15th June 2018
Oil Drilling Activity
Onshore US drilling activity decreased by 4 with a total active count of 1035 rigs; those targeting oil increased 1 with the total at 863. Across the three major unconventional oil basins, the oil rig count increased by 1 to 604, with Permian down 4, Eagle Ford up 3 and Williston up 2.
The expansion in US production surged last week; it reportedly rose by 82,000 barrels a day to 10.9 million barrels a day. Whether this surge is a reporting glitch, or driven by pipeline capacity expansion or completion crews starting to catch up on drilled but uncompleted (DUC) well inventory (near 7,700 in April 2018) remains to be seen. The EIA raised its 2018 average domestic crude production to 10.79 million barrels per day, up 0.6% from the May report. As the annual average is lower than current rates, it means a slowdown in the rate of production growth for the rest of 2018.
The EIA lowered its 2019 crude forecast by 0.8% to 11.76 million barrels a day, still a healthy gain on this year as new pipeline capacity is commissioned, leaving higher margins for Permian Basin producers seeking to increase exports of light crude via the Gulf Coast.
Natural Gas – LNG Hokey Pokey (Cokey)
With the US ramp up in LNG exports well underway, with Cove Point (Maryland) in 1Q 2018 following the initial lead from Sabine Pass (Louisiana) in early 2016, it is perhaps easy to forget that it was less than a decade ago that the US was still gearing up to be an importer of LNG.
However, such “turnarounds” and moves from “in to out” (and indeed “out to in” in some cases) demonstrate that we should never say never in today’s ever-changing global gas industry. These recent announcements, highlighting similar reversals of previous strategies, perhaps demonstrate that traditional ways of thinking are being turned on their head:
It is no secret that Australia is geared up to replace Qatar as number one exporter by 2019/20, albeit temporarily if the Qatari and US expansion plans continue as announced. A few years ago, GCA analyzed the Eastern Australian gas market, pending the startup of the three East Coast Australia LNG projects, and tabled a perhaps countercyclical idea that whilst the export ramp up would be significant, perhaps Australian industrial users of gas could also consider options to import LNG. This now looks to be coming to fruition with Australian Industrial Energy (a joint venture between Marubeni and Jera of Japan, and Australia’s Squadron Energy) in NSW, plus AGL Energy (Australia’s leading independent power plant operator), in Victoria moving forward with site selection and preliminary project agreements. A once barmy idea now considered “fair dinkum” (translation true, real, genuine)!
Croatia this week finally passed a law to enable the construction of a LNG terminal, part of a European Union drive to diversify away from Russian gas imports, building on the lead set by Lithuania. Of note here is that an FSRU will initially be used, whereas 3-5 years ago, the focus was more firmly on a more expensive and larger capacity land based terminal.
Cyprus is another example of a small-scale demand island, who had high hopes for domestic utilization of their Aphrodite field discovered almost 8 years ago, but are soon also to launch a tender for an FSRU and LNG imports, illustrating the way the market has changed. In Africa, and South East Asia, several others are also considering LNG imports, not only as a short-term but as a long-term measure, largely to fuel power generation.
In another key focus area for GCA in the Mediterranean, Egypt, has gone from exporter to importer due to domestic gas shortages, but now will most likely curtail all imports by the end of 2018 and have excess gas to export once more.
Simultaneous imports-exports as in Egypt, may not sound logical, however, Indonesia has been one of the world’s leading LNG exporters for four decades, holding the number 1 spot until it was passed by Qatar in 2006, but in recent years whilst they are still exporting c.17 MMtpa, lean LNG imports could also grow to around 5 MMtpa by 2020.
Moving over to the South America, as we featured in the blog two weeks ago, Argentina could soon turnaround from being an LNG importer, to a substantial LNG exporter.
More fundamentally, we have seen how the herd behavior of predicting a long-term LNG supply glut into the late 2020s, now seems to be forming on a quicker than expected market tightening and potential significant deficit by the early to mid-2020s. In today’s rapidly evolving gas market, the past consensus view, is increasingly rarely a good indicator of the future market developments.
The above illustrative snippets perhaps suggest the lyrics to the famous children’s song and dance are appropriate to today’s global gas and LNG industry… “In, out, in, out, you shake it all about. You do the LNG Hokey Pokey (Cokey) and you turn around. That's what it's all about.”
Crude Oil – Will 2018 higher prices impact demand growth?
With oil prices up 70% over the last 12 months, higher prices are expected to moderate OECD consumption and thus global demand growth in 2018/19. Economists often observe that the price-elasticity of oil demand is low, meaning a small change in prices does not have much impact on the amount consumed in the short term. But low impact does not mean no impact. In the case of a large and sustained change, such as occurred in 2014/15, consumption has proved significantly flexible and played a key role in rebalancing the market.
According to the latest estimates from BP, global consumption increased by almost 1.7 million barrels per day in 2017 (“Statistical Review of World Energy”, BP, 2018). Consumption has risen by an average of 1.7 million barrels per day in the last three years since oil prices slumped (2015-2017) compared with an average of just 1.1 million barrels per day in the three previous years (2012-2014).
IEA is currently projecting demand growth of 1.4 million barrels a day for 2018 and 2019, with slowing demand likely a response to the $20 per barrel increase in Brent price from the lows of summer 2017.
EIA expects Brent prices will average $71 per barrel in 2018 before declining to $68 per barrel in 2019. In the June 2018 update of its Short-Term Energy Outlook (STEO), the EIA forecasts Brent crude oil prices will average $71 per barrel in 2018 and $68 per barrel in 2019. The new 2019 forecast price is $2 per barrel higher than in the May STEO.
The price increase reflects global oil markets balances that EIA expects to be tighter than previously forecast because of lowered expected production growth from both the Organization of the Petroleum Exporting Countries (OPEC) and the United States.
Total US rig count (including the Gulf of Mexico) stands at 1059, down 3 this week. The horizontal rig count stands at 932, down 3 this week.
Compared to a November 2014 figure of 1,876 active rigs, the current level is above 50% of the 2014 high.
Crude Oil Price
Brent, the global benchmark for oil, decreased US$1.83 to US$75.07 a barrel, reflecting a loss of 2.38% on the week.
WTI crude rose US$0.76 to US$66.62 a barrel, up 1.15% on the week.
US Crude Oil Supply and Demand
US crude oil refinery inputs averaged 17.5 million barrels per day, with refineries at 95.7% of their operating capacity last week. This is 136,000 barrels per day more than the previous week’s average.
US gasoline demand over the past four weeks was 9.6 million barrels, up 0.3% from a year ago. Total commercial petroleum inventories decreased by 1.8 million barrels last week.
US crude imports averaged 8.1 million barrels per day last week, down by 247,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.1 million barrels per day, 1.3% less than the same four-week period last year.
US crude exports averaged 2.030 million barrels per day last week, an increase of 316,000 barrels per day from the previous week. Over the last four weeks, crude oil exports averaged 1.918 million barrels per day, 139.2% more than the same four-week period last year.
Crude oil inventories decreased 4.1 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 0.7 million barrels; total stored is 33.9 million barrels (~38% utilization). All of this decrease in inventory can be accounted for by the above noted changes in crude imports, exports and refinery runs overshadowing the 82,000 bopd production gain for the week.
- GCA Oil & Gas Monitor
- Latin America
- North America
- Asia-Pacific & China
- Middle East
- Russia & Caspian
- Business of Energy
- Midstream & Downstream
- Gas & LNG
- Meet our Experts
- Project Experience Brochures
- Training Business
- GCA Oil & Gas Monitor: 2019 archive
- GCA Oil & Gas Monitor: 2018 archive
- US Oil & Gas Monitor: 2017 archive
- US Oil & Gas Monitor: 2016 archive
- US Oil & Gas Monitor: 2015 archive
We're here to help
Europe / Africa / Middle East / Russia & Caspian
gaffney-cline & associates