September 7, 2018

September 7, 2018

7th September 2018

Oil Drilling Activity

Onshore US drilling activity decreased by 2 with a total active count of 1026 rigs; those targeting oil decreased by 2, with the total at 860. Across the three major unconventional oil basins, the oil rig count decreased to 605, with Permian down 2, 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 11.0 million barrels a day, flat from a record high reached two weeks ago.

The number of Americans filing for unemployment benefits fell to near a 49-year low last week, pointing to sustained labor market strength that should continue to underpin economic growth. Additionally, US job gains rebounded by more than forecast in August and wages unexpectedly registered their biggest advance of the expansion, keeping the Federal Reserve on track to lift interest rates this month and possibly another time this year.

Natural Gas – FERC opens floodgates yet again for US LNG?

This week the Federal Energy Regulatory Commission (FERC), the coordinating agency responsible for issuing permits to US LNG export projects, sent Notices of Schedule to as many as 12 of the proposed US projects, setting out a timeline for the decisions on their permit applications. A list of the project applications can be seen at

For a while now, the project developers had been expressing concern about the long and uncertain permitting process while FERC grappled with understaffing of experts necessary for review. Prompted by an Executive Order earlier in the year, FERC had been looking at ways to streamline the process and hire third-party experts, where necessary, to potentially speed up the reviews. The Notices are being seen as symbolic of these initiatives, and it claims that from here on the review periods in most cases would be significantly reduced.  

This development is clearly a shot in the arm for several of these projects that have for the last few years been painstakingly spending time and resources on the applications, not to mention the efforts, that have gone into arranging the necessary funding (typically running into several millions of dollars) to keep the process going. They will now be able to market the volumes/capacity from their projects with greater certainty on the timelines.

However, looking at this from the perspective of potential buyers, decisions are not expected to become easier with so many suitors at their doorsteps. To provide an idea of the amounts of LNG involved in these applications, it is worth noting that the entire global LNG market last year was around 290 MTPA.  By contrast, the aggregate capacity of just these 12 projects is 21 Bcf/d (equivalent to around 150 MTPA), not to mention the already approved projects. Furthermore, some LNG capacity holders from the first wave of US export projects are overbought, and are looking to remarket their LNG. While there has been an upswing in global LNG demand expectations lately, especially with the growth being seen in China and new markets looking to import LNG, the proposed capacity addition from just the US may be more than the market can absorb for some time to come.

In this situation, it will be advisable for the buyers to step back and recognize that while the projects might look similar at a certain level (especially now, with their FERC permits expected just a few quarters apart), each of these projects is potentially unique by virtue of the building blocks that could make up their respective LNG chains. Identification of the project that is most competitive, reliable and best fits the needs of the buyer will likely require a close examination of the project location (from feedgas, pipeline, site suitability and marine/port perspectives), the proposed technology and process configurations of the plant, pricing and other contractual terms offered, experience of the project developers and its contractors, to mention a few.

GCA has recently been involved in evaluating a number of LNG export projects for clients, as well as assisting buyers with respect to securing new, competitive and reliable sources of supply.

It seems the race is now approaching the home stretch. Will be interesting to see which ones get to the finish line, watch the space!

Crude Oil – Hurricane Gordon a non-event

A total of 48 offshore platforms in the Gulf of Mexico were evacuated because of Hurricane Gordon as of Wednesday, with 160,000 bpd of crude oil production shut in along with a little over 266 million cu ft of gas production. The data was based on platform operator reports submitted on Tuesday, when Gordon was expected to make landfall.

The shut-in production represents less than one-tenth of GOM’s total daily oil output, and price movements reflected the relative insignificance of the shut-ins, down 1.7%. Gordon largely turned out to be a non-event for the energy market. With 20% of US crude production capacity and 45% of refining capacity in the Gulf of Mexico, storm forecasts are important for oil traders—bulls and bears alike.

The market is already preparing for the loss of at least 1 million barrels per day in Iranian crude supplies from early November, when US sanctions against Tehran come into force. The oil price has risen by 3% since the US government announced the sanctions in May.

In the last week, we have seen the focus shift again from supply back to demand and the continued trouble in emerging market stocks, bonds and currencies is weighing on the medium and longer-term crude demand outlook. Crude reversed course, falling on Thursday after EIA’s data showed gasoline inventories rose unexpectedly last week, overshadowing a bullish drawdown in crude stocks.

Oil prices continued to trade lower after the EIA indicated that domestic crude supplies fell by 4.3 million barrels for the week. Analysts surveyed by S&P Global Platts had forecast a fall of 2.5 million barrels, while the American Petroleum Institute on Wednesday reported a decrease of 1.2 million barrels.

Gasoline stockpiles rose 1.8 million barrels for the week, while distillate stockpiles added 3.1 million barrels, according to the EIA.

Weekly Recap

Drilling Activity

Source: BHGE Rotary Rig Count

Total US rig count (including the Gulf of Mexico) stands at 1048, flat this week. The horizontal rig count stands at 918, up 1 this week. US rig activity has shown little growth for 14 of the last 16 weeks and is up 11% 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.

Crude Oil Price

Brent, the global benchmark for oil, decreased US$1.28 to US$76.35 a barrel, reflecting a loss of 1.65% on the week.

WTI crude fell US$2.73 to US$67.35 a barrel, down 3.90% on the week.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

US crude oil refinery inputs averaged 17.6 million barrels per day, with refineries at 96.6% of their operating capacity last week. This is 81,000 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 1.1% from a year ago. Total commercial petroleum inventories increased by 3.6 million barrels last week.

US crude imports averaged 7.7 million barrels per day last week, up by 229,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged 7.9 million barrels per day, 0.5% less than the same four-week period last year.

US crude exports averaged 1.508 million barrels per day last week, a decrease of 271,000 barrels per day from the previous week. Over the last four weeks, crude oil exports averaged 1.509 million barrels per day, 110.4% more than the same four-week period last year.

Crude oil inventories decreased 4.3 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 0.5 million barrels; total stored is 24.8 million barrels (~28% utilization).


September 7, 2018

P. Kevin Galvin

Facilities/Cost Engineer -
September 7, 2018

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