Freight Boom Fires Buffett Trains, Maersk Ships and Oil Prices

(Bloomberg) — A great global restock is at hand, filling ships, trucks and trains, and also firing oil demand.

During the depths of China’s coronavirus crisis at the start of the year, shipping behemoth A.P. Moeller-Maersk A/S reported an unprecedented number of canceled sailings as the Asian country all but shut itself off from the world. Since then, the company’s shares have surged to the brink of a record in Copenhagen. In the U.S., BNSF Railway Co., the freight giant owned by Warren Buffett, is riding a boom that’s pushed the number of carloads and containers it hauls up year-on-year in recent weeks.

A shift in consumer behavior, particularly in western countries, has driven oil prices above $50 a barrel in the past few weeks. People have been diverting expenditure previously earmarked for now-unattainable things — like holidays and meals in restaurants — toward purchasing physical goods. And that’s only the start of it: stores, warehouses and industries have undertaken a huge inventory restocking phase. As more boxloads of stuff get moved across the planet, so demand for fuel to power ships, trucks and freight trains has soared.

“This is the perfect storm for global container flows,” said Lars Mikael Jensen, head of network at Maersk, which marshals a fleet of almost 700 ships. “The current restocking in the U.S. and Europe raises demand, whilst global measures to contain the pandemic cause severe strain across the supply chain from lack of vessels, containers and trucking capacity.”

While beneficial to oil prices and freight haulers, the boom is straining important transport infrastructure. Bottlenecks are worsening at ports around the world, contorting supply chains for everything from car parts to cosmetics. The recent closing of freight deliveries from France into the U.K. serves as a reminder that things could become even more snarled — but also that the full economic and trade impacts of the coronavirus remain far from certain.

Los Angeles is emblematic of the turnaround in activity. Together with Long Beach, L.A. is a corridor for the import of goods from Asia into the U.S. Earlier this year, thousands of empty containers were sitting at the dock in Los Angeles, a symptom of both trade tensions with China, and Covid. Today, imported goods are now flooding in.

“Right now, what we are grappling with is a change in buying habits,” said Gene Seroka, executive director of the Port of Los Angeles. “Where we were once buying mainly services, now you and I have turned back to buying products and those warehouses need to be restocked. Folks have been ordering so much for delivery, we can’t process it fast enough.”

Exports from China are surging, pushing the country’s trade surplus to a record. The nation’s companies shipped $268 billion of goods in November, a 21% increase year-on-year.

In India, the lifting of lockdown restrictions and a full resumption of intra-state vehicle movement led to a boost in road transport fuel consumption in October, with diesel demand growing more than 7% year-on-year, according to Senthil Kumaran, head of South Asia oil at industry consultant FGE.

Shipping rates are going crazy. Moving a 40-foot steel box by sea from Shanghai to the European trade hub of Rotterdam costs about $6,500 per container, the most for the time of year since at least 2011, according to data from Drewry.

The trends matter for the oil market because trucking accounts for about 16% of global oil consumption and almost half of all diesel demand, according to 2019 data from the International Energy Agency.

The rebound in activity, combined with the onset of Northern Hemisphere winter, has been lifting a previously disastrous market for the fuel for about two months.

Back in September, the so-called crack spread — diesel’s premium to crude — plunged as low as $2 a barrel in Europe.

As well as stuttering demand, a key cause of the diesel-market weakness was a collapse in global aviation. Oil refineries responded to that slump by diverting output of jet fuel into making diesel instead, boosting output when consumption was weak. In addition, because people were often staying off public transport to avoid catching the virus, refineries needed to keep high output levels to service gasoline demand — further swelling diesel supply at a time when it wasn’t needed.

Those dynamics have turned. Last week, the crack spread rallied to $6.28 a barrel. That’s at a time when the underlying price of crude oil has also rallied strongly.

Keep on Trucking

In the U.S., freight by truck is the primary influencer of diesel and viewed as a sign of the health of the wider economy. Interstate miles covered by trucks are up above 9% over last year, while traffic for all vehicles is down more than 10%, federal Department of Transportation statistics show.

A proxy for demand in U.S. is how much of a petroleum product oil refineries supply. And in the week to Dec. 11, they supplied 4 million barrels a day of distillate fuel oil, the category that includes diesel. Back in May, that figure slumped to 2.7 million a day, the lowest in decades, Energy Information Administration data show. Stockpiles remain high but are far less bloated than they were earlier this year.

The pull on diesel can be seen in excess demand for deliveries this year. Data from consultant Freight Waves show that 26% of requests for freight hauling are being turned down this quarter, double the rejection rate from a year ago.

While trucking may be the mainstay of diesel demand, one of the largest U.S. buyers of the fuel — after the Navy — is Buffett’s BNSF Railway. It too reports surging activity.

“We have seen a strong recovery in intermodal volumes as an increase in e-commerce sales drives demand for parcel and truckload intermodal shipments on our network,” said Tom G. Williams, BNSF group vice president consumer products. “As cities and states began reopening, intermodal demand was further supported by recovering brick-and-mortar retailers.”

Current volumes at some of BNSF’s intermodal facilities are as much as 20% higher than they were at this time last year, and the company is continuing to work with its customers to meet a “consistent surge” in demand while replenishing inventories that have been low since the onset of the pandemic, he said.

Even Europe

Over in Europe, the continent’s biggest owner of trucks reports the same dynamics, filling the company’s fleet and boosting usage of diesel.

“There is definitely a new consumer pattern,” said Kristian Kaas Mortensen, an executive at Girteka Logistics, a Vilnius, Lithuania-based owner of more than 7,500 trucks. “Because we can’t give it face-to-face we are shipping it.”

Girteka is so busy that it’s giving overflow business to other trucking companies. It anticipates the busiest year-end in its history.

In Germany, miles driven by large trucks have been steadily rising since September and are currently their highest in a month, according to the nation’s statistics office. Polish heavy traffic in the week to Dec. 20 is about 20% higher than the equivalent year ago. It was a similar picture in the U.K. prior to the country’s most recent set of lockdown rules.

But it’s a surge that’s global and may well be without precedent, according to Gebr. Weiss, a 500-year-old firm that lays claim to being the world’s oldest logistics company.

“Looking back at our history, you could say we’ve weathered a few challenges: a war, a revolution or two but still, in all my years in logistics I’ve never had a year like this,” said Gebr. Weiss board member Lothar Thoma. “Covid choked up, disrupted transport arteries on a global scale, messed the cycles of goods-in, goods-out, be it air, sea, rail or road.”


Exxon Signals Historic Fourth Consecutive Loss on Demand Hit

(Bloomberg) — Exxon Mobil Corp., which is struggling to maintain a $15 billion-a-year dividend program, indicated it incurred a fourth straight quarterly loss.

Exxon confirmed in a filing Wednesday it will take a writedown of as much as $20 billion on its upstream assets, a possibility first disclosed at the end of October. It also reported much smaller non-cash impairments related to its refining business.

There were some positives. Higher oil and gas prices had an impact of up to $1 billion on upstream profits compared with the third quarter. The chemicals segment saw an earnings boost of as much as $400 million due to improved margins. Exxon’s shares were little changed in after-hours trading in New York.

Still, a fourth-quarter loss would confirm Exxon’s challenges in covering both dividends and capital expenditures from operational cash flow, and remains reliant on debt. The last time the Irving, Texas-based company generated enough free cash to cover its payout was the third quarter of 2018, according to data compiled by Bloomberg.

Exxon is set to disclose its full quarterly results on Feb. 2, amid one of the most-punishing periods in the company’s 150-year history. Its stock cratered to a 22-year low during 2020 amid a worldwide glut of oil and collapsing demand that gutted cash flow, spurring widespread job cuts. Exxon was kicked out of the Dow Jones Industrial Average, warned it will incur the biggest writedown of its modern history, and was assailed by activist investors seeking better returns and more climate accountability.

Exxon, which has long prided itself on its decades-long record of annual dividend increases, may have opened the door to changing course in late November, according to Cowen & Co. analyst Jason Gabelman. Whereas company executives touted Exxon’s “reliable and growing dividend” during an October conference call, a Nov. 30 statement announcing writedowns and spending cuts only mentioned its commitment to a “reliable” payout, Gabelman said in a note to clients.

The Cleanest Fossil Fuel Is Set for a Post-Pandemic Rebound Read more at: Copyright © BloombergQuint

(Bloomberg) — Liquefied natural gas traders anticipate a swift demand recovery in 2021 after a year in which the coronavirus pandemic prompted dramatic price swings.

Colder weather in key importing nations, outages at major production hubs and congestion along global shipping routes already have combined to push spot prices in Asia to the highest level since 2014. That’s a more than sixfold jump from a record low in April, making Asian LNG the best performer among major commodities in 2020.

Demand for the fuel used in heating and power generation is growing faster than for any other fossil fuel as nations look for a cheap, reliable and cleaner alternative to coal. The pandemic derailed that growth for 2020, but China and India are emerging as major sources of demand.

“A lot of countries are looking to import LNG,” Tom Holmberg, a partner at law firm Baker Botts LLP in Washington D.C., said by phone. “I still think we are going to see growth in the LNG market.” Below are the key areas likely to shape the market in 2021:

Uneven Demand Recovery

Global LNG imports in 2020 were roughly equal to the previous year, according to ship-tracking data compiled by Bloomberg. That was a big disappointment for an industry that has enjoyed 10% annual growth rate since 2016.
However, global gas demand is expected to resume growth next year. LNG demand, which makes up roughly 10% of the total, may rebound even faster, depending on how Pakistan, India and Bangladesh perform, said Manas Satapathy, a managing director in Accenture’s Energy business.

Shipments of the fuel into Asia have mostly recovered since the height of the pandemic, and the region’s LNG demand will rebound sharply next year, according to S&P Global Platts.

On the last day of 2020, spot Asian LNG price – the Japan-Korea Marker benchmark – rallied above $15 per million British thermal units for the first time since April 2014. “It has been interesting to see how quickly Asian demand seems to have ramped up,” Holmberg said.
The picture in Europe is very different as countries grapple with a new surge of infections and lockdowns that sap energy demand. The continent is headed for a “very neutral recovery” in 2021, according to Satapathy.
Europe mainly relies on storage and pipeline gas shipments, which may be boosted with flows from a new link from Azerbaijan and the controversial Nord Stream 2 project that’s nearing completion.

Supply Woes

Unplanned maintenance at LNG export facilities from Australia to Qatar to Malaysia has led to a tighter than expected market in the second half of the year. And delays in navigating the Panama Canal curbed supplies to Asia. If these disruptions persist well into the year, then prices could remain elevated well above current levels.

The Gas Exporting Countries Forum, which represents 60% of global LNG exports, expects supply to climb by 6% to 7% next year, up from 2% to 2.5% in 2020. LNG trade was much more resilient to this year’s challenges than imports in the fuel’s gaseous form, the group said in its short-term outlook.

The market will likely remain oversupplied next year, according to Vitol SA and Trafigura Group Ltd., two of the biggest trading houses active in LNG. Beyond that they expect the market to tighten.

More Cancellations?

Traders will be watching to see if buyers of U.S. LNG scrap any cargoes next year. About 200 cargoes were canceled in the summer after the pandemic hit spot prices in Europe and Asia. While there’s unlikely to be a repeat of that in 2021, traders do expect some cancellations to help balance the market.

merican gas exports are rising to fresh records every month as new facilities come online. But any dip in demand could force suppliers to shut-in cargoes. The nation has become a swing supplier because its contracts allow for scrapping deliveries, which enables exports to quickly respond to volatile markets.

China-U.S. Relations Trade relations between the U.S. and China will be a key focus. China is the fastest-growing LNG importer, and the U.S. is ramping up exports. There’s few long-term supply deals between the two nations even though LNG was a focus of President Donald Trump.

Joe Biden takes over as president on Jan. 20. A number of proposed U.S. LNG projects are hoping for more normal relations to help them sign deals with Chinese buyers.

“This certainly affects the LNG markets, particularly the LNG coming from the U.S.,” Holmberg said. And with Chinese economy roaring back and offices open, Jack Fusco, chief executive officer of Cheniere Energy Inc, anticipates that “deal making environment looks good for 2021.”

Green Ambition Environmentalists are increasingly looking at natural gas as a major polluter. After years of focusing on coal and oil, they’re turning their attention to how to zero out emissions from all fossil fuels. That shift has suppliers, buyers and shippers thinking green initiatives to clean up activities linked to methane and greenhouse gas emissions.

Half of the carbon footprint in the life cycle of an LNG cargo comes from upstream, Fusco said. The LNG producer is pushing for more transparency on carbon emissions for the fuel.

“Our customers are going to want to be sure that they can validate and audit what we’re telling them our carbon signature is,” he said.

The world’s first supply contract that required a declaration of emissions was signed this year while so-called carbon-neutral cargoes started flowing to China and Japan as nations outline ambitious targets to effectively zero out emissions.

OPEC+ Treads a Narrow Path as Demand Outlook Weakens Again

Producers need to maintain supply restraint amid a sluggish recovery if they’re to shrink stockpiles

The light at the end of the tunnel isn’t getting any closer for OPEC and allied oil-producing countries, as forecasts of the world’s need for their supplies next year are cut again.

The world’s three major oil agencies — the International Energy Agency, the U.S. Energy Information Administration and the Organization of Petroleum Exporting Countries — all reduced the outlook for global oil demand in 2021 in their latest monthly reports. With two of them also increasing their forecasts for non-OPEC crude production next year, the gap that needs to be filled with barrels from the OPEC countries continues to get smaller.

The most difficult period for the producer group will be the first half of the year, before vaccinations against the Covid-19 pandemic are sufficiently widespread to allow governments to lift restrictions on movement and gatherings that have had such a dramatic impact on people’s lives and on demand for oil in 2020.

In a normal year, the first quarter is typically the weakest for oil demand, and 2021 will still be far from normal. The usual early-year weakness will be compounded by the fact that, even in the affluent countries that have secured large quantities of the most advanced vaccines, the roll-out of inoculations will take time. Working-age people outside the key healthcare sector could be among the last to benefit, which may continue to dampen economic activity and energy demand.

All three forecasters see global oil demand in the first quarter of next year remaining between 4.5% and 5% below the level seen during the same period in 2019. Any quarter-on-quarter increase from the current period will be small, with the IEA seeing no growth at all.

In that context, the decision by the OPEC+ group of countries to limit the easing of their output cuts to just 500,000 barrels a day in January, about one-quarter of the initially planned increase, makes sense.

Among the three forecasters, only the EIA saw stockpiles continuing to fall in the first half of next year if the OPEC+ countries had gone ahead with the 1.9 million barrel a day output increase they had originally planned for January (see chart below).

Limiting the output increase to 500,000 barrels a day would suffice to drive the supply/demand balance into deficit, with stockpiles falling at a rate of between 800,000 barrels a day and 2 million barrels a day in 1Q21, according to the three outlooks. Stock draws in the second quarter would be between 1 million barrels and 2.4 million barrels a day and they would increase further in the second half of the year (see chart below).

The Old Plan

How global oil stockpiles would change if OPEC+ eased ouput as originally planned

Limiting the output increase to 500,000 barrels a day would suffice to drive the supply/demand balance into deficit, with stockpiles falling at a rate of between 800,000 barrels a day and 2 million barrels a day in 1Q21, according to the three outlooks. Stock draws in the second quarter would be between 1 million barrels and 2.4 million barrels a day and they would increase further in the second half of the year (see chart below).

The New Plan

How global oil stockpiles would change if OPEC+ doesn’t ease production limits any further after the increase agreed for January

The producer group has retained the ability to make further monthly adjustments to supply targets, either upward or downward, but the latest forecasts suggest that they may want to hold off on any further easing, unless oil demand recovers faster than expected.

Slow Drain

A weaker demand outlook means OPEC sees stockpiles falling more slowly than it did in October, despite a smaller easing of output cuts

Despite keeping a tighter rein on oil supply, the deteriorating global oil demand outlook means that OPEC’s own analysts now expect stockpiles to be higher throughout 2021 than they saw them just two months ago (see chart above). By the end of next year, even with no further easing of output cuts beyond the 500,000 barrels a day agreed for January, the producer group expects global oil stockpiles to be some 670 million barrels higher than they were at the end of 2019.

The goal of bringing inventories back down to more normal levels seems ever more elusive. Since July, when OPEC first began publishing its quarterly forecast for next year, its estimate of global demand over the five quarters from 4Q 2020 to 4Q 2021 has come down by an average 2 million barrels a day, while its assessment of non-OPEC output over the same period has risen by 1 million barrels a day. That combination has cut the anticipated call-on-OPEC crude by an average 3 million barrels a day. OPEC and its allies are going to have to maintain discipline amid supply restraint for longer than they had hoped.

U.S. petroleum stocks nearing normal after wild 2020

Total stocks of crude and products, excluding oil stored in the strategic petroleum reserve, ended the year 6% above the seasonal average for the previous five years, down from a surplus of 14% at the start of July.

Excess petroleum inventories were still in the 74th percentile for all weeks since the start of 1995, on the high side, but down from a surplus in 92nd percentile at the middle of the year.

Total inventories, including the strategic petroleum reserve, have declined in 21 out of the last 26 weeks, by a total of 136 million barrels.

Gasoline and distillate stocks have shown the fastest return to normal while commercial crude stockpiles have faced a more sluggish adjustment.

By the end of December, gasoline inventories had been reduced to almost exactly in line with the five-year average, down from a surplus to the five-year average of nearly 13% in April.

Distillate stocks, which include road diesel and heating oil, had been reduced to a surplus of 7%, down from 29% at mid-year, according to weekly statistics from the U.S. Energy Information Administration.

Commercial crude stocks were still 10% above average, down from 19% in the middle of the year, indicating slower progress (“Weekly petroleum status report”, EIA, Jan. 6).


Oil producers and refiners have adjusted at an exceptionally fast pace following the record shock to oil consumption caused by the first wave of the coronavirus and the associated lockdowns.

On the crude side, excess inventories have been cut by lower output from domestic shale producers and a fall in imports especially from Saudi Arabia.

On the products side, stocks have been cut by slower crude processing and a decision to focus on gasoline at the expense of middle distillates such as diesel and jet fuel.

In final week of December, U.S. refineries processed 14% less crude than average for the previous five years, even though domestic consumption was down by just 7%.

Processing restrictions are likely to persist in for the next 2-3 months which should ensure stocks of products end the first quarter below average.

Lower product stocks will support higher refining margins and a sharp increase in crude processing during the second quarter.

Based on futures prices, refining margins for gasoline and distillate delivered at the end of the second quarter have already risen by 40% and 60% from their post-crisis lows.

The principal risk to rebalancing comes from a resurgence in coronavirus and the possibility of new lockdowns to contain it, which could force fresh cuts in margins and processing.


Consumption of petroleum products has recovered strongly, ending the year 7% below the five-year average up from a deficit over 30% at one point in April.

The strongest rebound has come in distillate, where consumption ended the year running above the five-year average.

Distillate use is closely linked to the business cycle, especially manufacturing and freight transportation, so it has bounced back in line with the surge in manufacturing.

The resurgence in diesel use is consistent with the widespread reactivation of manufacturing reported in the Institute for Supply Management’s monthly surveys and the Federal Reserve’s industrial production index.

Gasoline consumption has also recovered, ending the year 10% below the five-year average, but improvement has stalled and even reversed since the end of third quarter, when consumption was down 5%.

Gasoline consumption has been hit by the new wave of coronavirus infections and reimposition of travel restrictions and work from home orders.

The worst-affected segment remains jet fuel, however, where consumption ended the year 35% below the five-year average as a result of international travel restrictions and nervousness about flying during the epidemic.

But the reduction in excess distillate inventories and the strength of diesel demand is encouraging refiners to end their focus on gasoline production and target a more normal distribution of product outputs.

U.S. refiners boosted their combined production of distillate and jet to 74% of their output of gasoline in the final week of the year, up from a recent low of just 55% in mid-October.

If manufacturing and freight transport remain strong, while private motoring is hit by renewed coronavirus controls, refiners will shift to prioritise distillate consumption by the end of the first quarter.

Oil Rises From the Ashes as the Big Coronavirus Recovery Trade

Brent crude topped $50 a barrel last week for the first time since March, a milestone for an oil market that’s been grinding its way back out of a deep slump for months.

Things aren’t back to normal yet, but the positive signals are proliferating. The enormous glut of fuel that accumulated this year on everything from tiny barges to giant supertankers is being steadily depleted.

While the coronavirus pandemic is worse than ever in the U.S., demand in Europe is bouncing back as a second wave of lockdowns eases and Asia continues to pull in huge volumes of crude.

But there’s more to this than a realignment of supply and demand — huge financial flows are also driving the price rally. In a world that’s expecting to see travel recover sharply next year, crude has become a hot Covid-vaccine trade.

“Oil is the cheapest of all reflation assets,” said Amrita Sen, co-founder of London-based consultant Energy Aspects Ltd. “With vaccines slowly rolling out, we expect investors to start returning to the oil sector and for prices to continue firming.”

In some corners of the world, the recovery in demand is almost complete. India’s largest refiner said last week its plants are processing at full capacity and it’s expecting a v-shaped rebound in fuel use. Consumption of gasoline is also at or near pre-Covid levels in China and Japan, the world’s second and fourth biggest oil consumers.

European motorists are hitting the roads again as governments relax national lockdowns in countries including the U.K., Spain, and France, according to an index of road usage and traffic compiled by Bloomberg News. Road freight is sharply higher as companies rebuild inventories and the Christmas shopping season gets in full swing.

As demand is recovering, the Organization of Petroleum Exporting Countries and its allies are keeping tight limits on production. The group canceled January’s 1.9-million-barrel-a-day supply hike and will instead add no more than 500,000 barrels a day to the market each month in the new year. Estimates for U.S. shale oil output are still falling.

Cargoes of crude are changing hands at higher prices from the North Sea to the U.S. shale heartland of Midland, Texas as consumers trawl the globe for extra supplies. Saudi Arabia raised the cost of its oil for Asia — a benchmark for the world’s refiners — by the most since August last week.

Hot Money

A more subtle shift in the market has also got traders excited. For most of December, nearby crude futures have been trading at a premium to later-dated ones, a price structure known as backwardation.

That buying of contracts at the front of the so-called price curve is evidence that managed money is flowing into the market, Eagle Commodities said in a note. The steeper the backwardation, the greater the return from holding futures from one month into the next, which encourages further buying in a “self-reinforcing cycle,” the brokerage said.

In recent weeks, cash has poured back into energy markets. Holdings of energy contracts rose by $3.6 billion through early December, according to JPMorgan Chase & Co., driven by inflows into Brent and West Texas Intermediate. Investors pumped money into U.S. exchange-traded energy funds last week, with a swing of almost $400 million from the prior period’s outflows.

Price Risks

“Right now, oil has priced in that promising future,” said Victor Shum, vice president of energy consulting at IHS Markit Ltd. in Singapore. “While we have to deal with the immediate dark Covid winter.“

There are reasons to think $50 could be oil’s ceiling for now. The price could tempt producers from Baghdad to Oklahoma to increase production. There are already tensions within OPEC+, with some members chafing at the cartel’s self-imposed supply limits.

The backwardation that’s attracting speculators could also draw real barrels into the market, because the price structure isn’t profitable for any traders still storing physical crude.

On the west coast of South Africa, a supertanker loaded oil from the tanks at the Saldanha Bay storage terminal earlier this month before sailing to Asia. It’s a reminder that there are still plenty of barrels left over from the spring surplus.

Relentless Asian buying may pause at some point, especially with Lunar New Year celebrations starting in early February. Higher-cost crude will start to dampen the profitability of refiners in the region. A standard refining process in Singapore is now loss-making when using five of the eight oil grades tracked by Oil Analytics Ltd.

For now, positive trends in fuel consumption are buoying traders’ desire for both real and paper barrels. And there could be more hot money coming down the pipe.

At the start of 2021, billions of dollars of commodities investments will be affected by a broader rebalancing of portfolios. The move could attract $8 billion of inflows into Brent and WTI futures, according to Citigroup.

“There’s been a distinct shift in the financial oil market,” said Michael Tran, an analyst at RBC Capital Markets. Speculators are buying futures and holding onto them, scared that they’ll miss out on a further rally, he said.

— With assistance by Sarah Chen, and Sharon Cho

IGU stresses key role of natural gas in world’s sustainable energy future

The International Gas Union (IGU) has welcomed analysis in the International Energy Agency’s latest World Energy Outlook (WEO), demonstrating the vital economic and environmental role natural gas will play in a sustainable energy future.
In this year’s Stated Policies Scenario (STEPS), the share of natural gas in global primary energy demand expands to about 25% by 2040. Gas will also retain a critical role in the Sustainable Development Scenario (SDS), retaining the 23% share in energy in two decades’ time that it held last year.
The WEO also states that “There is a robust long-term case for gases in the energy system. In the SDS, there are services that gases provide that it would be difficult to provide cost effectively using other sources. These include high temperature heat for industry, winter heat for buildings and seasonal flexibility for power systems.”
Furthermore, “gas infrastructure is a valuable asset that can be repurposed over time to deliver large volumes of bio-methane or, with modifications, low-carbon hydrogen.”
IGU President, Professor Dr Joe M Kang, said the report again confirms the critical role gas will play in the global energy transition.
“Natural gas is a clean and versatile energy source that unlocks an opportunity for the planet to reliably meet the globally growing energy demand, reducing GHG emissions and urban pollution and allowing economies to grow,” Kang said.
“Gas demand has fared better than oil and coal amid the continuing fallout from the Covid-19 pandemic. The WEO recognises that without structural changes in the way energy is produced and consumed and prudent policy choices, the emissions reductions seen this year will be short-lived. The gas industry has a critical role to play.
“Switching to gas from dirtier fuels, like coal, oil, or conventional biomass is possible now and can be achieved quickly, with immediate benefits of cleaner air, safer environment, cut emissions, and solid path to the integration of clean technologies for continued reductions in emissions.”
Further findings and projections relating to the natural gas market in the WEO include:
n Natural gas demand will decline by only 3% in 2020 as a result of the Covid-19 pandemic, proving more resilient than oil and coal, which will see annual falls in consumption of 8% and 7% respectively. Less gas use in commercial and public buildings has been offset by increased residential consumption, while the decline in industrial demand was mitigated by fuel switching.
n In STEPS, global gas demand will expand by 15% by 2030 from the 2019 level, and by 30% by 2040. This growth will be driven by gains in south and east Asia, supported by competitive prices, a push to improve air quality and manufacturing growth.
n Even in a ‘delayed recovery scenario’, gas demand recovers to the pre-pandemic level in 2024, and climbs 24% by 2040.
n Significant investment in new gas infrastructure will also be key, with the IEA predicting that $70bn will be needed annually.
n While China and India will account for around 45% of the demand increase over the next decade, growth will also be robust in Southeast Asia and the Middle East.
n In carbon-intensive economies, gas use can reduce emissions by replacing coal. In countries planning a pathway to net-zero emissions, the gas industry will need to demonstrate progress in methane abatement, via alternative gases such as bio-methane and low-carbon hydrogen, and technologies like carbon capture, utilisation and storage.

Gas is natural partner of the world in recovery: GECF

The Peninsula

Doha: Natural gas embodies all the attributes required to achieve the multidimensional challenges of environmental protection, energy access, and affordability in a world stepping onto the road of recovery, the Secretary-General of the Doha-based Gas Exporting Countries Forum (GECF) Yury Sentyurin has said at the 7th IEF-IGU Ministerial Gas Forum, which was hosted virtually by the Malaysian government recently.

“As the world reaches the end of the pandemic tunnel, it will need an energy partner that can help prevent environmental degradation, ensure a stable and uninterrupted supply of energy, and bring affordable and reliable energy for all. Natural gas is that partner,” said Sentyurin.

He added: “The GECF member countries are amongst the lowest cost producers globally and are able to weather the current storm, or any other. We understand our duty to the world and are committed to strengthen global energy security as reliable suppliers of this important energy source. Natural gas will become the leading source in the global energy mix by mid-century, increasing its share from currently 23 percent to 28 percent”.

During the event, the Minister of State for Energy Affairs and President and CEO of Qatar Petroleum, H E Saad Sherida Al Kaabi also struck a positive chord by maintaining that the gas industry, particularly LNG, has several milestones yet to achieve.

“I believe the economic and environmental realities of the post-COVID-19 era will help to increase the competitiveness of LNG and I have no doubt that the best for the LNG industry is yet to come,” said Al Kaabi.

The high-level gathering embraced the exponential growth of natural gas since the first edition in 2008 and highlighted the role of natural gas as it pertains to strengthening energy security and facilitating an orderly energy transition in an increasingly carbon constrained world.

Most of the energy ministers who spoke during the day-long conference – from India to Qatar to Malaysia – pinpointed Asia as the main demand node for natural gas on the back of rising populations, environmental pledges, and phasing out of coal. Currently coal meets 47 percent of Asia’s energy consumption, while natural gas provides just 12 percent of primary energy consumption in the world’s largest region.

According to the GECF Global Gas Model, ASEAN and East Asia countries’ energy needs will account for around 60 percent of global energy demand increase between today and 2050. This growth will account for 42 percent of the global gas increments within the outlook period, driven by China, India, emerging markets such as Bangladesh, Pakistan, and a few others in South East Asian countries.

“Increasing Asia’s share of gas energy consumption to 20 percent would add the equivalent of more than 400 million tonnes of liquified natural gas (LNG) to annual gas demand, almost doubling the size of the LNG market,” said H E Tan Sri Muhyiddin Yassin, Prime Minister of Malaysia, in his inaugural address. Malaysia – a member of the GECF coalition – is the fifth largest exporter of LNG in the world, delivering over 11,000 cargoes since 1983. But now the country is reimaging the role of natural gas.

According to India’s Minister of Petroleum & Natural Gas and Steel, H E Shri Dharmendra Pradhan, the demand for natural gas and other energies in the world’s second populous nation has already returned to pre-COVID-19 levels.

“I’m happy to mention that the energy demand in India, particularly of the petroleum products and natural gas, has returned to pre-Covid-19 level. As the third largest global energy consumer, I am confident that India will continue to remain a key global energy demand centre, particularly for natural gas,” added Pradhan.

Meanwhile, ministers from Nigeria, Egypt, Azerbaijan and Iraq further discussed the opportunities that exist in growing gas markets and various policy pathways to achieve net-zero emissions in two sessions of the meeting.

Announcing that major oil exporter Iraq will increasingly switch to natural gas to generate power for its citizens, Minister of Oil H E Ihsaan Abdul Jabbar, said: “Our target is to utilise more and more gas, from associated gas fields and from free fields, to use it as a fuel for power generation for all of Iraq. This is our priority.”

Other ministers at the Ministerial Gas Forum joined from Bangladesh and Bahrain, including the Secretary of Energy from the United States of America, and ministers’ representatives from Brunei Darussalam, Canada, Morocco, Turkey and Kingdom of Saudi Arabia. Amongst the private sector were Total, Tellurian, Royal Dutch Shell, Dana Gas, Eni, to name a few.

China set to bail out Iraq with multibillion-dollar oil deal

Baghdad: Iraq is poised to sign a multibillion-dollar contract with China ZhenHua Oil Co., a bailout from Beijing for the cash-strapped government which will receive money upfront in exchange for long-term oil supplies.

The deal is the latest example of China, via state-controlled trading companies and banks, lending to struggling oil producers such as Angola, Venezuela and Ecuador, with repayment in the form of oil barrels rather than cash. This year’s crash in oil prices has hammered Iraq’s budget and the government has failed to pay teachers and civil servants on time.

The Iraqi agency in charge of petroleum exports, SOMO, picked ZhenHua after asking oil traders for bids, according to people familiar with the matter. Cabinet spokesman Hassan Nadhim said on Tuesday there had been “several offers” and they were being studied before Prime Minister Mustafa Al-Kadhimi makes the final decision.

Upfront payment

Under the terms of a letter SOMO sent last month, the winning bidder will buy 4 million barrels a month, or about 130,000 a day. They will pay upfront for one year of supply, which at current prices would bring in more than $2 billion, according to Bloomberg calculations. The deal runs for five years – but the upfront payment is only for one year.

The deal attracted widespread interest among major oil traders, according to the people. The deadline for the tender was extended from late November to allow companies more time to bid.

ZhenHua Oil didn’t reply to an email seeking comment that was sent to its headquarters in Beijing after normal business hours on Tuesday.

All major producers have taken a hit from oil’s coronavirus-triggered plunge. But Iraq, where crude accounts for almost all government revenue, is in a worse position than most. Its economy will contract 12% this year, more than that of any other OPEC member under a production quota, according to International Monetary Fund forecasts.

Thousands of Iraqis have taken to the streets in recent months to protest about worsening living conditions. The government has struggled to fulfil its commitments to the Organization of Petroleum Exporting Countries, which agreed at the height of the pandemic in April to cut output. Baghdad has pumped above its cap on several occasions, angering OPEC’s de facto leader Saudi Arabia.

Rare deal

Energy-rich nations short on revenue have often relied on pre-payment deals to raise money, but Baghdad hasn’t done so until now. The semi-autonomous Kurdistan Regional Government in northern Iraq has used similar contracts in the past, as have Chad and the Republic of Congo.

In a pre-payment deal, the oil buyer effectively becomes a lender to the country. The barrels are security for the loan.

Iraq’s woes make it harder for the government to raise money more conventionally, such as through the bond market. The country’s dollar yields average 7.5%, one of the highest levels for any sovereign. Goldman Sachs Group Inc. said this week that Iraq was among the most vulnerable bond issuers heading into 2021.

The pre-payment part of Iraq’s contract is one of the largest in recent history, although less than the record $10 billion that Russia’s state-run Rosneft raised in 2013 from trading houses Vitol Group and Glencore Plc.

Besides its size, the Iraqi deal is rare because it allows the winner to ship crude to wherever it wishes for a year. Normally, Middle Eastern crude is sold with strict clauses preventing traders and refiners from re-selling the barrels to different regions.

The exclusion of that clause was probably seen as advantageous enough to compensate for the fact the pre-payment money is effectively interest-free for Iraq. A country usually pays a yield for the cash it receives upfront.

Revitalize China

ZhenHua produces and trades oil. The company has played a large role in Beijing’s so-called “going global” policy for energy. It has invested in oil concessions in the United Arab Emirates, Kazakhstan and Myanmar, and trades crude originating from the likes of Kuwait, Brazil and the Republic of Congo.

The company was founded in 2003 as a subsidiary of the largest Chinese state-owned defense contractor, known as Norinco. According to its website, ZhenHua trades about 1.3 million barrels a day of oil and finished products.

Other major Chinese traders include Unipec, Chinaoil and Sinochem. Shrouded in relative secrecy in the past, these state companies are gaining prominence as China’s oil consumption rises. It’s set to soon overtake the U.S. as the world’s largest crude importer.

ZhenHua, meaning “Revitalize China” in Mandarin, started a joint-venture with SOMO to market barrels into China in 2018, though it was later scrapped.


OPEC+ panel discusses weaker oil demand outlook, Libya supply rise, sources say

LONDON (Reuters) – An OPEC+ technical committee discussed on Thursday higher oil supply as production resumes in Libya amid a weaker demand outlook due to a second wave of coronavirus infections, two OPEC+ sources said.

The Joint Technical Committee (JTC), which includes representatives from key OPEC+ producers such as Saudi Arabia and Russia, was meeting to review compliance with global oil output cuts and to review the oil market.

The group had 102% compliance with its production cuts in September, two OPEC+ sources told Reuters.

On Thursday, OPEC Secretary General Mohammad Barkindo told a conference that demand was recovering at a slower pace than expected.

“We have to be realistic that this recovery is not picking up pace at the rate that we expected earlier in the year,” he said. “Demand itself is still looking anaemic.”

OPEC+ delegates discussed the slow demand recovery in the fourth quarter of this year, when seasonally it was expected to rise, one of the sources said.

The panel also discussed OPEC data showing a stocks overhang throughout 2021, with OECD inventories at 301 million barrels above the latest five-year average in the last quarter, compared with 245, 181 and 173 in the first three, the source said.

OPEC+ – producers from the Organization of the Petroleum Exporting Countries (OPEC) and others including Russia – have been reducing output since January 2017 in a bid to balance the market, support prices and reduce inventories.

They are currently curbing production by 7.7 million barrels per day (bpd), down from 9.7 million bpd, and are due to taper their production cuts by 2 million bpd in January.

But Thursday’s bearish demand outlook and rising supply from Libya mean OPEC+ could roll over existing cuts into next year and delay easing the reductions, OPEC+ sources say.