Today’s critical meeting of OPEC members is being touted as the “Most Important OPEC Meeting Ever” as many are saying that the crude oil cartel’s role in controlling oil prices will be lost if there is no agreement to cut production and dramatically increase the world price of oil. And any meaningful agreement would have to involve “real” production cuts not only among the OPEC members themselves, but also non-OPEC members such as Russia.

The International Energy Agency says that higher crude oil prices will only bring more US shale oil back into production offsetting the effectiveness of any OPEC cut. In effect, the IEA is saying that OPEC has already lost its cartel pricing power.

India is now the world’s fastest growing consumer of crude oil whose demand for fossil fuels is forecast to surge in the next two decades.

Russia is rapidly assuming the role of leading crude oil supplier to China, taking over the lead in the first ten months of this year. Imports from Russia in October were 1.1 million barrels per day (b/d), 39% higher than a year earlier. During October, imports from Iran were 773,000 b/d; from Iran 875,000 b/d, and from Saudi Arabia, 935,000 b/d.

Argentina is beginning to open up access to the Vaca Muerta shale area. The country is investing $1.2 billion in railways, roads and highways to connect to the area. The US Energy Information Administration estimates total recoverable hydrocarbons from this area to be 16.2 billion barrels of oil and 308 trillion cubic feet of natural gas.

For the first time in decades, the economic situation in the desert kingdom of Saudi Arabia is not good. Efforts to diversify the economy away from oil and make major spending cuts in the midst of the low-oil-price crisis is taking the country into the first non-oil recession in 30 years. Government bills are not being paid, the benefits of public sector workers, which comprise a large portion of the working Saudi citizens, are being cut, and the air war in Yemen is becoming expensive and leading to widespread disapproval of Saudi policies.  If oil prices remain low, the royal family will no longer be able to buy acquiescence in its rule. Ten years from now we could easily see a different Saudi Arabia.

Venezuela’s currency lost over 45% of its value this month, the largest monthly decline ever. At this rate hyperinflation could easily destroy the economy. Hungry Venezuelans are fleeing the country by every means possible. China says it plans to invest $2.2 billion in Venezuela in return for an increased share of the country’s crude oil production. Venezuela is already sending some 550,000 barrels per day to China in lieu of loans the South American country received in the last ten years. The new deal would increase China’s daily imports from Venezuela to 800,000 b/d. In the short-term loans from China may help Venezuela’s economy, but in the long run sending 800,000 b/d of its oil production to China in return for nothing does the economy little good. Either the financial system will break down completely, the popular demonstrations will become too large for the security forces to contain, or there will be a military coup and civil war and another refugee problem. How the country’s crude oil production will fare in the event of a societal collapse remains to be seen.

The population of Nigeria in West Africa is now up to 188 million and many in the northern regions are facing starvation. The UN forecasts that Nigeria will grow to 400 million by the end of this century. While the situation is not as bad as in Venezuela, the social decay that is talking place in the country on many fronts suggests that crude oil production will decline over the next decade.  Government revenue has plunged, foreign currency is scarce, and the state is falling behind on payments owed to the international oil companies.

In light of low world crude oil prices and plummeting energy company values, private equity funds are raising record amounts of capital for energy investments. Most of that money is earmarked for US shale assets but some is now extending to cheap global oil and natural gas assets in Asia.

Ten of the world’s top 25 crude oil producing countries that are experiencing declining reserves-to-production ratios will face serious problems down the road unless new reserves are found and exploited. The list, in increasing order of problems: Brazil, China, Malaysia, Angola, Indonesia, Mexico, the US , Norway, the UK, and Colombia.

Demand for electric battery metals are expected to soar over the next decade, according to industry experts. This includes lithium, cobalt, nickel, manganese, silicon, and graphite. The drivers of this demand are batteries for electric cars as well as storage batteries for producers of renewable electricity.  Lithium demand already significantly outpaces supply. Spot prices in China have reached $25,000 per metric ton this year, compared with long-term contract prices of $4,000-$7,000/mt, reflecting its scarcity.

Japanese electronics manufacturer Panasonic is abandoning plasma display panels and other consumer lines to invest in a new project: becoming an automobile parts supplier. The company is spending up to $1.6 billion and providing 200 of its employees to help Tesla build its $5 billion battery gigafactory in the US — in return for which it becomes the exclusive supplier of batteries for Tesla’s mass-market Model 3 electric car. It expects these investments to pay off within two years as tougher auto emissions regulations boost demand for EVs. In addition to Tesla, Panasonic has other investments in the new electric, self-driving auto future. It supplies Toyota and Volkswagen with electric vehicle batteries and makes infotainment systems, advanced cameras and sensors for all automobiles. The company is also considering a bid for parts of Nissan’s car battery manufacturing venture with NEC, in order to expand its battery technology and manufacturing capability to meet future EV demand.

The UK announced it is pledging £390 million ($485 million) investment in future transport technology, including electric and driverless cars, renewable fuels, and energy efficient transport. £80 million ($99 million) will be invested towards installing charging points for ultra-low emission vehicles; £150 million ($186 million) hopes to provide at least 550 new electric and hydrogen buses, and another £100 million ($124 million) will be spent towards testing infrastructure for driverless cars.

 

 

with h/t Tom Whipple

 

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