16th March 2018
Oil Drilling Activity
Onshore US drilling activity increased by 6, and stands at 973. Rigs targeting oil increased by 4, standing at 800. Across the three major unconventional oil basins, the oil rig total increased 4; stands at 554, with Permian up 1, Eagle Ford unchanged and Williston up 3.
Production growth from the US could be the most important contributor of crude to satisfy global demand through 2020. Additionally, the IEA has forecasted that US production growth will meet 80% global growth in demand for crude over the next five years.
Natural Gas – New England: LNG-by-rail to the rescue?
The Massachusetts legislature has adopted a very green agenda in recent months, which has resulted in a stance against fossil fuels that some critics are pointing to as counterproductive, in terms of greenhouse gas emissions. The State has opposed gas pipeline expansion in the region, one of the most energy dependent parts of the US for winter supplies of gas and LNG for both heating and electricity generation.
Some have pointed at the recent import of gas originating from the new Yamal LNG export facility in Russia (of which the second arrived just this week) as a negative and unwanted consequence of the lack of pipeline capacity. Electric generators in New England are also having to consider oil-fired peaking generators as a result of potential gas shortages, with double the carbon of the equivalent gas-fired plant.
Another possible consequence of the “anti-gas pipeline” stance being taken is that novel technologies are being looked at to move gas around, some of which GCA has been following in less developed jurisdictions. For example, LNG-by-rail, which has only been permitted so far for the Alaska Railroad Company (since 2015) appears to be emerging as one way to alleviate the winter gas shortages in New England. Based on ISO containers placed on flatbed trucks, the technology represents a potentially viable and cost-effective way of shipping LNG over land. At sufficient scale, LNG-by-rail has a number of advantages over trucking by road, where GCA estimates the cost penalty is of the order of US$1/MMBtu for every one hundred miles, an order of magnitude costlier than a high-pressure transmission line.
The technology has sufficient backers that a number of regulatory moves are being made to try to have LNG reclassified under current regulations that apply to cryogenic substances, and various safety case initiatives are underway. Coupled with interest in the use of LNG as a fuel for locomotives, such as the “NextFuel”TM - a locomotive concept being developed by GE, the rail industry may soon start to mirror the marine sector, being both a means to transport large quantities of gas, and also a user itself, as a low cost, efficient and environmentally friendly fuel.
Crude Oil – Supply and demand closely aligned
The IEA raised its forecast for oil demand this year to 99.3 million barrels per day from 97.8 million barrels per day in 2017, increase of 1.5 million barrels a day. Global oil demand is expected to pick up this year however, supply is growing at a faster pace, leading to a forecast rise in crude inventories in the first quarter of 2018.
Annual average US crude oil production grew by 463,000 barrels per day in 2017 to 9.3 million barrels per day after declining by 551,000 barrels per day in 2016. In November 2017, monthly US crude oil production grew 1.2 million barrels per day year-over-year and reached the highest level of production in US history, going above 10 million barrels per day. US crude production is forecasted to continue growing in 2018 and 2019, averaging 10.7 million barrels per day and 11.3 million barrels per day, respectively.
Meanwhile in Canada, the latest NEB forecast for crude production in 2018 is for limited or no real growth, after a 6% gain during 2017 notably, as long sanctioned projects came on stream in Q4 2017.
OPEC and Russian production restraints have successfully reduced OECD storage inventories down from 264 MMBbl above 5-year average to 52 MMBbl, hence the next meeting in June 2018 will have to decide whether policies eliminating this final inventory overhang is compatible with trying to stabilize market share over the longer term in the face of increased US crude exports.
The market may be given some breathing space from concerns about a US driven crude supply glut by a higher than expected demand increase; the market rebalancing is clearly moving ahead with supply and demand more closely aligned.
The IEA indicated that a dramatic decline in oil production in crisis-hit Venezuela could tip the global crude market into deficit. With supply from Venezuela clearly vulnerable to an accelerated decline, without any increase from other crude producers it is possible that the Latin American country could be the final element that tips the market decisively into deficit.
The crisis in Venezuela's government-led economy has decimated its oil sector. The state's cash-strapped PDVSA oil company has been unable to properly manage its fields to maximize crude production, with output falling to half of what it was a decade ago. The IEA forecast that the country could see output fall this year to the lowest level since the late 1940s.
Total US rig count (including the Gulf of Mexico) stands at 990, up 6 this week with rigs targeting oil up 4. The horizontal rig count stands at 865, up 17 this week.
The total number of active onshore rigs increased by 6 and stands at 973. Compared to a November 2014 figure of 1,876 active rigs, the current level is slightly above 50% of the 2014 high.
The rig market is 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 chosen by shale producers.
Across the three major unconventional oil basins, the oil rig total increased 4; stands at 554, with Permian up 1, Eagle Ford unchanged and Williston up 3.
Crude Oil Price
Brent, the global benchmark for oil, increased US$0.57 to US$65.17 a barrel, reflecting a gain of 0.88% on the week.
WTI crude rose US$0.40 to US$61.33 a barrel, up 0.66% on the week.
US Crude Oil Supply and Demand
US crude oil refinery inputs averaged 16.4 million barrels per day, with refineries at 90% of their operating capacity last week. This is 432,000 barrels per day more than the previous week’s average.
US gasoline demand over the past four weeks was 9.2 million barrels, up 2.5% from a year ago. Total commercial petroleum inventories deceased last week.
On the supply side, EIA data indicated that total domestic crude production increased 12,000 barrels to 10,381 million barrels a day. The Lower 48 crude production now stands at 9.872 million barrels per day, an increase of 20,000 barrels this week.
US crude imports averaged 7.6 million barrels per day last week, a decrease of 418,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.5 million barrels per day, 1.8% less than the same four-week period last year.
US crude exports averaged 1.487 million barrels per day last week, a decrease of 11,000 barrels per day from the previous week. Over the last four weeks, crude oil exports averaged 1.619 million barrels per day, 82.6% more than the same four-week period last year.
Crude oil inventories increased 5.0 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 0.3 million barrels; total storage is 28.5 million barrels (~32% utilization).
- GCA Oil & Gas Monitor
- Latin America
- North America
- Asia-Pacific & China
- Middle East
- Russia & Caspian
We're here to help
Europe / Africa / Middle East / Russia & Caspian
gaffney-cline & associates