Best in Energy – 20 February 2023

Freeport LNG’s poor safety culture ($FT) ¹

Asia’s diesel margins fall to 11-month low

IEA chief warns of gas shortage next winter

Pakistan/Bangladesh hit by expensive LNG

China becomes major LNG reseller ($BBG)

CFTC reports still disrupted by cyber attack

U.S. construction worker shortages ($FT)

Semiconductor prices fall by a third ($BBG)

China/Russia diplomatic ties deepen ($WSJ)

U.S./China espionage history review ($FT)

¹ Freeport LNG suffered a catastrophic failure after multiple safety systems failed and personnel ignored warning signs and lost situational awareness about the state of the plant. The resulting explosion is a classic example of what James Reason called an “organisational accident” – multiple systems should have prevented an incident but they were allowed to erode because of a poor internal safety culture leading to a rapid increase in risk (“Managing the risks of organisational accidents”, Reason, 1997).

Reason’s book is one of the best I have read on any topic, offering powerful insights in an engaging and accessible way. He provides a general framework for understanding why many catastrophic industrial and transportation failures happen. Everyone operating critical systems and machinery should be required to read it as part of their training. I can strongly recommend it to everyone else who is interested in safety, reliability and resilience systems.

U.S. OIL AND GAS drilling rates have stalled in response to the slump in prices since the third quarter of 2022. There has been no net increase in the number of active rigs (760) for the last 31 weeks:

Best in Energy – 6 February 2023

[MUST READ] Russia targets Ukraine power grid

Shadow tankers fleet rises to 600 vessels ($BBG)

London heat island and excess mortality ($BBG)

South Africa’s coal exports hit by gangs ($BBG)

U.S. labour market’s surprising strength ($BBG)

China’s balloon flight and U.S. countermeasures

China’s previous balloon overflights ($WSJ) ¹

China’s high-altitude balloon programme ($FT)

¹ China’s high-altitude balloon overflight across North America and the U.S. decision to shoot it down is being almost totally ignored by the country’s main state-controlled media, suggesting the government is still deciding its response and/or is keen not to allow the episode to worsen relations further.

U.S. OIL DRILLING is slowing in response to the slide in prices since the middle of 2022 (when WTI was trading around $120 per barrel) especially since the start of November (when it was still $90-95). Typically there is a 15-20 week lag between a change in futures prices and a change in number of active rigs. The number of rigs drilling for oil has fallen in 7 of the last 9 weeks by a total of -28 rigs (-4%). The drilling reduction is the largest since July and August 2020 when the industry was still in shock after the first wave of the pandemic and the volume war between Russia and Saudi Arabia:

Best in Energy – 27 September 2022

Russia gas pipelines hit by suspected sabotage¹

Nord Stream says three lines damaged in one day¹

U.S./EU lobby for Russian oil exports price cap

LNG market consolidated by higher credit costs

Nigeria’s electricity collapses for fourth time in 2022

California tries to balance EVs with grid limits ($WSJ)

U.S. refined petroleum exports hit record high

U.K. energy agency distracted by restructure ($FT)

U.S./China academic exchanges diminish ($FT)

U.S./China cyber-espionage (trans.)

¹ Like damage to other subsea pipelines and cables, the leaks in the Nord Stream 1 and 2 pipelines could have been caused accidentally by a trawler, a ship’s anchor dragging, or a submarine. But pipelines are marked on nautical charts and such incidents are rare. The probability of two pipelines being accidentally breached at the same time, reportedly in three separate locations, when both lines are at the centre of a major international dispute, is very low, which makes it much more likely they were unintentionally damaged by a submarine or deliberately sabotaged.

BRENT’s front-month futures price is back to year-ago levels once adjusted for core inflation excluding food and energy prices. The real price of $85 per barrel (U.S.$2022) is close to long-term averages since 2010 (53rd percentile) and 2000 (46th percentile) though still somewhat above the average since 1990 (69th percentile):

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