31st May 2019
Oil Drilling Activity
Onshore US drilling activity was flat with a total active count of 957 rigs; those targeting oil up 3, with the total at 800. Across the three major unconventional oil basins, the oil rig count increased by 2, with Permian up 1, Williston flat and Eagle Ford up 1.
US domestic crude output increased by 100,000 barrels per day; US crude oil production returned to the record level of 12.3 million barrels per day reached four weeks ago. US crude inventories decreased 0.3 million barrels last week, compared to an expected decrease of 1.4 million barrels.
Natural Gas Plant Liquids production continued to hit new records averaging in excess of 4.5 million barrels a day during Q1 2019, led by growth in Texas. Much of the new supply is destined for export despite growth in domestic petrochemical capacity.
Marketed Natural Gas has also reached new highs in the US, with surplus gas allowing rapid refilling of gas storage and holding Henry Hub gas prices around $2.60-2.70 level.
The US economy grew by 3.1% to start the year, slightly better than expected and providing some relief at a time when recession fears are accelerating.
Carbon Management – Increasing confidence in more oil and gas investment
This week the IEA published the 2019 World Energy Investment which found that whilst 2018 ended three consecutive years of decline, approvals for new conventional oil and gas projects and renewables growth have stalled, raising concerns about meeting both energy supply and climate goals.
“The world is not investing enough in traditional elements of supply to maintain today’s consumption patterns, nor is it investing enough in cleaner energy technologies to change course. Whichever way you look, we are storing up risks for the future,” said Fatih Birol, IEA Executive Director.
These risks for the future are not only volatility in the global energy market, but also the potential for corresponding economic recession and impacts to society in countries dependent on energy imports and susceptible to climate change impacts.
From an oil and gas perspective there is some good news, in that whilst investment in 2018 at $750 billion was at a level similar level to just prior to the unconventional shale gale in 2007. Peak investment reached a high of $1.1 trillion in 2014, however, recent cost reductions in oil and gas supply since 2014 have offset the reduced spend, and coupled with a faster delivery of new projects, effectively means that the industry has delivered better capital efficiency – delivering more, faster for the same dollar.
However, despite this good news, going forward there remains unprecedented uncertainties in markets, policies and technologies that are all related to the low carbon energy transition. The oil and gas industry has to manage these uncertainties effectively to ensure an increased level of investor confidence that will enable us to deliver more oil and gas responsibly. Carbon Management in oil and gas is therefore the final area of trust that we need to embrace and deliver to ensure a secure and a sustainable energy future.
Trust is the hardest thing to earn, but the easiest thing to lose. Carbon Management ensures we keep it.
Natural Gas - LNG as a marine fuel
Many technological changes happen slowly enough that they creep up gradually, until a realization that a particular industry segment has undergone a major change. Electric cars and charging points are now quite widespread in many of the world’s major cities, wifi hotspots are now more common than not in bars and cafes, and driverless trains and subways are now also common.
With the world of LNG, a good example would be the use of dedicated LNG vessels. They do not look any different, and certainly their passengers are unaware of any difference, but the ship operators are seeing a very big difference in terms of fuel costs.
The latest additions to the LNG fleet are two purpose built catamarans that arrived in Harlingen in the Netherlands earlier this week. They are in good company, with a similar vessel that operates between Argentina, and Uruguay, crossing the River Plate estuary, having been in operation for a few years now (with a second on order). That vessel, the San Francisco, also known as “Concorde of the Seas” has accounted for around 30,000 tonnes of LNG so far, that originates from a liquefaction plant just outside Buenos Aires. It sounds like a lot of fuel, but it actually amounts to about one day’s output from a 10 MTPA export plant.
However, when you do the math, the advantages of LNG as a marine fuel start to add up. That vessel consumes around four road tankers worth of LNG each day, amounting to some 225,000 liters of fuel, so let us call it 4,700 MMBtus. With summer 2019 wholesale low Sulphur marine diesel trading at around $15/MMBtu, that represents a cost of about $70,000. Although natural gas prices are harder to determine, the reported price for distribution companies in Argentina for buying gas from the February 2019 auctions was just $4.56/MMBtu, amounting to a daily fuel bill of just over $21,000. Even given the relatively high cost of small scale LNG, a difference of over $10/MMBtu, or $47,000 per day between natural gas and marine gasoil appears to be a very strong incentive to switch to LNG.
Forecasts for the take up of LNG as a marine fuel vary considerably, but for anyone taking a car ferry or local trip in Europe, the Americas, or China, the likelihood of being propelled along with an LNG fueled motor is getting higher by the month.
Crude Oil – Inventories have been rising …
US refiners have undertaken more maintenance than normal to avoid autumn and winter shutdowns in the run up to the introduction of new IMO marine fuel standards.
The increase in US crude stocks despite heavy spring maintenance tends to confirm that the global market has tightened and may tighten even more in the second half. US crude stocks has increased by almost 30 million barrels by April 26 compared with the end of last year.
The stock build was much larger than the 12 million-barrel increase at the same point in 2018 but well below the 10-year average increase of 45 million barrels and otherwise the smallest seasonal build since 2011.
US refiners cut their crude consumption by almost 28 million barrels compared with 2018, which more than accounted for the faster rise in stocks compared with last year. So far this year, US refiners have processed an average of just 16.32 million barrels per day compared with 16.55 million at the same point in 2018. data.
Once refiners complete their maintenance and return to full production in preparation for the summer driving season, US crude consumption is likely to surge, and stocks will draw down quickly.
The crude market may become tighter later this year unless consumption growth slows or Saudi Arabia boosts output to offset production lost from Venezuela and Iran because of US sanctions.
Crude Oil Price
Brent, the global benchmark for oil, decreased $4.05 to $64.81 a barrel, reflecting a loss of 5.88% on the week.
WTI crude fell $3.97 to $54.96 a barrel, down 6.74% on the week.
Total US rig count (including the Gulf of Mexico) stands at 984, up 1 this week. The horizontal rig count stands at 862, down 1 this week. US rig activity continues to show constrained growth for 47 of the last 50 weeks and is 70 rigs below (-7%) last year’s total. Crude prices are trending lower and US shale operators continue to focus on well productivity (i.e., well completion) and operational efficiency over rig growth. Capital discipline over production growth is the driller’s present behavior.
US Crude Oil Supply and Demand
Crude oil inventories increased 0.3 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) was flat; total stored is 49.1 million barrels (~55% utilization).
US crude oil refinery inputs averaged 16.8 million barrels per day, with refineries at 91.2% of their operating capacity last week. This was 189,000 barrels per day more than the previous week’s average.
US gasoline demand over the past four weeks was at 9.5 million barrels, down 2.2% from a year ago. Total commercial petroleum inventories decreased by 1.6 million barrels last week.
US crude net imports averaged 3.545 million barrels per day last week, down by 476,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 4.051 million barrels per day, 27.5% less than the same four-week period last year.
US crude imports averaged 6.9 million barrels per day last week, down by 81,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged 7.0 million barrels per day, 8.5% less than the same four-week period last year.
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