April 6, 2018

April 6, 2018

6th April 2018

Oil Drilling Activity

Onshore US drilling activity increased by 10 to reach a total of 987 rigs; those targeting oil increased by 11 to 808. Total year-on-year change is an increase of 20% but incremental rig growth in 2018 has been less than 2017 for the same period.

The EIA reported this week that US production edged up by 27,000 barrels a day to 10.460 million barrels a day—another fresh weekly record. 

Source: EIA Weekly Update and GCA Analysis

Natural Gas – The times they are a changing

“The times they are a changing,” EIA reports that USA was a net natural gas exporter in 2017 for the first time since 1957, with every sign that increased exports to Mexico, to E. Canada and via LNG will sustain this positon for many years to come.  USA is already a net exporter of LPG and light sweet crude, hence, is becoming a key price setter in many hydrocarbon markets around the world. 

Occasionally, a flurry of activity will remind us that the old world of large-scale LNG movements is continuing to be challenged by new, innovative ways of creating markets for liquefied gas.  So it was this week, where both the eastern and western export routes from North America have benefitted from ISO containerization of LNG. 

Following the trial shipment of a single cargo from the West Coast of Canada to China last November, twenty such containers are now on the high seas, on their way to a consortium of Chinese buyers, all of whom are active in the smaller scale LNG market.  China leads the world in smaller scale LNG, where it is regularly shipped across hundreds or even thousands of kilometers by road tanker, and where an array of small scale fueling and storage facilities exist to supply the millions of LNG fueled vehicles on the roads, in addition to passenger ferries and other marine applications.

On the US East Coast, in Jacksonville, a new LNG liquefaction plant has just been commissioned, which will be used to feed the ISO containerized LNG supplies that make their way to the Caribbean, for power generation.  Although still an embryonic trade, and insufficient to show up on the scale of global LNG traffic, usually measured in millions of tonnes per annum, standardized containers are a way to access low cost transport, where the end user is typically looking at relatively small quantities of gas.

As reported in a recent Monitor, railroad applications, both for fuel and movement of LNG by ISO container are also starting to take off.  Rail movement of LNG has some following both in Europe, in the Baltic, and in North America, where Alaska Railroad Company are looking to move LNG around to replace expensive and polluting diesel and HFO applications, especially for winter heating in the interior.

It is still not clear which technologies will succeed in the new world of small scale LNG, but the use of smaller, standardized ISO containers seems to be leveraging its simplicity and flexibility to make inroads into new markets.

Crude Oil – First quarter oil prices steadied

Brent oil price topped US$71 a barrel this year for the first time since 2014, and was trading above US$67 this week.

OPEC continues to communicate that supply restraints are to be maintained to ensure the end of a storage glut that had built up since 2014. In March, the biggest decrease in crude supply came from Angola, which exported 48 cargoes, two fewer than in the same month of 2017. Natural declines at some fields are weighing on output.

Crude supply and demand outlook remains modestly bullish and prices may continue pushing a little higher before potentially reversing course. According to a Reuters survey, OPEC’s production fell by 90,000 barrels per day in March compared to the previous month. This is unlikely to last – expect the OPEC to ramp up its output back towards its agreed production levels. Overall, the oil market remains abundantly supplied, thus we do not expect prices to move up in a meaningful way over the near term. The upside is limited leaving the balance of risk skewed to the downside.

OPEC oil output fell in March to an 11-month low due to declining Angolan exports, Libyan outages and a further slide in Venezuelan output, a Reuters survey found, sending compliance with a supply-cutting deal to another record.

OPEC pumped 32.19 million barrels per day last month, the Reuters survey found, down from February. The March total would be the lowest since April 2017.

Our expectations are for continued market tightening in the first part of 2018, a likely decline in Venezuelan output, some OPEC/Russia quota cheating and robust global tight oil production.

Weekly Recap

Drilling Activity

Total US rig count (including the Gulf of Mexico) stands at 1003, up 10 this week. The horizontal rig count stands at 884, up 14 this week.

Compared to a November 2014 figure of 1,876 active rigs, the current level is marginally above 50% of the 2014 high.

Across the three major unconventional oil basins, the oil rig total increased 5; stands at 565, with Permian up 2, Eagle Ford up 2 and Williston up 1.   

Source: BHGE Rotary Rig Count

Crude Oil Price

Brent, the global benchmark for oil, decreased US$0.97 to US$68.27 a barrel, reflecting a loss of 1.40% on the week.

WTI crude dropped US$0.99 to US$63.30 a barrel, down 1.54% on the week.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

US crude oil refinery inputs averaged 16.9 million barrels per day, with refineries at 93% of their operating capacity last week. This is 141,000 barrels per day more than the previous week’s average.

US gasoline demand over the past four weeks was 9.3 million barrels, up 0.4% from a year ago. Total commercial petroleum inventories deceased by 3.9 million barrels last week.

On the supply side, EIA data indicated that total domestic crude production increased 27,000 barrels to 10,460 million barrels a day. The Lower 48 crude production now stands at 9.942 million barrels per day, an increase of 25,000 barrels this week.

US crude imports averaged 7.9 million barrels per day last week, a decrease of 250,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.7 million barrels per day, 3.4% less than the same four-week period last year.

US crude exports averaged 2.175 million barrels per day last week, an increase of 597,000 barrels per day from the previous week. Over the last four weeks, crude oil exports averaged 1.703 million barrels per day, 138.9% more than the same four-week period last year.

Crude oil inventories decreased 4.6 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 3.7 million barrels; total stored is 34.9 million barrels (~39% utilization).


April 6, 2018

P. Kevin Galvin

Facilities/Cost Engineer - kevin.galvin@gaffney-cline.com
April 6, 2018

Nick Fulford

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

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