Politicization of Oil, Coal and Natural Gas Are Playing A Greater Role in Industrial Policies and Energy Supplies Around the World
From this narrative I want to draw attention to three key points: 1.) FLNG & FPSO are signs of surging demand for oil & gas products; 2.) Crude Oil pipelines are not a forgone conclusion as the spearhead of global economic activity; 3.) With a revitalized Coal industry, the success of the Energy Transition requires much deeper collaboration between countries and industry than ever before.
1. FLNG & FPSO are signs of surging demand for oil & gas products
Increased Offshore Production
Before the rise in Floating Liquified Natural Gas (FLNG), the floating and storing phenomenon was already operating in full force, being used for offshore production operations in the oil industry. Floating, Production and Storage Operations (FPSO) are critical to successful offshore development platforms; otherwise, these operations would not be able to sustain effective production in offshore areas around the globe. That’s also why the shift from oil and gas production to renewable sources would potentially cause harm to a thriving offshore energy industry, with multitudes of capital investments and employment at stake.
Nevertheless, as onshore oil and gas production continues to generate greater scrutiny from regulators, investors and conservation activists alike, so then the offshore oil and gas industry has positioned itself to receive massive investments and government subsidies for the short-term outlook of global demand and supply. But this still won’t speak to any solutions for solving maritime threat dynamics, for which this nascent global transport revolution shall face with ongoing fears and uncertainties into the foreseeable future.
Industry trends and analyses reveal that countries throughout Europe and Asia will benefit the most from Liquified Natural Gas (LNG). Two signs of this occuring are VTG Rail Europe’s innovative LNG transport designs via railway network modes and the China National Offshore Oil Company’s (CNOOC) largest LNG storage tank built at a receiving terminal in Yancheng near the metropolitan city of Shanghai.
On the news of the Biden Administration releasing approximately 180mn barrels of oil from the Strategic Petroleum Reserve people in the USA like to think of energy strategy in terms of security and defense. This is misleading from a variety of angles. I will focus on one aspect: Floating Production, Storage and Offloading Units (FPSO).
Nowadays there’s a much higher level of activity happening in the offshore oil and gas space. According to Offshore Engineer, FPSOs are more attractive in today’s industry because of new players, business models and a lower cost operators than traditional oilfield development services.
FPSO contracts are reportedly on the rise since the end of 2020, including Mero 4 in Brazil, Limbayong in Malaysia and Liuhua 11–1 in China — with the three key players in these areas being Petrobras, Yinson and CNOOC. One reason for the rise in FPSOs is that offshore drilling in Southeast Asia has gained a lot of momentum in 2022, such as a big discovery from Thailand’s PTTEP in an offshore Malaysia block.
As a result, business partnerships in this space are growing too. Petrobras and Yinson signed a letter of intent on February 8, 2022 providing FPSO contracts worth $5.2 billion. While CNOOC and Petrobras signed a Production Sharing Contract (PSC) for $2.12 billion in Brazil’s Buzios field on March 8, 2022.
The Buzios field is significant. As there are already four FPSO units in operation there, with six more planned by 2026, this area is the prime driver for Brazil’s strategic plan to have all FPSO contracts held at a firm price by 2025. This plan occurs under the backdrop of China’s Sinopec reporting its largest profits from crude oil production since 2011.
The reason I’ve been focusing on Brazil, China and Southeast Asia is to drive my point that while most Americans view oil and gas as a energy security and defense issue, other countries are viewing offshore oil and gas production as a major driver of their economic growth going forward — Brazil’s strategic plan is an indication to this fact.
With investments to the tune of $84 billion by Petrobras to develop technologies conducive to FPSO, the expansion of this market is a long-game strategy for an offshore energy space that is becoming a widespread, massively internationally-integrated market. Business is good now, but there are certainly going to be a wave of maritime threat dynamics for these companies operating and transporting in offshore areas — there’s going to be an unprecendented level of FPSOs.
Infrastructure Investments for FLNG
On April 11, 2022, it was announced that a “heads of agreement” (HOA) was signed by TotalEnergies (Total) with Sempra Infrastucture, Mitsui & Co. ltd and Japan LNG Investment. Sempra Infrastructure owns 50.2% of the project while Total, Mitsui and Japan LNG Investment each own 16.6%.
According to TotalEnergies’ Chairman and CEO Patrick Pouyanné: “The expansion of Cameron LNG will contribute to our LNG growth strategy by investing in low-cost, long-term competitive LNG projects with lower GHG emissions.” This statement from the CEO was given to the public as a way to justify expansion of the Cameron LNG project located in Louisiana, USA.
This HOA is significant because the companies agreed to jointly increase production capacity to more than 6.75 mn tonnes per year (tpy). They also agreed to add a fourth train to improve on debottlenecking of the plant. Moreover, the project is seen as a way boost exports of USA LNG in the wake of recent events by Russia to affect Europe’s energy supply.
If Norway’s Equinor took the initiaive to help and solve Europe’s energy crisis, then it seems France’s TotalEnergies is striving to take the lead in promoting Europe’s energy transition. The HOA is an indicator of how seriously the company is taking its ambitions to push Europe forward on the energy transition.
Per OilPrice.com, the French supermajor is the world’s largest exporter of USA LNG and the second-largest LNG trader.
With the final investment decison on the Cameron LNG project to come in 2023, Russia’s invasion of Ukraine has raised concerns of how more exports of USA LNG can be carried out in the present. On March 25, 2022, a deal between the USA and European Union (EU) was initiated for the USA to increase deliveries of LNG to EU markets in the amount of 15 billion cubic meters. This circumstance reveals how critical USA LNG is to the EU’s energy supply mix.
TotalEnergies has been in business with USA LNG since September 2016 when the company acquired 75% of the Barnett Shale assets in North Texas from Oklahoma City-based Chesapeake Energy. Due to declining production, the Barnett shale assets are set to bottom out around 2028. What’s important here is that the production capacity at Total’s Barnett shale fields will allow the company to regasify its natural gas reserves into LNG at Cameron, in order to transport and export the natural gas from USA to Europe, Asia and African markets.
TotalEnergies is also launching North America’s first Cabon Capture & Storage (CCS) project at the Hackberry Carbon Sequestration (HCS) project. According to Thomas Maurisse, senior vice president LNG at TotalEnergies:
We are pleased to join forces with our partners to significantly reduce CO2 emissions at Cameron LNG export terminal, thus enabling us to supply our customers with low-carbon LNG, a key fuel for the energy transition and a valuable asset for diversifying Europe’s energy supply
It’s essential to point out that even when the largest companies are pushing for ways to successfuly carry out Energy Transition around the globe, that committments to natural gas production and exports via LNG will continue to grow over time. TotalEnergies even highlighted in its 2021 Energy Outlook that natural gas and renewable energy sources would play complementary roles to achieving the energy transition toward Net Zero.
One of the concerns is how geopolitics and international events are going to affect the global energy outlook and prospects.
For instance, Algeria and Morocco have both announced plans to source more gas reserves to the benefit of TotalEnergies, Eni and USA exporters. But underlying political and territorial issues between those two countries are inevitably going to be a major problem. Algeria cut off Morocco’s access to its gas pipeline in 2021 after Morocco announced that it would develop LNG terminal capacity.
Upstream has been writing about energy companies that are exploring Africa’s potential for LNG pipeline infrastructure as an alternative to Russia and Persian Gulf producers. For instance, Siva Prasad of Rystad Energy said “Asian and European importers will need to consider African priorities as they develop projects, as many African producers are focusing on supplying energy locally as well as to intra-African markets, along with catering to global markets.” Prime examples include a a proposed natural gas pipeline from Tanzania to Zambia.
This summer is already signaling a competition for LNG tankers among the world’s largest energy companies — TotalEnergies, Shell, China Unipec — to stock up on LNG supplies ahead of the winter season in 2022. Because of this trend the price of LNG carriers is rising to the highest levels in 10 years, at around $120,000 a day, as LNG import demand is expected to grow higher and higher for developed countries.
Here’s another illustration of how more infrastructure investment is needed for FLNG. According to Spanish Energy Minister Teresa Ribera a gas pipeline from Portugal, through Spain, could be built in less than one year for the benefit of France, Spain and other European energy consumers. Calling it a “new interconnection” German Chancellor Olaf Scholz agreed that the pipeline would be beneficial to Europe’s energy supply dilemmas.
This is essentially an issue of increasing liquified natural gas (LNG) imports to Europe. With the capacity of Portugal to receive LNG at its terminals on the coastline, it is a perfect way for France to receive more imports of LNG. However, this plan has been in the works since 2019 as the Spanish grid operator Enagas called for the pipeline to be abandoned.
2. Crude Oil pipelines are not a forgone conclusion as a spearhead of global economic activity
The case of Russia, Kazakhstan and the CPC
In the fray of the Russia-Ukraine conflict narratives it was easy to miss what has been happening with Kazakhstan’s oil export crises during these tumultuous times for the oil & gas industry. I compiled a list of events about the Caspian Pipeline Consortium (CPC) below.
The CPC is a 1,500km pipeline beginning at the Tengiz field in Kazakhstan. Big international companies such as USA’s Chevron (15%) and ExxonMobil (7%) each have stakes in the crude oil capacity of the CPC.
Interestingly, Kazakhstan was seeking to sell exploration and production rights for 60 blocks to international investors on on 21 March 2022.
It isn’t a wild idea to assume that Russia used this moment after the Black Sea storm to ensure Kazakhstan its control over the Novorossiysk terminal was critical to the operation of the CPC oil exports.
Moreover, some of the most intense fighting in Ukraine occurred at Mariupol whereby oil tanker businesses at the Novorossiysk terminal were able to acquire a “war risk insurance premium” — a sign that the Russian war effort was indeed having an impact on the CPC and Kazakstan’s crude oil exports.
What does this mean for the future of the CPC?
Kazakhstan’s government understands that both Western oil interests and Russian oil exporters matter a great deal to the country’s own ability to export crude oil and increase oil production revenues. Just because Kazakhstan changed the name of its vital oil exports to Kazakhstan Export Blend Crude Oil (KEBCO) doesen’t mean it will be able to avoid the USA’s and Europe’s sanctions on oil originating from Russian sea ports.
The ultimate test of USA and Europe sanctions will be playing out in areas such as Kazakhstan and the wider Central Asia region, where those countries are the most susceptible to Russian influence, yet need Western oil imports and international investors to decrease reliance on Russia. I don’t see this problem getting solved in the near-term.
For Kazakhstan, the long-term problem is going to come down to the success of Russia’s political leverage and military strength to ensure that their economic interests, particularly crude oil exports from the CPC, stay intact in the future without any interruptions from USA and European sanctions.
As a result of the effects from the Russia-Ukraine war, the Caspian Pipeline Consortium (CPC) has been caught in the geopolitical crosshairs of Russia’s political agenda and the United States/EU sanctions on a broad base of Russian industries. Due to the issues of CPC, Kazakhstan has really had no choice but to look for other options, as the price of oil surged and they lost out on some high chances for profits from oil and gas revenues.
That’s where Azerbaijan comes in to play. The state-owned enterprise known as SOCAR is reportedly in talks with Kazakhstan’s Kazmunaigaz (KMG), a state-owned oil company, to allow crude oil from Kazakhstan to be sold through the Azeri pipeline. This would allow Kazakhstan an alternative export route in lieu of the CPC.
ExxonMobil’s monumental Guyana discovery
On 5 June 2022 the American energy giant ExxonMobil made two new offshore discoveries in Guyana said to be capable of producing ~10 million oil-equivalent barrels. Referred to as Fangtooth and Lau Lau, these two new discoveries add to the Stabroek block which began producing crude oil in 2019. With stakes from offshore companies Hess (30%) and CNOOC (25%), the Liza Unity FPSO vessel began operating in offshore Guyana in October 2021 after ExxonMobil raised estimates for crude production by 1 billion oil-equivalent barrels.
For more specific details about ExxonMobil’s crude oil production at the Stabroek block and the Liza Unity FPSO, read here: https://www.naturalgasintel.com/exxonmobil-building-plethora-of-oil-natural-gas-prospects-in-stabroek-offshore-guyana/
The initial offshore discoveries at offshore Guyana in October 2021 has led to a flurry of investments from some of the world’s largest companies to date. BHP Group got approval to conduct 3D seismic surveys at the offshore blocks. ExxonMobil also plans to increase production at offshore Guyana with four FPSOs capable of producing 800,000 barrel per day (bpd) by 2025. Because of these reasons Hess CEO, John Hess, said:
With a 25% stake in the offshore Stabroek Block, China’s largest offshore oil & gas producer — China National Offshore Oil Corporation (CNOOC) — notes that crude oil production in offshore Guayana is the company’s most valuable international investment for crude oil production. It was also reported that CNOOC intends to raise its oil and gas production by more than 6 percent each year from 2022–2024.
This means that offshore Guyana is a critical part of China’s energy security strategy, for which crude oil production is the major factor to secure a diversified and stable energy mix for the world’s largest manufacturing country and second largest economy.
The Greater Guyana Initiative was established by ExxonMobil, Hess and CNOOC to commit funds to projects that contribute to the sustainable development of Guyana’s economy and people, including regional initiatives that suppoer development work in the country’s modern agriculture and health.
ExxonMobil’s offshore discoveries are also going to provide jobs for 3,500 Guyanese people while directly working with a number of local suppliers on the projects.
The examples of Guyana do indeed prove how crucial commodites are becoming to geopolitics. One aspect of the offshore Guyana project is that it has increased tensions over a historical border dispute with Venezuela.
3. With a revitalized Coal industry, the success of the Energy Transition requires much deeper collaboration between countries and industry than ever before
Coal is back as a result of Russia-Ukraine conflict
Firstly, I want to give a glimpse into the Glencore case (click this link to read more about the market manipulation and corruption case) in order to lay a foundation for what is happening more broadly with respect to deals involving industry collaboration for the Energy Transition.
It’s been reported by many news agencies and media outlets that Glencore is having an amazing year in terms of its profits from the Global Commodity Supercyle. As one of the world’s largest miners and commodities traders, the company’s exposure to thermal coal, crude oil and critical metals such as cobalt and zinc, has brought Glencore’s profit margins to exceedingly new highs.
Reuters reported that Glencore’s profits would exceed $3.2 billion [£2.6billion] in just the first half of this year (H1 2022). This is nearly the amount of profits the company made in the whole year of 2021, when the company held record profits of $3.7 billion. Therefore, Glencore is on its way to have another historical year in profits from the mining and trading of global commodities, which have been exacerbated by the ongoing Russia-Ukraine Conflict, ushering in a new Global Commodity Supercycle.
Since Glencore is one of the only companies that still has a full-fledged coal business, it has given the company extreme flexibility to give investors more returns through corporate buybacks and dividends. This reveals the oild dilemmas about how shareholders shape the narratives around oil & gas production scenario in the global economy.
During this time, the United States Special Presidential Envoy for Climate John Kerry spoke at the IV CEO Summit of the Americas about the Energy Transition’s role in the Global Economy. Read a full report and watch some videos about it on CNBC.
The dominance of Russia’s hydrocarbon exports has come into full focus, per Euractiv on whether or not the oil and gas dependent economies can sustain themselves in the era of global climate change action. This means that Ukraine should follow an “accelerated energy transition” reconstruction plan as a result of the conflict. This stood out to me:
To achieve the ultimate victory and protect our children from new resource wars, energy blackmail and the devastating effects of climate change, we must not just embark on the path of the energy transition. We must race upon it and push Europe forward to completely stop using coal, oil, and gas.
After agreeing in principle to ban seaborne transport of Russian crude oil and petroluem products it was reported that European companies will have certain transitional periods before they have to comply to the new policies. It wasn’t stated that the ban on Russian oil imports would affect oil that is transiting through Russia that originated in another country by non-Russian producers.
At a meeting in Washington DC on 8 June 2022 the executive board chairmen of Ukraine’s Naftogaz, Yuri Vitrenko, pleaded with attendees about the “significant challenge” to gas imports due to Russian attacks on Ukraine. Gazprom’s Nord Stream 2 was also a major focus of the meeting since the company has reduced gas transit shipments to Ukraine in lieu of committments to ship 110 MMcmd.
Much of the above discussion revolves around a legal case between Russia’s Gazprom and Ukraine Naftogaz whereby both parties have accussed the other of not fulfilling contractual obligations. The court case is being politicized during the war in Ukraine, since Ukraine is one of the most important transport corridors for natural gas to the European Union markets.
Carbon Capture reveals more joint-venture prospects
A new joint venture was announced by Japanese trading company, Mitsui Co., and American commodities producer CF Industries. The terms of the JV are that Mitsui Co. will be responsible for selling blue ammonia to buyers throughout Asia. In other words, CF Industries produces the cleaner ammonia at large scale, and then Mitsui Co. sells it to Asia markets. One report says that Asia imports around 3 million tons of ammonia, but with this cleaner fuel those figures could go way up. As one of the most important Energy Transition fuels, blue ammonia is particularly important in Asia-Pacific markets due to widespread usage in manufacturing facilities and for ships throughout the region.
Australia’s Santos announced at the Australian Petroleum Production and Exploration Association on 18 May 2022 that despite the constant criticisms of CCS that the technology is still critical for the Energy Transition, which means that Australia’s LNG industry should view CCS as a way to de-carbonize and reach Net Zero carbon emissions. Santos Ltd CEO Kevin Gallagher went a step further by encouraging South Korea to invest in Australia’s CCS capabilities. Australia has the world’s largest CCS project, operated by Chevron, at the Gorgon LNG project located in Western Australia, while South Korea is a major energy importer and one of the countries leading on the “energy security” efforts in Asia-Pacific amidst the Russia-Ukraine conflict.
In the United States the Biden Administration announced via the Department of Energy a $3.5 billion funding program for the Bipartisan Infrastructure Law that allocates funds for CCS technology development, including four Regional Direct Air Capture Hubs in the USA. It was reported that these funds will last from the years 2022–2026 with each hub capable of storing one million metric tons of carbon per year.
On 23 May 2022, France’s TotalEnergies signed an agreement with Sempra Infrastructure, Mitsui Co., and Mitsubishi Corporation to develop on the Hackberry Carbon Sequestration (HCS) project at the Cameron LNG facility located in Louisiana. According to the official agreement this project is expected to be North America’s first CCS facility that is designed to receive and store CO2 from multiple areas of production. Sempra’s CEO Justin Bird noted that a joint venture is a possible part of the deal, while the senior vice president of LNG at Total Energies said low-carbon LNG is key to Europe’s energy diversification strategy.
Singapore’s Eastern Pacific Shipping unveiled its two tankers — M/T Pacific Cobalt and M/T Pacific Gold — which are poised to receive the first carbon capture and filtering systems. This is very exciting news for the shipping industry and marine fuels decarbonization targets, according to the International Maritime Organization (IMO).
Perhaps this all seems a little too positive, so take a look at what happened in Canada this month where the Alberta government was criticized for the way it was controlling the underground space and awarding CCS projects.
Moreover, Saudi Aramco CEO Amin Nasser publicly announced at the World Economic Forum in Davos that underinvestments in hydrocarbons are a symptom of the “flawed transition strategy” that has been underpinned by Covid-19 supply chain effects and the Russia-Ukraine conflict.
Nevertheless, American offshore energy company Talos Energy announced on 25 May 2022 the company’s intentions to expand on CCS facilities in the US Gulf of Mexico by continuing to push for merger and acquisition (M&A) opportunities in USA, Brazil and West.
It was announced on 6 June 2022 that Shell has signed non-binding memorandum of understandings (MoUs) with two of its LNG buyers, Tokyo Gas and Osaka Gas, to explore more opportunities for LNG value chain decarbonization. On the same day, it was alsi announced on 6 June 2022 that the United Arab Emirates’ (UAE) Masdar signed two agreements with Azerbaijan’s Ministry of Energy for the purpose of developing projects in Azerbaijan for onshore wind, solar photovoltaic, offshore wind and green hydrogen. It was reported that this was the largest agreement made in Azerbaijan’s history, with the total production capacity amounting to 10,000 MW. For more information the World Bank Group published a document about the Offshore Wind Roadmap For Azerbaijan
Both ExxonMobil and Chevron announced plans to expand into the Carbon Capture and Storage (CCS) markets with new projects to live up to commitments they have made on getting to Net Zero. Thailand’s PTTEP also announced the country’s first CCS project.
In fact, Exxonmobil and Chevron serve as fantastic examples to explain how vital industry and government collaborations are for a successful energy transition. The two supermajors are both working with Indonesia’s PT Pertima to find adequate solutions for lower-carbon emissions production through carbon capture utilization and storage (CCUS) and promote energy security and independence in Indonesia. Exxon has even proposed building an ASEAN carbon capture network that will connect the entire region with low carbon energy solution to industrial production.
Concluding Thoughts
While many people are focusing on how industrial policies should be viewed in light of climate change, envrionmental protection and the overall detrimental aspects to humanity’s progress from the industrial uses of fossil-fuels, I argue that there is a much bigger picture within this narrative: it’s a paradigm shift about a changing worldview, one with massive implications for Environment, Social, Governance (ESG) and how to re-shape the ideals around the Global Economy, as well as exemplifiying our knowledge-based information society, which should allow for greater understanding of the obstacles for Energy Transition and how it affects different parts of the world.
This writing sought to dive deeply into the latter, because I was focusing on the most pressing issues facing the future questions of industrial policies that are driving the Energy Transition, and how countries are adapting and formulating strategies to meet challenges in the global spectrum of events. Geopolitics are playing a much greater role in many countries’ industrial policies as a result of Russia’s and the United States’ politicization of crude oil, coal and natural gas — arguably the three most important commodities to the world now after the Covid-19 pandemic disrupted energy supplies around the world.
Go to the publication Areas & Producers to read more cases and analyses about the core areas and critical producers for the global economy in the future.
