Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
We better hope that some Chinese spies talk in their sleep because China has energy secrets they want to keep. As the US seems to be signaling that they will take draconian steps to try to achieve a carbon pollution-free power sector by 2035 and net zero emissions economy by no later than 2050, will any of that matter to the world if China does not step in to do the same? How will we know if they decide to keep it a secret?
The oil market got rattled on bank downgrade fears yesterday and to a lesser extent China’s economic concerns that is being offset by a report of a massive 6.195-million-barrel crude oil draw from American Petroleum Institute. This is signaling to the world we are embarking on a global supply demand deficit that will raise new and significant challenges for global central bankers that are now worried about US bank downgrades. They should also be worried about an oil price spike.
The combination of falling US rig counts and a new report from Bloomberg News that cites a report from research firm Enverus. The reports say that, “Shale oil well production decline rates are steeper than expected. That means that drillers will have to drill more wells to keep over all US oil production from falling. Yet based on the trends in the US oil rig counts, that is not happening and is increasing the odds for an even larger global oil supply deficit.
That creates a larger issue over hanging the global energy sector of a potential global competition to secure adequate and reasonably priced oil supply. So, will China be willing to take real steps to reduce greenhouse gas emissions or are they going to do whatever it takes to achieve energy security and dominance while the United States retreats from the same in an effort to save the planet even if the plans are doomed to failure without China’s cooperation. It’s a secret.
Zhang Jianhua, secretary of the party group and director of the National Energy Administration, is in China and put out a report that suggests that China understands the energy challenges as far as meeting demand and it is not in line with the country going carbon neutral. Mr Jianhua said, “Energy is the food of industry and the lifeblood of the national economy, which is related to the survival and development of mankind and is related to the national economy and people’s livelihood and national security.” In the report he said, “To ensure national energy security, we must stand at the height of strategy and the overall situation, unswervingly implement the overall national security concept, continue to strengthen the concept of security and confidentiality and risk prevention awareness, and effectively run the safety and confidentiality requirements throughout all aspects of the energy work.” There’s not a lot about wind turbines in that statement. He also suggests that how China meets those goals or their commitment to reducing carbon emissions is nobody’s business.
He seems to define his realistic take on the energy risks facing China by saying, “Energy is related to economic prosperity and long-term social stability, promoting the revolution of energy production and consumption, holding the strategic bottom line of self-sufficiency in domestic production of important energy, and effectively ensuring national energy security, which is an inevitable requirement for the construction of an energy power” and said “And we must also be soberly aware that China’s foreign dependence on oil and gas is as high as 70% and 40% respectively, and there are still shortcomings in the security protection of energy infrastructure, and ensuring the security and stable supply of energy is still facing great challenges.”
As far as renewables are concerned he wrote, “We must create a safe environment for energy transition and development. China is the world’s largest energy consumer, with a large total base, and a relatively high proportion of carbon emissions from energy consumption, and the task of promoting carbon peak and carbon neutrality is arduous.” He said that, “Some contradictions and problems in the development of energy transformation are often the focus of foreign hostile forces that want to steal and attack. They have kept a close eye on China’s energy sector and stepped up the collection of all kinds of data and information to distort and slander China’s energy strategic planning, transformation and development, and interfere with the hard-won security and stability environment affecting China.”
Mr Jianhua says, “To promote the green and low-carbon transformation of energy, we must correctly understand the basic national conditions that China is still in the primary stage of socialism, rationally view the practical problems in the development process such as the relatively large proportion of fossil energy consumption and high energy consumption per unit of GDP, and predict the public opinion that may be generated in advance, and deal with it in a timely manner, so as to provide a safe external environment for the healthy development of the energy sector, so as to support the stable and orderly operation of the economy and society.”
To that point it was reported that China is buying the most oil from Iran in a decade. Bloomberg reports, “The world’s biggest oil importer will take about 1.5 million barrels a day of crude from Iran this month, according to an estimate from Kpler. That compares with an average of 917,000 barrels a day in the first seven months of the year and would be the highest in the Kpler figures that go back to 2013.” As I also pointed out earlier the 6.195-million-barrel crude oil drawdown could signal the beginning of a trend of sharply falling crude oil supplies in the United States and the world. That draw came with another big 1,000,000-barrel drawdown in Cushing, OK.
The report also showed more stress on the distillate sector as supplies of distillate fell yet again by 800,000 barrels, which supplies globally well below the 10-year average. Gasoline inventories did manage to eke out a 700,000-barrel increase. If the Energy Information Administration (EIA) confirms this data, it should be enough for the market to shake off those concerns about Chinas economy. China is still consuming a lot of oil. Even US bank downgrade fears the fact is that we are facing a global supply squeeze. Be prepared.
Natural gas was setting back on hopes that the extreme heat that we’ve seen in big parts of the country is going to cool down. In Texas that’s not the case as the heat stays on and the wind is low. The Energy Information Administration reported yesterday that US. natural gas pipeline exports to Mexico set a monthly high in June 2023. They said that U.S. natural gas pipeline exports to Mexico averaged a record 6.8 billion cubic feet per day (Bcf/d) for June 2023, which is 0.1 Bcf/d greater than the previous record set in June 2021, according to data from Wood Mackenzie.
Natural gas exports to Mexico surpassed 7.0 Bcf/d on nine days in June, driven by higher-than-normal temperatures that increased demand for natural gas in Mexico’s electric power sector.
U.S. natural gas pipeline exports to Mexico generally peak in the summer due to increased demand for electricity to power air conditioning. Mexico’s electric power sector consumption has grown by an average of 3% every year since 2018, according to data from Wood Mackenzie.
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