6th July 2018
Oil Drilling Activity
Onshore US drilling activity increased by 5 with a total active count of 1029 rigs; those targeting oil increased 5 with the total at 863. Across the three major unconventional oil basins, the oil rig count increased by 5 to 603, with Permian up 1, Eagle Ford up 1 and Williston up 3.
The EIA reported last week’s total domestic crude output at 10.9 million barrels a day, flat for the past three weeks. While, a growing fleet of ships is scanning oceans in search of new oil and gas fields as energy companies, now with more cash thanks to stronger crude prices, gradually resume spending on seismic services after a four-year downturn.
The US created 213,000 new jobs in June, another hearty gain that shows companies are finding ways to fill open jobs despite a dwindling pool of skilled workers. In a surprise, the unemployment rose to 4% from 3.8%. The shrinking pool of labor is slowly forcing companies to raise pay as the competition for talent intensifies, but they are still managing to keep labor costs down.
Natural Gas – After “F”LNG, curtain rises for “R”LNG
While the term “FLNG” for floating liquefaction has now entered common parlance, the acronym “RLNG” is not one we come across quite so often, but is gradually making inroads. In some contract documents, and sale and purchase agreements, the term “R” stands for Re-gasified, to denote natural gas that was once in liquid form; however, the likely end point for the RLNG definition is in the growing market for Renewable LNG.
Any long-term gasman who has worked in both Houston and Calgary, will know that both cities are not only notable for oil and gas, but also cattle. In fact, there are 12 million head of cattle in Texas alone, the most of any state in the US. While the main focus of the beef industry is food, a lesser-known fact is that each cow produces about 100kg of methane per annum, so just 10 head of cattle accounts for a tonne of gas. Put into terms we are more used to, it means that Texas has the potential to produce around a million tonnes per annum of LNG from cattle, net of fuel. Equating that to power generation, it translates to over 1.5 Gigawatts of gas fired power generation at a typical CCGT load factor.
Of course, renewable natural gas comes from multiple sources, including vegetable, fruit and garden waste, sewage sludge, roadside grass and animal manure. With emissions from these sources typically ending up in the atmosphere, not only is the energy capture meaningful, but the reduction in greenhouse gasses is also a major benefit.
With this week’s news that the Friesland region of the Netherlands is introducing supermarket delivery trucks powered by RLNG, there are signs that this important source of the fuel is starting to be examined commercially. However, with so much conventional natural gas around it will be some time before anaerobic digesters become part of the agricultural mix in Texas.
Crude Oil – Fossil fuels dominate US energy consumption
Oil prices fell after EIA weekly data showed US inventories increased unexpectedly last week. Prices have stayed near their highest level since 2014 recently, with the prospect of major supply disruptions and figures showing steady demand limiting downward pressure despite trade threats between the US and China.
EIA weekly data indicated that US stocks rose by 1.2 million barrels. The data were released a day later than usual because of Wednesday's Independence Day holiday. Analysts surveyed by S&P Global Platts had forecast a fall of 4.5 million barrels, and the American Petroleum Institute on Tuesday reported a drop that matched that forecast. EIA weekly data indicated that gasoline stockpiles fell by 1.5 million barrels, but distillate stockpiles were up by 100,000 barrels.
Energy consumption in the US has undergone many changes over the course of the nation’s history, from wood as the primary resource in the 18th and 19th centuries, to the onset of coal and petroleum use, to the more modern rise of nuclear power in the late 20th century, and to renewables in the early 21st century.
Fossil fuels—petroleum, natural gas, and coal—have accounted for at least 80% of energy consumption in the US for well over a century. The fossil fuel share of total US energy consumption in 2017 was the lowest share since 1902.
The decline in fossil fuel consumption in 2017 was driven by slight decreases in coal and natural gas consumption. Coal consumption fell by 2.5% in 2017. US consumption of coal peaked in 2005 and has declined nearly 40% since then.
Natural gas consumption fell by 1.4% in 2017, a change from recent trends. Natural gas consumption has increased in 8 of the past 10 years, and in 2017. Natural gas consumption growth has been driven by increased use in the electric power sector. Overall, US consumption of natural gas increased by 24% from 2005 to 2017.
Petroleum consumption increased in 2017, but remains 10% lower than its peak consumption level, set in 2005. Petroleum has been the largest source of energy consumption in the US since surpassing coal in 1950. The renewable share of energy consumption in 2017, which includes hydroelectricity, biomass, and other renewables such as wind and solar, was 11.3%.
Total US rig count (including the Gulf of Mexico) stands at 1052, up 5 this week. The horizontal rig count stands at 930 up 4 this week. US rig growth has trended flat for 6 of the last 7 weeks and is up just 10% above last year’s total.
Compared to a November 2014 figure of 1,876 active rigs, the current level is above 50% of the 2014 high. The rig market remains 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.
Crude Oil Price
Brent, the global benchmark for oil, decreased US$2.20 to US$76.53 a barrel, reflecting a loss of 2.79% on the week.
WTI crude fell US$1.34 to US$72.35 a barrel, down 1.82% on the week.
US Crude Oil Supply and Demand
Sources: EIA Weekly Update and GCA Analysis
US crude oil refinery inputs averaged 17.7 million barrels per day, with refineries at 97.1% of their operating capacity last week. This is 163,000 barrels per day less than the previous week’s average.
US gasoline demand over the past four weeks was 9.7 million barrels, up 1.2% from a year ago. Total commercial petroleum inventories increased by 3.3 million barrels last week.
US crude imports averaged 9.1 million barrels per day last week, up by 699,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.4 million barrels per day, 6.6% more than the same four-week period last year.
US crude exports averaged 2.336 million barrels per day last week, a decrease of 664,000 barrels per day from the previous week. Over the last four weeks, crude oil exports averaged 2.435 million barrels per day, 284.2% more than the same four-week period last year.
Crude oil inventories increased 1.2 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 2.1 million barrels; total stored is 27.8 million barrels (~30% utilization).
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