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Putin Says Nord Stream Will Restart – With Conditions

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Russian President Vladimir Putin signalled that Europe would start getting gas again through a key pipeline but warned that unless a spat over sanctioned parts is resolved, flows will be tightly curbed.

Europe is on tenterhooks, waiting to see whether gas flows resume on Thursday when maintenance on the Nord Stream pipeline is set to end. Putin gave the clearest signal yet that Moscow plans to restart at least some flows. But if a pipeline part that was caught up in sanctions isn’t returned to Russia, then the link will only work at 20% of capacity as soon as next week — as that’s when another part that’s now in Russia needs to go for maintenance via pipe fabrication, Putin said. After frantic diplomatic efforts by Germany, the turbine is on its way home from Canada.

“If another comes, two will operate. If not, just one, so 30 million cubic meters will be pumped per day,” Putin told reporters after a summit in Iran late Tuesday. He wants the part back in Russia, along with all its paperwork, he said. Currently, no gas is flowing through the biggest pipeline to Europe because of maintenance, just as the continent is trying to refill its storage for winter. Before maintenance, gas was flowing at about 40% of capacity. Gazprom PJSC is poised to restart flows, Bloomberg reported on Tuesday, but at reduced levels, according to people familiar with the situation. Ultimately, it’s a decision for the Kremlin. Across the region, officials and businesses have been on edge as to whether Russia will reopen the tap for Nord Stream. The European Union is working on the assumption flows will be cut and scrambling to find ways to reduce consumption. The bloc is facing its worst energy crisis in decades, with the threat of shortages undermining the euro and adding to the risks of recession.

Governments have been racing to secure alternate supplies after Russia invaded Ukraine in February, sparking a wave of EU sanctions and retaliatory measures from Moscow. Officials are aware the clock is ticking toward the colder months when European gas demand for heating is high. “What Gazprom is going to do tomorrow is your best guess as well as ours,” said European Commission spokesman Eric Mamer, referring to Russia’s state-run supplier. “What is clear is that when we are preparing winter contingency plans, we base ourselves on the worst possible scenario.” Even before the works, Gazprom slashed deliveries through the pipeline, citing technical issues at a separate asset that compresses gas for the link. Earlier this year the company cut supplies to some EU countries over a pay dispute, and more recently it declared force majeure on shipments to several European buyers.

Near Russia’s Baltic coast, Gazprom’s Portovaya compressor station is where gas supplies start their 745-mile journey to Germany through Nord Stream. Russia cited issues with the station — a separate legal entity from the pipeline, with different ownership — when it cut supplies last month. Portovaya has six major gas turbines, enabling it to build sufficient pressure to send gas over such a long distance. Only two of those units were operating before Nord Stream shut for maintenance earlier this month, according to Gazprom. The other components needed to be serviced with regard to steel fabrication by their manufacturer, Siemens Energy AG. One turbine got stranded in Canada — where it was being repaired — due to Ottawa’s sanctions against Moscow. Canada released the component to Germany, following calls from Berlin, and other turbines can now go for similar work. But there’s no clarity on when this might happen, and no details on the remaining two turbines or their condition.

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Calgary Stampede Returns with Oil Boom Vibe

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The biggest party in Canada’s oil patch is staging a comeback this year, fueled by soaring energy prices and a population eager to mark the end of two years of pandemic lockdowns. The 110-year-old Calgary Stampede is pulling out every nostalgic stop, from chuck wagons, to rodeos, to tapping movie cowboy Kevin Costner as parade marshal. Long a barometer of the Canadian oil sector’s health, this year’s festivities take place as oil trades above $100 a barrel, helping the province of Alberta post its first budget surplus in seven years.

Whether it also marks a last hurrah for the industry is an open question. Longer-term, Canada’s oil sector is facing an existential challenge as the world shifts away from fossil fuels and investors shun the spending excesses of the past. “I am expecting this stampede will be good because people are tired of being cooped up,” said Vern Kimball, who served as chief executive officer of the stampede during the most recent oil run-up from 2006 to 2015. But oil companies understand that high prices “come and they go,” sometimes in a matter of months, he said. “People in the oil patch are talking about paying down debt and returning money to shareholders.”

That’s a far cry from past decades, when global energy companies invested billions in the oil sands and investment banks vied to host the biggest and best stampede events. Invitation-only parties like FirstRowdy, hosted by FirstEnergy Capital Corp. — now Stifel FirstEnergy — became legendary for attracting thousands of boisterous attendees, rivalled only by Firewater Friday, thrown by Peters & Co. Ltd. Entry donations went to charities, helping the community as well as generating business at a time of massive deal flow, Brett Wilson, a FirstEnergy founder, said by phone. “We were raising hundreds of thousands of dollars off what was usually just a drunk-fest.”

Today things look a bit different. Stung by years of depressed oil prices, Calgary-based companies (including heavy steel fabrication companies) are being disciplined even as commodity prices roar higher. FirstRowdy hasn’t returned since it was cancelled in 2016 although Peters & Co.’s event will be back this year. Following a much-slimmed-down version of the stampede last year, and a complete cancellation of the event in 2020, organizers are expecting more than a million visitors in 2022, in line with pre-pandemic stampedes.

Companies including oil sands producer Suncor Energy Inc. and pipeline giant TC Energy Corp. are sponsoring fairground days as well as parties and pancake breakfasts for employees. Cenovus Energy Inc. signed a new four-year sponsorship agreement that includes sponsoring the “Saddle Bronc,” in which a rider tries to stay on a bucking horse at the daily rodeo, and is holding its first in-person event for staff in two years. “There is a huge buzz going on in the city,” organizer Robert Laidlaw, of Acumen Capital Partners said. “Things are better for the energy sector and people have been pent up for three years now and can finally go out and have some fun.”

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Environmental Group Seeks Injunction for Scarborough Project

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In a similar case to the Santos Gas Project controversy, Australian energy company Woodside is facing a legal challenge from the Australian Conservation Foundation (AFC) which is seeking an injunction to restrain Scarborough gas project activities. The AFC has asked that the project be halted until new federal Environment Minister Tanya Plibersek has assessed whether the operation will damage the Great Barrier Reef by exacerbating climate change. According to the documents filed in court, predicted emissions from the project would cause global temperatures to rise by nearly 0.0004 degrees Celsius, “which will result in the deaths of millions of corals during each future mass bleaching event”.

The Scarborough field is in the Carnarvon Basin 233 miles off the coast of Western Australia and is estimated to contain 11.1 trillion cubic feet of dry gas. The project was sanctioned in November 2021 and will make use of metal fabrication, pressure vessels and other heavy equipment. The development of the Scarborough field comprises 13 subsea wells, a semi-submersible floating production unit, and a subsea export pipeline to Pluto LNG. Field development will be completed in two phases with eight wells drilled in Phase 1. The upstream production facilities will be installed to supply 8 Mtpa LNG and 180 TJ/day of domestic gas. The semi-submersible floating production unit will be built and delivered by McDermott and the first LNG cargo from the project is set for 2026.

The Scarborough Project has been the subject of rigorous environmental assessments by a range of regulators including the National Offshore Petroleum Safety and Environmental Management Authority, the Commonwealth Department of Agriculture, Water, and the Environment as well as from the Western Australian Environmental Protection Authority, Woodside explained. “The Scarborough Project is underway and proceeding to schedule after receiving all primary environmental approvals,” Woodside CEO Meg O’Neill said. “The project will deliver significant local and national benefits in the form of employment, tax revenue, and reliable gas supply in the energy transition for decades to come. Woodside will vigorously defend its position in these proceedings”, she added. Woodside said gas produced by the project would generate enough electricity to power 10 times the number of homes in Perth, and it would do that with emissions of about half of what would be generated by coal.

The ACF does not see it that way and made a statement regarding the Scarborough project on its social media channels earlier this month. “This is absolutely not the time to be approving new gas or coal projects – it is completely at odds with effective climate action. “Woodside’s Scarborough gas project is a massive carbon bomb that would add to damage climate change is doing to our reefs – it should not proceed,” ACF said on Twitter. This news regarding legal action against Scarborough comes only days after Australia joined the ‘coal-free’ club and decided to invest $3.8 billion in new green power infrastructure. The country’s government also decided to increase Australia’s national 2030 emission reduction target from 26-28 percent to 43 percent just last week.

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Indigenous Australians Seek to Block Santos Gas Project

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A group of Indigenous Australians has filed a lawsuit seeking to stop Santos Ltd from developing a $3.6 billion gas project off northern Australia, saying they were not consulted about the drilling. Tiwi Islanders from the Northern Territory’s Tiwi Islands are claiming they have not been adequately consulted about Santos’ Barossa gas project, the pipeline of which will run through Tiwi Sea country. Therefore, Senior Tiwi Traditional Owner, Dennis Tipakalippa, is taking the federal offshore oil and gas regulator National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) to court to challenge its decision to approve Santos’ plan to drill the Barossa gas field, saying he and his people were never consulted about the drilling.

“It’s all about our future generations. That’s what I worry for. What are they going to have, who are they going to be? Our lives are not just lived on the land, but in the sea – this home that we have loved for thousands of generations,” Tipakalippa said. Both Santos and NOPSEMA declined to comment on the lawsuit. NOPSEMA referred to its approval of the project, which said “consultation has taken place with relevant persons as required”, including with community-based bodies such as the Tiwi Land Council and the Northern Land Council. The move by the traditional owners comes after a South Korean court last month dismissed their application to block Export-Import Bank of Korea and Korea Trade Insurance Corp from providing loans for the Barossa project’s pipeline.

The Barossa gas field is located 300 kilometres offshore Darwin in Australia. It is operated by Santos with South Korea’s SK E&S as a partner and is due to start producing gas in 2025. Santos sanctioned the $3.6 billion gas and condensate project in March 2021, also kick-starting the $600 million investment in the Darwin LNG life extension and pipeline tie-in projects to extend the facility life for around 20 years. The Barossa development concept includes an FPSO vessel developed using steel fabrication with a processing capacity for up to 800 million standard cubic feet per day (MMSCFD) of gas and a design capacity of 11,000 barrels per day of stabilized condensate, a subsea production system, supporting in-field subsea infrastructure in the Barossa field, and a subsea gas export pipeline.

In the latest case, the traditional owners allege the drilling will threaten their culture, way of life and food sources, affecting the breeding patterns and nesting grounds of turtles, dugongs and whales. Santos was required by law to consult with people who might be impacted by the drilling plans and since the company failed to do that, the decision by NOPSEMA is invalid, the lawyers for the Traditional Owners said. Santos said in March that it undertakes consultation with all key stakeholders for all of its projects.

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Palantir and Trafigura to Track Carbon Emissions for Oil Industry

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Palantir Technologies Inc and Trafigura have set sights on a new market, their chief executives told Reuters: tracking, calculating and reporting carbon emissions across the oil and gas sector. The companies are building a platform for oil majors and other commodities firms to vet the environmental impact of their supply chains, applying Trafigura’s data to Palantir’s operating system, known as Foundry.

The effort represents a particularly lucrative long-term opportunity at a time when Palantir’s revenue outlook has fallen short of expectations, with shares trading down 57% this year. This project marks the first time Palantir will go to market with a partner on carbon emissions tracking. Leveraging Trafigura’s expertise in global commodity supply chains, Palantir’s Foundry operating system will be configured to provide consortium partners with an accurate calculation of carbon intensity across supply chains, beginning with crude oil and refined products, and concentrates and refined metals.

In a joint interview at the World Economic Forum’s annual meeting in Davos, Palantir’s Chief Executive Alex Karp said, “This is going to be one of the biggest things we’ve ever done.” Jeremy Weir, Trafigura’s CEO, said the market is “massive. In terms of size, I think it touches everybody.”

The idea grew out of a pilot last year when Trafigura’s global head of carbon trading approached Palantir with a desire to better assess indirect carbon footprints, known as “Scope Three” emissions. The announcement builds on the work already done over the past year, with the initial pilot already having built scenarios across ten million carbon pathways using actualized commodity shipments by integrating Trafigura data and metrics supplemented by third-party data.

“Our customers are increasingly asking us for visibility into the lifecycle emissions of the commodities we move as they prepare for regulated Scope 3 emissions reporting and more generally for Net Zero,” said Weir. “The complexity involved in commodity supply chains requires robust cooperation across the industry and a technological solution that can enable meaningful decisions and change. We are delighted to jointly deliver a solution to market with Palantir, whose technology can manage the complexity and data security required to provide additional services to our customers and the market.”

Customers can subscribe to the new platform and take part in what Palantir and Trafigura are calling a consortium. They did not disclose financial terms. Concerns about energy security fuelled by Russia’s invasion of Ukraine have not dampened interest in sustainability, said Weir. “We’ve got a severe bump in the road, but we still have to decarbonize,” he said. For Palantir, the war, which Moscow has called a “special operation,” has meanwhile created potential for other products it developed, such as secure data transfer across allies. “You’ll have to use your imagination to figure out how those things may be in use, but we play a crucial role in the security of the West,” Karp said.

 

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EU Drafts $205 billion plan to replace Russian fuel

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The European Union’s executive arm is set to bolster renewables and energy savings goals as part of a 195 billion-euro ($205 billion) plan to end its dependency on Russian fossil fuels by 2027. The European Commission will propose to increase its clean energy target for 2030 to 45% from the current 40% when it puts forward a package to implement its RePowerEU strategy on May 18, according to sources. It will also boost its energy-efficiency goal, requiring member states to reduce energy consumption by at least 13% from projections made in 2020 versus the current 9%.

EU Drafts

The EU wishes to combine faster deployment capabilities of renewables, greater energy savings, diversification of supplies from international partners and new tools to accelerate investment in an attempt to replace coal, oil and natural gas from Russia following the country’s invasion of Ukraine. The strategy, which will provide a boost to a Green Deal push for bigger emissions cuts by 2030, can save the bloc 80 billion euros on gas, 12 billion euros on oil and 1.7 billion euros on coal imports a year. The EU’s plans will indicate the billions of euros needed in infrastructure investments to enable sufficient imports of LNG and pipeline gas from new supplies, and will ensure that the developments are hydrogen-ready.

The proposals will also outline a limited investment that will be needed in the shorter term on oil infrastructure (e.g. mining plant and equipment) to guarantee the security of supply to countries that are fully dependent on pipeline oil from Russia. The size of this investment is yet to be decided. Hungary has been blocking EU plans to ban Russian oil and gas by the end of the year, stating that it needs more time and financial resources to ensure a sustainable transition to alternative energy sources, and has been seeking technical and investment assurances in this regard.

The EU’s plans aim to include a target of 10 million tons of domestic renewable hydrogen production and 10 million tons of renewable hydrogen imports by 2030. The objective for biomethane production will be 35 billion tons. The proposals will also describe the work on EU wide contingency plans in the event Russia cuts off gas, including the need for common criteria and coordinated action. The package may still change before adoption, especially since the commission has a policy of not commenting on draft documents. To help unlock investment finances, the commission wants to bring forward financing from the Innovation Fund, which is based on revenues from sales of carbon permits in the EU Emissions Trading System. This will be done in a call for projects in autumn of this year, with the expectation being that the available funding is set to double.

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Methane Leaks Spur Calls for Stiffer US Regulation

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In recent times, environmentalists have called on the Biden administration to crack down on methane leaks from low-producing U.S. oil wells, after new research shows they are releasing a disproportionate share of the potent greenhouse gas. As per a study by Nature Communications, such marginal wells are gushing some 4 million metric tons of methane on an annual basis – this is 6 to 12 times higher than the national average. However, low-producing oil and gas wells would be largely exempted from regular monitoring requirements the Environmental Protection Agency proposed last year.

The analysis underscores the potential pitfalls of the Biden administration’s plan to target new methane mandates toward bigger wells — and is lead to increasingly strident calls for edits in the final regulation the EPA is set to impose by the end of 2022.

Biden administration’s plan

“The science clearly supports stronger EPA standards to reduce the outsized pollution from smaller wells,” said Rosalie Winn, director of methane and clean air policy at the Environmental Defense Fund. “We must ensure rigorous pollution safeguards apply to these low-producing, high-polluting wells, which make up the vast majority of our oil and gas infrastructure (developed using steel fabrication).” According to the latest research, wells that produce fewer than 15 barrels of oil equivalent a day are allowing approximately 10% of their gas to leak into the atmosphere. Combined, these marginal wells are responsible for approximately half of the methane emitted from all well sites in the U.S. — even though they represent just 6% of the nation’s oil and gas production, the study says.

Methane

Methane, the chief component of natural gas, is responsible for 25% of global warming today. Because it’s such a powerful short-lived greenhouse gas, packing most of its punch in the first two decades after being released, reductions now are seen as a critical strategy to restrain near-term warming and limit temperature rise to the critical tipping point of 1.5 degrees Celsius (2.7 degrees Fahrenheit). Aside from environmental implications, methane leaks also have financial consequences. Estimated annual emissions from marginal wells are forfeiting some $700 million worth of natural gas  and fuel that could be used to power 3.6 million homes, the Environmental Defense Fund said.

Some oil and gas industry officials have encouraged the EPA to focus its attention on larger wells that make up the vast share of U.S. production, arguing the approach would be more cost-effective. The Independent Petroleum Association of America said the group’s assessments of emissions from small wells suggest that most of the leaks come from storage tanks and pressure vessels “that can be managed without the expensive leak-detection-and-repair programs demanded by environmental lobbyists.” “Specifically targeting small American producers with expansive new regulations is the wrong approach when prices at the pump are at record highs and the Biden administration is calling on the industry to expand domestic production,” IPAA spokeswoman Jennifer Pett said by email.

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New UK Strategy To Allow Greater Energy Independence

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The UK has revealed its new British Energy Security Strategy which will accelerate the deployment of different energy sources like wind, new nuclear, solar, and hydrogen while supporting the production of domestic oil and gas. This strategy will also see a significant upgrade of nuclear energy capabilities, with up to 24GW by 2050 expected to come from this safe, clean, and reliable source of power. This would represent up to around 25 percent of the UK’s projected electricity demand.

A new government body, Great British Nuclear, will be set up immediately to fast-track new energy projects which are backed by substantial funding, and will launch the $155 million Future Nuclear Enabling Fund in April. The UK could deliver up to eight reactors, equivalent to one reactor a year instead of one a decade, thus accelerating nuclear power production in Britain. As for offshore wind, the UK has set a new ambition of up to 50GW by 2030, of which up to 5GW would be obtained from floating offshore wind in deeper seas. This will be underpinned by new planning reforms to cut the approval times for new offshore wind farms from 4 years to 1 year.

The UK government is also planning a licensing round for new North Sea oil and gas mining projects to be launched later this year, with a new task force providing bespoke support to new developments – recognizing the importance of these fuels to the transition and energy security, and that producing gas in the UK has a lower carbon footprint than imported gas which makes it more environment-friendly. A Heat Pump Investment Accelerator Competition will be run in 2022 worth up to $40 million to make British heat pumps, which will reduce demand for gas. UK’s current 14GW of solar capacity is also expected to grow up to 5 times by 2035.

“We’re setting out bold plans to scale up and accelerate affordable, clean, and secure energy made in Britain, for Britain – from new nuclear to offshore wind – in the decade ahead,” UK Prime Minister, Boris Johnson said. “This will reduce our dependence on power sources exposed to volatile international prices we cannot control, so we can enjoy greater energy self-sufficiency with cheaper bills,” he added.

This plan is in response to rising global energy prices, caused by surging demand after the COVID-19 pandemic as well as Russia’s invasion of Ukraine. The main objective is to reduce Britain’s dependence on expensive fossil fuels, which are subject to volatile gas prices set by international markets, and boosting the country’s diverse sources of homegrown energy for greater energy security in the long term. The Government stated that the British Energy Security Strategy will increase the number of clean jobs in the UK by supporting 90,000 jobs in offshore wind, 10,000 jobs in solar power and 12,000 jobs in the UK hydrogen industry by 2030.

 

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Petronas Is Not Acquiring Sapura Energy

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Malaysia’s national oil company Petronas is not going to be acquiring its cash-strapped compatriot contractor Sapura Energy, which would have brought Sapura under the same group as rival contractor Malaysia Marine & Heavy Engineering (MMHE) and shipping giant MISC.

Malaysia’s national oil company

Responding to news reports, comments in the media and recent speculation on its purported “talks with the government on a proposal to take a significant stake” in Sapura Energy, Petronas stated that it “wishes to categorically deny these reports and speculation”. “We have always been and will continue to be strictly guided by an established framework for any investment or divestment consideration,” said Petronas.

A notable call to protect Sapura from bankruptcy had come last week from former Malaysian prime minister Najib Razak – who mentioned that if the offshore and marine giant were to go to the wall, it would take with it 10,000 “high-paying jobs” and 4500 vendors and suppliers would also be impacted. “This was how Petronas saved MISC (now an indirect subsidiary of the energy giant) in 1998. Upon recovery, Petronas… can resell part of Sapura’s shares to the local market just as Petronas resold MISC’s shares to make a profit,” said Najib. Sapura Energy posted an 8.9 billion ringgit (US$2.11 billion) net loss for its 2021 financial year — reportedly the largest-ever loss for any Malaysian government-linked company.

etronas not acquiring Sapura Energy

Other alternatives proposed by Mr. Razak included the government providing loans to Sapura or for the contractor to be taken over by Khazanah Nasional — the Malaysian government’s sovereign wealth fund which is entrusted with growing the nation’s long-term wealth via distinct commercial and strategic objectives. Sapura today is 40% owned by Permodalan Nasional (PNB), and Mr. Razak criticised the state-controlled unit trust company for being unable to pump more money into the oilfield services giant, given its financial woes were exacerbated by the fallout of the COVID-19 pandemic.

Sapura's current poor financial condition

Sapura’s financial woes have been widely documented. The contractor has been more adversely hit than its competitors by the repercussions from the coronavirus crisis, primarily due to its order book’s large exposure to the transportation and installation (T&I) sector. Offshore T&I projects can require hundreds of workers on location. At the height of the pandemic, these workers each required numerous very costly PCR tests on top of long quarantine periods in hotels before and after jobs. A single such crew mobilisation can cost hundreds of thousands of dollars, if not more. These were amounts that were never envisaged by Sapura during pre-Covid times, and the logistical challenges of mining plant and equipment (and corresponding costs) quickly escalated if just one worker tested positive for the coronavirus. Against this backdrop, Sapura did not secure work it had hoped as operators deferred taking the final investment decision on projects, itself another knock-on from the pandemic.

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Oil suffers first weekly loss since Russian invasion

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Since the Russian invasion of Ukraine, oil posted its first weekly loss and this kicked off one of the most volatile periods in the history of the oil market. Oil futures declined by 5.5% last week and Brent crude fell by 4.6%. The international benchmark ended above $112/barrel which marked a more than $30 drop since its Monday rally on 7th March which saw prices surge to nearly $140.

Prices see-sawed over the five-day period due to a flurry of news including a US ban of Russian crude imports and UK’s gradual phasing out of the same. Increasing sanctions against Russia have prompted fears that an already tight oil market may be stretched further, due to the absence of the country’s 5 million barrels of oil exports.

oil and gas price pump

Open interest in the main oil futures contracts has fallen to a six year low in recent days as traders retreat from risk. Volatility has shot up and exchanges have boosted margins, effectively raising the cost of buying and selling. Brent traded as high as $139.13/barrel and as low as $105.60/barrel, indicating extreme volatility. “Extreme intraday volatility perhaps says something about several things: degree of uncertainty, the nature of the news flow, the spill over from some chaotic spot markets and the relatively low liquidity levels at some points,” said Paul Horsnell, head of commodities research at Standard Chartered Plc.

Another contributor to fall in oil prices was the suspension of negotiations between Iran and world powers on Friday to restore a 2015 nuclear deal. Russia sought U.S. guarantees that sanctions imposed for its invasion of Ukraine wouldn’t affect its planned partnership with Iran and this led to talks coming to a standstill. Iran carried out a missile strike in Iraq following breakdown of nuclear talks and this prolonged the absence of Iranian barrels in a market desperate for additional supplies.

Russia-Ukraine conflict

Other factors which are likely to test the global markets are whether Russia plans to pay its international debt and the Federal Reserve is likely to raise interest rates for the first time since 2018, which will potentially strengthen the dollar. Despite repeated urgings from consumers to boost output, OPEC+ has resisted calls from consumers to pump more oil, arguing that the surge in prices is driven by geopolitical tensions rather than a supply shortage.

Major oil companies such as, BP, Shell and ExxonMobil have made the tough decision to exit their joint ventures with Russian oil and gas companies. The US has announced a halt to all energy being imported by the US, a move which may make other countries to follow suit. This news is likely to adversely impact Russia’s oil exports which account for 6% of the global supply needed to match the 100 million barrel/day demand.

© K999 Engineering & Construction Co. Ltd. 2023