September 14, 2018

September 14, 2018

14th September 2018

Oil Drilling Activity

Onshore US drilling activity increased by 4 with a total active count of 1030 rigs; those targeting oil increased by 7, with the total at 867. Across the three major unconventional oil basins, the oil rig count was flat at 605, with Permian down 1, Eagle Ford flat and Williston up 1.  

Sources: EIA Weekly Update and GCA Analysis

EIA reported last week’s total US domestic crude output at 10.9 million barrels a day, down from a record high reached three weeks ago. This week’s domestic crude oil production estimate incorporates a re-benchmarking that lowered estimated volumes by 50,000 barrels per day, which is just less than 0.5% of this week’s estimated production total.

Natural Gas – Resucitando a la Vaca Muerta

This week, the GCA Gas and LNG team has been in Argentina, recognizing in many ways the graduation of that country to the “Shale Gas Club,” previously the select domain of just the US and Canada.  In spite of dozens of nations around the world all aspiring to join the club, Argentina is currently the only other country where the technical, commercial, and infrastructure challenges are being met, and shale gas production has now reached some 700MMscfd, and continues to grow rapidly.

One of the challenges for Argentina right now, is where the market for multiple trillions of cubic feet of gas is going to arise, and although it is still very early days, LNG export is already a gleam in the eye of many of the gas stakeholders.  One of the more innovative ideas that GCA has been developing, is the potential for seasonal exports, driven off the highly seasonal market in Argentina.

Source: Gaffney, Cline & Associates Analysis

As the chart above demonstrates very well, the heating season in Argentina is almost an exact mirror image of that which applies in Northwest Europe, and so the opportunity to redirect summer gas to northern hemisphere heating markets is a perfect fit.  Furthermore, by creating additional gas and oil revenues from existing upstream assets, the short run marginal cost of gas production can be minimized, or even eliminated, helping to support what would otherwise be relatively prohibitive LNG plant investments.  Coupled with innovative use of existing FSRU storage, and potentially additional floating storage units (FSUs) such a concept can combine standby storage for transmission system balancing at times of high demand, as well as a platform for opportunistic LNG exports, accessing higher value global markets.

While there remain a host of engineering, operational and regulatory measures that would need to be fully addressed to get a seasonal export project underway, with some innovative thinking, progressive investors, and support from key areas of government, such a scheme could see the light of day by the early 2020s.  Although the Vaca Muerta appears already promising enough to sustain a much higher level of base load export in the future, the first step in delivering the vision of a world class export project could be something small, simple, and profitable.  It is interesting to note that while average FOB prices realized for US base load exporters in 2017 was only US$4.53/MMBtu, one in twenty cargoes achieved a price in excess of US$7/MMBtu [source: US Dept of Energy].  The ability to selectively sell to higher value winter markets is another key feature of the seasonal concept.

The Vaca Muerta (Dead Cow in English) may indeed live again before long, if the right combination of investors and backers can be found to use summer excess gas to help balance northern hemisphere winter shortages.

Crude Oil – US refiners running flat out

Oil futures fell in early Thursday trade as production among OPEC members surged in August, pushing global production to a record. The IEA’s monthly oil report indicated that daily crude-oil output in the OPEC climbed in August by 420,000 barrels a day, to average 32.63 million a day.

That output more than made up for an expected decline in Iranian supply due to extant and pending US economic sanctions. The August report also signaled that global supplies hit a record of 100 million barrels a day.

The moves from crude may be stalling out after the IEA report highlighted the ramp-up in global supplies and OPEC’s largest month-on-month increase in more than two years, bringing the supply from the group’s 15 producers to a nine-month high. The increase mainly came from higher production in Libya, Iraq, Nigeria and Saudi Arabia.

The IEA left global oil demand growth unchanged at 1.4 million barrels per day for 2018 and 1.5 million barrels per day for 2019.

The US EIA indicated this week that amid all the geopolitical currents in the crude marker, the US likely surpassed Russia and Saudi Arabia to become the world’s largest crude oil producer in August. The EIA forecast that US output averaged 10.9 million barrels per day last month, a 120,000 barrels per day increase from June.

US crude oil production, particularly from light sweet crude oil grades, has rapidly increased since 2011. Much of the recent growth has occurred in areas such as the Permian region in western Texas and eastern New Mexico, the Federal Offshore Gulf of Mexico, and the Bakken region in North Dakota and Montana.

The EIA indicated that US crude storage fell 5.296 million barrels this week. The surprise this week was the strong refinery throughput, which came in at 17.857 million barrels per day. This is an unexpected figure, considering refineries usually enter maintenance season around this time of the year. US refinery throughput stands at an all-time high for this time of the year.

US refiners are running flat out longer than normal this year to rebuild depleted distillate stocks, but that is drawing down crude stocks heavily and leaving a surplus of gasoline. Once distillate stocks are rebuilt, the excess of gasoline implies refinery runs may have to be cut harder than normal to work off the glut of motor fuel, which could also cut crude demand.

Weekly Recap

Drilling Activity

Source: BHGE Rotary Rig Count

Total US rig count (including the Gulf of Mexico) stands at 1055, up 7 this week. The horizontal rig count stands at 921, up 3 this week. US rig activity has shown little growth for 15 of the last 17 weeks and is up 13% above last year’s total.

Compared to a November 2014 figure of 1,876 active rigs, the current level is just above 50% of the 2014 high. The rig market is tighter than it appears because many older rigs have been scrapped, cannibalized for spare parts, or are simply unsuitable for drilling the very long wells now favored by shale producers.

Crude Oil Price

Brent, the global benchmark for oil, increased US$1.71 to US$78.06 a barrel, reflecting a gain of 2.24% on the week.

WTI crude rose US$1.28 to US$68.63 a barrel, up 1.90% on the week.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

US crude oil refinery inputs averaged 17.9 million barrels per day, with refineries at 97.6% of their operating capacity last week. This is 210,000 barrels per day more than the previous week’s average.

US gasoline demand over the past four weeks was at 9.7 million barrels, up 1.2% from a year ago. Total commercial petroleum inventories increased by 10.1 million barrels last week.

US crude imports averaged 7.6 million barrels per day last week, down by 123,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged 7.6 million barrels per day, 0.2% more than the same four-week period last year.

US crude exports averaged 1.828 million barrels per day last week, an increase of 320,000 barrels per day from the previous week. Over the last four weeks, crude oil exports averaged 1.568 million barrels per day, 126.8% more than the same four-week period last year.

Crude oil inventories decreased 5.3 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 1.2 million barrels; total stored is 23.6 million barrels (~26% utilization).


September 14, 2018

P. Kevin Galvin

Facilities/Cost Engineer -
September 14, 2018

Nick Fulford

Global Head of Gas/LNG -
September 14, 2018

Ryan Pereira

Global Director – Gas & LNG -
September 14, 2018

Cesar Guzzetti

General Manager – Latin America -

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