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Global Energy Investment Slumped 12% to $1.7trn in 2016

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  • Global Energy Investment Slumped 12% to $1.7trn in 2016

The world’s total energy investment was $1.7 trillion in 2016, having dropped by 12 per cent from 2015 in real terms and accounted for 2.2 per cent of global gross domestic product (GDP), World Energy Investment 2017 has revealed.

The WEI, a publication of International Energy Agency, which was released in July, noted that increase in spending on energy by nine per cent with six per cent rise in electricity networks were more than balance a continuing drop in investment in upstream oil and gas, which fell by over a quarter, and power generation, down five per cent.

According to the report, “Falling unit capital costs, especially in upstream oil and gas, and solar photovoltaics (PV), was a key reason for lower investment, though reduced drilling and less fossil fuel-based power capacity also contributed.”

Pointing out that, “The electricity sector edged ahead of the fossil fuel supply sector to become the largest recipient of energy investment in 2016 for the first time ever,” WEI disclosed that, “Oil and gas represent two-fifths of global energy investment, despite a fall of 38 per cent in capital spending in that sector between 2014 and 2016.”

“As a result, the low-carbon components, including electricity networks, grew their share of total supply-side investment by twelve percentage points to 43 per cent over the same period,” it added.

The WEI reported that China remained the largest destination of energy investment, taking 21 per cent of the global total. “With a 25 per cent decline in commissioning of new coal-fired power plants, energy investment in China is increasingly driven by low-carbon electricity supply and networks, and energy efficiency. Energy investment in India jumped 7 per cent, cementing its position as the third-largest country behind the United States, owing to a strong government push to modernise and expand India’s power system and enhance access to electricity supply.”

According to the report, “The rapidly growing economies of Southeast Asia together represent over 4 per cent of global energy investment. Despite a sharp decline in oil and gas investment, the share of the United States in global energy investment rose to 16 per cent – still higher than that of Europe, where investment declined 10 per cent – mainly as a result of renewables.”

On key trends in energy investment by sector, WEI pointed out that, after a 44 per cent plunge between 2014 and 2016, upstream oil and gas investment has rebounded modestly in 2017.

“A 53 per cent upswing in US shale investment and resilient spending in large producing regions like the Middle East and the Russia Federation (hereafter, “Russia”) has driven nominal upstream investment to bounce back by six per cent in 2017 (a three per cent increase in real terms). Spending is also rising in Mexico following a very successful offshore bid round in 2017.

“There are diverging trends for upstream capital costs: at a global level, costs are expected to decline for a third consecutive year in 2017, driven mainly by deflation in the offshore sector, although with only three per cent decline, the pace of the plunge has slowed down significantly compared to 2015 and 2016. The rapid ramp up of US shale activities has triggered an increase of US shale costs of 16 per cent in 2017 after having almost halved from 2014-16,” it stated.

Similarly, WEI revealed that global electricity investment fell just below one per cent to $718 billion, with an increase in spending on networks partially making up for a drop in power generation. “Investment in new renewables-based power capacity, at $297 billion, remained the largest area of electricity spending, despite falling back by three per cent. Renewables investment was three per cent lower than five years ago, but capacity additions were 50 per cent higher and expected output from this capacity about 35 per cent higher, thanks to declines in unit costs and technology improvements in solar PV and wind. Investment in coal-fired plants fell sharply, with nearly 20 gigawatts (GW) less commissioned, reflecting concerns about local air pollution and the emergence of overcapacity in some markets, notably China, though investment grew in India. The investment decisions taken in 2016, totalling a mere 40 GW globally, signal a more dramatic slowdown ahead for coal power investment once the current wave of construction comes to an end.

Nevertheless, the report further stated that, “Gas-fired power investment remained steady in 2016, but nearly half of it was in North America, the Middle East and North Africa where gas resources are abundant.”

According to the report, “In Europe, although 4 GW of new capacity came online based on investment decisions made years ago, retirements of gas-power plants exceeded the amount of new capacity that was given the green light for construction. The 10 GW of nuclear power capacity that came on line in 2016 was the highest in over 15 years, but only 3 GW started construction, situated mostly in China, which was 60 per cent lower than the average of the previous decade.”

“Spending on electricity networks and storage continued its steady rise of the past five years, reaching an all-time high of $277 billion in 2016, with 30 per cent of the expansion driven by China’s spending in the distribution system. China accounted for 30 per cent of total networks spending. Another 15 per cent went to India and South-east Asia, where the grid is expanding briskly to accommodate growing demand. In the United States (17 per cent of the total) and Europe (13 per cent), a growing share is going to the replacement of ageing transmission and distribution assets,” the report said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Sirius Petroleum and Baker Hughes Collaborate on OML 65 Drilling in Nigeria

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Sirius Petroleum, the Africa-focused oil and gas production and development company, has signed a memorandum of understanding with Baker Hughes. The MoU names Baker Hughes as the approved service provider for Phase 1 of the Approved Work Program (AWP) of the OML 65 permit, a large onshore block in the western Niger Delta, Nigeria. Baker Hughes will provide a range of drilling and related services at a mutually agreed upon pricing structure to deliver the initial nine-well program.

Sirius has signed various legal agreements with COPDC, a Nigerian joint venture, to implement this program. COPDC has signed a Financial and Technical Services Agreement (FTSA) with the Nigerian Petroleum Development Company (NPDC) for the development and production of petroleum reserves and resources on OML 65. The FTSA includes an AWP which provides for development in three phases of the block. and Sirius has entered into an agreement with the joint venture to provide financing and technical services for the execution of the PTA.

The joint venture will initially focus on the redevelopment of the Abura field, involving the drilling and completion of up to nine development wells, intended to produce the remaining 2P reserves of 16.2 Mbbl, as certified by Gaffney Cline and Associates (GCA) in a CPR dated June 2021.

Commenting, Toks Azeez, Sales & Commercial Executive of Baker Hughes, said: “We are extremely happy to have been selected for this project with Sirius and their JV partners. This project represents an important step towards providing our world-class integrated well-service solutions in one of the most prolific fields in the Niger Delta. Baker Hughes’ technological efficiency and execution excellence will help Sirius improve its profitability and competitiveness in the energy market.”

Bobo Kuti, CEO of Sirius, commented: “We are delighted to have secured the services of one of the world’s leading energy technology companies to work with our joint venture team to deliver the approved work program on the block. OML 65. We look forward to building a long and mutually beneficial partnership with Baker Hughes.”

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Egbin Decries N388B NBET Debt, Idle Capacity

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Egbin Power Plc, the biggest power station in Nigeria, has said it is owed N388bn by the Nigerian Bulk Electricity Trading Plc for electricity generated and fed into the national grid.

The company disclosed this on Tuesday during an oversight visit by the Senate Committee on Privatisation, led by its Chairman, Senator Theodore Orji, to the power station, located in Ikorodu, Lagos.

The government-owned NBET buys electricity in bulk from generation companies through Power Purchase Agreements and sells it to the distribution companies, which then supply it to the consumers.

The Group Managing Director, Sahara Power Group, Mr. Kola Adesina, told the lawmakers that the total amount owed to Egbin by NBET included money for actual energy wheeled out, interest for late payments and available capacity payments.

Egbin is one of the operating entities of Sahara Power Group, which is an affiliate of Sahara Group. The plant has an installed capacity of 1,320MW consisting of six turbines of 220 megawatts each.

The company said from 2020 till date, the plant had been unable to utilize 175MW of its available capacity due to gas and transmission constraints.

Adesina said, “At the time when we took over this asset, we were generating averagely 400MW of electricity; today, we are averaging about 800MW. At a point in time, we went as high as 1,100MW. Invariably, this is an asset of strategic importance to Nigeria.

“The plant needs to be nurtured and maintained. If you don’t give this plant gas, there won’t be electricity. Gas is not within our control.

“Our availability is limited to the regularity of gas that we receive. The more irregular the gas supply, the less likely there will be electricity.”

He noted that if the power generated at the station was not evacuated by the Transmission Company of Nigeria, it would be useless.

Adesina said, “Unfortunately, as of today, technology has not allowed the power of this size to be stored; so, we can’t keep it anywhere.

“So, invariably, we will have to switch off the plant, and when we switch off the plant, we have to pay our workers irrespective of whether there is gas or transmission.

“Sadly, the plant is aging. So, this plant requires more nurturing and maintenance for it to remain readily available for Nigerians.

“Now, where you have exchange rate move from N157/$1 during acquisition in 2013 to N502-N505/$1 in 2021, and the revenue profile is not in any way commensurate to that significant change, then we have a very serious problem.”

He said at the meeting of the Association of Power Generation Companies on Monday, members raised concern about the debts owed to them.

He added, “All the owners were there, and the concern that was expressed was that this money that is being owed, when are we going to get paid?

“The longer it takes us to be paid, the more detrimental to the health and wellbeing our machines and more importantly, to our staff.”

Adesina lamented that the country’s power generation had been hovering around 4,000MW in recent years.

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Crude Oil

Oil Rises on U.S. Fuel Drawdowns Despite Surging Coronavirus Cases

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Oil prices climbed on Wednesday after industry data showed U.S. crude and product inventories fell more sharply than expected last week, reinforcing expectations that demand will outstrip supply growth even amid a surge in Covid-19 cases.

U.S. West Texas Intermediate (WTI) crude futures rose 48 cents, or 0.7%, to $72.13 a barrel, reversing Tuesday’s 0.4% decline.

Brent crude futures rose 34 cents, or 0.5%, to $74.82 a barrel, after shedding 2 cents on Tuesday in the first decline in six days.

Data from the American Petroleum Institute industry group showed U.S. crude stocks fell by 4.7 million barrels for the week ended July 23, gasoline inventories dropped by 6.2 million barrels and distillate stocks were down 1.9 million barrels, according to two market sources, who spoke on condition of anonymity.

That compared with analysts’ expectations for a 2.9 million fall in crude stocks, following a surprise rise in crude inventories the previous week in what was the first increase since May.

Traders are awaiting data from the U.S. Energy Information Administration (EIA) on Wednesday to confirm the drop in stocks.

“Most energy traders were unfazed by last week’s build, so expectations should be high for the EIA crude oil inventory data to confirm inventories resumed their declining trend,” OANDA analyst Edward Moya said in a research note.

On gasoline stocks, analysts had expected a 900,000 barrel decline drop in the week to July 23.

“The U.S. is still in peak driving season and everyone is trying to make the most of this summer,” Moya said.

Fuel demand expectations are undented by soaring cases of the highly infectious delta variant of the coronavirus in the United States, where the seven-day average for new cases has risen to 57,126. That is about a quarter of the pandemic peak.

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