18th October 2019
Oil Drilling Activity
Onshore US drilling activity decreased by 4 with a total active count of 827 (Y/Y decrease of 217) rigs; those targeting oil up 1, with the total at 713. Across the three major unconventional oil basins, the oil-rig count was up 3, with Permian up 1, Williston flat and Eagle Ford up 2.
US domestic crude output was flat; crude production remained at 12.6 million barrels per day.
Crude stockpiles increased for the fifth straight week; inventories gained 9.3 million barrels compared with expectations for a 4.0 million-barrel gain. A drop in refining activity continues to build oil inventories.
Oil production at one of the world’s largest offshore oil fields, Kashagan in Kazakhstan, has dropped by 80,000 barrels per day since early October because of unplanned maintenance.
Carbon Management – Delivering the 17 goals for people and the planet
In 2015, all United Nations Member States adopted the Agenda for Sustainable Development based on 17 goals to be achieved by 2030. In summary, these 17 Sustainable Development Goals (SDGs) are a call to overcome poverty with social fairness and environmental sustainability.
The oil and gas industry is a pillar of modern society. In 2018, oil and gas supplied 58% of total primary energy, invested $750 billion, and directly employed hundreds of thousands of people. The industry makes a substantial contribution to both major developed and smaller developing economies. Given the oil and gas industry’s role in the global economy, it must embrace the SDGs; without this, they are unattainable.
Carbon Management emerges as a central theme amongst the SDGs and a number of them are directly achieved through providing climate action, affordable and clean energy, industry innovation and infrastructure, responsible consumption and production, and ecosystem management.
To be able to sustainably advance the oil and gas industry to meet growing demand, IPIECA has mapped the long-term goals of the industry to all the SDGs and cultivate a shared understanding to ensure our participation and positive contribution. IPIECA is an organization that represents the global oil and gas industry association for advancing environmental and social performance and has espoused good practice and measurable impact for close to five decades. For this endeavor, IPIECA partnered with the United Nations Development Program (UNDP) and the International Finance Corporation (IFC) to publish their joint report “Mapping the oil and gas industry to the Sustainable Development Goals: An Atlas” in 2017.
Embedding Carbon Management as common practice along the entire value chain of the oil and gas industry will define how the world delivers upon its sustainable development goals. The future of people and the planet depend on it. The Carbon Management practice at Gaffney, Cline & Associates is here to help your implementation. Contact us to find out more.
Natural Gas – Putting the Squeeze on American LNG
Henry Hub has been grinding along for so long at rock bottom prices that few people are paying it much attention these days. The focus has turned from US price volatility to the swings in selling prices in Europe and Asia, especially the last half year or so where we have seen wholesale gas markets sagging under the weight of huge numbers of uncontracted LNG cargoes looking for a home.
Of course, in these days of low delivered price, the fact that the input cost for US LNG has also been so low has been a lifesaver for some. The question, increasingly, is how long this will last.
A worrying indicator comes from the upstream sector. Now that so many years of emphasis on unconventional growth is coming to an end, first driven off the shale gas boom of the 2010-2014 era, and then the tight oil boom that took the limelight soon after, investors are looking to reap the rewards from free cash flow and dividends. For the most part, they are coming up empty handed.
Evidence of the financial pressures that some of the US dry gas focused companies are under can be seen in the restructurings and layoffs that have been reported in the financial press and earnings calls lately. However, while the Northeast focused shale gas players suffer, the Permian producers are producing even more gassy oil. For the most part, the gas market seems to believe that the downturn in activity in the drier gas areas is more than catered for by continuing associated gas growth, and the gas pipeline investments that go with it.
The Gulf Coast LNG producers, or at least the entities who are sitting on the resulting price risk, will be hoping that Henry Hub stays low for a bit longer, until the global excess in cargoes has been all used up.
The economics of unconventional gas are by no means rocket science, but they do depend on some basic inputs. The capital outlay of drilling, completion and tie-in has to be balanced by good initial production, and a manageable initial and terminal decline. A good place to start, in terms of understanding US gas prices, is right there! The answers are surprising, and not in a good way.
Crude Oil – GOM oil production to grow in 2019 and 2020
US crude oil production in the Gulf of Mexico (GOM) averaged 1.8 million barrels per day in 2018, setting a new annual record. Based on expected production levels at new and existing fields, annual crude oil production in the GOM will increase to an average of 1.9 million barrels per day in 2019 and 2.0 million barrels per day in 2020.
Producers expect eight new projects to come online in 2019 and four more in 2020. These projects are expected to contribute about 44,000 barrels per day in 2019 and about 190,000 barrels per day in 2020 as projects ramp up production.
Crude oil price increases in 2017 and 2018 relative to lows in 2015 and 2016 have not yet had a significant effect on operations in the GOM, but they have the potential to contribute to increasing rig counts and field discoveries in the coming years. Unlike onshore operations, falling rig counts do not affect current production levels, but instead they affect the discovery of future fields and the start-up of new projects.
Total US rig count (including the Gulf of Mexico) stands at 851, down 5. The horizontal rig count stands at 745, down 5. US rig activity continues to decline and is 217 rigs below (-20%) last year’s total.
US Crude Oil Supply and Demand
Crude oil inventories increased for a fifth week, up by 9.3 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 1.3 million barrels; total stored is 43.0 million barrels (~48% utilization). Total US commercial crude stored stands at 434.8 million barrels (~55% utilization).
US crude oil refinery inputs averaged 15.4 million barrels per day, with refineries at 83.1% of their operating capacity last week. This was 221,000 barrels per day less than the previous week’s average.
US gasoline demand over the past four weeks was at 9.3 million barrels, up 2.6% from a year ago. Total commercial petroleum inventories decreased by 1.6 million barrels last week.
US crude net imports averaged 3.1 million barrels per day last week, up by 223,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 3.2 million barrels per day, 42.5% less than the same four-week period last year.
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