What Brazil's OPEC+ Invitation Means for Global Oil Markets
A full analysis of Brazil's oil demand, supply, imports, and exports
On Today’s Energy Shots:
Weekly Energy Industry News Recap
What Brazil’s invitation to OPEC+ means for oil markets (and Brazil)
Weekly Energy News Recap:
Phillips 66 & Elliot Investment Management
Elliot Investment Management revealed a $1B stake in Phillips 66 while criticizing the firm’s performance in refining and operations.
Elliot’s letter states the investment group sees an opportunity for a 75% upside from the current share price to over $200/share. The letter cites high operating expenses relative to peers ($2.30/bbl to Valero in 2022) and poor execution of cost-reduction measures in the Phillips 66 2019 AdvantEdge66 program.
Phillips 66 is the third-largest independent US refiner. Shares climbed over 3% to $122.22/share on the news.
US Accelerates SPR Returns, Proposes Purchase
The U.S. Department of Energy announced an accelerated schedule for returning 4 million barrels of oil to the Strategic Petroleum Reserve. Originally, these oil volumes were set to be returned by summer ‘24, but the new timeline requires their return by February.
The DoE added plans to purchase up to 3 million more barrels of oil by February.
In October, the DoE released the following statement:
The U.S. Department of Energy’s (DOE) Office of Petroleum Reserve announced that that it will post monthly solicitations to purchase oil for the Strategic Petroleum Reserve (SPR) through at least May 2024, beginning with a solicitation for up to 6 million barrels of oil for delivery in December 2023 and January 2024. DOE will purchase oil in those months where it can do so at a good deal for taxpayers: a price of $79 dollars per barrel or below…
India Races to Expand Coal-Gen Capacity
India aims to expand its coal-fired power generation capacity by 17 GW in the next 16 months to accommodate a record rise in power demand. Coal powers 73% of the country’s total generation. India plans to add 3 GW in coal-powered generation over the next four months and 14 GW after April 1, 2025.
Officials expect 28 coal generation plants to come online in the next 18 months out of 38 delayed projects. The country hopes to meet 384 GW of demand with coal-fired generation by FY 2031/32.
US Steps Up Iranian Sanctions
The U.S. Treasury Department announced fresh sanctions on 21 Iranian parties. The Treasury says the sanctions applied to individuals and entities that benefitted Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL), the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF), and the Iranian Armed Forces General Staff (AFGS).
Firms implicated in the sanctions:
Sepehr Energy (Iran), Pishro Tejarat Sana Company (Iran), Puyuan Trade Co. (Hong Kong), HK Sihang Haochen Trading Ltd. (Hong Kong), Unique Performance General Trading (Dubai), OPG Global General Trading (Dubai), JEP Petrochemical Trading (Dubai), Future Energy Trading (Dubai), Tetis Global FZE (Sharjah), Royal Shell Goods Wholesalers (Sharjah), A Three Energy FZE (Dubai), Transmart DMCC (UAE), MSE Overseas PTE Ltd. (Singapore), Sealink Overseas PTE Ltd. (Singapore), Solise Energy (UAE)
India’s Economic Growth Beats Expectations
India's GDP grew faster than expected in the July-September quarter of 2023, registering a 7.6% growth, exceeding the Reserve Bank of India's estimate of 6.5% but lower than the previous quarter’s 7.8%. This growth was primarily driven by strong manufacturing growth, which surged 13.9% year-on-year vs 4.7% in the previous quarter.
Government spending climbed 12.4% YoY in the latest quarter vs a 0.7% contraction in the three months prior. Private consumption growth slowed to 3.1% YoY from 6%.
India’s growth averaged 7.7% between April and September.
The Chief Economic Adviser of India indicated that while strong tax collections suggest robust economic activity, the official growth projection remains at 6.5%
New York Offshore Wind
New York launched a new offshore wind solicitation to support its renewable energy goals, targeting 70% electricity from renewable sources by 2030 and developing 9,000 megawatts of offshore wind by 2035.
Challenges to the solicitation include no operational offshore wind farms in New York yet, financial difficulties for developers due to inflation and supply issues, and $5 billion in writedowns by Orsted, Equinor, and BP on U.S. offshore wind projects.
NYSERDA says the solicitation is open to all, including those with existing contracts, allowing renegotiation at higher prices.
NYSERDA recently awarded to Attentive Energy One (TotalEnergies [France], Rise Light & Power [NY], Corio Generation [UK]), Community Offshore Wind (RWE [Germany], National Grid [UK]), and Excelsior Wind (CIP Vineyard Offshore [Denmark]). The three projects are expected to start generating power by 2030 and add roughly $3/month to customer bills over the project’s lifetime.
New York has committed ~$300 mm to offshore wind component manufacturing through GE Vernova.
US EPA Targets Methane Emissions
At this weekend’s COP28 conference, Vice President Kamala Harris announced new regulations on methane emissions via the U.S. EPA. The EPA’s new policy includes a ban on routine flaring of natural gas at newly developed wells and requires remote monitoring of large methane releases via a third-party system. The Super Emitter Program will notify the EPA directly of leaks.
From the EPA’s statement:
The final rule includes a comprehensive suite of pollution reduction standards that address the largest sources of methane and other harmful pollutants at oil and gas facilities, including methane that leaks or is vented from equipment and processes. Among other things, the final rule will:
• phase in a requirement to eliminate routine flaring of natural gas that is produced by new oil wells;
• require comprehensive monitoring for leaks of methane from well sites and compressor stations, while giving oil and gas companies flexibility to use low-cost and innovative methane monitoring technologies; and
• establish standards that require reductions in emissions from high-emitting equipment like controllers, pumps, and storage tanks.
What Brazil’s Invitation to OPEC+ Means for Oil Markets
Thursday’s OPEC+ meeting resulted in two changes to the global oil market in 2024.
First, OPEC+ announced 2.2 million barrels per day of voluntary cuts between January 1st and the end of March 2024.
Second, OPEC+ announced a formal invitation to Brazil to join the broader alliance of oil producers in 2024. Brazil’s energy ministry and Petrobras’ chief signaled the country would likely accept the invitation pending a formal review of its charter for cooperation. Petrobras’ CEO Jean Paul Prates added that the country would not participate in the OPEC+ output quotas, as the state-run firm is publicly traded.
We would never be part of an organization that imposes quotas to Brazil, Petrobras is a publicly-traded company and we cannot have quotas.
Jean Paul Prates
If Brazil won’t participate in output quotas, what is the impact on global oil markets and Brazil’s crude industry?
Today’s Energy Shots evaluates Brazil’s contribution to global oil supply and demand dynamics. This article includes data on Brazil’s production capacity, refinery capacity, market competition, top import/export partners for crude and refined products, domestic energy mix, domestic refined product demand forecasts, and international oil demand forecasts. We conclude with an analysis of what Brazil gains from OPEC+ membership as a simple observer, including a breakdown of Russia’s influence on Brazil’s top exports by revenue.
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