12th May 2017
Drillers added 7 onshore rigs, increasing activity for a 17th week in a row and bringing the total to 860. Onshore rigs now stand 478 rigs above the same period a year ago. US shale producers are boosting their drilling budgets, with much of the spending flowing into the Permian Basin
Natural Gas – A Bottomless Pit?
Sometimes it seems that the business model for natural gas has moved from “Exploration and Production” to “Store and Extract when needed”! So much gas has been discovered over the last decade, including both unconventional and conventional sources, that for all intents and purposes we know where the gas is, we know how much it will cost to produce, and we know what technology is appropriate. Coupled with that, we have a ramping up in associated gas, described in this bulletin a few weeks ago; this adds another large slug to the global mix and will be produced simply as a bi-product.
Now and then there is yet another gas discovery that pushes us ever more firmly into an environment where gas is effectively inexhaustible for practical purposes. This week’s announcement by BP/Kosmos about their discovery in Senegal was a good example. A number of reports suggest that there is now something in the region of 50 TCF of gas offshore Senegal/Mauritania, sufficient to bring it onto the same level as East Africa as one of the next major global sources of gas.
With global gas consumption approaching 350 bcf/day; the estimated Senegalese/Mauritanian resources alone could run the entire world for half a year. Looking more broadly, global proven supplies would currently support more than 50 years demand (according to the BP world review). By the time additional discoveries are factored in, reserve upside is considered, and unconventional potential is unleashed still further, it’s easy to see how gas has the resource base to remain a major source of energy for the indefinite future.
In a perfect world, the lowest cost gas (including freight to relevant end-users) would be produced first and more costly gas would follow when there was demand for it. However, at the pace at which new gas sources are emerging there are dangers for those sitting on gas and awaiting their turn if it isn’t at the low end of the cost curve. As more and more low cost gas comes into the mix, a discovery that might have been vying for promotion to the Premier League could suddenly find it has been relegated! Who knows how long it will be before (indeed, if) some of the gas will ever see the light of day?
Oil Drilling Activity
Total US rig count (including the Gulf of Mexico) stands at 885, up 8 last week, with rigs targeting oil up 9. The horizontal rig count increased to 742, up 8 last week.
The total number of active onshore rigs increased to 860. When compared to a November 2014 figure of 1,876 active rigs, the current level remains 54% below the 2014 high.
Across the three major unconventional oil basins, the oil rig total increased to 476 (up 9 last week), with Permian up 8, Eagle Ford flat and Williston up 1.
Crude Oil Price
Brent, the global benchmark for oil, increased $2.52 to US$50.94 a barrel, reflecting a gain of 5.20% on the week.
WTI crude rose $2.40 to US$47.84 a barrel, up 5.28% 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 91.5% of their operating capacity last week. This is 418,000 barrels per day less than the previous week’s average.
US gasoline demand over past four weeks was at 9.2 million, down 2.4% from a year ago. Total commercial petroleum inventories decreased by 3.6 million barrels last week.
On the supply side, EIA data indicated that total domestic crude production increased 21,000 barrels to 9.314 million barrels a day. The Lower 48 crude production now stands at 8.783 million barrels per day, up 16,000 this week.
US crude imports averaged over 7.6 million barrels per day last week, a decrease of 644,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 8.2 million barrels per day, 5.0% above the same four-week period last year.
Crude oil inventories decreased 5.2 million barrels from the previous week and persist at historically high levels. The crude stored at Cushing (the main price point for WTI) was down 0.4 million barrels; total storage is 66.3 million barrels (~73.7% utilization).
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