Louisiana Energy Conference: Superpowers Balance Energy Transition Demands Differently

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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--"The way I like to break down the world right now is, we have three superpowers, if we use the term loosely," said Nadia Martin Wiggen, partner and analyst, oil and gas securities for Oslo, Norway-based Pareto Securities. Wiggen spoke at the Louisiana Energy Conference last week in New Orleans. In a presentation entitled, "Navigating Through the Energy Crisis," Wiggen named the U.S., Europe and China as the three superpowers.

"All of these locations and superpowers are trying to transition from more fossil fuel-intense economies to more sustainable economies. And we're all trying to balance affordability, sustainability and security along those lines," she said.

Each region, however, juggles affordability, sustainability and security in a different order. In the U.S., the priority has long been affordability. When energy is cheap, the U.S. economy "can have lots of services and manufacturing, spending and create things and sell them abroad at a competitive advantage."

For China, security tops the list, especially in today's world. Wiggen noted that Chinese President Xi Jinping in a recent speech had spoken more about the nation's security than its economy, "which has never happened before," since the days of Mao Zedong.

As a result, the government's energy dollars have been flooding into Russia. "They want to be their (Russia's) number one buyer of oil and gas." While that does not mean they have abandoned sustainability--also being the world's top investor in renewables--even renewables in China are focused on energy security, in Wiggen's view. Part of that security focus involves the country actively adding to its strategic petroleum reserve (SPR), the opposite of what the U.S. is doing. In the latter's drive to keep prices low.

In the EU, Wiggen noted, "We have been the most focused on sustainability--at the expense of affordability and security." While inexpensive Russian natural gas flowed easily into the EU by pipeline, affordability was taken for granted as the second most important goal.

But Russia's 2022 invasion of Ukraine hugely threatened affordability and security. Now, she said, security has moved up in Europe's pecking order. And when affordability goes away, so does demand, which is indeed what has happened in the EU over the last year. At the end of 2022, a cold weather wave caused natural gas prices to spike in the U.K. despite the country's large liquefied natural gas (LNG) import options--because it lacks storage capacity.

Electricity prices also spiked, due in part to the gas price hike. The EU and U.K.'s massive switch to wind power contributed to the power price jump, as there was little wind with the cold weather.

Natural Gas from the U.S.
The natural gas picture for the U.S. and the rest of the world "depends on the U.S. developing more natural gas for LNG export." But current natural gas prices make building any infrastructure a gamble. Indeed, producing gas at all is not profitable. Europe is boosting import capacity, but prices there are rising because U.S. production is not poised to keep up with the import capacity.

Supply/Demand Issues Affect Price
While the U.S. is producing much more oil than it did in the 1980s, global oil demand is twice what it was in the 80s. "Yes, the U.S. is looking at producing 13 million barrels of oil a day versus 9 (million barrels) that they were before. But now we're looking at global oil demand of more than 100 million barrels a day," versus 45 million barrels per day in the 80s. Overall, the global oil situation is extremely tight, although releases from the Strategic Oil Preserve (SPR) by the Biden administration somewhat relieved the situation. But, said Wiggen, with a Republican-controlled House of Representatives, the administration will find it harder to continue releases from the SPR, especially as the 2024 elections approach.

Production in the Permian Basin will likely decline, Wiggen said, especially in the shale patch, because producers with gassy Permian wells are now seeing a break-even price of $100 per barrel due to dealing with associated gas. With prices hovering around $70, that may discourage more production.

Wiggen said she sees oil and gas being part of the energy mix for years to come. But for it to be affordable, much investment will be required. "In order to maintain flat oil and gas production from where we are today, we need $500 (billion) to $650 billion of investment each year," she said. That may happen in 2023, but "probably not in coming years without much stronger oil prices."

In the transition, "If we don't have oil and gas to support industries, or consumers ... having blackouts, then the whole transition doesn't work." Which, she said, is why OPEC is dedicated "to controlling the downside of this oil market."

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