussion.Despite the production cuts, top OPEC and Middle Eastern producers have ensured their term supplies to Asian buyers remain stable. Asian refiners would look to secure base feedstock requirements from Persian Gulf suppliers, even if the rising Dubai market structure and higher Middle Eastern official selling prices could impact refining margins, executives and delegates said.Major Middle Eastern OPEC members may have led the production cuts but they have respected Asia's demand and monthly term lifting allocations have not been reduced, delegates of an Indian and a Japanese refiner told S&P Global on the sidelines of APPEC."Saudi Arabia wants their consumers to be satisfied," Luckock said.Saudi Arabia said it will continue its 1 million b/d voluntary cut that is holding crude production at a two-year low of 9 million b/d through at least September. Still, Saudi Aramco has fully met Asian buyers' nominations for September-loading term crude oil supply, S&P Global reported previously.Narrowing Brent-Dubai spread A sharp downtrend seen in the Brent-Dubai benchmark price spread due to strength in the Persian Gulf market structure could lure Asian traders to take more sweet crudes from the US and elsewhere, but many Asian refiners would continue to seek and depend heavily on Middle Eastern sour crudes, the executives and trading sources said.The Brent-Dubai Exchange of Futures for Swaps, or EFS, spread -- a key indicator of Brent's premium to the Middle Eastern benchmark -- flipped to negative at minus 19 cents/b on Aug. 24, marking the lowest spread since minus 22 cents/b on Oct. 20, 2020, S&P Global data showed. A negative EFS spread makes various sweet crude grades produced in the Americas, North Sea and Africa linked to the European Dated Brent benchmark more economical compared with Dubai-linked grades for Asian refiners.Still, many new complex and highly sophisticated refineries in India, Kuwait, China and others broadly prefer to buy sour crude, though there's not enough of Middle Eastern sour crude supplies to go around, Hardy said.Echoing this were South Korean and Japanese refinery delegates at APPEC, who said their mainstay would continue to be Middle Eastern sour crude grades. Price swings, such as the Brent-Dubai spread flipping to negative, only present short-term opportunities to procure more light sweet US crude."South Korean refineries are configured and designed to crack heavy high sulfur crude at maximum efficiency, so Middle Eastern sour grades will always be the primary feedstock," said a trading and logistics manager at a South Korean refiner on the sidelines of APPEC."We are flexible enough to take a lot of sweet [US and African grades] as well and the current EFS really works well for more US imports, but the staple Middle Eastern sour crude feed structure will never change.""I think Japan would take the chance to buy a few light sweet US crude cargoes depending on the arbitrage window, but Saudi Arabian and UAE crude is the primary fit feedstock for Japanese [refining] system," said a delegate representing a Japanese refiner.The US became the fifth largest crude supplier to Japan in July, when the Asian consumer imported 2.18 million barrels, or 70,211 b/d, compared with nil imports in the year ago and more than four times from 478,260 barrels, or 15,942 b/d, in June, latest data from the Ministry of Economy, Trade and Industry showed.Still, around 2.43 million b/d, or around 95% of Japan's total crude imports of 2.554 b/d during the first seven months, were sourced from the Middle East, the data showed.Learn more at APPEC 2024 | Singapore | September 30 - October 3, 2024
The global energy industry has to ensure that investments to the oil industry continues to flow despite a changing landscape, and any big shift in focus could potentially act as a stumbling block for energy security as well as create a volatile market, OPEC Secretary General Haitham al-Ghais said."We need to reiterate that the misguided notion of no longer investing in new oil projects would undermine the security of energy supplies and lead to major volatility," he told the India Energy Week Conference in Goa.Global oil demand growth is forecast to far outpace the expected rise in non-OPEC supply over the next two years, OPEC said on Jan. 17, as the producer group charts its course to manage the market ahead. In its closely watched monthly oil market report, OPEC estimated the world's thirst for oil to increase 2.25 million b/d in 2024 and another 1.8 million b/d in 2025.Ghais said the twin focus of the Indian government to pursue both fossil fuel growth as well as renewables is the right path to adopt."The Indian government has said consistently that the future will require all forms of energy, which is a message that OPEC fully supports," Ghais said.Strategic partnership Given India's future energy needs for its expanding and aspirational population and the fact that OPEC member countries provide approximately 60% of India's total crude oil imports, this strategic relationship would continue to be vital in the years and decades ahead, Ghais said."India will play a vital role in the future of the industry. According to our forecasts, oil demand in India is set to rise from 5.1 million b/d in 2022 to 11.7 million b/d by 2045. It will be the country with the largest oil demand growth over this period," he added.Commenting on the evolving global energy industry, he said it has never been more important to work together and adopt a holistic, practical and inclusionary approach as the world concentrates on the task of providing energy security for all while reducing emissions."We continue to be aligned by the need for every nation and people to have their energy transition pathways. It is not a uniform energy transition for all. There are multiple pathways to take. There is no one-size-fits-all solution to a sustainable energy future," Ghais said."No single source of energy will be able to fuel the global energy demand," he added.
In the final episode of the Oil Markets podcast for 2023, S&P Global Commodity Insights crude and refined products directors Joel Hanley and Richard Swann round up the biggest events and trends of the year. They provide an across-the-barrel retrospective of the year in oil markets, including shifting trade flows, developing markets for Russian oil, the emergence of Guyana as a crude powerhouse and a landmark year for established benchmarks Dated Brent and Dubai.Related prices:ULSD DAP South Brazil (All-Origin) AULDA00Payara Gold FOB Guyana AYARA00Dated Brent PCAAS00Dubai Mo1 PCAAT00Further reading: Guyana calls for UN sanctions on Venezuela over disputed territoryMidland's successful inclusion into Platts Dated BrentMore listening options:
While 2023 was seen as a banner year for clean energy capacity in global power generation, the path forward to net zero will be fraught with complications and require different strategies as oil and gas remain a substantial part of the energy mix, according to S&P Global Commodity Insights analysts."When we're thinking about the transition and how to characterize it, the word we've been using quite a lot this year is multidimensional energy transition," said Roger Diwan, S&P Global's head of global energy finance, speaking at the SPGI Excellence in Energy Conference held Dec. 6. The description is apt because the energy transition is "moving in different places in different directions at different speeds, and it's very difficult to characterize it as one movement in any direction," he added.While the energy transition focus remains firmly on producing clean electricity primarily from wind and solar power, this has created a split screen view, particularly for oil and gas producers and refiners as they look to integrate clean energy into their markets and operations. "What we're looking at here is a really different kind of energy sector proposal, it's very focused in everything we can electrify," said Peter Gardett, S&P Global’s executive director of research.Oil demand growth to peak in 2030Decarbonization is key for fossil fuel producers and refiners to meet emissions goals, especially since the fossil fuel sector has proved more durable than once anticipated.Currently, oil, natural gas and coal meet 80% of total energy demand. Stripping out coal, oil and natural gas meets 54% of total energy demand, according to S&P Global forecasts."While, yes, it loses market share over the next 30 years out to 2050, it only drops to…48%," said Daniel Pratt, vice president of upstream solutions at S&P Global."You've got to remember that demand is going to continue to grow over the next 30 years. So even though it's losing market share to the renewable sector, you might still need more oil and gas in 2050 than we're actually producing today because of the overall demand growth," he said.Coal would take the "lion’s share" of the demand loss, followed by natural gas, he said.Many countries "are looking at gas as that transition fuel for electrification, decarbonization because it's affordable, is sustainable, reliable," he said.However, oil demand is expected to continue to rise and peak around 2030, which is "just over the horizon", said Kurt Barrow, head of oil markets at S&P Global."We’ve got the split screen analogy. We’ve got demand growth of 1.5 million b/d. Next year we will 2 million b/d," he said."And if you are going to talk about the energy transition in oil, you are really talking about an energy transition of the four big transportation sectors, that make up the majority of oil demand – such as cars, trucks, ships and planes," he added.Electron generation vs molecule managementDespite driving more vehicles on the road, there is less carbon being used as new, and more efficient cars, trucks and ships are being produced, according to S&P Global.The rise of electric vehicles, particularly in Europe, has played a role in lowering carbon, with 1 in 4 cars in Europe and 1 in 3 cars in China being sold currently, due in part to government policies.Geography also plays a role in an oil company’s carbon strategy and capital investment policy. European oil and gas majors spend more on low carbon initiatives than US-based majors like ExxonMobil and Chevron.Currently, Equinor, BP, Shell, Total and ENI spend about 15% to 20% of total company capital expenditures on low-carbon initiatives, according to the panelists.ExxonMobil and Chevron, both of which recently have made major acquisitions in Permian Basin oil and gas production, spend about 5%.This is expected to rise to about 15% to 20% by 2027, while their European peers expect to increase spending to "20%, 30% even 40%," said Pratt, adding that, in contrast with their US peers, the European companies are making substantial amount of investment in renewable "electron generation."Conversely, ExxonMobil and Chevron are more focused on investing in "molecule management", which tends to focus more on decarbonization of liquid fuels.Pratt said the diverging energy transition investment strategies comes down the stakeholders. "If you look at Europe, they very much see energy transition as their path to energy security," said Pratt."It's not like that in other parts of the world. In the US, we've achieved energy security through hydrocarbons," he added."So the drivers for the European [energy majors] are much more toward renewable transition," he said.
Listen now as Mish'al Alotaibi, Director, Safaniya Offshore Producing Department discusses Saudi Aramco's nominations for the Global Energy Awards Energy Transition - Upstream Finalist award! For a quarter century, we have been honored to recognize the energy sector’s exponential growth and rapid progress. As the world comes together to tackle climate change issues at COP28, we are gathering the industry to acknowledge the companies and individuals working on the crucial, innovative, practicable solutions that will solve those problems. Shine a spotlight on your organization’s accomplishments and join us this December 7th in New York City, USA to celebrate the many achievements and successes of the global energy community. Learn more now
Global demand for fossil fuels will likely peak before the end of the decade due to rapid progress on solar power and electric vehicles, the International Energy Agency said Sept. 26, while softening its contentious message that no new oil and gas projects should be approved into order to achieve net-zero emissions by 2050.The scenario foresees oil demand falling from 100 million b/d to 77 million b/d by 2030 while natural gas demand would slide from 4,150 Bcm in 2022 to 3,400 Bcm. By 2050, oil and gas demand would have slumped by 24 million b/d and by 900 Bcm, respectively. First published in May 2020 setting out the IEA's first pathway to limit global warming to 1.5 C by 2050, the IEA's landmark Net Zero roadmap surprised many, calling for a halt to spending on new oil and gas projects. The controversial report drew the ire of major oil and gas producers, emboldened a new wave of more confrontational anti-fossil fuel protests around the world, and triggered a spate of legal challenges to new oil projects by environmental groups, citing the IEA's net-zero pathway. Saudi energy minister Prince Abdulaziz bin Salman notably referred to the initial net-zero scenario as "a sequel of [the] 'La La Land' movie" and as recently as Sept. 14, OPEC's secretary general accused the agency of ideologically driven fearmongering that would destabilize the world economy. The IEA gave no examples of "long-lead-time" upstream projects and its executive director Fatih Birol appeared to downplay the new wording in comments to the press. "Our position that there is no need for investment in new coal, oil, and gas has not changed," Birol said when asked to explain the definition of long-lead-time projects. "This is subject to a big push for clean energy to reduce fossil fuel demand. If we are successful ... in replacing fossil fuels ... then we don't need new oil and gas fields or coal mines." In October 2022, the IEA said that growing policy action to curb the use of fossil fuels had accelerated the expected peak and decline of oil, gas and coal in the global energy mix despite the near-term energy supply crunch in the wake of Russia's war in Ukraine. Predicting higher growth rates for renewables and electric vehicles, sectors key to the transition to low-carbon energy, the IEA sees global oil demand peaking in the mid-2020s just above pre-pandemic levels of 98 million b/d 2019, before dropping to 93 million b/d in 2030. Stranded asset risk Birol reiterated, however, that spending on existing oil and gas fields is still required to facilitate a managed decline in production volumes in the coming years but renewed a warning over potential stranded upstream assets as a result. "Even with no new climate policies set by governments and with current market trends, then fossil fuel use will peak before 2030 and start to decline," Birol said. "Oil and gas companies need to think very carefully because those large-scale fossil investments not only pose a risk for our climate but they also pose a business economic risk." Despite progress on boosting renewable power, overall demand for oil, natural gas and coal all need to be replaced by cleaner energy at a faster rate in order to hit net-zero by 2050, the IEA said, with fossil fuel demand 25% lower by 2030. The surge in clean energy investment in the NZE Scenario -- from $1.8 trillion in 2023 to $4.5 trillion in the early 2030s -- drives sharp declines in fossil fuel demand. "Nonetheless, continued investment is required in some existing oil and gas assets and already approved projects. Sequencing the increase in clean energy investment and the decline of fossil fuel supply investment is vital if damaging price spikes or supply gluts are to be avoided," the report said. Under the new scenario, a rapid drop in oil and natural gas demand would likely see global oil prices dropping from $98/b in 2022 to $42/b by 2030 before drifting down slowly toward $25/b in 2050, the IEA said. In 2021, the IEA estimated that under its NZE model oil prices would drop to around $35/b by 2030. Renewables success Despite an uptick in oil and gas spending triggered by Russia's invasion of Ukraine, many governments are adopting more clean energy policies in the wake of the coronavirus pandemic, which has hastened the energy transition, the IEA said. The IEA said that the electricity sector is poised to emerge as the "new oil" of the global energy system, stressing the importance of electricity security in the future. One of the key pathways to reaching net zero by 2050 will be the tripling of renewables capacity to 11,000 GW by 2030. Global biofuel production, however, is not progressing fast enough for the global energy sector to reach net-zero emissions of CO2 by 2050, the IEA said. Modern liquid biofuel demand, including gasoline, diesel, marine and aviation fuels made from biogenic sources, increases threefold before peaking around 2040. Overall, the share of fossil fuels in total energy supply would drop below two-thirds by 2030 and to less than one-fifth in 2050 under the scenario. Coal demand declines by 45%, and oil and natural gas by around 20% to 2030. Analysts at S&P Global Commodity Insights estimate that global oil demand – including biofuels -- will remain at around 31% of the global energy mix through 2030, while renewable energy sources will grow 6%-8%/year to make up 13% of total energy demand at the end of the decade, up from 8% in 2022. Global oil and biofuel demand will peak at around 110.3 million b/d in 2031, according to S&P Global's reference case scenario. Oil & Commercial Strategies Training Course