With the first month of 2023 almost in the books, we wanted to take a moment to look back at some of the key analyst takes on energy trends published by our Enverus Intelligence® | Research (EIR) team at the end of 2022, so you can confidently assess how they may affect your business decisions going forward.
Read on to stay ahead of the game when it comes to staying informed about current and future energy opportunities!
Oil prices to remain high through 2023: A constructive view driven by policy, investment and geopolitical factors (Dec. 22, 2022)
EIR’s constructive view on oil prices is driven by an interplay of policy, investment and geopolitical drivers, which will keep global oil supply tight through 2023 and beyond, pinning oil prices toward the top end of the post-COVID-19 range. High prices amid a spluttering global economy engender longer-term risks for oil however, since counter-cyclical high prices could deepen and prolong an economic recession, testing consumers’ tolerance until more violent demand destruction occurs.
Natural gas prices drop as warmer temperatures return: Will production freeze-offs repeat February 2021 event? (Dec. 19, 2022)
The prompt NYMEX contract has fallen more than 10% today to below $6.00/MMBtu as warmer temperatures have become more established for the latter part of the 15-day forecast. Near-term temperatures are expected to trend well below normal and bottom out around Christmas time. All eyes will be on the severity of production freeze offs and whether they will rival the February 2021 event which led to a 7 Bcf/d month-over-month decline in Lower 48 dry gas production. The Permian was the largest contributor to this decline with Midland, Texas, during the February 2021 event, recording about nine consecutive days of below freezing temperatures with the lowest daily mean temperature of 7.4 degrees Fahrenheit. Current forecasts are not nearly as dire and only show about three consecutive days of below freezing temps with Friday’s forecast of 14.7 degrees Fahrenheit being the coldest.
OPEC+ to rollover oil supply targets as group watches impact of EU sanctions, G7 proposals and Chinese demand (Dec. 2, 2022)
The OPEC+ oil producers are set to rollover their oil supply targets when they meet virtually this weekend, following on from the 2 MMbbl/d nominal cut they announced in October. Despite Saudi comments over the last month that further cuts could be made in order to stabilize balances that are under siege from worsening recessionary indicators, the producer group is now planning to allow more time to establish the impact of the EU sanctions on Russian oil exports, the G7-proposed oil price cap on Russian exports and a better sense of the outlook for Chinese oil demand in 2023 as Beijing’s COVID policies remain in flux. While there is no date for a subsequent meeting, the OPEC president can call a meeting at any time to discuss further cuts if they are needed. A likely OPEC+ rollover does not in EIR’s view mark a departure in OPEC oil supply policy that aims to keep global stocks well below the 5YA and pin Brent around $90/bbl.
OPEC’s denial of oil output hike report highlights finely balanced markets and relevance of Saudi Arabia’s influence (Dec. 2, 2022)
Yesterday’s Wall Street Journal report suggesting that OPEC+ would consider an oil output hike of 500 Mbbl/d at its next meeting was enough to cloak OPEC’s recent pivot to supply management in a large cloud of doubt. With financial markets already on edge over recession and the pace of monetary tightening, oil slid fast to test lows not seen since January, before the Ukraine war broke out. But Saudi Arabia didn’t hesitate to correct the record. Within hours, the energy minister had made an unusual formal statement denying the report, reiterating the existing cuts and pointing out that OPEC+ could cut deeper if needed to help balance markets. Oil prices responded by erasing most of the earlier losses. For a group of producers who have long preferred issuing smoke signals through unnamed sources, refuted reporting is hardly new. But it does underline two important conclusions for market participants at a febrile moment for oil markets. First, what Saudi Arabia says and does on oil supply is still highly relevant to global oil balances. Second, this oil market is finely balanced, and while EIR still see structurally tight supply as bullish heading into 2023, we also acknowledge the risks of a more violent collapse in demand. EIR is not forecasting that, but it is a tail risk.
Johan Sverdrup field boosts Norway’s oil production: Equinor’s Phase 2 development on schedule (Dec. 15, 2022)
Equinor has started production from Phase 2 of the Johan Sverdrup field on schedule. The development will boost oil production from 500 Mbbl/d to 720 Mbbl/d, contributing about a third of Norwegian oil production. EIR expects the field to increase 2023 Norwegian production to ~2.1 MMbbl/d. Norway’s oil production growth is key to offsetting output declines in EIR’s NOCAR region (not OPEC, Canada, U.S. or Russia).
APA and partner TTE discover non-commercial well in northern Block 58, oil resource below FID threshold in eastern Block 58 (Nov. 28, 2022)
APA announced a non-commercial discovery on the Awari well (operated by 50-50 partner TTE), which follows the Bonboni well as the second such result in the northern portion of Block 58. In the western portion of the block, gas-commerciality snags are deterring FID; in the east, oil resource from several black oil discoveries appears below the FID threshold (especially after considering operator TTE’s cost carry). EIR estimates the JV requires finding an additional 300 MMbbl of black oil before sanctioning its first oil development hub in the eastern part of Block 58 between Sapakara South and Krabdagu.
West Coast gas market tightness worsened by cold weather and maintenance: Canadian operators stand to benefit from record-breaking prices (Dec. 15, 2022)
Short term issues like colder than normal weather and maintenance on El Paso Natural Gas and Gas Transmission Northwest (GTN) have exacerbated gas market tightness that was already prevalent on the West Coast gas after the Pacific Gas and Electric storage reclassification in the summer of 2021. Malin basis settled at $26.10/MMBtu recently, with the potential for more record shattering basis prints to come as West Coast temperatures are expected to plunge over the next five days. Canadian gas operators TOU, ARX, OVV and NVA all hold firm transportation on the GTN pipeline, which provides exposure to these historic prices.
Net Power’s innovative oxy-combustion technology poised to revolutionize low-cost, clean power generation with upcoming IPO? (Dec. 15, 2022)
Net Power’s (NPWR) announced IPO via SPAC will be a positive step forward in funding the company as it aims to develop its first utility scale power plant. NPWR developed an innovative technology that generates reliable, low-cost, clean power from natural gas using an oxy-combustion process to inherently capture CO2 emissions. The nature of oxy-fuel combustion significantly reduces the cost of capture but increases parasitic loads. Company disclosure suggests they can capture CO2 around $10/tonne, well below our average breakeven estimate of $65/tonne for similar sized natural gas plants retrofitted with MEA capture technology. However, these aren’t quite apples to apples comparison, as Net Power’s technology cannot be retrofitted onto existing plants. Using the 45Q carbon capture tax credits to offset fuel and operating costs, NPWR suggests it can operate at a cost of only ~$4/MWh, meaning it could compete with thermal power assets for dispatch. NPWR also calculates a $21 levelized cost of electricity (LCOE) at $3.50/MMbtu gas, which competes for capital with new wind and solar projects. However, EIR expects carbon transportation and storage to be major challenges for this technology in regions that are less friendly to pipelines. If their claimed power generation capacities, capture costs and LCOE prove true then this technology could be a game changer for low carbon, baseload power generation.
E3 Lithium secures funding for pioneering Direct Lithium Extraction in Alberta: Commercialization expected in 2026 (Nov. 18, 2022)
E3 Lithium, who is pioneering Direct Lithium Extraction (DLE) in Alberta, announced that it has received $27 million from Canada’s Strategic Innovation Fund. Although yet to be proven commercially viable, E3 Lithium has started on the path to commercialization, expected in 2026, with the completion of their first lithium evaluation well Oct. 27, 2022. At the site of their Clearwater Project, the well drilled into the Leduc Formation showed lithium concentrations in the range of 76 ppm, equal to roughly 64 grams of lithium carbonate equivalent (LCE) per barrel. With anticipated production of 20,000 tonnes of LCE per year, the project will need to flow massive amounts of water, more than 282 million barrels per year, or about 845,000 barrels per day. This will require a lot of wells. At 60,000 bbl/d per well, which EIR views as optimistic, the project will require at least 15 production wells and an equal number of injection wells.
CVX’s acquisition of Mercuria Energy’s Beyond6 highlights importance of securing CNG demand for RNG economics in the US (Nov. 22, 2022)
CVX’s acquisition of Mercuria Energy’s subsidiary Beyond6, which includes a network of 55 compressed natural gas (CNG) stations across the United States, highlights the importance of securing CNG demand to further strengthen RNG economics. Competition to gain access to transportation markets will increase as RNG project-level economics significantly improve after the passing of the Inflation Reduction Act. The Beyond6 deal is interesting as only 6% of Beyond6’s stations are in the California, the state where the maximum value for RNG occurs. Still, manure- and landfill-based biogas projects selling into transportation markets outside of California/LCFS-eligible state generate IRRs of 114% and 172% after the IRA.
Chevron’s Gorgon CCS project struggles with reservoir pressure challenges, offsets purchase suggests unforeseen reservoir heterogeneities (Nov. 17, 2022)
Chevron recently cited reservoir pressure challenges due to water management systems as the main contributor to its inability to meet targeted 2021 CO2 injection volumes at its Gorgon CCS project (1.65 Mt of CO2 injected vs. target of 4 mtpa). We believe suboptimal reservoir quality, possibly including unforeseen small scale reservoir heterogeneities, could be worsening the problem. The operator’s intention to purchase offsets suggests that the anticipated injection rates from reservoir modelling may not have accounted for such variability in the reservoir rock.
Staying ahead of the game
EIR’s analyst takes can make all the difference when it comes to your business decisions. Staying ahead of the game is paramount in this fast-paced sector, and monitoring new developments is key to success. To further stay informed on the energy industry, subscribe to EIR’s LinkedIn page, where you’ll find more insights on what’s in store for 2023 and beyond. We look forward to providing more valuable insight into navigating today’s ever-changing energy landscape.
About Enverus Intelligence Research
Enverus Intelligence Research, Inc. is a subsidiary of Enverus and publishes energy-sector research that focuses on the oil and natural gas industries and broader energy topics including publicly traded and privately held oil, gas, midstream and other energy industry companies, basin studies (including characteristics, activity, infrastructure, etc.), commodity pricing forecasts, global macroeconomics and geopolitical matters. Enverus Intelligence Research, Inc. is registered with the U.S. Securities and Exchange Commission as a foreign investment adviser.
