March 23, 2018

March 23, 2018

23rd March 2018

Oil Drilling Activity

Onshore US drilling activity increased by 6, and stands at 979.  Rigs targeting oil increased by 4, standing at 804. Across the three major unconventional oil basins, the oil rig total increased 8; stands at 562, with Permian up 7, Eagle Ford up 1 and Williston flat. 

US crude production surpassed 10 million barrels a day late last year for the first time in roughly 50 years. The EIA reported this week that US production edged up by 26,000 barrels a day to 10.407 million barrels a day—a fresh weekly record. 

Source: EIA Weekly Update and GCA Analysis

Natural Gas – LNG playground: seesaws, slides and merry go rounds

There are an increasing number of players in the LNG industry these days, and the past week has seen yet more snippets of information that suggest that we are on a potential tipping point in the evolution of the industry from the “old world” to the “new world” of LNG trade and contracting.


  • As anticipated a few months ago by GCA, the battle for global supremacy and status of number one liquefier of natural gas saw Qatar officially fight back this week, announcing award of an onshore FEED study to Japan’s Chiyoda Corporation for plans to expand production from the current 77 MMtpa nameplate to 100 MMtpa by 2023/24.

  • Buyers and sellers continued their stand-off regarding the move to shorter, flexible contract durations, especially relating to the second round of US gulf coast projects looking for financing and seeking offtake from gas hungry Asian buyers. However, in the Asia-Pacific region, Tokyo Gas signed a 13-year (first six years at 0.5 MMtpa, remaining seven years at 0.9 MMtpa) more flexible contract, and in doing so extended its 35-year relationship of purchasing gas from Petronas' Bintulu project, one of the longest standing relationships in the LNG business.

  • Kuwait also announced the signing of a 15-year long-term supply contract starting in 2020, but with no mention of the seller or pricing terms.  Will this gas find its way to the Middle East from the US? Or, from a nearby supply neighbor?  This follows on the back of the 15-year deal that Kuwait signed with Shell in December 2017.

  • This happened at a similar time to Qatar announcing discussions to supply gas to the Ukraine (possibly via Poland), intensifying the LNG supply stand-off with Russia and the USA.

  • The UK imported only the second US shale gas cargo, this time from Cove Point to the Dragon terminal, to balance its own supplies, which have been depleted because of cold weather, supply disruptions and also a lack of UK storage following the closing down of the Rough facility and the recent inability to draw down on remaining Rough volumes.


  • Playground whispers seem to be turning into firm statements of intent regarding LNG Canada taking a positive FID by end 2018, two years after their initial target date.  However, it was interesting to note that the B.C. Investment Management Corporation, which manages pension investments for public servants, teachers and others in the public sector, decided to invest in US gulf coast projects by increasing their interest in Cheniere Energy.  Although a relatively small investment, it signals intent and the increasing need for Western Canada to firmly move forward.

  • The Qatari announcement points to significant volumes of globally competitive LNG coming to market around 2024, a time when the market had been expected to have entered a supply deficit.  This could place an upward ceiling on long-term LNG pricing.

  • Which in turn makes the German move to reduce reliance on Russian (60% of German supplies last year) and Norwegian pipeline supplies look a smart one, by launching a new import terminal in Brunsbuettel, and no doubt the competition from the US and Qatar to supply will be beneficial to them.

Merry go rounds:

  • Recent cold weather and supply challenges in the UK resulted in price spikes, but just this week prices have fallen back because of warmer weather and also the arrival of two LNG cargoes this month to bolster the lower inventory.

  • In a reversal of previous policy introduced by the former Liberal leadership, British Columbia’s New Democratic government announced that it would repeal the province’s LNG tax, while giving LNG companies tax breaks during construction.  This is a considerable, and long called for step, that would help to level the playing ground for Canadian LNG to supply Asian markets.

  • Combined with the announcement of President Trump slapping tariffs on Chinese steel, which will increase the relative cost of US LNG projects, the above announcement could well mean that the stars are aligning for LNG in Western Canada.

  • Meanwhile, new kid on the block Cameroon, proudly announced the start of production at Africa's first FLNG project, and only the second FLNG project globally to be in operation.  This in itself marks a sharp and quickly implemented turnaround from the original 2015 plan, which was to use the gas to feed domestic gas power generation.

  • Japan faces losing its number one LNG importer status (83.6 MMtpa in 2017 broadly flat with 83.3 in 2016) to China possibly in the next 2-3 years, but nuclear policy changes in Japan could mean that this critical importer still has a key role to play.


There are currently a lot of games being played in the LNG global playground, and no doubt others being played behind closed doors.  However, what is clear from this week is that we stand at a real tipping point between the old and new worlds of LNG trade and contracting.  We watch with interest as winners and losers may react in very different ways... 

Crude Oil – Geopolitical risk provides price support

An effort to jump-start US offshore exploration got off to a weak start as a big auction of oil and gas leases in the Gulf of Mexico drew few bidders.  The US offered up enough acres for oil and gas drilling in the gulf to cover the state of New Mexico on Wednesday, in what Interior Secretary Ryan Zinke billed as the biggest such sale in US history.  However, only 1% of the acres offered drew a bid, and the winners paid an average of US$153 an acre, some of the lowest prices of the decade. Lease sales have languished for several years, since commodity prices plummeted more than three years ago.

Saudi Crown Prince Mohammed bin Salman’s meeting with President Trump in Washington this week raised the potential for a harder US line against Iran, and continuing concerns over declines in Venezuelan production provided price support. Crude oil prices climbed to their highest levels in nearly seven weeks, as a drop in US crude inventories added further support to prices, which already had been supported by geopolitical risk to production.

Crude inventories had been forecast to rise, as stocks seasonally increase when refineries cut intake to conduct maintenance. US crude inventories fell 2.6 million barrels last week as net imports dropped and exports remained strong. Inventories increased at the key storage hub in Cushing, Oklahoma, according to weekly data from the EIA.

US weekly crude imports from seven OPEC members fell 14% to 1.86 million barrels per day last week, the lowest level since the EIA began collecting weekly data in 2010. The decline comes as OPEC saw record compliance with production-cut targets in February as the group continues efforts to drain a global glut.

Weekly Recap

Drilling Activity

Total US rig count (including the Gulf of Mexico) stands at 995, up 5 this week with rigs targeting oil up 4. The horizontal rig count stands at 870, up 5 this week.

The total number of active onshore rigs increased by 6 and stands at 979.  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 favored by shale producers.

Across the three major unconventional oil basins, the oil rig total increased 8; stands at 562, with Permian up 7, Eagle Ford up 1 and Williston flat. 

Source: BHGE Rotary Rig Count

Crude Oil Price

Brent, the global benchmark for oil, increased US$4.35 to US$69.52 a barrel, reflecting a gain of 6.67% on the week.

WTI crude rose US$3.45 to US$64.78 a barrel, up 5.63% on the week.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

US crude oil refinery inputs averaged 16.8 million barrels per day, with refineries at 91.7% of their operating capacity last week. This is 410,000 barrels per day more than the previous week’s average.

US gasoline demand over the past four weeks was 9.3 million barrels, up 1.9% from a year ago. Total commercial petroleum inventories deceased by 6.9 million barrels last week.

On the supply side, EIA data indicated that total domestic crude production increased 26,000 barrels to 10,407 million barrels a day. The Lower 48 crude production now stands at 9.892 million barrels per day, an increase of 20,000 barrels this week.

US crude imports averaged 7.1 million barrels per day last week, a decrease of 508,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.5 million barrels per day, 4.8% less than the same four-week period last year.

US crude exports averaged 1.573 million barrels per day last week, an increase of 86,000 barrels per day from the previous week. Over the last four weeks, crude oil exports averaged 1.501 million barrels per day, 108.1% more than the same four-week period last year.

Crude oil inventories decreased 2.6 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 0.9 million barrels; total stored is 29.4 million barrels (~33% utilization).


March 23, 2018

P. Kevin Galvin

Facilities/Cost Engineer -
March 23, 2018

Nick Fulford

Global Head of Gas/LNG -
March 23, 2018

Ryan Pereira

Global Director – Gas & LNG -

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