March 29, 2019

March 29, 2019

29th March 2019

Oil Drilling Activity

Onshore US drilling activity decreased 12 with a total active count of 981 rigs; those targeting oil down 8, with the total at 816. Across the three major unconventional oil basins, the oil rig count decreased by 7, with Permian down 5, Williston up 3 and Eagle Ford down 5.

Sources: EIA Weekly Update and GCA Analysis

EIA reported last week’s total US domestic crude output flat at 12.1 million barrels per day. The rate of growth in drilled but uncompleted (DUC) well count is slowing, which suggests activity in completion crews is helping to sustain production levels, even as rig numbers slip.  Data showed that crude oil inventories increased by 2.8 million barrels last week, compared to forecasts for a stockpile draw of 1.2 million barrels, after a drop of 6.9 million barrels in the previous week. US crude inventories grew more than expected last week as a Texas chemical spill hampered exports.

The US economy slowed more than initially thought in the fourth quarter, keeping growth in 2018 below the 3% annual target, and corporate profits failed to rise for the first time in more than two years.

Carbon Management – The scientific consensus on climate change

The earth’s atmosphere is composed of 78% nitrogen (N2), 21% oxygen (O2), and 0.9% argon (Ar). Less than 0.1% includes Greenhouse Gases (GHGs) such as carbon dioxide (CO2). These are called greenhouse gases as they act just like the glass in a greenhouse – trapping the majority of heat within the earth’s atmosphere that would otherwise escape into space. What is being referred to today is the enhanced greenhouse gas effect, or the increase in the amount of greenhouse gases in the atmosphere caused by human activity, which is currently about 35%. This is from a combination of two main sources: 1) energy use - as burning coal, oil and natural gas, and certain manufacturing processes like cement releases CO2, and 2) land-use changes - as removal of forests for our use in agriculture and development of land means that less CO2 is absorbed by the biological carbon cycle (plants and trees). The more greenhouse gases in the atmosphere, the more heat is trapped and the warmer the average temperature gets. This is referred to as global warming. Global warming results in climate change – how the weather acts over a long period of time, usually around 30 years.

Scientific consensus exists that the earth is warming, and that this warming is the result primarily from human activities. Each of the past four decades has been warmer than the previous one. January was more than 0.4°C warmer than 1981-2010 average and the fourth warmest on record. Every year since 1977 has been warmer than the 20th century average. The ongoing scientific debate is about projecting or forecasting future climate change and the magnitude of impacts it will have, not whether human activities are influencing climate change and that consequences will be more severe.

Climate controls food production, water resources and influences energy use, transmission of disease, etc. The impacts of climate change are therefore risks to human health, increases in the risk of extreme weather, damages to eco-systems and sea-level rise endangering coastal areas. The latest International Panel on Climate Change (IPCC) report issued in early October 2018, paints a concerning picture on the consequences of climate change with worsening food shortages and wildfires, and a mass die-off of coral reefs as soon as 2040. The authors found that if GHGs continue at the current rate, global warming will be as much as 1.5°C or 2.7°F above pre-industrial levels by 2040, inundating coastlines and intensifying droughts and poverty. This was different to previous conclusions, which showed many of these effects will occur above 2°C or 3.6°F – being the previous threshold considered for the most severe effects of climate change. The report attempts to put a price tag on the effects of climate change with an estimated $54 trillion in damage from 1.5°C of warming. To prevent 1.5°C of warming, the report said GHG pollution must be reduced by 45% from 2010 levels by 2030, and 100% by 2050. It also found that, by 2050, use of coal as an electricity source would have to drop from nearly 40% today to between 1 and 7%. Renewable energy such as wind and solar, which make up about 20% of the electricity mix today, would have to increase to as much as 67%.

The oil and gas industry is part of the solution to climate change. Switching from coal to gas, whilst managing fugitive methane emissions in the supply chain, is the major near term solution to climate change and presents a large opportunity as the world continues to electrify. Do you have plans to grow your natural gas portfolio as part of your business strategy? Are you looking at methods to ensure that your natural gas production monitors for, and eliminates, fugitive emissions? 

Natural Gas – LNG bunkering on the move

With so much activity at the large-scale end of the global gas sector, it is a few weeks since we have touched on the use of LNG as a marine fuel, or “bunkering” in this bulletin.  However, things continue apace, with the largest bunkering vessel so far being built by Mitsui OSK, at 12,000 cubic meters.  This is almost half the size of the first generation ships designed for conventional LNG trade, such as the Methane Princess, with its 27,000 cubic meters, but miniscule compared to the 265,000 cubic meters of the largest carriers afloat today.

Although the larger size ships continue to multiply, with Qatar alone in the market for 50-60 new vessels to match its planned 40% increase in LNG production over the next decade or so, smaller LNG carriers are also in demand.  The IMO regulations limiting ship emissions in many “emission control areas” or ECAs are starting to bite, and many ports are either making provision for LNG bunkering, or making plans.

Vancouver is one of the most active ports when it comes to developing LNG as a marine fuel, partly as a result of BC Ferries leadership in the area, with new LNG powered ferries coming into operation shortly.

Another area with a very active set of plans for LNG marine fuel growth is the Eastern Mediterranean, with Greece, Cyprus and other countries collaborating on various small scale storage and shipping arrangements, which also have the potential for use in the growing gas to power segment, which recently received a boost from additional gas discoveries in the area.

Although it will be more than ten years before the LNG marine fuel market will account for a single major export terminal, as with the global gas segment generally, it is one of the fastest growing areas, and continues to attract investment.

Crude Oil – US drill rig growth trending downward

US rig activity continue to show constrained growth for 39 of the last 41 weeks and stands just 1% above last year’s total.

Future growth of US tight oil production depends on a variety of factors, including the quality of resources, technology and operational improvements that increase productivity and reduce costs, and market prices.

EIA projects that US tight oil production, which became the more common form of oil production in 2015, will continue to increase through 2030, ultimately reaching more than 10 million barrels per day in the early 2030s. Tight oil production reached 6.5 million barrels per day in the United States in 2018, accounting for 61% of total US production. Further US tight oil production growth depends on the industry continuing to improve overall efficiencies and reduce costs, which should make developing tight oil resources less sensitive to oil prices than in the past.

Growth in US crude oil production has been driven by the development of tight oil resources, primarily in the Permian Basin in western Texas and eastern New Mexico. Three major tight oil plays in the Permian Basin—the Spraberry, Bone Spring, and Wolfcamp—accounted for 41% of tight oil production in 2018. Approximately half of cumulative tight oil production through 2050 is expected to come from these three plays. The Bakken and Eagle Ford plays also remain major contributors to tight oil supply through 2050, accounting for 19% and 17% of cumulative tight oil production, respectively.

Weekly Recap

Crude Oil Price

Brent, the global benchmark for oil, increased US$1.81 to US$68.67 a barrel, reflecting a gain of 2.71% on the week.

WTI crude rose US$1.31 to US$60.47 a barrel, up 2.21% on the week.

Drilling Activity

Source: BHGE Rotary Rig Count

Total US rig count (including the Gulf of Mexico) stands at 1006, down 10 this week. The horizontal rig count stands at 891, a decrease of 9 this week. US rig activity continue to show constrained growth for 39 of the last 41 weeks and stands just 1% above last year’s total. Crude prices direct US shale operators to focus on well productivity (i.e. well completion) and operational efficiency over rig growth.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

US crude oil refinery inputs averaged 15.8 million barrels per day, with refineries at 86.6% of their operating capacity last week. This is 367,000 barrels per day less than the previous week’s average.

US gasoline demand over the past four weeks was at 9.2 million barrels, down 1.9% from a year ago. Total commercial petroleum inventories increased by 0.1 million barrels last week.

US crude net imports averaged 3.654 million barrels per day last week, up by 114,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 3.898 million barrels per day, 36.8% less than the same four-week period last year.

US crude imports averaged 6.5 million barrels per day last week, down by 392,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged 6.8 million barrels per day, 11.7% less than the same four-week period last year.

Crude oil inventories increased 2.8 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 0.5 million barrels; total stored is 46.9 million barrels (~52% utilization).



March 29, 2019

P. Kevin Galvin

Facilities/Cost Engineer -
March 29, 2019

Nick Fulford

Global Head of Gas/LNG -
March 29, 2019

Nigel Jenvey

Global Head of Carbon Management -

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