Major tech investment in renewable energy continues, freezing weather in the United States lifts oil prices up and Canada’s energy market sees another major consolidation announcement.
Biweekly, we round up news and analysis about three things going on in the energy industry that we think you should know about. Here’s the latest.
Big Tech’s investment in renewables
Last week, Amazon announced its intent to purchase more than 380 megawatts of energy to power its operations in Europe from a 759-megawatt wind farm in the North Sea. Shell and Eneco are building the state-of-the-art, 30,000-acre windfarm—which is expected to be completed by 2023—about 11 miles off the Dutch coast.
“We are working with energy companies across the globe to bring on new wind and solar renewable energy projects” Nat Sahlstrom, director of Amazon Web Services, told CNBC. The tech giant now has 187 solar and wind projects worldwide, according to CNBC, and last December Amazon declared that it was the world’s largest corporate purchaser of renewable energy.
The company’s announcement last week underscores the efforts of tech giants to invest in and use renewable energy to power their operations while achieving net-zero emissions goals. Amazon, Apple, Facebook, Google and Microsoft have all taken significant steps toward relying on renewable energy, according to a report from the Institute for Energy Economics and Financial Analysis. Renewable energy commitments by these companies range from 70% by 2023 and 100% by 2025 (Microsoft) to Apple and Google who achieved 100% in 2018 and 2017, respectively, according to that report. It is clear that tech company investment in renewables will continue to grow in order to achieve and sustain these goals.
Major energy market consolidation continues in Canada
On Feb. 10, oil and gas company ARC Resources announced a strategic merger with Seven Generations Energy in an all-stock deal valued at $8.1 billion Canadian dollars. The combined company—which will operate under the ARC Resources name—will be Canada’s sixth-largest energy company, with expected production of approximately 340,000 barrels per day, and the largest condensate producer in the country.
The merger continues the trend of consolidation among Canada’s major producers following the Cenovus Energy and Husky Energy merger in October. Major producers have sought consolidation with each other to scale up production significantly and drive down costs, thereby appearing more attractive to lenders and investors. Following the announcement from ARC Resources and Seven Generations, both companies’ share prices rose by about 10%. The combination is expected to result in about $110 million Canadian dollars worth of annual cost savings by 2022, according to a statement from the companies.
And it’s not just the majors; junior producers have also seen increased consolidation as more such companies have been acquired by majors. Consolidation among mid-sized producers has been relatively less active, with mid-sized producers less likely to be viewed as targets or to consider acquisitions. As Jeff Tonken, chief executive of Birchcliff Energy, told Reuters: “We’re just minding our own business, making money for our shareholders.”
Oil prices up amid Arctic blast
Oil prices rose to a 13-month high Monday as temperatures across the nation plummeted. OPEC’s recent cuts had been helping to balance global supplies and stabilize prices, but freezing temperatures across the country have disrupted oil production. Permian production “has fallen by as much as 1 million barrels a day as sub-zero temperatures hit Midland, Texas,” Bloomberg reported, tightening oil supplies and leading to West Texas Intermediate prices of over $60 per barrel for the first time in over a year. Below, we look at some of the factors affecting supply and demand.
Supply picture: Aggressive production cuts from OPEC, harsh weather conditions reducing production, potential strikes in Norway and security concerns in the Middle East are all increasing the risk of short supply.
Demand picture: Bitter weather is increasing demand for heating and power production fuels in the U.S., North Asia, and parts of Europe. Increased refining and processing reflect an anticipated rise in demand for transportation fuels as more people receive the COVID-19 vaccine. These factors, plus risks related to newer COVID-19 variants, result in a complex and tenuous demand picture.
The global oil and gas supply and demand balance is a delicate one. Today, we see increased demand driving up prices. However, it just takes one piece of the puzzle to reverse that trend, especially with so many elements of uncertainty.
