Category: Nieuws

About a week ago, alternative energy plays scored crucial wins seemingly at the expense of the oil and gas sector after President Biden ramped-up his radical climate agenda by announcing plans to halt new oil and gas leasing on federal territory in a bid to become carbon-neutral by 2050.

Some of the biggest oil companies, including ExxonMobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX), are actively drilling on federal lands in New Mexico. Biden has also touted a $2 trillion clean energy pledge, easily the biggest investment by the federal government into the sector.

As you might expect, the fossil fuel sector has been up in arms against the president’s latest pledge.

Mike Sommers, chief executive of the American Petroleum Institute, has quipped:

“Energy abundance or foreign dependence. American jobs or overseas jobs. Economic revival or small-town decline. Progress or retreat,’’ while adding that, “Thus far, President Biden is on the wrong side of a number of these consequential choices.”

But maybe Mike Sommers and the oil sector are pointing fingers at the wrong guy.

Whereas many oil and gas investors view the renewables sector as its biggest rival, the truth is a bit more nuanced.

In fact, the oil industry has a lot more to fear from the likes of Tesla Inc. (NASDAQ:TSLA) and NIO Ltd (NYSE:NIO) than it does the solar and wind sectors.

The EV Reckoning

President Biden has paused drilling on federal lands for 60 days, though most shale oil and gas drilling happened in privately owned lands. The oil and gas sector has countered by pointing at the high unemployment rate mainly due to Covid-19 and declared that now is not the time to carry out such a policy.

For instance, Sommers points at New Mexico, where the ban on federal leasing could eliminate $1 billion from the state’s budget and cost 62,000 jobs. Shutting down the construction of the Keystone Pipeline is likely to immediately cost 1,000 temporary jobs.

But that ignores the fact that only 9% of fracking is currently done on federal lands, and also the fact that the ban does not affect existing permits. After all, such drilling netted the federal government just $6 billion in revenues last year.

The brutal truth is the biggest threat to the oil and gas sectors does not come from climate regulation but rather from the natural progression of the EV megatrend.

Exponential Growth Path

Biden has specifically reiterated his earlier plans to build 500,000 new EV charging stations and also replace the federal government’s auto fleet with EVs.

But the fact of the matter is that the EV sector has been recording exponential growth over the past few years despite a lack of support from the federal government.

A recent report by clean energy watchdog Bloomberg New Energy Finance (BNEF) proves that the renewable energy sector has remained largely immune to the ravages of Covid-19, with global energy transition investments in 2020 clocking in at a record $501.3 billion, good for 9% Y/Y growth.

Yet, digging deeper into that report reveals that the clean energy boom is heavily lopsided in favor of a single segment: Electric vehicles or EVs.

BNEF analysis shows that both public and private investments in renewable energy capacity came to $303.5 billion, up 2% on the year, thanks mainly to the biggest-ever build-out of solar projects as well as a $50 billion surge for offshore wind.

he EV sector, however, performed much better, with investments in the burgeoning sector, including charging infrastructure buildout clocking in at $139 billion, good for a 28% Y/Y increase. Meanwhile, the passenger EV market reached an estimated $118 billion representing a four-fold growth compared to 2016 levels.

But here’s the gist in the two numbers: Renewable energy investments have been mostly flat, managing a meager 0.15% CAGR growth over the past five years compared to 20.74% CAGR for electrified transport over the timeframe.

In fact, at this rate, investment in the global electrified transport sector is set to overtake the entire renewable energy sector by 2025.

The biggest catalyst for the global EV sector is this: The sector is close to a “tipping point” of mass adoption thanks to falling costs.

Indeed, EV sales increased at a torrid 43% clip globally last year, with price parity with ICE on an unsubsidized basis expected to be achieved as early as 2023.

Batteries and the EV powertrain make up 70% of the cost of an EV. Luckily, the cost of lithium-ion batteries has dropped dramatically since 2010 and is expected to continue to do so in the coming years. To illustrate the point, consider that back in 2010, the price of an EV battery pack was $1,160/kWh (USD) compared to the 2018 average price of $176/kWh.

BloombergNEF has forecast the cost will be nearly cut in half to $94/kWh by 2024, and then to just $62/kWh by 2030.

BNEF has predicted that EVs will account for 10% of new car sales by 2025 from 2.7% in 2020 and 28% by 2030.

That’s a very big deal considering that the transport sector consumed more than 40% of global oil production in 2019 and has accounted for more than half of total oil demand growth since 2000.

In other words, President Biden’s executive orders are the least of Big Oil’s worries.

Oilprice.com by Alex Kimani, February 26, 2021

The kingdom is working with many countries on green and blue hydrogen projects. Saudi Arabia wants to emulate Germany’s success with renewable energy and be a pioneer in hydrogen production, as the world’s biggest oil exporter seeks to diversify its economy.

“We will be another Germany when it comes to renewables,” Energy Minister Prince Abdulaziz bin Salman said Wednesday on a panel at the Future Investment Initiative conference in Riyadh. “We will be pioneering.”

The kingdom is working with many countries on green and blue hydrogen projects and those to capture carbon emissions, he said.

The green version of the fuel, which produces only water vapour when burned, is made with renewable energy, typically solar and wind power. The blue type is produced from natural gas, with the greenhouse gas emissions being captured so they can’t escape into the atmosphere.

While hydrogen is seen as crucial for the switch from oil and gas to cleaner fuels, the technology to make it is still expensive.

Neom Plant

State energy giant Saudi Aramco is leading the nation’s efforts with blue hydrogen. When it comes to green hydrogen, Pennsylvania-based Air Products & Chemicals and local firm ACWA Power International are building the world’s biggest such plant at Neom on the Red Sea coast.

Prince Abdulaziz said Saudi Arabia planned to convert half its power sector to gas, while the remainder would be fueled by renewable energy. Presently, the kingdom burns plenty of oil in its power plants.

The country is committed to carbon neutrality, he said, without giving a time frame for achieving that. And reaching the goals set out in the Paris climate agreement will help the Saudi economy become less reliant on oil, he said.

Saudi Arabia’s past efforts to boost renewable-energy production have met with little success. Germany, a country not known for sunny weather, has become one of the world’s biggest producers of solar energy, largely thanks to heavy government subsidies that helped spur the industry.

OPEC Vigilance

Oil remains crucial to the economy for now, and Saudi Arabia is leading efforts by the Organization of Petroleum Exporting Countries (OPEC) to restrict supplies and bolster prices.

The kingdom is not worried about the impact of the latest coronavirus wave on oil demand, Prince Abdulaziz said in a separate interview at the same conference.

“There is not yet anything that would make us more concerned,” he said.

Despite several major economies, including Germany and China, tightening lockdowns in recent weeks, oil inventories continue to fall.

That’s “a good sign,” the minister said. “And I hope these lockdowns will not become more serious. But we remain ready. Vigilance is our motto.”

Saudi Arabia and other OPEC members are benefiting, he said, from Riyadh’s decision earlier this month to unilaterally cut crude output by 1 million barrels a day in February and March.

That move has helped raise Brent oil prices by more than 7 per cent this year to around $55 a barrel.

The reduction in supplies by Saudi Arabia, as well as those announced by Iraq, will ensure that 1.4 million barrels of oil will be held back from the market each day in February, Prince Abdulaziz said.

The figure will rise to 1.85 million barrels daily in March, he said.

Bloomberg, by Matthew Martin, Salma El Wardany, and Abeer Abu Omar, February 26, 2021

The CEOs of Chevron and ExxonMobil last year discussed the possibility of merging the two companies, The Wall Street Journal reported Sunday, citing unnamed people familiar with the talks.

The newspaper reported that Chevron CEO Michael Wirth and Exxon CEO Darren Woods spoke about the prospect after the Covid-19 pandemic began to negatively impact oil prices.

The talks are not ongoing and were described as preliminary, according to the Journal. Representatives from the two companies declined to comment. The talks were later reported by Reuters.

A merger between Chevron and Exxon would be among the largest in history, and would likely face antitrust scrutiny from President Joe Biden’s Department of Justice. Both companies descend from John D. Rockefeller’s Standard Oil, which was broken up by the Supreme Court in 1911.

Chevron’s market cap is $164 billion, and Exxon’s is $189 billion, meaning that the combined company would be worth north of $350 billion. The combined firm would be the second largest oil and gas company in the world, after Saudi Aramco.

Oil prices have recovered much of their losses since cratering in March, though they have remained somewhat depressed amid a slower-than-expected vaccine roll out and worries of new coronavirus variants.

CNBC, Editor: Haley Zaremba, February 26, 2021

Although the novel coronavirus has wreaked havoc on many sectors of the global economy, leaving double the people unemployed in the United States as compared to February of last year, a rising long-term unemployed rate, and leading to more than 8 million U.S. residents slipping under the poverty line since the summer, the stock market continues to go gangbusters.

In no sector is this more true than in the domain of electric vehicles, which have been hot–crazy hot. Tesla alone gained over 700% in 2020 and received an extra boost from being admitted to the S&P 500, making Elon Musk a centibillionaire and even allowing him to eclipse Jeff Bezos as the richest man on Earth for a short stint.

Indeed, green energy and EV stocks have been seeing record-breaking investments as Environment, Sustainability, and Governance (ESG) investing goes mainstream, and 2021 is set to be another great year for renewables in the stock market.

Much has been made of the admittedly heavily symbolic coincidence of Tesla, an electric vehicles company that has become emblematic of a more climate-friendly future, entering the S&P 500 just a couple of months after oil giant Exxon Mobil was dropped from the Dow Jones Industrial Average Index after nearly a century in the ranks of some of the most revered and stalwart blue chip companies in the world.

It all pointed to a very tidy and sellable story line: fossil fuels out, clean and green energy in. onward and upward. But the reality, of course, is never so simple.

“A roaring bull market can make even contradictory ideas true, as both electric-vehicle and fossil-fuel investors could tell you,” leading financial and investment news outlet Barron’s reported this week. “The former is trying to displace the latter, but for now, both sectors are happily coexisting in the market.”

It’s true that oil stocks are not burning quite as bright as they once were, and that EV stocks are almost too hot to handle, but it’s way too soon to count fossil fuels out. This has been proven by the oil sector’s impressive bounceback from the brutal hit that the COVID-19 pandemic gave the sector.

Less than a year ago, on April 20th, the West Texas Crude Intermediate benchmark plummeted to nearly 40 dollars below zero per barrel. They couldn’t give the stuff away. But now, as the global economy recovers and oil demand comes back, crude prices have risen to a 52-week high and European oil benchmark Brent Crude topped $60 for the first time since last year’s spectacular crash.

“More electric vehicles will eventually mean lower demand for oil,” Barron’s admits, but that transition won’t happen overnight. Around the world, campaigns to replace gas-fueled cars with EVs are picking up speed, but a sweeping transition will require a lot of technological and infrastructure advances, and these things take time.

The projected time that it will take, however, keeps contracting as more investors, world leaders, and industry leaders throw their weight behind the transition.

So while oil has recovered in the markets, it’s days are numbered. Many experts contend that peak oil is already happening as we speak, while it’s impressive that oil has managed to return to acceptable levels, it’s certainly not seeing the exciting kind of growth that the energy sector is.

“The Energy Select Sector SPDR ETF is up about 1% in premarket trading and has added 12% year to date, far better than the S&P 500’s 3.5% rise,” Barron’s reports.

“So EV or oil?” the article asks. “In a market overflowing with money, the answer is yes.” While that may be true today, it certainly won’t be true for too much longer. Whether it’s for environmental reasons or purely economic reasons or both, investors and markets are making one thing clear: fossil fuels are still relevant for now, but EV and renewables are the way of the future.

Oilprice.com , by Haley Zaremba February 26, 2021

National governments still tend to think about oil refineries as strategic assets that must preserved to provide fuel security in the event of armed conflict, but that reflects an outdated view of risks arising from modern warfare.

Exxon’s decision to convert a small refinery near Melbourne into an import terminal has sparked more anguish in Australia about the progressive closure of the country’s refineries and growing reliance on imported fuels.

Like many other countries, Australia’s government views the maintenance of domestic refining capacity as a way to safeguard the supply of critical transport fuels in the event of an armed conflict or blockade.

But maintaining a few old, small and relatively inefficient refineries likely adds little to the country’s energy security (“Australia faces fuel security challenge as refineries close”, Financial Times, Feb. 10).

WORLD WAR LESSONS
In most oil-importing countries, the desire to protect domestic refining capacity stems from fears that a naval blockade or attacks on shipping could disrupt the supply of imported fuels such as gasoline and diesel.Even before the Second World War, governments had become increasingly concerned about the potential impact of blockades or attacks on shipping (“Oil: a study of war-time policy and administration”, U.K. Official History of the Second World War, Payton-Smith, 1971).

Pre-war British planning focused on how to maintain fuel supplies for the armed forces, industry and domestic transport in the event conflict with Germany or Japan led to attacks on tanker shipping.

In the event, between 1940 and 1942, German submarine attacks on British and allied tankers succeeded in reducing oil imports and helped create severe fuel shortages at home as well as in other parts of the British Empire.And in 1941, the U.S. decision to impose an embargo on crude and fuel sales to Japan was one of the factors that accelerated the outbreak of armed conflict between the two countries later in the year.

Fears about fuel supplies are therefore understandable, but future conflicts are likely to be fought differently, which makes lessons from the Second World War less relevant. The Second World War was fought in relatively slow motion with limited explosive power, mostly by slow-flying, limited-range bombers carrying small payloads, slow-moving ships and large slow-moving ground armies.

In a slow-moving conflict, there is more time for an embargo or blockade to exhaust pre-conflict fuel inventories and undermine the willingness and ability of the belligerents to keep fighting.Since 1945, however, the speed of armed conflicts has accelerated and the available explosive power has risen by several orders of magnitude.

The development of long-range heavy bombers, short-range and inter-continental missiles, and nuclear weapons has fundamentally altered the speed and destructive power of conflicts.

In a much faster-moving conflict, with much more explosive power, a slow-acting embargo or blockade is unlikely to be an effective strategy.

ESCALATION SCENARIOS
In the last two decades, the United States and its allies have employed partial embargoes and blockades against North Korea, Venezuela, Yemen and to some extent Iran, with limited success. But in a major inter-state conflict it is unlikely a fuel embargo would play a significant role because it would be highly escalatory while failing to be decisive, worsening rather than resolving a conflict.

In a major inter-state conflict, any state subject to embargo or blockade would likely regard it as an existential attack justifying an all-out response to break the stranglehold before fuel stocks ran low. Implementing an embargo or blockade would likely provoke a response with missiles designed to destroy blockading vessels and possibly spread the conflict to the homeland of the blockader.

In most scenarios, an embargo or blockade would probably escalate into attacks on the fuel supply system of all belligerents, including tankers, refineries, pipelines, tank farms and electricity systems.Attempts to blockade fuel supplies might even escalate into a broader conflict involving other industrial and economic targets, cyber-attacks on critical systems, or even the threat to use nuclear weapons.

It is very difficult to envisage a scenario in which a blockade is serious enough to force one of the belligerents to concede, but not so serious as to spill over into total war (“On escalation”, Kahn, 1965).

REFINERIES AS TARGETS
Even in the event of a successful blockade, domestic refineries are unlikely to be much help in maintaining domestic fuel supplies.

In most countries outside OPEC and Russia, domestic refineries rely on imported crude, which would be impacted by a blockade as well – except in an implausible scenario in which fuel is blockaded, but not crude.

Australia, for example, produced 0.5 million barrels per day of crude domestically in 2019. But the country consumed 1.1 million barrels per day of refined products, leaving it relying on imported crude and fuels to make up the shortfall.

Finally, in any major conflict between states, the refineries of all belligerents would be large, hard-to-defend targets, highly vulnerable to missile attack, so having domestic refineries would not protect fuel supplies.

For an oil refinery to be a strategic asset we have to assume a scenario in which there is a blockade serious enough to threaten the economy, but not so serious it provokes all-out conflict; a blockade that targets imported fuels, but not crude; and a blockade that does not provoke attacks on the refineries of all belligerents.

It is just about possible to envisage such a contorted scenario, but it is very unlikely – so most countries should probably stop treating oil refineries as strategic assets.

Reuters, by Angus Mordant, February 26, 2021

Diesel traders are snapping up ocean-going tankers to haul millions of barrels of European diesel to the U.S., where the coldest weather in years has brought swaths of the petroleum industry to a halt.

At least eight tankers have been provisionally hired in recent days to take consignments of the fuel — a near identical product to U.S. heating oil — across the Atlantic, lists of vessel charters compiled by Bloomberg show.

The cargoes amount to almost 2.8 million barrels in what would represent a big increase in deliveries if all the consignments do go to the U.S. As is normal, the bookings also include options to sail elsewhere.

The freezing weather in the U.S. has cut 3 million barrels a day of oil refinery processing and left millions of homes and businesses without electricity. Rates for tankers to bring cargoes from northwest Europe surged 25% on Tuesday, lifting earnings on the trade route to the highest since September. They slipped slightly on Wednesday.

The U.S. east coast normally gets large volumes of fuel from the Colonial Pipeline system that starts in the Gulf of Mexico. Diesel supplies are “certainly needed due to outages in U.S. Gulf, and a potential lack of product coming up the Colonial pipeline,” said Richard Matthews, head of research at E.A. Gibson Shipbrokers Ltd. in London.

Tanker owners were able to push for higher freight rates because of the “above usual” levels of diesel heading to the U.S. and as vessel supply became more constrained toward the end of last week, he said.

While many of the refineries out of action are in Texas, it’s the east of the U.S. that’s a more likely destination for the cargoes.Europe has been shipping diesel cargoes to the Atlantic coast in recent months, a historically unusual trade driven by strong demand from truckers in the U.S., and weak diesel consumption in Europe where lockdowns have curbed the fuel’s use in cars.

Currently, about 2.1 million barrels of European diesel are already en-route to the east coast, according to ship-tracking and fixture data compiled by Bloomberg. U.S. diesel inventories are at a eight-month low in the region.

At least five of the eight vessel bookings have so far been fully concluded.

Bloomberg, by Kevin Crowley, February 25, 2021

Saudi Arabia’s oil minister has called for a cautious approach to raising production, even as prices surge and many traders anticipate an increasingly severe shortage of petroleum later this year.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” the minister said in a speech on Wednesday.

In contrast, futures markets point to a rapid tightening of supply, with front-month Brent up more than $25 per barrel or 65% in just over three months since successful vaccine trials were announced in early November.

Brent’s six-month calendar spread has surged into a backwardation of more than $3.70 per barrel, putting it in the 94th percentile for all trading days since 1990, and indicating traders expect a rapid depletion in oil stocks.

The spread was this strong for brief periods during 2019 and in the first few weeks in 2020, flashing expected tightness, but the last time it was this tight on a sustained basis was in 2013.

OPEC+ AND TRADERS

Disagreements between the Saudi oil minister and traders about the forecast balance between production and consumption historically have been common at this point in the price cycle.

Saudi Arabia and other producers in the Organization of the Petroleum Exporting Countries, as well as the broader group of allies led by Russia (OPEC+), tend to be over-pessimistic about consumption early in the upswing.

Part of the reason is fear of a return to low prices and revenues when memories of the recent slump are still fresh. “The scars from the events of last year should teach us caution,” as the Saudi minister said on Feb. 17.

But producers also have a financial incentive to err on the side of caution. Under-forecasting consumption and over-forecasting production leads to a rise in prices and revenue windfall.

“If we have to err on over-balancing the market a little bit, so be it. Rather than quitting too early and finding out we were dealing with less reliable information … stay the course,” Saudi Arabia’s previous oil minister said almost exactly three years ago in February 2018, when prices and spreads were at the same level they are now.

Rising prices are beneficial for government finances in the short term, even if they create the conditions for over-production and another slump in the long term.

The result is that it is quite normal for OPEC to be wary of raising output at this stage in the cycle – even as prices rise, inventories shrink and the market moves into a pronounced backwardation.

OPEC’s slowness in raising production typically causes inventories to fall below average, and prices to overshoot on the upside, until a rise in output from non-OPEC producers causes prices to peak and then start to fall.

OPEC+ RESPONSE

Speaking this week, the Saudi oil minister had a warning for any traders or analysts trying to guess how OPEC+ will respond to the recent rise in prices:

“On the subject of predictability, this also applies to those who are trying to predict the next move of OPEC+. To those I say – don’t try to predict the unpredictable.”

In fact, the outline of the price cycle and OPEC+ responses to it are both broadly predictable, in the sense that they follow a regular pattern of moves.

Every price cycle is slightly different. Some slumps are triggered by recessions, others by volume wars. And OPEC+ ministers come and go. But the basic decision-making framework and incentives stay largely the same.

The precise timing and magnitude of peaks and troughs cannot be forecast because the market is a complex adaptive system that has some chaotic features.

But the broad pattern of rising and falling prices, production, consumption, inventories and spreads, as well as OPEC’s response to them, follows a familiar sequence.

The cycle can be split into a series of phases. The exact number is somewhat arbitrary and the phases can overlap and not be fully distinct.

The attached chart book shows both a basic 4-phase and a more elaborate 6-phase version, but it can be split into even more phases if necessary.

The recent fall in inventories, rise in spot prices, and shift towards a steep backwardation, indicate the market is moving towards a peak (Phase II in the six-phase version of the cycle) or peaking (Phase III).

In previous cycles, at this point OPEC’s resolution to continue restricting output would weaken (Phase II) and it would come under pressure to curb price increases by boosting production (Phase III).

The current upswing appears to be following the same pattern. In late 2020 and early 2021, several members of OPEC+ pushed for output increases and compliance appears to be fading for many members.

With prices surging, the organisation already faces increasing calls to start boosting output or risk a resurgence of drilling and production from U.S. shale firms.

With inventories shrinking rapidly, the speed with which OPEC moves from Phase II to Phase III is likely to determine the eventual timing and scale of the overshoot – as well as the timing and depth of the subsequent slump.

Reuters, by Barbara Lewis, February 26, 2021

The port city continues to bloom with its unique geographic location as one of the leading oil trading and bunkering hubs in the world.

Fujairah has raised its profile as one of the world’s leading oil trading and bunkering hubs by building world-class terminal and port facilities. Though high oil prices over the past decade were an important factor supporting investment in new energy-related infrastructure, Fujairah has multiple competitive advantages that allow its oil-related industries to operate successfully through cycles of low and high oil prices.

Fujairah’s unique niche is based on services related to trading and moving of oil. Its advantages can be classified into ‘hardware’, such as location and infrastructure, and ‘software’, such as the regulatory environment and the sophistication of the legal and financial sectors of the UAE to meet the requirements of the shipping and oil trading sectors.

Hardware

Even though oil price is low, more barrels of oil are being produced in the Arabian Gulf region – which is the target market of Fujairah’s storage and logistics terminals.

Fujairah’s position on the eastern coast of the Arabian Peninsula, adjacent to the Strait of Hormuz, is unique. The Port of Fujairah sits on a critical tanker and trade route linking Europe, Africa and Asia to the Arabian Gulf.

The port city is also the landing point for the 380 km Habshan-Fujairah crude oil pipeline, which provides Abu Dhabi with an export outlet on the Arabian Sea coast, thus cutting down travel time for tankers that would otherwise have to sail through the narrow and busy Strait of Hormuz to load their cargo.

The wider Arabian Gulf region holds the reserves of large national oil companies, which manage the world’s most attractive hydrocarbon reserves.

The Emirate of Fujairah benefits from utilisation of its infrastructure – comprising an oil tanker jetty and 8.8 million cubic metres of storage capacity to date and expected to climb to 14 million cubic metres by 2018. In this respect, it must compete with other world-class oil hubs for its customers, who are oil owners whose products are handled in Fujairah. These include 14,000 vessels, which anchor in Fujairah waters and the major national oil companies including ADNOC, ENOC, SOCAR, Sinopec that move physical oil in the region.

The Port of Fujairah is working with its oil terminal partners to construct a VLCC jetty that can accommodate the world’s largest tankers.

The Port of Fujairah is planning to invest $304m (Dh750m) over the next two years to expand and upgrade its oil-handling infrastructure. With the investment, the port supports the Fujairah government’s strategy to provide job opportunities to UAE nationals as well as help boost various economic sectors in the country.

Future projects planned for Fujairah include the construction of additional refining, petrochemicals, and LNG import terminals that can complement the existing energy-related infrastructure.

Software

In addition to the world-class infrastructure, Fujairah has other characteristics conducive to the development of an oil hub such as a strong marine services market, which attracts fleet operators to bunker in Fujairah waters.

As part of the UAE, Fujairah is a respected safe haven that affords international oil traders confidence that their vessels, cargoes, and contracts will be protected within a stable legal and regulatory framework.
UAE’s sophisticated financial services sector is capable of meeting the large-scale working capital requirements of the shipping and oil trading sectors.

Risk Management

As oil prices have come down, global oil inventories have risen close to 3 billion barrels, according to the International Energy Agency. A ‘contango’ market that anticipates higher future prices also contributes to utilisation of oil storage infrastructure.

To navigate such oil price volatility going forward, the key for the owners of these oil stockpiles, who are also customers of Fujairah’s infrastructure, is risk management discipline. Build-up of inventories would be a speculative exposure.

Therefore, traders will have to protect themselves by balancing their physical positions with contracts to hedge price risk and lock-in acceptable margins with creditworthy counterparties.

Banks who lend to the energy industry must also understand the dynamics of their customer’s business and help clients actively manage risks through the market cycles. For example, National Bank of Fujairah’s treasury desk is active in helping its energy sector clients protect against price swing risks and structure inventories into hedged assets.

At the right place, at the right time

Oil price dynamics are difficult to predict, and investment decisions in the industry are examined very closely. Fujairah’s investment outlook is built on strong fundamentals. The world continues to consume more oil and the Arabian Gulf region also continues to produce more oil.

With its superb location, excellent oil infrastructure and increasingly sophisticated financial services sector, Fujairah will continue to raise its profile as one of the world’s leading oil trading hubs.

Upcoming projects

Fujairah is developing several government, oil and gas, infrastructure and housing projects. One of the most prominent is that of Dibba Fujairah Port. Two 650-metre docks with an 18-metre depth and cranes with a capacity of 4,000 tonnes per hour are being constructed.

“The development of the port at an overall estimated cost of Dh1.6 billion aims to facilitate the transportation of primary materials, to meet growing global demand and the requirements of all types of ships,” said His Highness Sheikh Hamad bin Mohammed Al Sharqi, Member of the Supreme Council and Ruler of Fujairah. The multi-purpose commercial port is expected to complete by the end of 2022.

The construction of the Dh1.9 billion Mohamed bin Zayed Residential City was completed last year. It will accommodate 1,100 residential villas equipped with advanced facilities, with the aim of providing housing for about 7,000 citizens. It will also include schools, mosques, parks, and commercial stores, community cultural centre and a men’s council.

The region is also anticipating the inauguration of the Etihad Rail project, which is expected to strengthen its economic sectors through the establishment of three stations starting with Khatmat Al Malaha Station that will link the UAE to Oman, Fujairah Station and Khor Fakkan Port Station.

The Ministry of Energy and Infrastructure in coordination with the local authorities in the Emirate of Fujairah recently opened, the Najimat tunnel, which will contribute to the smooth flow of traffic and raise the efficiency of Sheikh Hamad bin Abdullah Road.

The Fujairah F3 Independent Power Project was the winner of the Power Deal of the Year. The project includes the construction of a 2,400 megawatt combined cycle power plant. All generated power will be sold to the Emirates Water and Electricity Company under a 25-year power purchase agreement. It is due to start commercial operation in April 2023.

Khaleej Times, February 25, 2021

The oil, gas and chemical industries have always been quick to respond to macroeconomic changes. Demand for these three products is therefore an important indicator for economic development. Vice versa, the market for oil and chemicals is heavily influenced by socio-economic trends. While the impact of Covid-19 on the global economy obviously is enormous, there are also other key factors to consider when creating a market outlook for the oil and chemical industry. In this blog, we share our predictions regarding changing supply/demand imbalances in liquid bulk and their impact on the storage markets.

Electric vehicles on the rise

Over the past few years, the market for electric mobility has seen incredible growth. In 2019, the global electric car fleet exceeded 7.2 million, up 2 million from the previous year. With more and more electric car models being introduced to the market and charging infrastructure improving, this strong growth is only expected to increase. The IAE estimates that by 2030, there will be over 250 million electric vehicles (excluding three/two-wheelers) on the world’s roads. According to the IEA, the projected growth in the Sustainable Development Scenario of electric vehicles would cut oil products by 4.2 million barrels/day. (source)

Effects of lockdowns on fuel consumption

When we zoom in on North-Western Europe, the market outlook for the oil and chemical industry is poised to see some significant shifts over the coming years, especially regarding fuels. The ongoing move to sustainable energy sources aside, the demand for road and jet fuels has, of course, been strongly influenced by the ongoing Covid-19 pandemic. While the short-term effects of national lockdowns on demand for fuels are relatively straight-forward (fuel consumption is strongly linked with people’s mobility patterns), it will be the longer-term effects that are the most interesting to keep an eye on.

The ‘new normal’

Any economist will tell you that human behavior is notoriously hard to predict. Still, experts agree that the pandemic most likely will lead to a subtle yet noticeable shift in consumer behavior and travel habits.

Large corporations like banks, IT companies, and insurers are already preparing for a ‘new normal,’ where their staff will work more from home after Covid-19 than they did before. While the technology and infrastructure for remote working have already been in place for the past few years, both office workers and their employers have now experienced that it is possible to work from home at a large scale. Online meetings via Teams or Zoom have shown to be viable alternatives for in-person meetings. That’s not to say that face-to-face meetings at an office have become a thing of the past, but the advantages of online meetings have become more apparent.

As it could be that people will commute less to their offices, a decline in overall car traffic volume is expected. Together with the ongoing electrification of road vehicles, we expect that the current surplus for gasoline will increase further. When we take a look at diesel consumption, reversed dieselization of passenger cars will lead to a faster decline than we will see for gasoline. That being said, because the electrification of trucks is not expected to happen in the coming years, there will still be a large volume of diesel consumption left. 

While the positive experiences with online meetings now offer a financial impulse for reducing business air travel, it’s currently difficult to forecast if people will fly for private purposes as much after Covid-19 as they did before. Nonetheless, the longer the pandemic drags on, the more significant its long-term impact on aviation will be. That’s why for jet fuel, we forecast that the current deficit for North-Western Europe will grow at a slower pace.

What’s next?

It is clear that the transition to sustainable fuel sources will greatly impact the tank storage terminals. The market outlook for the oil and chemical industry will see significant shifts in supply and demand, while the Covid-19 pandemic only adds further complexities to the market. That’s why market intelligence should be on the radar of every terminal operator.

During our regular Market Update webinars, we offer our expert outlook on supply, demand, and trade flows and their impact on tank storage demand. 

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