23rd February 2018
Oil Drilling Activity
Onshore US drilling activity increased by 3, and stands at 959. Rigs targeting oil increased by 1, with the total now standing at 799. Across the three major unconventional oil basins, the oil rig total increased 3; it stands at 547, with Permian up 2, Eagle Ford flat and Williston up 1.
The indicators that suggest continued growth in the US are in alignment; rising prices leading, after a few months, to more drilling, more completions and more production.
Natural Gas – Will 2018 mark a true new dawn for Egyptian gas … ?
GCA last week participated in the Egypt Petroleum Show (EGYPS 2018) in Cairo. In a mark of how important the oil and gas sector has become, in terms of Egyptian economic growth, the event was opened by Egypt’s President, His Excellency Abdel Fattah El Sisi.
The theme emerging from the 3-day event was very much one of a new dawn in Egypt’s energy landscape, with significant discoveries, increased oil and gas production, a ramp up in M&A activity, and the beginnings of a wholesale natural gas market.
GCA’s Ryan Pereira gave a talk on “Egyptian Gas Hub Development – The Vital Ingredients” which explored how Egypt could mature into a regional gas hub, given the increasing production, and the likely suspension of LNG imports by mid-end 2018.
The scenarios illustrated demonstrate that what has played out over the past couple of years in Egypt represents unprecedented growth, with one of the largest gas finds in recent years, the 30 Tcf Zohr discovery, now in the early throws of production. In turn, BP has also brought on new production in Atoll, and other majors and independents are on the verge of new discoveries and developments. The flurry of announcements is likely to continue, but in a world awash with gas, it will only be the most cost-effective projects that will survive and thrive in this new era.
The hotbed of activity in the Mediterranean region does not stop there, with another recent discovery in Cypriot waters, Calypso, an extension of Zohr carbonate play, and Israel looking to monetize Leviathan gas resources with the announcement this week of a 10-year gas supply deal direct to the Egyptian company Dolphinus. This latest announcement is an indication that Egypt is moving towards a more competitive and open gas market, with end users for the gas being able to negotiate directly with the gas suppliers. That, coupled with available ullage in pipeline networks, processing plants and LNG export plants, bodes well for Egypt to deliver on the Modernization program driven by the Ministry, and help the Republic stake its case for a new dawn in the race to establish a regional gas hub.
Crude Oil – US crude oil stocks decline with Cushing in a free fall
As a member of the IEA, the United States is obligated to maintain stocks of crude oil and petroleum products, both public and private, to provide at least 90 days of U.S. net import protection. As net imports of crude oil and petroleum products into the United States continue to decline, this requirement can be met with lower Strategic Petroleum Reserve (SPR) inventory levels. Based on November 2017 levels of net crude oil and petroleum product imports, the SPR alone holds crude oil stocks equivalent to 252 days of import protection. Private (commercial) stocks of crude oil provide an additional 452 million barrels, equivalent to another 172 days of import protection.
US legislation has directed the sale of more than 100 million barrels of oil from the US SPR in US government fiscal years (FY) 2022 through 2027. Based on legislated sales established in multiple acts of Congress, the SPR could decline by about 40% in the coming decade while still meeting requirements for petroleum import coverage. Assuming no other legislation over this period, the SPR could decline from 695 million barrels at the start of 2017 to about 410 million barrels at the start of 2028.
The weekly EIA data indicated that US crude inventories fell by 1.6 million barrels in the week to February 16. Crude stocks were expected to have risen by 1.3 million barrels; additionally, crude stocks at the Cushing, Oklahoma delivery hub for WTI fell by 2.7 million barrels and now stands at 30 million barrels, with 70% of the storage tanks empty. When summer demand arrives, refineries could be squeezed.
Crude inventories generally rise at this time of year, as many refineries cut crude intake to conduct maintenance, but a bottleneck in Canada's pipeline system has reduced US imports causing a US crude stock decline.
US crude production was nearly unchanged at 10.27 million barrels a day, remaining near record levels while crude exports climbed above 2 million barrels a day.
Our expectations are for continued market tightening in the first part of 2018, a likely decline in demand due to slower economic growth, some OPEC/Russia quota cheating and robust global shale oil production.
Total US rig count (including the Gulf of Mexico) stands at 978, up 3 this week with rigs targeting oil up 1. The horizontal rig count stands at 842, up 3 this week.
The total number of active onshore rigs increased by 3 and stands at 959. Compared to a November 2014 figure of 1,876 active rigs, the current level is slightly above 50% of the 2014 high.
Across the three major unconventional oil basins, the oil rig total increased 3; it stands at 547, with Permian up 2, Eagle Ford flat and Williston up 1.
Crude Oil Price
Brent, the global benchmark for oil, increased US$2.15 to US$66.42 a barrel, reflecting a gain of 3.35% on the week.
WTI crude rose US$1.70 to US$62.78 a barrel, up 2.78% on the week.
US Crude Oil Supply and Demand
US crude oil refinery inputs averaged 15.8 million barrels per day, with refineries at 88.1% of their operating capacity last week. This is 329,000 barrels per day less than the previous week’s average.
US gasoline demand over the past four weeks was 9.1 million barrels, up 5.4% from a year ago. Total commercial petroleum inventories decreased 7.9 million barrels last week.
On the supply side, EIA data indicated that total domestic crude production decreased 1,000 barrels to 10,270 million barrels a day. The Lower 48 crude production now stands at 9.762 million barrels per day, an increase of 10,000 barrels this week.
US crude imports averaged 7.0 million barrels per day last week, a decrease of 867,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.8 million barrels per day, 6.6% less than the same four-week period last year.
Crude oil inventories decreased 1.6 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 2.7 million barrels; total storage is 30.0 million barrels (~33.33% utilization).
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