Category: Nieuws

China’s crude oil imports are estimated to have declined to an average of 9.62 million barrels per day (bpd) in September, down by 8.6 percent from the previous month, data from energy analytics provider OilX showed.

Chinese crude imports last month also dropped by 2.2 million bpd, or by 18.7 percent, compared to September 2020, OilX’s estimates show.

Last year in September, major Asian importers led by China imported a lot more crude oil, taking advantage of the cheap cargoes in the spring and summer when oil prices were half the level they are today.

Chinese crude imports last month continued to be weighed down by the stricter oversight on imports, refining operations, and market practices of refiners. In addition, Chinese economic activity moderated in September, further depressing crude oil imports, OilX’s oil analysts Juan Carlos Rodriguez and Valantis Markogiannakis said.

Loading of cargoes en route to China in September was close to the five-year average.

Yet, oil sitting in floating storage offshore China, Malaysia, and Singapore remains at high levels, suggesting that the increased scrutiny faced by independent refineries is weighing on imports, OilX’s analysts noted.

Since China increased earlier the scrutiny over the import and business practices of its independent refiners, commonly known as teapots, imports from those refiners have been lower. 

Last month, refinery throughput at independent refiners bounced back from the lowest in more than a year seen in August. Independent Chinese refiners reduced their run rates to 4.3 million bpd in August, the lowest level in nearly a year and a half, OilX data showed last month.

In September, the crude throughput at the teapots recovered to 4.6 million bpd, up from the 17-month low in August, the analytics provider noted.

The “rebound could potentially show that independents have learned how to navigate the new regulatory landscape, however power rationing in some Chinese provinces may hinder refiners’ comeback,” OilX analysts said.

OilPrice by Tsvetana Paraskova, October 4, 2021

After an epic summer of hurricanes, heat waves, floods, and fire, climate change has never seemed more alarmingly real, at least to the roughly one in three Americans directly affected by it. By early July, we already had eight climate-related disasters with economic losses of $1 billion or more, together claiming at least 331 lives. 

Mark van Baal saw this all coming. A one-time seller of refrigeration systems in Europe, he became a journalist because he was “fed up with not doing something socially responsible.” Inspired by Al Gore’s An Inconvenient Truth, he zeroed in on climate change and came to see the fossil fuel industry as a key culprit. But after 10 years of journalism, he was frustrated by the limitations of writing about the need for change. “I came to the conclusion that Shell does not listen to journalists, nor to activist groups, nor to governments,” van Baal wrote. “The only ones who can convince Shell to choose another course are its shareholders.” So he shifted from journalism to advocacy. 

The 20 largest firms, responsible for one-third of all carbon emissions—and decades of denialist propaganda—have long resisted efforts to overhaul their business. Reasoning that the success of the Paris agreement hinges on the compliance of Big Oil, van Baal set out to force that compliance. In 2015, he started Follow This, an organization that orchestrates shareholder rebellions against publicly held fossil-fuel companies in the hope of bringing recalcitrant executives to heel. Follow This

Here’s how it works: van Baal’s organization facilitates small purchases of stock in a given oil company by individual investors. Once those investors accumulate enough shares (for Shell, the minimum was 5 million euros worth), they gain the ability to introduce a resolution to the board of directors, which Follow This does on their behalf. The resolutions demand that companies pledge to make their operations compatible with the Paris agreement. This forces the board to take a formal position on the matter and requires voting shareholders to make an active choice.

The group’s first target, in 2016, was Shell, only 3 percent of whose shareholders supported its climate-friendly resolution. (CEO Ben van Beurden had advised them to vote against.) When the resolution was reintroduced a year later, the vote tally in favor rose to 6 percent, and 7 percent abstained—a signal, Van Baal says, that they disagreed with the board. That same year, Shell announced it would cut its emissions in half by 2050. The company didn’t promise any immediate action, Van Baal points out, but its announcement signaled a shift in the conversation.

Today, Follow This boasts thousands of “green shareholders” who have introduced shareholder resolutions to squeeze the leaders of 12 different oil and gas companies. As a result, the group reports, Shell, Equinor, and BP all have set climate targets, and climate resolutions have received majority votes at ConocoPhillips, Phillips66, and Chevron. So I reached out to Van Baal to ask what the changes will mean for Big Oil. His responses have been edited for length and clarity.

Talk a little bit about the progress of your organization.

Yeah, we are now representing almost 8,000 green shareholders who all share our conviction that we need the oil industry to change to have any chance to stop climate change, to achieve the Paris goals. We use the ownership in these companies to make them change course. We think this is crucial, because at the end of the day, the shareholders are the only entity these companies have to listen to. Most oil companies are more powerful than most [other] companies and most countries. 

Why was this kind of tactic needed?

We need to persuade the boardroom, and they’re not going to change on their own accord. When I started Follow This, and even when I was a journalist, I sometimes dreamt that a major CEO would have an epiphany. These people live in the same world as we do. And they must also see that the only way to protect supply chains is to dramatically change their business. So I sometimes pictured a CEO with an emotional debate with one of his children and a sleepless night and then he would see the light.

But that’s not gonna happen. These people are so completely entrenched in their historic business model, which is basically turning hydrocarbons into Petro dollars. They’ve dedicated their career to this simple model of getting oil out of the ground to refine it and sell it. So they can’t imagine another world. But luckily, investors can. If the climate crisis turns into climate disaster, they know that their billions are at risk. So it’s really risk management.

You’ve made some gains, but how can these executives really be brought around?

Investors have to step up. The only way these companies are going to change is when investors massively vote for these kinds of resolutions. Because otherwise they can always claim that investors are happy with their behavior. With this group of retail shareholders, we’re able to show that there’s a large group of people who want these companies to change and see them as part of the solution. So we file the shareholder resolutions, we make sure it’s on the agenda, and investors have to vote—but we need the big institutional investors to really persuade them.

What do you want from the companies?

We have a very simple and consistent ask: Commit yourself to the Paris agreement, commit yourself to emission reductions in line with the agreement. And science basically dictates it. If we were to have any chance to achieve the Paris agreement, emissions have to be cut by 40 percent by 2030, approximately, and have to be zero by 2050. That’s the scientific translation. So, radical emission reductions in the next 10 years. That’s the only thing we asked for.

And how do you define emissions?

The key content is to set various consistent targets for all emissions. We make it very clear that it’s not only the emissions of the operations of the company, but also the emissions of the products. That’s the key discussion. Should they set the emissions only for the company, or for all the emissions they’re responsible for. The jargon for that is “scope three emissions.”

Why are fossil fuel companies so resistant to change?

They know the outcome. They know that they have to stop investing in oil and gas and start investing in something else. They said to shareholders, you have to vote against this because it’s an unreasonable ask, because we have no responsibility. We have no control over the emissions of our products.

So then they could rightfully claim that they were the first [global oil company] to take responsibility for scope three product emissions. They basically said, “Your resolution is unnecessary because we are now industry-leading with this promise for 2050.

So now you should focus on other oil majors.” We did, but we kept the pressure on Shell because we really want the industry to change in this decade. A promise for 2050 is useless if it’s not backed up by immediate action, right? If the next 10 years will be business as usual, which most oil majors want, then we already lost any chance to reach the Paris agreement.

Delay is the new denial!

I think there’s three steps. First, oil companies denied climate change. Then they denied that it was a supply side problem. They said, “It’s the consumers. And as long as people want to fly, and drive a car, then there’s nothing we can do. We just delivered the demand.” Now the denial is: “We have to change, but we can only change slowly.” So they make this delay. A lot of oil majors have nice promises for 2050.

How do you light a fire under them, so to speak?

To get to majorities you need institutional investors. They have to be crystal clear to industry that there is no time for gradual transition anymore. If they wanted a gradual transition, they should have started in the ’80s when they knew—and then decided to fund climate denial. It needs to be a very disruptive transition.

But is all of this happening too late? 

I think it is absolutely possible to achieve the Paris Accord, but that means a reduction of emissions worldwide of roughly 40 percent. Almost half of the oil and gas needs to be replaced by renewables in the next 10 years. And technically it’s possible. There’s enough sunlight, wind, tides, what have you, to power the world economy. It’s not a supply-side problem. The only problem is the incumbents who refuse to change. 

How can these oil execs ignore the extremely obvious threat that climate change poses?

I’ve spent a lot of time thinking about this: How is it possible that you don’t see this? That we’re heading for the abyss, that you play the key role? I always refer to the Kodak scenario because it’s such a clear example. Kodak had invented digital photography in [the mid-1970s]. And they didn’t dare to bring it to the market because they were too afraid. They were too accustomed to their old business model selling film.

[Renewable energy] is getting cheaper and cheaper. And getting oil out of the ground is getting more expensive. The real problem is in the boards of these companies. There are people who have made it to the board by being extremely successful in just one business model. It’s a cliché, but Bill Gates always says success is a lousy teacher—it convinces smart people that they can’t be wrong. I can’t get into the minds of CEOs. I think maybe a problem is that if they were to go for a new business model, they have to give up power. They have to say, “Okay, I don’t know. I also don’t know exactly what’s gonna happen in the future.”

I don’t think we should underestimate the lives of these people. Imagine you joined a company in your early 20s; you get a new job in a new part of the world. You take your family across the globe. It’s a lot of sacrifice. And then every assignment you’re very successful, and you get a promotion. And finally you reach the top of the pyramid. And then outsiders are going to tell you that you need a new business model!

But isn’t the bigger issue an unwillingness to sacrifice the golden goose?

The reason we are successful is because investors now see how big of a threat climate change is to their portfolios. Traditionally, an investor who has responsibility over pensions would say, “we give every company maximum flexibility to maximize profit, because that’s what we have to do for our pensioners.” And now they say, “Our entire portfolio is at risk. So we’re gonna put constraints on the oil and gas industry.”

Mother Jones by Piper McDaniel, October 19, 2021

Even after hitting the highest levels in several years in recent days, oil prices have further room to rise this winter. At least short-term market fundamentals suggest so, analysts say.

Inventories around the world have fallen to below the pre-pandemic five-year average as stocks are depleting, with demand bouncing back amid a weaker supply response from producers.

The energy crunch in Europe and Asia and record-high natural gas and coal prices add more arguments to the bullish case for oil in coming months as a switch from gas to oil products such as fuel oil and diesel, especially in Asia, is already underway.

The structure of the oil futures curve a year from now also points to a tight market and headroom for higher crude prices. 

Stocks Draw As Demand Rebounds

On the demand side, recovering economies and mobility have boosted global oil demand in recent months, leading to inventory drawdowns that have reduced global stocks to below recent averages. 

In both the United States and the OECD developed economies as a whole, commercial oil stocks have dropped to below pre-COVID five-year averages after more than reversing the huge builds from the spring and summer last year, Reuters market analyst John Kemp notes. 

As of the latest reporting week, U.S. commercial crude oil inventories stood at 427 million barrels, around 6 percent below the five-year average for this time of year. Gasoline inventories were about 2 percent below the five-year average, distillate fuel inventories were 9 percent lower, while propane/propylene inventories were a massive 21 percent below the five-year average for this time of year, the latest EIA data showed. 

In OECD, commercial stocks in August were 162 million barrels below the pre-COVID five-year average, the International Energy Agency (IEA) said in its latest monthly report last week. Preliminary data for the U.S., Europe, and Japan show on-land industry stocks fell by a further 23 million barrels in September.

Globally, implied Q3 refined product balances “show the largest draw in eight years, which explains the strong increase in refinery margins in September despite significantly higher crude prices,” said the IEA. 

The energy crisis in Europe and Asia could additionally boost global oil demand by 500,000 barrels per day (bpd) compared to a “normal” market without a natural gas and coal crunch, the agency noted, raising its 2021 and 2022 global oil demand forecasts.  

Supply Lags Demand As OPEC+ Keeps Market Tight

While demand has rebounded despite the summer COVID flare-ups in the U.S. and Asia, supply additions to the oil market have been lagging behind the pace of growing demand. 

First, it was Hurricane Ida that limited U.S. oil supply from the Gulf of Mexico from the end of August through most of September. Supply will not recover to its full capacity until early next year, as a Shell-operated platform will remain offline until the end of 2021. 

At the same time, the OPEC+ group continues to keep the market tight, adding just 400,000 bpd each month to its overall supply. That’s despite calls from the U.S. and other consuming nations to open the taps and tame the high oil prices, and despite the energy crisis which has forced utilities to fire up oil-fueled power generation amid record-high natural gas prices, boosting demand for oil products. 

OPEC+ leaders point to expected oversupply next year and to the need to look beyond the next two months in their decision to continue to reverse only 400,000 bpd per month of their cuts. 

Saudi Energy Minister, Prince Abdulaziz bin Salman, last week basically ruled out the option that the alliance would respond to the oil price rally by adding more supply than planned. 

“We should look way beyond the tip of our noses. Because if you do, and take ’22 into account, you will end up by end of ’22 with a huge amount of overstocks,” he said on Thursday.

Moreover, output figures point to the fact that OPEC+ is actually pumping well below its collective production ceiling. As per Bloomberg’s estimates, if all members of the alliance stuck to their respective production ceilings in September, the overall production of the group would have been 747,000 bpd higher than what it was. 

It looks like OPEC+ is not too worried about demand destruction at $85 oil, at least not for now. The group’s leaders stress the importance of a longer-term vision and stability on the market, expecting increased supply in 2022 from both their own wells and from the U.S. shale patch, which appears to be maintaining its capex discipline even at $80 oil. 

‘Blowout’ Backwardation Points To Even Higher Oil Prices

At the end of 2021, however, supply remains tight, while backwardation—a key indicator of a tightening market—between the December 2021 Brent contract and the December 2022 contract has jumped to above $8 per barrel in recent days. This is the steepest 12-month Brent backwardation since 2013, according to Refinitiv Eikon data cited by Reuters. 

“Energy crunch is carving out an USD80/b oil floor,” Japanese MUFG Bank said in its Oil Market Weekly report last week. 

“The blowout in Brent crude timespreads in recent trading days signals that the pathway [to] even higher oil prices remains firm,” the bank’s research team wrote.  

Oilprice.com by Tsvetana Paraskova, October 13, 2021

A global gas shortage and end economic rebound are boosting demand for oil, buoying Gulf states whose economies depend on the fossil fuel. 

Brent Crude has rallied 60% this year, filling Saudi Arabia’s coffers. The kingdom, OPEC’s biggest producer, is earning more money from oil exports than any time since 2018. 

However, there’s growing anxiety among key energy-consuming nations as prices also rise for commodities such as natural gas, food and metals, triggering a rise in inflation that could derail the recovery.

OPEC+’s decision last week to stick to slow production increases triggered a fresh surge in prices, and U.S. Energy Secretary Jennifer Granholm raised the prospect of a potential release of crude from the Strategic Petroleum Reserve. 

Granholm’s remarks “were clearly aimed at trying to incentivize Saudi Arabia and its OPEC+ partners to put more barrels on the market,” according to RBC Capital Markets.

Saudi Aramco seems confident demand will remain high. The world’s largest oil company repeated its intention to increase capacity as oil demand rises.

The prized position of the world’s most valuable company to Saudi Aramco.

The Saudi state oil giant hit $2 trillion this week, just shy of Apple, symbolic of how the economy is changing this year.

Apple shares have suffered as consumers rein in spending on home entertainment and get back into the world. That transportation activity has sparked a boom in oil prices that feeds directly to Aramco’s bottom line.

The Slant

Corruption is deeply entrenched

in Iraq, and an estimated $150 billion has escaped the country since 2003. The government, which gets most of its revenue from oil profits, hands it over to ministers that often use it to finance supporters. What should be done?

Universal income, Ziad Daoud writes for Bloomberg Opinion.  China and India, who account for much of Iraq’s income, can be convinced by the international community to transfer money directly to Iraq’s 25 million adults, bypassing the political elite.

Need to Know

Iraqi voters headed to the polls for parliamentary elections that are not only a chance to judge the 17-month government, but also their premier’s attempts to calm the Saudi-Iran rivalry and repair the nation’s oil industry.  

Saudi Arabia’s sovereign wealth fund has taken over Newcastle United FC from billionaire Mike Ashley after it received approval from the U.K.’s Premier League following a year and a half wait. It has also committed to funding Amazon’s Middle Eastern rival Noon.com

The UAE has become the first of the Persian Gulf petrostates to commit to eliminating planet-warming emissions within its borders, setting a new target that aligns it with most major economies. Satellites over Iran spotted large clouds of methane over fossil fuel infrastructure. 

Iran told the U.S. it should release at least $10 billion of frozen Iranian funds if it wants to resume nuclear talks. Also this week,  researchers discovered a hacking group with alleged ties to the Iranian government had waged a yearslong campaign to steal information from aerospace and telecommunications companies in the Middle East, the U.S., Europe and Russia. 

Egypt’s first smartphone maker will assemble headsets for other companies as it seeks to become the main contract builder of electronics bound for the rest of Africa. 

ACWA Power, Saudi Arabia’s first $1 billion listing since Aramco, will start trading in Riyadh on Monday. The $1.2 billion IPO drew interest from investors looking for exposure to a business seen as key to the kingdom’s plans to diversify away from oil. Initial demand amounted to several billion dollars and advisers had to limit institutional investors’ allocations.

Last Word

Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum ordered the hacking of phones belonging to his estranged wife using the controversial Pegasus software, a London court ruled.

The surveillance of Princess Haya Bint al-Hussein using the NSO Group Ltd. technology was employed as the couple fights over the welfare of their children after the princess flew to the U.K. with them in 2019. 

Sheikh Mohammed has denied the allegations, saying the findings were “based on an incomplete picture” and “were made in a manner that was unfair.” Lawyers for Princess Haya declined to comment. 

Bloomberg by Gwen Ackerman, October 7

Oil prices pulled back after touching multi-year highs on Monday, trading mixed as U.S. industrial output for September fell, tempering early enthusiasm about demand.

Production at U.S. factories fell by the most in seven months in September as an ongoing global shortage of semiconductors depressed motor vehicle output, further evidence that supply constraints were hampering economic growth.

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“The oil market started off with a lot of exuberance, but weak data on U.S. industrial production caused people to lose confidence in demand, and China released data that intensified those worries,” said Phil Flynn, senior analyst at Price Futures Group in New York.

Brent crude oil futures settled down 53 cents or 0.6per cent at US$84.33 a barrel after hitting US$86.04, their highest since October 2018.

U.S. West Texas Intermediate (WTI) crude settled 16 cents higher, or 0.19per cent, at US$82.44 a barrel, after hitting US$83.87, their highest since October 2014.

Both contracts rose by at least 3per cent last week.

Weaker industrial data was compounded by rising production expectations on Monday, further weighing on market sentiment.

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U.S. production from shale basins is expected to rise in November, according to a monthly U.S. report on Monday. [EIA/RIG]

Oil output from the Permian basin of Texas and New Mexico was expected to rise 62,000 barrels per day (bpd) to 4.8 million bpd next month, the Energy Information Administration said in its drilling productivity report. Total oil output from seven major shale formations was expected to rise 76,000 bpd to 8.29 million bpd in the month.

The early push higher on Monday came as market participants looked to easing restrictions after the COVID-19 pandemic and a colder winter in the northern hemisphere to boost demand.

“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts at ANZ Bank said in a note, adding gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

Cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit, said Edward Moya, senior analyst at OANDA.

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“The oil market deficit seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder,” he said.

“As coal, electricity, and natural gas shortages lead to additional demand for crude, it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the U.S.,” he said.

Prime Minister Fumio Kishida said on Monday that Japan would urge oil producers to increase output and take steps to cushion the impact of surging energy costs on industry.

Chinese data showed third-quarter economic growth fell to its lowest level in a year hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

China’s daily crude processing rate in September also fell to its lowest level since May 2020 as a feedstock shortage and environmental inspections crippled operations at refineries, while independent refiners faced tightening crude import quotas.

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Global trade has swiftly recovered from pandemic lows, Bank of America commodity strategist Warren Russell said in a note. Trade levels are up 13per cent year to date, and 4per cent higher than 2019 levels. The trade indicates rising crude demand as economies recover from the pandemic, the analysts said.

“Financial assets like oil should perform strongly into 2021,” the analysts said.

By channelnewsasia, October 7, 2021

As hydrocarbon exploration ramps up in many resource-rich basins across Africa, countries are turning to downstream developments in order to increase domestic production capacity, reduce refined product imports, and maximize the benefits of Africa’s significant oil and gas resources. Through the development of large-scale oil refineries across the continent, Africa continues to position itself as a global refined product exporter, increasing domestic capacity while boosting socio-economic growth through energy independence.

Skikda Refinery – 356,500 Barrels per day

The largest oil refinery in Africa is the Skikda refinery, located along Algeria’s northern coastline, with a nameplate capacity of 356,500 bpd. Owned and operated by the country’s state-owned oil company, Sonatrach, the refinery is supplied with crude oil from the Hassi Messaoud oilfields. 

Port Harcourt Refinery – 210,000 Barrels per day

Nigeria’s Port Harcourt refinery, a 210,000-bpd refinery complex, comprises two refineries located at Alesa-Eleme, RiversState. Operated by the Port Harcourt Refining Company – a subsidiary of the Nigerian National Petroleum Corporation – the refinery is currently the country’s largest operating refinery. 

SAPREF Refinery – 180,000 Barrels per day

South Africa’s SAPREF refinery, a 50:50 joint venture between BP and Shell, is the largest crude oil refinery in southern Africa, boasting 180,000 bpd capacity. Located in the city of Durban, the refinery accounts for approximately 35% of the country’s entire refining capacity. 

Alexandria MIDOR Refinery – 160,000 Barrels per day

The Middle East Oil Refinery (MIDOR), owned by a consortium comprising the Egyptian General Petroleum Corporation, ENPPI, PETROJET, and Suez Canal Bank, is located in Alexandria, Egypt. The project is currently undergoing an expansion which will bring its existing 100,000 bpd capacity up by 60%, to 160,000 bpd, making it the fifth largest in Africa and largest in Africa. 

Cairo Mostorod Refinery – 142,000 Barrels per day

Egypt’s current largest oil refinery, the Cairo Mostorod refinery, is located in Mostorod, Qalyubia Governate and operated by the Egyptian Refining Company. Officially inaugurated in September 2020, the $4.3 billion refinery is the sixth largest in Africa by capacity. 

El Nasr Refinery – 132,000 Barrels per day

With a nameplate capacity of 132,000 bpd, Egypt’s El Nasr refinery is owned and operated by Nasr Oil. The refinery is the second largest in Egypt and contributes significantly to the country’s targeted energy independence, further positioning Egypt as a leading refining market.

Warri Refinery – 125,000 Barrels per day

The Warri refinery, located in Warri, Nigeria, is the country’s first Nigerian government wholly owned refinery. With an initial capacity of 100,000 bpd, later debottlenecked to produce 125,000 bpd of crude oil, the Warri refinery is the eight largest in Africa, and has positioned Nigeria as a West African downstream leader. 

Zawiyah Refinery – 120,000 Barrels per day

The Zawiyah refinery is Libya’s second largest crude oil refinery, located approximately 40km west of the capital city, Tripoli. Operated by the Zawia Oil Refining Company, the refinery has a distillation capacity of 6,000 tons per year and production of 120,000 bpd, consolidating its position as the ninth largest in Africa by capacity. 

Alexandria El Mex Refinery – 117,000 Barrels per day

Egypt’s Alexandria El Mex facility is a crude oil refinery wholly owned by the Egyptian General Petroleum Corporation. With a maximum refining capacity of 117,000 bpd, the refinery was built to meet domestic needs, while exporting approximately 20% of its production. 

Astron Energy Cape Town Refinery – 100,000 Barrels per day

Located in Milnerton, Cape Town, the Astron Energy owned and operated Cape Town refinery has a nameplate refining capacity of 100,000 bpd. It is currently the third-largest refinery in South Africa, however with the upcoming closure and conversion of Engen’s 125,000 bpd refinery, will become the second largest in the country and the tenth in Africa. 

Honorary Mentions

In addition to the existing crude oil refineries across the continent, many countries have launched new large-scale refinery projects to accelerate production and create viable, competitive downstream markets. The following are just some of the largest, by capacity:

Dangote Refinery – 650,000 Barrels per day

Located near Lagos in Nigeria, the Dangote refinery will be Africa’s largest oil refinery with an incredible capacity of 650,000 barrels per day (bpd). Forming part of petrochemical complex, the Dangote refinery will significantly reduce fuel imports, supplying the West African region with refined products. Scheduled for commissioning next year, the $19-billion refinery will be transformative for both the region and Africa. 

Lobito Refinery – 200,000 Barrels per day

Angola has launched a call for tenders for the construction of a 200,000-bpd refinery, dubbed the Lobito oil refinery. Forming part of the country’s National Development Plan 2018, the Lobito refinery will significantly increase the country’s domestic production capacity, while creating over 8,000 jobs. 

Energycapitalpower by Charné Hundermark, October 4, 2021

Measuring carbon intensity is about to become a big business, the Big Four accounting firms have announced huge expansions of staff and investment to cater to this new business opportunity.

Perhaps we’re paranoid, but we view this as a necessary predecessor to a carbon tax. The more accurately pollution is measured, the more accurately it can be taxed, at least in theory.

And on top of that, the carbon offset business, recently in the news when forests planted out west to offset carbon emissions burned down.

The carbon offset trade has set up a high level study of means to standardize and trade offsets, while disputing claims that offsets are nothing but licenses to pollute. Without offsets, big corporations will have to really reduce their emissions. Those carbon neutral pledges will go up in smoke, so to speak.

For now, though, we want to examine carbon intensity and risk. Carbon intensity is just one part of ESG investing— that is, considering the environmental aspects of any business, whether it meets social responsibility requirements and whether the company is governed up to standards.

ESG investing is not a goody-goody cottage industry. Funds supposedly following these standards have over $900 billion under management. We are not sure how well managed, though. DWS, a major German investment manager is now under investigation by US and German authorities for issuing misleading statements about the extent of the firm’s ESG investing.

The financial press speculates that more firms may run into trouble. Meanwhile, a think tank claimed that big fund managers had ESG portfolios not only misaligned with the goals of the Paris Accord but also owning oil and gas stocks.

A fund manager explained that the holdings represented “tilting strategies” that reduced the carbon footprint of the fund while still obtaining a benchmark return.

Sounds like “leaning in” to carbon mitigation without actually taking the full plunge. In other words, yes, these ESG oriented portfolios still own oil and gas stocks. Just less of them, that is, below their respective benchmark’s weighting. George Soros, the veteran fund manager, wants Congress to enact laws that require funds to invest only in companies that meet the governance (G) standard of ESG. What if the politicians add in the S and G standards? 

Keep in mind that there is a big difference between a lot of vague corporate discussions regarding deep and meaningful CO2 emissions reductions at some indefinite point between now and 2050 and what the corporation says in documents filed with the Securities and Exchange Commission (SEC).

The former says to us the corporation and its board see no urgent need to address this issue and may do so leisurely, perhaps in their 2045-2050 planning horizon. (In this vein we read recently that PacifiCorp, owned by Warren Buffett’s Berkshire Hathaway, announced the closure of its last Wyoming coal plant in 2039. Buffett is 91.) But misrepresenting actual investment policy in a securities prospectus is another matter entirely.

In fact it is a violation of SEC regulations and a federal crime.

You might think that separating out “bad” carbon emitters from the rest of a stock or bond portfolio is a simple matter. So called “ethical investors” refrain from owning securities in alcohol, tobacco and firearms firms.

Similarly investors should be able to eliminate oil, gas and coal stocks from their portfolios. For instance, N.Y. State’s main pension fund, with assets of $268 billion, is considering for disposal the less than $1 billion invested in shale and oil sands projects.

This is a fairly simple, straightforward decision, in or out, and it won’t make much difference to overall performance given the fund’s size. So what is the big deal?

A recent article by four fund managers and a finance professor (“Decarbonizing Everything”, Financial Analysts Journal, vol. 77, no.3) attempted to quantify carbon intensity.

The authors came up with three ways to evaluate the direct carbon emissions of a company. First they measured the total direct corporate carbon output of the company.

Second, they took the previous measurement and added the CO2 footprint of its suppliers and the users of the product it produces. Finally, a third measure was created based on Wall Street analysts’ opinions.

Imagine the difficulty of putting together these disparate measures on a consistent basis. It is not surprising to learn these three evaluative criteria did not produce consistent results.

The authors concluded that “significant progress needs to be made in the measurement and disclosure of … emissions…” This portends a lot of confusion before the standards settle down.

So, what are we getting at? First, the fossil fuel industry broadly, and this includes utilities as well, needs to recognize that measurement of carbon emissions will become a big business, akin to the bond ratings business of Moody’s or S&P.

Second, these measurements, we believe, are likely to extend beyond the fossil fuel business. This means users of fossil fuels as well as producers may soon find themselves under more financial pressure to rapidly cut emissions or pay higher pollution related taxes.

We already see the outline here with increasing public pressure on corporate polluters and an increasing receptivity of politicians to take action.

Eventually public pressure is likely to mount such that fewer and fewer business leaders will want to appear on the environmental activists’ equivalent of the FBI’s most wanted list.

Institutional investors with fiduciary responsibilities will not want to belatedly explain their reluctance to part with energy investments despite it being obvious (in hindsight) those investments were in peril.

Once this becomes a social movement, economics will become less important in decision making.

In short, investors have slowly begun a serious examination of carbon emissions. This quest, if pursued consistently, will take them beyond the fossil fuel and utilities industry.

And in doing so this will likely involve more industries that can change their spots so to speak and become “green”. Something which the fossil fuel industries cannot do easily if at all.

Ultimately what will a higher carbon emissions score mean for business, however it may be calculated? With an increasing realization regarding the environmental harm caused by various emissions, polluters will likely pay a higher cost of capital.

The growing threat of environmentalist lawsuits or onerous government regulation serve to elevate underlying business risk. All things being equal (which they seldom are) elevated business risk requires as an offset with the reduction in financial risk, i.e. debt levels to maintain the same overall risk profile.

However companies in the midst of major transitions are often voracious consumers of debt as they try to borrow and spend their way to a more prosperous future. In the interim, though, this strategy could result in lower stock prices and shareholder discontent.

OilPrice by Leonard Hyman, September 30, 2021