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Power Up: Oil Majors in the Black (and Green)

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Oct 31 - David Gaffen Editor-in-Charge, Energy Markets

Happy Halloween Power Up readers! The biggest oil majors are swimming in money, Russia’s energy outlook - particularly in natural gas - doesn’t look very strong, and Germany is seeing the light, at least, that they need to use more of it with solar panels. There’s a lot happening this Halloween. Here is some of it. EXXON: WE TOLD YOU SO Oil Giant Rakes It In Exxon Mobil, the top U.S. oil producer, for years trailed its peers when it came to performance, and was being hammered for failing to anticipate the shift to renewable investment while also seemingly doubling down later than others on drilling in the Permian, the most prolific shale region in the United States. But now that demand has recovered from the worst of the pandemic, and the combination of Russia’s war in Ukraine and OPEC+ keeping supply tight could keep prices high for years, a bet on continued oil and gas output doesn’t seem off the mark. Hence, Darren Woods of Exxon sounded like he was taking a victory lap Friday. Exxon earned nearly $20 billion in the third quarter, surpassing even the second quarter, as the CEO noted that while “others pulled back in the face of uncertainty and a historic slowdown, retreating and retrenching, this company moved forward, continuing to invest.” That may not entirely capture the spirit of the thing. Other oil companies also kept drilling - and Exxon also has to make good on a more oil and gas heavy portfolio that could be an advantage only in the near-term. Still, with shares up 86% this year - besting the other majors - it gives them a bit of room to run. RUSSIA LOWERS EXPECTATIONS Sanctions, as it turns out, do hurt Russia's finance ministry has slashed its expectations of taxable oil production for 2023, Reuters reported exclusively Friday, as Western sanctions will truly reduce the nation’s ability to produce and export oil and refined products. Russian oil and gas condensate output is set to come in around 9.84 million barrels per day in 2023, or down about 7% or 8% from this year, and a Reuters analysis shows that the figure could be even more dire for Moscow, which relies on fossil fuel revenues to fund its budget. The International Energy Agency had a similar warning for Russia in its newest projections on the country’s gas export outlook following its invasion of Ukraine. Where the IEA last year expected Russia’s exports to rise from roughly 250 billion cubic metres in 2020 to more than 350 bcm by 2030, the country’s decision to cut off supply to Europe has shifted the IEA’s thinking. The agency now thinks Russia’s gas exports peaked this year, and will fall to less than 150 bcm at the end of the decade, saying the country cannot expect to easily re-orient its gas trade to Asia due to relative lack of pipeline connection; Russia also doesn’t have a notable advantage in LNG over any other big exporter. “The rupture has come with a speed that few imagined possible,” they write. ENERGY CRISIS RAMIFICATIONS People with access are likely to lose it The worldwide energy crisis is likely to have far-reaching effects for a number of years because it stretches across just about all sources - but especially oil and natural gas - and means the number of people without access to modern energy is rising for the first time in a decade, the International Energy Agency says in its world outlook, which was released last week. The IEA estimates about 75 million people who recently gained access to electricity are going to find it unaffordable, largely due to the surge in natural gas prices, and about 100 million people are going back to using traditional biomass (wood, mostly) to cook food and heat homes. “Market conditions and the energy crisis are raising the global average cost of electricity supply by almost 30% in 2022,” they wrote. As of present day, there are 113 countries without universal access to electricity, and roughly 775 million people are not expected to have access to electricity worldwide in 2022, an increase from the previous year, largely due to rising poverty in sub-Saharan Africa - one reason why representatives from that region are going to urge more fossil fuel projects at Egypt’s COP27 next week. SOLAR VALLEY, REVIVED? Germany looks to bring back locus of investment Germany is trying to boost the EU’s energy security by reviving the solar industry that once thrived there but has languished in recent years. Officials are starting to react with some urgency as the continent faces years of re-orienting away from Russian fuel for power generation, and recent U.S. climate legislation will add to the competition. Germany derives about 41% of its electricity generation from renewables, and about 10% overall from solar. But the country's solar manufacturing collapsed after a government decision a decade ago to cut subsidies faster than expected. Europe once produced a quarter of global photovoltaic (PV) modules worldwide; it’s now at 3% while China is at 70% - and does it more cheaply. "We are seeing how fatal it is when the energy supply is completely dependent on other actors. It's a question of national security," Wolfram Guenther, Saxony's state minister for energy, told Reuters. QUOTE "This invented story, says more about arguments going on inside the Russian government than it does about the West." UK Defense Ministry, on Russia’s claim that the British navy blew up the Nord Stream gas pipeline QATAR DIVES IN LNG powerhouse’s new investments Qatar, one of the world’s biggest producers of natural gas, is busy signing up partners for one of its largest ongoing projects to produce natural gas for liquefaction and shipment, while it has also signed up as a partner in recent discoveries off Lebanon’s coast. QatarEnergy's Chief Executive Saad al-Kaabi named ConocoPhillips as its third and final partner in its North Field South expansion, part of the world's largest liquefied natural gas (LNG) project, after Shell and TotalEnergies. The country remains one of the world’s largest LNG exporters after the United States. In addition, QatarEnergy is talking to the Lebanese government for a 30% stake in an offshore exploration area, where it is also negotiating with partners TotalEnergies and ENI. Big companies are showing more interest in those fields, as well as discoveries off Israel’s coast, due to the disruptions caused by Russia’s invasion of Ukraine. (Editing by Marguerita Choy)

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