December 1, 2017

December 1, 2017

1st December 2017

Oil Drilling Activity

Onshore drilling increased activity four weeks running with the addition of 8 rigs (4 targeting gas) to 908. Across the three major unconventional oil basins, the oil rig total increased by 5. US rigs targeting oil is up 2, with the total standing at 749.

Sources: EIA Weekly Update and GCA Analysis

US shale producers are adding more drilling rigs in response to rising oil prices and improving confidence about the outlook for 2018. Data shows changes in the number of rigs drilling for oil in the US tends to follow changes in crude prices with a lag of about 16 to 20 weeks. The active rig count peaked in August and then declined through September and October, in response to the earlier peak and fall in prices between February and June.

The renewed rise in the US rig count underscores the delicate balance Saudi Arabia, Russia and other OPEC and non-OPEC oil exporters must strike this week at their meeting in Vienna. OPEC is anxious to avert a spike in prices that would encourage a resumption of the US shale drilling frenzy.

US Shale company executives have indicated they will be more disciplined in the future and will prioritize increasing profits over production. For all the talk about restraint, the US shale sector is adding more drilling rigs in response to the rise in crude prices. In the oil market, as in most other circumstances, what matters is what people do, not what they say. Talk about restraint is contradicted by actions that point to growth. Given the strong growth in oil consumption, there should be room for both US shale producers and OPEC to increase production in 2018.

OPEC must be careful not to tighten the market too much or it risks slowing demand growth and revitalizing shale, putting the organization’s rebalancing strategy at risk.

Natural Gas – Canada exports LNG to China…. but don’t hold your breath

History was made last week, when Canada’s first LNG cargo left Vancouver in-route to China, in the first ever export deal for the much-vaunted Canadian LNG business.  The fact that it is a one off trade, and involves only a single ISO container with little more than 17 tonnes of LNG inside it may soften some of the initial excitement, especially when compared to US LNG exports which even at their early stage hit a new record high in November of 23 cargoes (c.81 Bcf).

However the sale from Fortis’ BC small scale plant, which currently has a capacity of only a quarter of a million tonnes of LNG per annum, is intended as little more than a proof of concept, and there is much more at stake in terms of future trades.

Those who recall the very early stages of the global trade in LNG will know that it, too, started with a proof of concept.  Given the meteoric rise of LNG exports over the last few years, it is somewhat ironic that the trial, very nearly 60 years ago, involved LNG being shipped in a converted vessel (the Methane Pioneer) from Lake Charles, Louisiana, to the UK, a trade route which these days is once again becoming very significant.

This week, GCA was invited to participate in a forum that took place in Canada House, the sumptuous surroundings of the Canadian High Commission in Trafalgar Square in London, to talk about the future of Canada’s gas sector.

Given some of the advances in smaller scale LNG distribution technologies, ISO containers in LNG by rail, road tanker, and indeed even in transoceanic movements of LNG, solutions such as these may yet prove one of the keys that will unlock the vast potential of Canadian gas.  With estimates as high as 1000 Tcf of high quality and potentially low cost gas resource in Canada’s traditional oil and gas provinces of Alberta and British Columbia, the problem for monetization has never been the geology, which it so often is for unconventional.  Solutions are required to connect the resource to the end user market, be that in Asia or potentially closer to home in Canada or the USA.

Now more than ever, innovation and new thinking will be the key to unlocking those enormous gas opportunities, and who knows, maybe that 17 tonnes of gas will be looked back upon a few years from now as having the same world changing significance that the unassuming Methane Pioneer had in the late 1950s. 

Crude Oil – Refinery inputs set record high

Despite record high gasoline consumption, the US is on pace to export more gasoline than it imports for the second year in a row. Changes in regional markets, increased demand for exports, and high refinery runs are once again leading to the US to be a net exporter in 2017.

US domestic gasoline consumption has been increasing to record levels, as measured by product supplied, it set a new monthly record high of 9.8 million barrels per day in August 2017. To meet the combined record domestic gasoline demand and the increased export demand for multiple petroleum products, including gasoline, US refineries have been running at increasingly higher rates. US gross refinery inputs set a record high of 17.8 million barrels per day for the week ending August 25.

If the trends of increasing demand from export markets and US refineries producing near record levels of gasoline continues, the US is likely to become a monthly net exporter of gasoline more consistently.

Weekly Recaps

Oil Drilling Activity

Total US rig count (including the Gulf of Mexico) stands at 929, up 6 this week with rigs targeting oil up 2. The horizontal rig count stands at 792, up 6 this week.

The total number of active onshore rigs increased to 908 (up 8).  Compared to a November 2014 figure of 1,876 active rigs, the level remains 50% below the 2014 high.

Across the three major unconventional oil basins, the oilrig total increased 5; it stands at 505, with Permian up 4, Eagle Ford flat and Williston up 1.

Crude Oil Price 

Brent, the global benchmark for oil, rose US$0.79 to US$62.68 a barrel, reflecting a gain of 1.26% on the week.

WTI crude increased US$0.79 to US$58.26 a barrel, up 1.37% on the week. 

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

US crude oil refinery inputs averaged 17.0 million barrels per day, with refineries at 92.6% of their operating capacity last week. This is 165,000 barrels per day more than the previous week’s average.

US gasoline demand over the past four weeks was at 9.2 million barrels, up 0.8% from a year ago. Total commercial petroleum inventories decreased 7.6 million barrels last week.

On the supply side, EIA data indicated that total domestic crude production increased 24,000 barrels to 9.682 million barrels a day. The Lower 48 crude production now stands at 9.171 million barrels per day, up 20,000 barrels this week.

US crude imports averaged 7.3 million barrels per day last week, a decrease of 544,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.6 million barrels per day, 1.7% less than the same four-week period last year.

Crude oil inventories decreased 3.4 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 2.9 million barrels; total storage is 58.3 million barrels (~65% utilization).


December 1, 2017

P. Kevin Galvin

Facilities/Cost Engineer -
December 1, 2017

Nick Fulford

Global Head of Gas/LNG -
December 1, 2017

Ryan Pereira

Global Director – Gas & LNG -

Signup to receive our latest articles

We're here to help