September 27, 2019

September 27, 2019

27th September 2019

Oil Drilling Activity

Onshore US drilling activity dropped 7 with a total active count of 835 rigs; those targeting oil down 6, with the total at 713. Across the three major unconventional oil basins, the oil-rig count was down 3, with Permian down 3, Williston and Eagle Ford flat.

Sources: EIA Weekly Update and GCA Analysis

US domestic crude output increased 100,000 barrels per day; crude production stands at 12.5 million barrels per day, matching the record high of 12.5 million barrels per day set at the end of August. For those who like to consider ratios, 2 years ago 9.5 million barrels a day of production was supported by 750 rigs = 12,677 barrels a day per rig, for this month, that ratio has moved to 17,531 a near 28% optimization; good job drillers are a tough breed.  

Crude stockpiles increased for the second time in four weeks; inventories gained 2.4 million barrels compared with expectations for a 0.190 million-barrel drop.

New orders for key US-made capital goods unexpectedly fell in August and shipments rebounded moderately, pointing to continued weakness in business investment.

Carbon Management - A climate for change in oil and gas

Did the UN Climate Action Summit earlier this week provide fresh impetus for climate action? The stage was set as heads of state, business leaders, financial institutions and other prominent members of society met to deliberate on a shared vision and roadmap for a low carbon economy and actions to tackle climate change.

Pledging to keep greenhouse gas (GHG) emissions in check at the summit, 70 countries committed to strengthening their Nationally Determined Contributions (NDCs) to the Paris Climate Agreement by 2020, while 70 other countries and sub-national territories like California announced stringent plans to curb GHG emissions to net zero by 2050.

Leading businesses, representing a market value of more than $2.3 trillion, announced new pathways to deliver concrete action in line with limiting global warming to 1.5°C above pre-industrial levels. Representatives from asset-owning establishments, with a combined market share of $2 trillion, committed to having a carbon-neutral investment portfolio by 2050; while leaders of financial institutions representing about a third of the global banking sector, pledged to align their businesses with the goals of the Paris Climate Agreement.

So where was the oil and gas industry in this debate? Oil and gas was predominantly represented on the sidelines of the summit by the Oil and Gas Climate Initiative (OGCI). OGCI, comprising of 13 major oil and gas companies that account for 32% of production, announced a kick-starter campaign to accelerate large-scale investment in carbon capture, utilization, and storage (CCUS). Today, there are 19 large-scale facilities capturing and storing 32 million tonnes of CO2 per annum (Mtpa), and oil and gas companies are already involved in 18 of these facilities. OGCI has now identified 5 hubs worldwide including Gulf of Mexico/Texas Gulf Coast, China, Norway, the United Kingdom and the Netherlands that could have a potential impact of 225 Mtpa of CO2 by 2030.

However, it is a hard truth that whilst the work of OGCI is a great step forward, much, much more action is needed by the wider oil and gas industry. According to the IEA, CCUS needs to be deployed at scale by 2040, abating 1400 Mtpa of CO2 to deliver its sustainable development scenario (at least 6 times what the OGCI hub’s will achieve). More has to be done, do not leave it all to OGCI – they cannot do it all themselves.

As the UN promised to keep pushing for greater climate action, the unprecedented representation and support from the energy industry at the Climate Action Summit is a landmark in international climate cooperation. Was your company there? What are you doing in Carbon Management? You too can be part of the solution, and not the problem at the next UN event.

Natural Gas – Southeast Europe...the new gas crossroads?

In many ways, the story of the European gas industry has been one of an increasingly interconnected infrastructure, with an array of high-pressure pipelines, LNG re-gas terminals, and underground storage facilities all combining to facilitate a steadily growing wholesale market in gas (and power).  The policy actions by the EU, especially the Third Energy Package, have seen to it that this infrastructure has benefitted from low barriers to entry, in terms of access to capacity, and ever more sophisticated trading regimes, both physical and financial. 

Northwest Europe has become accustomed to the resilient and secure gas supply that all these interconnected facilities and trading platforms has generated, and of course, the arrival of large quantities of US LNG has done more than anything to increase liquidity and supply diversity.

As all this has unfolded, another story has been developing in Southeast Europe, at the crossroads of the Balkan countries, and routes East through Turkey.  Not only do we see the Black Sea Turkstream development moving forward, as a successor to South Stream, but a variety of other developments in the area seem set to create a new gas nexus, serving Eastern Europe and even North Africa.

The Greece-Bulgaria interconnection is another related project under consideration, and of course further south we see the East Med Pipeline project building increasing support, based on the huge gas discoveries in that region, with the prospect of connections to the big markets of Western Europe, potentially with wider connectivity into North Africa.

With the planned LNG facility at Krk, which like Cyprus received finance from the European Connecting Europe Facility (CEF), the prospect of much greater LNG liquidity in the Mediterranean is also coming much closer.

For that corner of the world, which for a variety of reasons has a less well-developed gas distribution network than many other countries, the prospect of a break-bulk type LNG approach is also beckoning, with small coastal carriers, and road and rail linkages too.

All in all, Southeast Europe seems to be coming alive with gas activity, with the prospect of a gas hub to challenge the much better established trading centers in the UK, and the Netherlands.

Crude Oil – Saudi Arabia’s oil output bounces back after attacks

Oil steadied amid optimism that the US and China could resolve their trade dispute, though prices came under pressure from Saudi Arabia’s moves to restore crude output quickly after attacks on its oil production installations. With the swift resolution of production outages and resilience of Saudi’s oil sector, barring a repeat of drone attacks, the oil market’s focus is returning to the economy and trade wars.

Saudi Aramco indicated that it has restored its production capacity to 11.3 million barrels per day and the oil market has seemingly returned to business as usual.

The Gulf Coast Express Pipeline was put into service ahead of schedule, Kinder Morgan said in a statement. The line will deliver gas from the Waha hub southwest of Midland to Agua Dulce, which is about 35 miles west of Corpus Christi. From there, it connects with other lines to ports along the Texas Gulf Coast and delivery points along the border.

Gas flaring has been a problem in the highly productive Permian for years. It reached an all-time high at the beginning of this year with producers lacking a way to get the gas out of West Texas and constraining oil production growth.

The Gulf Express pipeline joins two crude oil pipelines put into service last month in carrying product from the Permian to Corpus Christi and other Texas ports. A third Permian-to-Corpus crude pipeline operated by Phillips 66 is expected to go into service by this year.

Activity in the oil and gas sector declined in third quarter 2019, according to oil and gas executives responding to the Dallas Fed Energy Survey. The business activity index—the survey’s broadest measure of conditions facing energy firms—fell to -7.4 in the third quarter from -0.6 in the second quarter. Oilfield services firms drove the decline, with their business activity index slumping to -21.8 from 6.6.

Negative survey readings indicate contraction; those above zero suggest expansion.

Changing face of ownership in a mature hydrocarbon province

Across the other side of the Atlantic, there is a continuing realignment of ownership in European upstream assets.  First the European Energy Utilities and, more recently, the Majors have elected to exit, with several more players preparing further disposals.  Household names who have been present for 50+ years such as Exxon, Chevron, Conoco, Shell, and BP have either announced their departure or have re-aligned their portfolios in the UK and/or Norway.  For the most part, unlisted entities have chosen to sweep up much of the $15B worth of asset transactions, with a new single peak this week in the $4.5 Billion deal for the Exxon Norway non-operated assets. 

How long each of the new entrants elect to stay, or what form their “exit strategies” will take, is a frequent topic of conversation in London, Aberdeen, Stavanger and Oslo.  Many thousands of oil field workers wish every success for the growth plans of these new asset custodians on which many jobs and companies depend.

Weekly Recap

Crude Oil Price

Brent, the global benchmark for oil, decreased $3.44 to $61.62 a barrel, reflecting a loss of 5.29% on the week.

WTI crude fell $3.60 to $55.50 a barrel, down 6.09% on the week.

Drilling Activity

Source: BHGE Rotary Rig Count

Total US rig count (including the Gulf of Mexico) stands at 860, down 8. The horizontal rig count stands at 752, down 4. US rig activity continues to be restrained and is 193 rigs below (-18%) last year’s total.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

Crude oil inventories increased for a second week, up by 2.4 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 2.2 million barrels; total stored is 30.9 million barrels (~45% utilization). Total US commercial crude stored stands at 419.5 million barrels (~53% utilization).

US crude oil refinery inputs averaged 16.5 million barrels per day, with refineries at 89.8% of their operating capacity last week. This was 193,000 barrels per day less than the previous week’s average.

US gasoline demand over the past four weeks was at 9.4 million barrels, down 0.9% from a year ago. Total commercial petroleum inventories increased by 0.7 million barrels last week.

US crude net imports averaged 3.4 million barrels per day last week, down by 480,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 3.6 million barrels per day, 36.2% less than the same four-week period last year.

   

Authors

September 27, 2019

P. Kevin Galvin

Facilities/Cost Engineer - kevin.galvin@gaffney-cline.com
September 27, 2019

Nick Fulford

Global Head of Gas/LNG - nick.fulford@gaffney-cline.com
September 27, 2019

Nigel Jenvey

Global Head of Carbon Management - nigel.jenvey@gaffney-cline.com

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