November 1, 2019

November 1, 2019

1st November 2019

Oil Drilling Activity

Onshore US drilling activity decreased by 8 with a total active count of 799 (Y/Y decrease of 247) rigs; those targeting oil down 5, with the total at 691. Across the three major unconventional oil basins, the oil-rig count was down 1, with Permian down 1, Williston and Eagle Ford flat.

Source: Baker Hughes Rig Count

US domestic crude output was flat for a third week; crude production remained at 12.6 million barrels per day. Rig active on drilling oil wells has declined by ~100 over the last three months at the same time as EIA data on drilled uncompleted (DUC) wells has declined at a rate of ~150 per month, thus helping to sustain current record levels of oil production. 

US domestic gas output is also at record highs, up 9% Y/Y, with most of the growth in five plays: Marcellus, Utica, Permian, Haynesville and Eagle Ford.  Feed to LNG export also reached a new peak of 7.1 Bcfd, with many of the LNG cargoes heading to Europe, resulting in NBP prices in mid-October 40% lower than the same period one year ago.

Crude stockpiles increased; inventories gained 5.7 million barrels compared with expectations for a 0.494 million-barrel gain. Crude stocks at the Cushing, Oklahoma, delivery hub for US crude rose for a fourth straight week, gaining 1.6 million barrels last week.

US real GDP grew at a seasonally adjusted annualized rate of +1.9% in the third quarter, down from +2.0% in the second quarter.

Carbon Management – The scary energy transition: trick or treat?

More investors are thinking about the global impacts of climate change on society and the resultant effect on their investments.

A recent study from Morgan Stanley drew global attention as it reports that the world will need to invest $50 trillion over the next 30 years to reduce carbon emissions to net zero. Five focus areas emerged as the most promising in achieving this goal at the required scale: Carbon Capture, Use, and Storage (CCUS), Hydrogen, Renewable Energy, Electric Vehicles, and Biofuels. 

Amidst these, CCUS would require investments of the order of $2.5 trillion. The International Energy Agency (IEA) has reported that to reduce carbon emissions at-scale CCUS will need to contribute about 14% of all emissions reduction efforts by 2050. A power plant that deploys CCUS technologies reduces CO2 emissions to the atmosphere by 80-90% as compared to a plant without CCUS. However, a new study published this week from Stanford University suggests that CCUS only removes a small fraction of emissions when compared to Renewable Energy.

Our review found that although some Renewable Energies have a significantly lower carbon footprint than fossil-fuel based power plants without CCUS, it is important to consider the supply and manufacture of materials used, the transportation of these products, the lifespan of the installation, its net production of energy. The intermittency of Renewable Energy production and siting restrictions can limit its capability to meet the scale of the world’s ever-growing energy demand. Fossil-fuel based energy is affordable, reliable, and can have significantly lower environment impacts through adoptions of technologies like CCUS.

In a growing world, energy access is critical. Globally, an additional 200 GW of coal-based power generation capacity is under construction. CCUS is undeniably the only viable and technologically proven decarburization option for this continued investment that is being made in energy infrastructure.

The Energy Transition can be scary. Advocates for solutions can be polarizing. At Gaffney, Cline, & Associates, we believe that the most important thing is to understand all your options with an independent and neutral view. Our experts are here to help you understand uncertainty, mitigate risks and build on opportunities. Contact us to find out more.

Natural Gas – America’s phantom trains

Halloween seems an appropriate time to consider the phantom of fugitive emissions from oil and gas operations, which have come into sharp focus recently as a result of greater awareness of the Greenhouse Gas (GHG) implications of Methane, now recognized as a major contributor to climate change.

Traditionally, the industry has not been good at tracking wellhead production compared to what actually reaches the customer.  Any kind of forensic evaluation usually shows up large disparities between oil and gas produced at source, and the revenues a producer sees from their product sales.  On the gas side, these misallocations can arise form inaccurate meter reading, differences in calorific value, and the gas that escapes during normal operations.

It is estimated that around 13 million tonnes of methane escapes from gas infrastructure in the US, somewhere between production and delivery.  In the context of the global gas industry, that represents two LNG trains worth of production.  That is almost two LNG carriers worth of gas every week, each of which has a potential revenue attached to it of around $20m or more.  In short, methane leakage is not only environmentally damaging, but it is an economic problem for the industry, especially in these hard times.

Although the current US Administration lifted restrictions on methane emissions back in August, many of the largest industry players have opted to continue voluntary adherence to the regulations set in 2016, and it seems likely that with the focus on climate increasing, this are will continue to receive a great deal of attention.

Coupled with the large array of technical solutions to detect methane leakage, with costs and effectiveness improving weekly, it seems like 2020 might be a pivotal year in the battle to prevent fugitive emissions.  It may be that by Halloween next year, the treat for the gas sector will be enhanced revenues, a reduced GHG footprint, and a better reputation for gas as a key transition fuel to a low carbon energy economy. 

Crude Oil – Prices remain capped

Oil prices came under pressure from rising US crude oil stocks and weak factory activity in China. Factory activity in China shrank for a sixth straight month in October while growth in the country's service sector activity was its slowest since February 2016, official data showed on Thursday. A protracted trade war between China and the US has been weighing on the demand outlook for oil.

Oil prices are likely to remain pressured this year and next. The US Federal Reserve cut interest rates for a third time this year, looking to bolster economic growth with a move that could also boost demand for crude. Gains are likely to be capped until inventories start to show sustained declines.

Releasing third-quarter results, Royal Dutch Shell warned that uncertain economic conditions could slow its $25 billion share buyback program, the world's largest, and had led to a downward revision to its oil price outlook.

The global economy has led two of the world's top oil firms to warn investors that promised growth in returns could be at risk for the first time since the 2014 oil downturn. BP and Royal Dutch Shell signaled this week that billions of dollars in shareholder returns could be delayed as oil prices failed to make their expected recovery.

They echo, however, a growing trend across the Atlantic where investors are starving US shale companies of new capital after they largely failed to deliver returns. The world's top oil companies make profits at oil prices of $50 to $60 a barrel, but the companies still heavily rely on stronger oil and gas prices to deliver higher returns.

Weekly Recap

Drilling Activity

Source: BHGE Rotary Rig Count

Total US rig count (including the Gulf of Mexico) stands at 822, down 8. The horizontal rig count stands at 717, down 11. US rig activity continues to decline and is 246 rigs below (-23%) last year’s total.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

Crude oil inventories increased, a gain of 5.7 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 1.6 million barrels; total stored is 46 million barrels (~51% utilization). Total US commercial crude stored stands at 438.9 million barrels (~56% utilization).

US crude oil refinery inputs averaged 16 million barrels per day, with refineries at 87.7% of their operating capacity last week. This was 133,000 barrels per day more than the previous week’s average.

US gasoline demand over the past four weeks was at 9.5 million barrels, up 3.6% from a year ago. Total commercial petroleum inventories decreased by 2.2 million barrels last week.

US crude net imports averaged 3.4 million barrels per day last week, up by 1,196,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 2.9 million barrels per day, 45.7% less than the same four-week period last year.


November 1, 2019

P. Kevin Galvin

Facilities/Cost Engineer -
November 1, 2019

Nick Fulford

Global Head of Gas/LNG -
November 1, 2019

Nigel Jenvey

Global Head of Carbon Management -

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