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Power Up: Shale shakes it off

David Gaffen Editor-in-Charge, Energy Markets David.Gaffen@thomsonreuters.com

Hello Power Up readers! The deadline on a cap on Russian oil exports is just a couple of weeks away, shale’s heyday may be over, and a few other things while you’re refreshing your browser window for Taylor Swift tickets ...

India Balks at Russian Shipments

Looming sanctions make imports less attractive Refiners in India, one of the world’s largest crude importers, are getting gun-shy about buying Russian crude after Dec. 5, when European Union sanctions take effect, sources told Nidhi Verma of Reuters here. India and China stepped up purchases of Russian oil sharply after Moscow invaded Ukraine and the European Union and United States stopped buying from Russia. But China has slowed its expected imports into December, and India appears next in line - which would leave Russia chasing other customers - and potentially depressing prices even if new buyers are unlikely to join a plan by rich nations in the Group of Seven (G7) to cap Russian oil prices. Reliance Industries, operator of the world's biggest refining complex and a major customer for Russia, has not placed orders yet for Russian cargos loading after Dec. 5, two sources familiar with the refiner's purchase plans told Reuters. They’re concerned about the reaction from foreign banks given its exposure to the global financial system. "There are too many uncertainties attached to the cap mechanism," said a source at one of the state refiners. On the other hand, Indian Oil Corp, the country's top refiner, has placed orders for Russian cargoes after Dec. 5.

Freeport Delays Continue

Texas LNG Plant May Not Be Back Until 2023 The June accident that knocked out the Freeport LNG plant in Texas has reverberated through markets for several months, and as more time passes, the expected restart keeps getting pushed further into the future. Officials have made positive-sounding remarks about restarting, but regulators have been clear that the plant cannot come back online until they approve it - and it’s not even close. Freeport, by mid-month, still had not submitted a plan for approval with the U.S. pipeline safety regulators in charge of allowing the facility to get back online to start shipping liquefied natural gas across the globe. The plant can ship 2.1 billion cubic feet per day (bcfd), or about 2% of U.S. output of natural gas. Several vessels that had been headed to the plant to presumably load up on LNG have since diverted to other locales. Meanwhile, federal regulators released a consultancy’s report showing that the June accident stemmed from inadequate operating and testing procedures, along with fatigue and human error.

Pemex Opts for Flaring Fines

Delaying Output Not An Option Mexico's state oil company Pemex hasn’t been in compliance with its own plans to fix a massive flaring problem - the burning of natural gas that contributes to environmental damage - but instead of delaying output to fix the issue, the company is risking fines. Here’s our story from Stefanie Eschenbacher and Ana Isabel Martinez. Pemex is very closely tied to the government, and the nation’s oil regulator has had trouble reining it in - as it is one of the biggest flaring countries in the world and the problem is getting worse. The two most recent fines could each reach 120 million Mexican pesos ($6.2 million), per our report - which would be the highest ever, if the regulator can make it stick. This all comes as Mexican leaders have met with others at the U.N. Climate Summit this week and Pemex’s recent pledge to work with the U.S. Environmental Protection Agency to reduce overall emissions.

A Shale Thaw?

At Least One Company Thinks So The investment community has been pretty adamant since 2020 that shale companies need to focus on sending money back to them, rather than investing in heavy growth - part of the reason that U.S. production, while up this year, hasn’t been particularly robust, and the current forecasts are for a lackluster fourth quarter.

That could be changing, a bit. U.S. shale producer Coterra Energy said investors may soon change their thinking, with Tom Jorden, CEO, saying at a conference that "I would not be surprised if the call changes, and that investors, on the sell side broadly, start calling on us to grow modestly.” That said, the short-term and long-term aren’t the same thing. Shale execs still say shale may have peaked, with John Hess of Hess Co saying that “the Saudis and OPEC have waited this out. Now, really OPEC is back in the driver's seat where they are the swing producer.” U.S. production growth this year has steadily risen to 12 million barrels per day, but the U.S. Energy Department this week cut its forecasts for the coming months and years, raising additional worries about tight supply. High inflation and poor well productivity is inhibiting growth in shale - keeping prices higher.

In Conversation: Maria Pope

Portland utility CEO on climate change, grid growth Maria Pope, CEO of Oregon-based Portland General Electric, the largest utility in that state, spoke on electrification at the Reuters Energy Transition event. She sat down with Power Up for an interview as well.

How are you coming to terms with worsening weather, dry air, and fires?

We’re working with the U.S. Forest Service and the head of the Bureau of Land Management as well as state agencies so we can really understand the intersection of our forests and our utility infrastructure to be able to create as safe and reliable a system as possible and reduce any risk of wildfires across our system. We did shut off power to about 40,000 customers when we had the combination of very high heat, very low humidity and easterly winds that are very unusual for our area. Overall, for this wildfire season, 7 million acres have burned across the West this year; that’s down from prior highs but still very significant levels of wildfire take place across the west.

What changes are you making with renewable energy?

As we’re meeting increased energy consumption in our region, we’re expanding our amount of renewables. It’s been primarily wind energy but also solar and battery storage. In 2020 we closed Oregon’s only coal plant and just a stone’s throw away we brought online the Wheatridge Energy Facility, which had wind power, solar, and battery storage. In Montana, we are bringing online 311 megawatts of wind power which will complement and ultimately replace the coal generation we’ve had out of Montana.

What is your outlook for customer rates?

We have a very high base of renewable energy already so the impact of rising natural gas prices is muted on our customers, as well as we also do multi-year hedging. Near-term our customers have not seen to date any price increases. They will be seeing some price increases as we turn into 2023, the vast majority of which are driven by higher natural gas prices.

QUOTE: All In on Methane

"As of today, we will have 95% of countries that have included methane in their nationally determined contributions.” –Rich Duke, U.S. deputy special envoy on climate change, to Reuters ahead of an announcement at the U.N. climate summit in Egypt that more than 150 countries have signed a pact to cut methane emissions. Power Up is published on Mondays and Thursdays. Think your friend or colleague should know about us? Forward this newsletter to them. They can also subscribe here.

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