Japan's Efforts To Reduce Its Reliance On LNG

1. Exxon Sees Future in Chinese Petrochemicals

Despite a dramatic worsening in the US-Chinese relationship in the past years, US oil major ExxonMobil is betting big on Chinese petrochemicals demand, even if avoiding the limelight of media scrutiny.

Exxon’s $10 billion Huizhou plant, boasting the largest capacity among petchem projects being currently developed in the Asian country, will produce 1.6 mtpa of ethylene once commissioned.

In its proprietary energy outlook, the US firm expects demand for chemicals to increase by 42% between 2017 and 2030, with core refined products such as gasoline and diesel stagnating.

The petrochemical plant, also called “China 1”, should cater to domestic needs and is slated for start-up in 2025, with market rumors indicating overall production capacity could be quickly boosted if ExxonMobil wants to.

2. Japan Keeps Out of LNG Market

Japanese monthly imports of LNG have dropped to the lowest since at least 2022 in May, reflecting the government’s drive to bring back nuclear energy and consume less power.

According to Kpler data, Japan only imported 4.15 million tons of LNG with almost half of it coming from Australia, followed by Malaysia and Russia, a 30% decline year-on-year.

As the Japanese government appealed to households to conserve energy and not to stretch the power grid, power consumption fell to May 2020 levels, which was the peak of the first wave of Covid in the country.

Nuclear energy has been given a top priority for electricity generation, with Japan’s Upper House passing a bill to extend the operating period of nuclear plants to over 60 years this week.

3. Argentina’s Shale Needs Pipelines and Rigs to Triple in Size

Argentina’s shale revolution might be up for a dramatic production surge, provided takeaway capacity and rig availability do not limit upstream growth in the Vaca Muerta play.

Currently, Vaca Muerta shale output is slightly below 300,000 b/d, however exquisite geological properties and an oil yield superior to similar horizontal wells in the US should triple production by 2030.

Argentina’s shale plays would need more rigs as currently there are only 30 active rigs with an average drilling speed of 1.1 wells per rig per month, capping growth despite great technological improvements in proppant usage and spacing.

With pipeline takeaway capacity still around 300,000 b/d, Vaca Muerta’s production surge would need two key export conduits – Vaca Muerta Sur and Vaca Muerta Norte – to come online by the end of 2025.

4. UK Carbon Prices Decouple from Europe and Plunge to Multi-Year Lows

UK carbon prices have plunged to their lowest in three years, decoupling from the European ETS system, trading at £50 per metric tonne of CO2 equivalent (€58/mtCO2e).

The spread between UK and European carbon prices now stands at €22 per metric tonne, driven by a much more pronounced decline in Britain’s power demand and overall manufacturing.

Once dominated by fossil fuels, the United Kingdom’s energy mix has seen the share of natural gas decline to 34%, down 6 p.p. year-on-year, and coal disappear almost completely, offset by strong wind generation.

A precipitated collapse in UK carbon prices might compel the government to shrink the number of free allowances and London has announced it would carry out a comprehensive evaluation of its carbon scheme.

5. Mexico’s Largest Oil Discovery of Recent Decades Gets Approved

Mexico’s national oil company Pemex saw its production plan for the country’s largest yet-untapped oil field, the 675-million-barrel Zama, approved by the national regulator CNH this week.

Zama was discovered by deepwater driller Talos Energy back in 2017 and Pemex wrangled control over the field last year when Mexico decided a larger part of the field lies in Pemex’s adjacent license block.

According to the production plan, there will be a total of 46 wells drilled at the field, with peak crude oil output forecast at 180,000 b/d, to be reached by 2029.

The project partners Pemex and Talos Energy, recently joined by billionaire Carlos Slim’s Grupo Carso, still need to build most of the infrastructure for the field including two offshore platforms and a pipeline set, eyeing a late 2025 launch.

6. China Leads Europe EV Battery Building Drive

Chinese companies will fuel Europe’s green mobility development as rival European battery companies are still scarce, having spent $8.2 billion in 2022 alone on plants across Europe.

CATL’s $7.6 billion production facility in Hungary, set to start mass production in 2025, will be Europe’s biggest plant ever with an annual capacity of 100 GWh, satiating a large chunk of regional demand.

Prices for EV cells are up to a third cheaper in China than in Europe, allowing Chinese battery makers to control costs, further buoyed by much greater Chinese access to lithium miners.

Europe’s EV startups will face great headwinds to mature, further aggravated by China’s scalability of lithium-iron-phosphate batteries which are yet to be manufactured by non-Chinese rivals.

7. Congo Becomes the New Copper Production Challenger

The Democratic Republic of Congo has become the second-largest exporter of copper globally, highlighting the ascent of African mining as projects there are believed to see less political uncertainty.

Peru has been the global No.2 in copper markets (behind Chile) for years, but community protests from indigenous people hindered production from the giant Las Bambas field, operated by China’s MMG Ltd.

According to industry analysts, Congolese copper production (currently 2.3 million tonnes per year) is to overtake Peru on a sustainable basis only by 2026-2027, driven by huge increments coming from the Kamoa-Kakula mine.

Despite weak copper futures and rampant fears of recession eating into demand, the ICSG still expects 2023 balances to lead to a 114,000-tonne supply shortfall, a third of last year’s deficit.