April 27, 2018

April 27, 2018

27th April 2018

Oil Drilling Activity

Onshore US drilling activity increased by 7 to reach a total of 998 rigs; those targeting oil increased by 5 to 825. Higher crude prices appear to be compelling the US to further ramp up crude production from shale fields and the rising oil rig numbers point to further increases in US crude production.

US output continued its expansion rising 46,000 barrels per day to 10.6 million barrels per day, maintaining the United States’ position as the world’s second largest producer behind Russia.

Source: EIA Weekly Update and GCA Analysis

Global crude supplies have mostly weathered the ramp up in US production as OPEC-led production curbs trimmed the glut in supplies, raising expectations for rebalancing in the crude market.

Natural Gas – Another LNG buyer joins the club

This week another new LNG buyer joined the growing ranks of countries that are importing LNG today, while the list of aspirational LNG importers grows even longer.

Bangladesh took its first LNG cargo from Qatar this week, in what marks the start of a major gasification of the Bangladesh economy, with additional floating reception terminals to follow, and a seemingly growing willingness to increase its LNG commitments.

The country is typical of a new breed of LNG importer where volumes are relatively small to start with, especially when compared to typical new build FSRU capacity, and demand is underpinned with gas-fired power generation demand.

Other relative hotspots for new LNG demand include Mediterranean emerging buyers who are aspiring to copy Malta, the only new LNG customer to emerge in 2017, and construct FSRU-based reception facilities to support power customers.

Frontrunner in the Eastern Med is Cyprus, where plans for LNG export facilities based on its own indigenous gas resources have been replaced, at least for the time being, with an FSRU concept which will replace HFO- and diesel-fired generation, that runs the risk of falling foul of the 2020 European directive on Sulphur emissions.

Lebanon, too, is seeking proposals for an FSRU-based import scheme, once again linked with the substantial unmet power demand in that country.

While the level of demand in many of these countries, often measured in tens or hundreds of MMscfd, would hardly have got some of the larger LNG suppliers out of bed in the morning, these days some of these emerging buyers have found themselves being wooed by some of the largest LNG players in the world.

If you add the multiple remote centers of power demand in Africa, Asia and Latin America together, of course it is clear why the interest is so strong.  The ability to replicate a Bangladesh-type demand many times over starts to add up to substantial quantities.  While the debate around large-scale LNG liquefaction projects versus smaller modular or floating ones is still going strong, on the demand side multiple, smaller off takers seems to be the future for the global gas sector.

Crude Oil – Crude prices impact demand

Global demand does indeed seem remarkably robust. OPEC sees it increasing by 1.6 million barrels a day this year. If that happens, it would be the first time since the early 1970s where we have had four consecutive years of oil demand growing by more than 1.5 million barrels a day.

While higher crude prices would naturally be expected to boost spirits in the oil-dependent economies of the Middle East and elsewhere, they may have a chilling effect elsewhere. The growth of US gasoline demand has already started to slow after pump prices rose late last year, and prices are still heading up.

Source: EIA Weekly Update and GCA Analysis

If Brent crude reaches US$80 a barrel by the middle of the summer driving season, US gasoline prices could be pressing US$3.30 a gallon. We might not have seen any demand impact yet, but that could change very quickly. Crude prices are nowhere near as high as a decade ago. However, it is startling how quickly the lessons of 2008, or indeed the last price crash of 2014, are being ignored -- even if they are unlikely to have been forgotten.

Weekly Recap

Drilling Activity

Source: BHGE Rotary Rig Count

Total US rig count (including the Gulf of Mexico) stands at 1021, up 8 this week. The horizontal rig count stands at 901, up 12 this week.

Compared to a November 2014 figure of 1,876 active rigs, the current level is marginally above 50% of the 2014 high. The rig market is tighter than it appears because many older rigs have been scrapped, cannibalized for spare parts, or are simply unsuitable for drilling the very long wells now favored by shale producers.

Across the three major unconventional oil basins, the oil rig total increased 1; standing at 575, with Permian down 1, Eagle Ford down 1 and Williston up 3.   

Crude Oil Price

Brent, the global benchmark for oil, increased US$1.14 to US$74.47 a barrel, reflecting a gain of 1.55% on the week.

WTI crude fell US$0.18 to US$67.73 a barrel, down 0.27% on the week.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

US crude oil refinery inputs averaged 16.6 million barrels per day, with refineries at 90.8% of their operating capacity last week. This is 328,000 barrels per day less than the previous week’s average.

US gasoline demand over the past four weeks was 9.4 million barrels, up 1.3% from a year ago. Total commercial petroleum inventories reversed and increased by 1.4 million barrels last week.

On the supply side, EIA data indicated that total domestic crude production increased 46,000 barrels to 10,586 million barrels a day. The Lower 48 crude production now stands at 10,085 million barrels per day, an increase of 33,000 barrels this week.

US crude imports averaged 8.5 million barrels per day last week, up by 539,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.2 million barrels per day, 1.5% more than the same four-week period last year.

US crude exports averaged 2.331 million barrels per day last week, an increase of 582,000 barrels per day from the previous week. Over the last four weeks, crude oil exports averaged 1.865 million barrels per day, 150.3% more than the same four-week period last year.

Crude oil inventories increased 2.2 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 0.5 million barrels; total stored is 35.4 million barrels (~39% utilization).

Authors

April 27, 2018

P. Kevin Galvin

Principal Advisor - Sr. Manager Facilities/Cost Engineering Advisor - kevin.galvin@gaffney-cline.com
April 27, 2018

Nick Fulford

Global Head of Gas and LNG - nick.fulford@gaffney-cline.com

Signup to receive our latest articles

We're here to help