Biweekly, we highlight three things going on in the energy industry that we think you should know about.
This week, we take a look at how the recent OPEC+ decision to increase oil production will affect the industry, a Canada company’s coal-to-gas conversion for its electrical power generation facilities, and new U.S. rules aimed at improving cybersecurity for pipeline owners and operators. Here’s the latest.
1. OPEC+ compromise may cool prices
Oil prices cooled after OPEC+ reached a long-awaited decision over the weekend to increase oil supply into 2022 in order to temper prices that have risen dramatically as the economy recovers from the pandemic. This decision—coupled with the delta variant threatening demand recovery—is behind the almost 4% drop in oil prices, with Brent at $70.67 and West Texas Intermediate at $68.70 as of Monday morning.
The group’s decision to increase production starting in August comes after a dispute between member countries on what the appropriate baseline production (the baseline from which cuts are being calculated) should be. The compromise that ended the standoff will increase several member countries’ baseline, including the United Arab Emirates, Saudi Arabia, Russia, Iraq and Kuwait. Raising the baseline effectively allows for a higher production quota. The increase in production is moderate in the short term—400,000 barrels per day a month—but sets the expectation for higher capacity which should spur investment by producers.
In the United States, production increased last Friday to its highest level since May 2020 after a week of gains, according to Bloomberg. Additionally, the oil and gas rig count continues to rise and is up 28 since last month to 486, according to data published by Baker Hughes. This indicates that producers intend to continue increasing production, thus continuing to close in on the current deficit.
2. Fossil fuels and electricity
On July 19, Calgary-based TransAlta Corporation announced that it had completed the second of three coal-to-gas conversions planned this year for its electrical power generation facilities. Conversion of the Keephills Unit 2 facility will generate electricity from natural gas as opposed to coal, and is expected to reduce carbon emissions by more than half.
The Alberta provincial government initially set a goal of 2030 to be fully transitioned from coal power, but is ahead of schedule. The province expects coal-fired electricity production to be eliminated by 2023 due to accelerated facility conversions by electrical power companies.
Coal-generated electricity has been on the decline in Canada and the United States for several years as ambitious decarbonization goals have taken priority, but a complete transition away from fossil fuels such as natural gas will be difficult. Energy storage limitations prevent renewables from having the capacity to be the sole electricity supplier during peak demand, which continues to rise; the Alberta Electric System Operator in late June urged Alberta residents to conserve electricity use as the province hit an all-time peak demand record. The AESO has also put out two level-two emergency alerts in July asking Albertans to reduce their electricity usage. Such alerts are rare and usually only happen once every couple of years.
Replacing existing fossil fuels with renewables for electricity consumption would not drastically alter the mix in Canada; according to the Canadian federal government, 82% of national electricity generation is from hydro, nuclear, and other renewables such as wind and solar. The data cited is from 2018, when coal still contributed 7.4% to Canada’s electricity generation, and which has since been replaced in part by other sources.
Despite Canada and the United States working toward eliminating coal as an energy source, emerging countries such as China and India continue to construct new coal plants to meet domestic energy needs. Global electricity demand is growing faster than renewable energy capacity and will require more fossil fuel generation, the International Energy Agency said in its latest Electricity Market Report released this month. The IEA forecasts that renewables as an electricity source will increase by 8% in 2021 and 6% in 2022, but will not be able to serve half of the projected growth in global demand. It projects that both coal-fired and gas-fired electricity generation will increase in 2021 and again in 2022. It may be more realistic to achieve net-zero carbon goals regarding electricity by embracing technologies like carbon capture to work in concert with fossil fuels, and not by eliminating them completely.
3. New cybersecurity rules for critical pipeline owners and operators
This week, the Biden administration announced the second security directive to owners and operators of critical pipelines related to improving their cybersecurity since the Colonial Pipeline attack in May.
This week’s directive requires owners and operators of pipelines designated by the Transportation Security Administration as critical to:
- Implement specific mitigation measures to protect against ransomware attacks and other known threats to information technology and operational technology systems
- Develop and implement a cybersecurity contingency and recovery plan
- Conduct a cybersecurity architecture design review
The department’s initial directive, issued in May, requires critical pipeline owners and operators to:
- Report confirmed and potential cybersecurity incidents to the Cybersecurity and Infrastructure Security Agency
- Designate a cybersecurity coordinator to be available 24 hours a day, seven days a week
- Review current practices
- Identify any gaps and related remediation measures to address cyber-related risks and report the results to TSA and CISA within 30 days
“The lives and livelihoods of the American people depend on our collective ability to protect our nation’s critical infrastructure from evolving threats,” Secretary of Homeland Security Alejandro N. Mayorkas said in a statement. He added that the directive can help ensure the pipeline sector takes the steps necessary to safeguard their operations from rising cyber threats, and better protect national and economic security.
Subsequent to the Tuesday DHS press release regarding the second security directive, the Wall Street Journal reported that concurrent with the announcement of the directive, the DHS and FBI jointly disclosed previously classified information about an aggressive Chinese hacking campaign a decade ago that compromised more than a dozen U.S. pipeline operators. This week’s announcements regarding cybersecurity underscore how critical these protections have become in today’s environment with steadily increasing technological advancements.
