December 13, 2019

December 13, 2019

13th December 2019

Oil Drilling Activity

Onshore US drilling activity decreased by 1 with a total active count of 776 (Y/Y decrease of 269) rigs; those targeting oil up 4, with the total at 667. Across the three major unconventional oil basins, the oilrig count was unchanged, with Permian, Williston and Eagle Ford unchanged. 

Source: Baker Hughes Rig Count

US domestic crude production deceased 100,000 barrels per day last week; crude production stands at 12.8 million barrels per day, of which ~2.4 million barrels per day is offshore and Alaska production. 

Crude inventories increased by 0.8 million barrels, compared to expectations for a 2.8 million barrel drop. A decrease in refinery input and an increase in net imports into the US supported the stock increase.  

Oil traders focus on central banks that have signaled a willingness to keep low rates and economic stimulus in place for the foreseeable future—policies that could help to boost the global economy and buoy crude demand.

Carbon Management – Dual challenge of more energy and less emissions

Carbon capture, use, and storage (CCUS) is an essential element in the portfolio of solutions needed to meet the dual challenge of providing affordable and reliable energy while addressing the risks of climate change. In 2017, the National Petroleum Council (NPC) of the US was asked by the Secretary of Energy to undertake a review of CCUS and define pathways that would lead to deployment at-scale.

On Thursday I had the honor to attend the NPC Annual Meeting, when the Secretary of Energy received the report ‘Meeting the Dual Challenge - a Roadmap to At-Scale Deployment of Carbon Capture, Use and Storage,’ now available in draft at

Study Chair John Mingé noted that, “CCUS is necessary for deep decarbonization. This report is the most comprehensive ever undertaken and provides a highly actionable roadmap to wide-scale deployment that will shape U.S. policy today and for years to come.” Secretary Brouillette stated, “The CCUS study underscores just how critical this topic is. Using CCUS technologies, we can, and we will drive emissions down even further.”

It was a pleasure to be the deputy chair of the Coordinating Subcommittee – the organization that worked with some 300+ people from industry, academia, environmental groups, and government to perform the work. Their contributions have been amazing over the last year and a half to produce this report. The report addresses the entire CCUS supply chain and recognizes that at-scale success requires economic and operational integration across industries, harmonized local/state/federal regulations, innovation and technology development, and broad public acceptance.

A differential feature was to assess the costs to capture, transport and store CO2 from all sectors and fuel types, covering the largest facilities and approximately 80% of all US stationary sources. Using “reference cases” and standard economic assumptions was essential to developing the cost curve, formulating recommendations, and assessing the potential impact of those recommendations on CCUS deployment at a national level.

Gaffney, Cline & Associates staff made a significant contribution to the cost assessment. Of course, costs for individual projects will vary based on location factors and the economic assumptions specific to each project. Therefore, to provide a useful public resource and ensure transparency of the work of the NPC CCUS study, GCA is hosting the Cost Assessment Tool for public use at This will allow stakeholders to change the cost and financial assumptions to generate their own view. We expect this tool will be available in late-January 2020, so please sign-up (at the link provided on the site) to receive an update when published.

Natural Gas – Winners curse

With more news this week of US dry gas producers facing large write-downs and talk of exiting from the Northeast shale gas acreage positions, we are reminded how much things have changed over the last seven years or so.  Back in 2012/13, companies were clamoring to get positions in the shale gas bonanza of Pennsylvania, Ohio and West Virginia.  Many foreign companies had already placed big bets, typically, on the back of JVs with US producers that gave them very limited rights to control capital spend, or development plans.  By 2015, most of the attention had begun to shift to tight oil, and the shale gas boom of the earlier part of the decade forgotten.

For the companies that decided to stay the course, the last few years has been a litany of bad news.  Low Henry Hub prices are only half the story.  With infrastructure bottlenecks and an inexorable march toward lower quality acreage once the sweet spots were drilled, earnings have been hard to secure, while the pace of capital spend has not let up.

This winter we seem to have arrived at the proverbial straw that has broken the shale gas business model’s back, and we are seeing more and more evidence of a slowdown in activity, with shareholders baulking at requests for more development capital to fund drilling, completions and tie-ins. Actual production entering the market is still rising at almost 0.9 Bcfd/month, hence, HH prices remain suppressed.

Of course, the sector, to a large extent, is the victim of its own success.  Full cycle costs so low that they were only dreamed of in the last decade as natural gas prices rose to $6/MMBtu and more, in response to growing domestic demand.  The huge increase in production in the Northeast, however, brought wholesale prices crashing down, and 2019 has largely been a story of $2.50 gas, give or take. Even with the needs of the LNG export sector likely to grow to nearly 7 bcfd next year, and the onset of winter, prices are stubbornly refusing to rise. 

Who will benefit from shale gas producers misfortune?  Next year promises to be one of the most interesting yet for the US natural gas sector.  With US-produced LNG securing record low prices in international markets and so much financial stress in the upstream, there is the potential for some major upsets.  If the turn down in shale gas activity cannot be compensated for by associated gas from the Permian, and other locations, there could be a significant price response as supply falls away. 

For those looking to pick up some bargain basement assets, perhaps this Christmas will bring some positive news.  Whichever side of the equation you sit, 2020 will be a roller coaster year.

Crude Oil – Production external to OPEC+ grows further than world demand

The IEA expects that the oil markets may still face a surplus next year even, if the Organization of the Petroleum Exporting Countries (OPEC) and its partners deliver newly announced production cuts in full. Oil inventories may accumulate by 700,000 barrels a day in the first quarter, because of supplies outside the group continuing to grow much faster than world demand.

While crude prices climbed to a 12-week high after the OPEC+ surprised traders with their latest intervention, Brent remains below $70 a barrel amid concern that the additional output curbs still won’t be enough. The US briefly became a net exporter of oil three months ago, underscoring the challenge OPEC faces.

OPEC and a group of other oil producers announced they were deepening production cuts originally announced in December 2018. The group is now targeting production that is 1.7 million barrels per day lower than in October 2018, compared with the former target reduction of 1.2 million barrels per day. Saudi Arabia also confirmed extending its 400,000 barrels per day voluntary cut, effectively taking 2.1 million barrels per day from the market. OPEC announced that the cuts would be in effect through the end of March 2020.

OPEC may need to limit production through all of 2020, amid a forecast of rising oil inventories. OPEC’s crude oil production is forecasted to average 29.3 million barrels per day in 2020, down by 0.5 million barrels per day from 2019.

US crude production is expected to average 13.2 million barrels per day in 2020, an increase of 0.9 million barrels per day from the 2019 level. The 2020 rate of growth is slower than both 2018 – up 1.6 million barrels per day, and 2019 – up 1.3 million barrels per day. Slowing production growth trend is a result of sharper capital discipline leading to a steep decline in active rigs over the past year; this trend is likely to continue into 2020.

Weekly Recap

Drilling Activity

Total US rig count (including the Gulf of Mexico) stands at 799, unchanged from last week. The horizontal rig count stands at 693, down 2. US rig activity continues to show constraint and is 275 rigs below (-26%) last year’s total.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

Crude oil inventories increased by 0.8 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 3.4 million barrels; total stored is 40.3 million barrels (~45% utilization). Cushing showed the biggest decline since February 2018. Total US commercial crude stored stands at 447.9 million barrels (~57% utilization), about 4% above the five-year average for this time of year.

US crude oil refinery inputs averaged 16.6 million barrels per day, with refineries at 90.6% of their operating capacity last week. This was 201,000 barrels per day less than last week’s average.

US gasoline demand over the past four weeks was at 9.1 million barrels, up 0.1% from a year ago. Total commercial petroleum inventories increased by 17.2 million barrels last week.

US crude net imports averaged 3.49 million barrels per day last week, up by 634,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 3.0 million barrels per day, 41.3% less than the same four-week period last year.


December 13, 2019

P. Kevin Galvin

Facilities/Cost Engineer -
December 13, 2019

Nick Fulford

Global Head of Gas/LNG -
December 13, 2019

Nigel Jenvey

Global Head of Carbon Management -

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