Sunday, May 1, 2016

oil prices continue rising, oil drilling continues falling, oil glut at yet another record high

oil prices, and prices for everything that is refined from oil, have continued to head up this week, something you dont need me to tell you if you've bought gasoline lately...there has been no fundamental change in the global oversupply situation that would account for higher prices, however, but rather a change in the betting habits of oil traders...just as oil prices were forced down to nearly $26 a barrel in mid-February as oil traders were selling contracts to deliver oil they did not own, oil prices are now being forced up by traders who are buying contracts for oil they have no intention to take delivery of...and as we've explained previously, with daily electronic trading in oil contracts accounting for more than 100 times the amount of actual oil produced and shipped daily, the gamblers in oil contracts have much more to say about the short term direction of prices than do the producers or users of that oil...

after falling to close at $42.62 a barrel on Monday on news that the Saudis were boosting production to meet Chinese demand, contract prices for June WTI oil spiked to over $44.50 a barrel on Tuesday after an American Petroleum Institute report that inventories of crude, gasoline and distillates were all down, settling to close the day at $43.72 a barrel... however, even after the EIA report showed that the crude oil glut had actually continued to build, traders drove prices up to close at a 2016 high of $45.33 a barrel on Wednesday, preferring to focus on a small drop in field production of crude, believing that would suggest supply-and-demand conditions would soon come back into balance...thus convincing themselves that the oil price rout was over, buying by speculators continued on Thursday, as the current contract price rose to a 5 month high and closed at $46.03...oil prices then fell below $45.40 on Friday morning as the rally ran out of steam, but then recovered after the rig count report showed the largest decrease in oil rigs 6 weeks, and closed the week at $45.92 a barrel, up nearly 20% for the month of April...we'll include a graph here so you can all see how this oil price rally has played out...

April 30 2016 oil prices

the above graph now shows the daily closing contract price per barrel for June delivery of the US benchmark oil, West Texas Intermediate (WTI), as traded on the New York Mercantile Exchange over the last 3 months...the last time we showed an oil price graph it was for the May contract, trading for which expired at $41.08 last Tuesday...this June contract closed at $42.47 on that same day, after which it became the widely quoted "price of oil"...also note that although the March contract for oil fell as low as $26.02 a barrel in mid-February, this contract price for June delivery never got much lower than $32...although futures price quotes are commonly available out to 2024, i dont know of anyone who charts any of those futures, and each time the current contract expires, its chart is replaced by all such services with the new current contract month’s prices, which then shows different prices than what had been quoted in the media just days earlier...

prices at this level have the potential to draw some of the more overconfident frackers back out into the field...Continental Resources and Whiting Petroleum, two big operators in the Bakken, have previously said that they may begin fracking their large inventory of drilled but uncompleted wells if oil prices rise above $40 a barrel be sure, they wont be making money at that price, but it should be enough to cover the cost of fracking, given that all the other drilling expenses are already water over the dam...and this week, Pioneer, a large Dallas based fracker, announced they will add more rigs as soon as oil hits $ reporting earnings this week, they reported they'd already produced more oil than forecast, citing $45 a barrel as a breakeven price in some although the rig count was down to a new record low this week, if oil prices continue to rise, we would not be surprised to see an increase in drilling shortly thereafter...

The Latest Oil Stats from the EIA

while our imports of crude oil fell significantly from the elevated levels of last week, our refineries also slowed somewhat, and because the EIA found 400,000 barrels per day of the 434,000 barrels per day that went missing from the Petroleum Balance Sheet during the week ending April 15th, our surplus crude oil in storage rose by 2 million barrels to another new record on April 22nd...Wednesday's reports from the Energy Information Administration showed that our imports of crude oil fell by 637,000 barrels per day to average 7,550,000 barrels per day during the week ending April 22nd, down from the average of 8,187,000 barrels per day we were importing during the prior week...that lowered our 4 week average of oil imports to 7.7 million barrels per day, which was just 1.2% above the same four-week period of last year...

at the same time, production of crude oil from US wells fell for the 13th time in the past 14 weeks, dropping by another 15,000 barrels per day, from an average of 8,953,000 barrels per day during the week ending April 15th to an average of 8,938,000 barrels per day during the week ending April 22nd....that's now 4.6% below the 9,373,000 barrels per day we were producing during the same week last year, and 7.0% below the 9,610,000 barrel per day peak of our oil production that was established during the week ending June 10th of last year...

meanwhile, U.S. refineries’ crude oil inputs averaged 15,847,000 barrels of per day barrels during the week ending April 22nd, which was 257,000 barrels per day less than the 16,104,000 barrels of crude per day they processed during the week ending April 15th, and 1.6% less than the 16,104,000 barrels per day they used in the same week last year…this was as the US refinery utilization rate fell to 88.1%, down from 89.4% the prior week and quite a bit below the utilization rate of 91.3% that was seen during the week ending April 24th last unusual slowing for this time of year, it could have been in part due to an unusual rash of refinery problems, which saw a Shell refinery in Deer Park, Texas, and Houston Refining's plants shuttered last week, and a Motiva refinery at Port Arthur Texas shut down this week...

at any rate, with less oil being refined this week, our refinery production of gasoline fell to the lowest level in 4 weeks, dropping by 231,000 barrels per day to 9,507,000 barrels per day during week ending April 22nd, down from our gasoline output of 9,738,000 barrels per day during week ending April 15th...that was still 1.4% more than the 9,374,000 barrels of gasoline per day we were producing during the same week last year, however, as our year to date gasoline output is still running well ahead of last years addition, our refinery output of distillate fuels (diesel fuel and heat oil) fell by 90,000 barrels per day to 4,622,000 barrels per day during week ending April 22nd, which put our distillates production 4.4% below the 4,837,000 barrels per day we produced during the same week of 2015...although our year to date distillate output is below the pace of 2015, the milder than normal winter in the heat oil consuming states of the Northeast means we've used that much less...

however, even with the lower refinery output of gasoline, our gasoline inventories rose for the first time in 3 weeks, increasing from 239,651,000 barrels on April 15th to 241,259,000 barrels on April 22nd...part of the reason for that was an increase of 107,000 barrels per day in our imports of gasoline, which at 898,000 barrels per day were at a 7 month high...we also saw a 129,000 barrel per day drop to 9,315,000 barrels per day in gasoline product supplied, which is a metric considered to be a proxy for gasoline consumption...all that meant our gasoline inventories were 6.1% higher than the 227,451,000 barrels we had stored on April 24th last year, which was at that time the highest gasoline stores for the 4th weekend in April in EIA records going back to 1990...thus the EIA categorizes our gasoline stores as "well above the upper limit of the average range" for this time of the same time, our distillate fuel inventories fell by 1,695,000 barrels to end the week at 158,240,000 barrels, driven by a surge in diesel fuel consumption in the central US, likely associated with spring planting...but because distillate inventories were already bloated after a warmer than normal winter, they remained 22.4% higher than the 129,270,000 barrels of distillates we had stored at the same time last year, which although not a record, is still characterized as "well above the upper limit of the average range" for this time of year...

finally, even with the large drop in oil imports, we still added nearly the same amount of oil to our stores as was recorded as added last week, mostly because last week the EIA's petroleum balance sheet came up 434,000 barrels per day short then (something i missed at the time)...this week, with the "adjustment" recorded on line 17 of the petroleum balance sheet (page 6 of the EIA's weekly Petroleum Status Report (62 pp pdf) a less significant 34,000 barrels per day, our stocks of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, rose once again to a new record of 540,610,000  barrels as of April 22nd, up by 1,999,000 barrels from the record 538,611,000 barrels of oil we had stored on April 15th...that was 10.1% higher than the then record of 490,912,000 barrels of oil we had stored as of April 24th, 2015, which turned out to be the highest level of 2015, and 35.4% higher than the 399,357,000 barrels of oil we had stored on April 25th of 2014....below, we have a chart which illustrates this oil inventory growth...

April 22 2016 oil inventories for April 30

the above graph comes from a weekly pdf booklet of petroleum graphs produced by Yardeni Research, a provider of independent investment and economics shows the end of the week stocks of crude oil in millions of barrels for each week beginning with January 2012, up to and including this week's report for April 22nd, with graphs for each year color coded as we can much more clearly see how our oil inventories stayed in a narrow range between 2012 and 2014, represented by the mustard, green and blue bands, typically falling to 350 million barrels by the end of summer and rising to around 390 million barrels by early spring..however, at the beginning of 2015, represented by the grape colored graph, our inventories of oil started rising each week till they reached 490 million barrels at the end of April 2015, and then stayed elevated in a range 80 to 100 million barrels above the previous norms...that continued into 2016, represented by the scarlet colored graph, which shows that our oil inventories rose from what were already record levels to new records most every week since February...we've now increased our inventories of crude oil by by nearly 58.3 million barrels since the beginning of this year, while setting new records for the amount oil we had in storage in the US in 10 out of the last 11 weeks...and while we expect that these inventories of oil will begin to decline seasonally soon, possibly even next week, the key to relieving the glut will not really come until our stockpiles of crude drop below the elevated 2015 level and start to approach the norms of the 2012 to 2014 period...

This week's rig counts

as mentioned, the week saw another record low for drilling rig activity in the US, for the 8th week in a row...Baker Hughes reported that the total count of drilling rigs in use in the US was down by 11 more rigs to 420 rigs as of April 29th, down from the 905 rigs that were working on May 1st of 2015, and down from the recent high of 1929 rigs that were drilling on November 21st of 2014... the count of rigs drilling for oil fell by 11 to 332, which was down from 697 rigs targeting oil a year earlier, and down from the recent high of 1609 working oil rigs that we saw on October 10, 2014, while the count of drilling rigs targeting natural gas fell by 1 to a record low of 87, down from the 222 natural gas rigs that were drilling during the same week a year ago, and down from the 1,606 natural gas rigs that were in use on August 29th, 2008...meanwhile, a single rig classified as "miscellaneous" was started up, which was the only rig so classified operating this week, down from the 4 miscellaneous rigs that were in use a year ago

one of the rigs that was shut down this week had been drilling off the shore of Texas in the Gulf of Mexico, thus reducing the Gulf of Mexico rig count to 24 and the total offshore count to 25, as they are still working an offshore platform in the Cook Inlet off Alaska...that's down from the 33 Gulf of Mexico platforms and 34 total offshore that were in use on May 1st of 2015...a net total of 8 horizontal rigs were pulled out this week, leaving the count of rigs drilling horizontally at 324, which was down from the 699 horizontal rigs that were in use a year ago, and down from the recent record of 1372 horizontal rigs that were drilling on November 21st of the same time, 2 directional rigs were also shut down, leaving 46 directional rigs still drilling, which was down from the 93 directional rigs that were in use at the end of the same week a year addition, a single vertical rig was also removed, cutting the vertical rig count back to 50, which was down from the 113 vertical rigs that were deployed nationally the same week last year... 

for the details on which states and which shale basins saw changes in drilling activity this past week, we're going to include a screenshot of that part of the rig count summary from Baker Hughes, which shows those changes...

April 29 2016 active rig counts

the first table above shows weekly and annual rig count changes by state, and the second table shows weekly and annual rig count changes for the major geological oil and gas both cases, the first column shows this week's active rig count, the third column shows last weeks rig count, and the column in between shows the change, plus or minus, from that week to this one...then, the year ago active rig count for each state and basin is shown in the column on the far right, with the column just to the left of that showing the change in active rigs from a year ago...hence, you can thus see that the active rig count in the Eagle Ford shale of South Texas was down by 3 rigs to 37, which was down from the 110 rigs that were working that basin a year ago, or in this case, on May 1st of 2015...

however, this table does not show active rigs for every state, as many have no drilling, and some have just one rig irregularly...some weeks there are no changes in the rigs counts other than what's shown above, but this week we have additions of rigs in four states not shown above...the Baker Hughes state count tables indicate that one new rig was deployed in Illinois, one in Hawaii, one in Kentucky and one in Mississippi this week...for Illinois, the new rig was the only one active this week, same as the single rig drilling a year ago; for Hawaii, the new rig was also the only one active, but they had none a year ago; in Kentucky, they now have 3 rigs working, up from 2 rigs a year ago, and in Mississippi, they now have 3 rigs working, same number as they had on May 1st a year ago...


AEP, FirstEnergy Face FERC Review of Ohio Power Plant Contracts  - American Electric Power Co. and FirstEnergy Corp. face a federal review of controversial contracts they secured from state regulators for power from money-losing plants they run in Ohio. AEP and FirstEnergy won guaranteed rates for uneconomic coal-fired and nuclear plants last month, over the objections of competing generators who argued they amounted to a consumer-funded bailout. The contracts warrant a U.S. review as the utilities’ customers will be “captive in that they have no choice as to payment” of the charges, the Federal Energy Regulatory Commission said Wednesday, ordering the companies to submit their so-called power purchase agreements for approval. The federal review throws into question yet again the fate of the companies’ Ohio power plants, totaling about six gigawatts of capacity, Jonathan Crawford reports. The generators, like other U.S. power suppliers, are seeking other sources of revenue as they face low power prices in wholesale markets and weakening demand growth that’s threatening to force plants into early retirement. FERC said it “has an independent role to ensure that wholesale sales of electric energy and capacity are just and reasonable and to protect against affiliate abuse.”

Federal regulators put brakes on Ohio energy deals (AP) — Two closely watched energy deals in Ohio allowing two utility companies to impose short-term rate increases on electricity customers cannot take effect until federal regulators approve them. The Federal Energy Regulatory Commission said Wednesday that the power purchase agreements filed separately by Akron-based FirstEnergy and Columbus-based American Electric Power are not valid unless the two companies apply for, and receive federal approval. The Columbus Dispatch reports the decision comes in response to complaints filed by competing electricity companies that say the plans are illegal subsidies. The Public Utilities Commission of Ohio last month approved the deals that would allow FirstEnergy and AEP to raise rates to subsidize some older coal-fired and nuclear power plants. The deals have drawn national attention from business, consumer, environmental and energy groups.

Ohio's top utility regulator to leave job for private sector: (AP) — Ohio’s top utility regulator is stepping down from his post about a year after being appointed. Andre Porter, chairman of the Public Utilities Commission of Ohio, resigned Friday for a job in the private sector. He leaves May 20. Republican Gov. John Kasich (KAY’-sik) appointed Porter to a five-year term in April 2015. A nominating commission will be appointed to recommend a replacement. Porter’s decision comes the same week federal regulators dealt a blow to the Ohio commission over a pair of energy deals it approved last month. The Federal Energy Regulatory Commission says the power purchase agreements, filed separately by Columbus-based AEP and Akron-based FirstEnergy, cannot take effect until they are approved at the federal level. A PUCO spokeswoman says Porter’s decision is unrelated. Porter’s letter calls the decision “very difficult.”

Activists Using Misinformation to Kill Fracking in Wayne National Forest - A large billboard has been placed by anti-fracking extremists across from the Wayne National Forest (“the Wayne”) headquarters on U.S. Rt. 33 near Nelsonville, Ohio. The billboard declares, “Frack our national forest? No WAY(ne)!” in stark text next to a picture of an owl and a link to known misinformation site Fracking Exposed, a group connected to the Athens County Fracking Action Network (ACFAN), is renting the billboard. It seeks to discourage federal officials from opening parts of the Wayne to fracking and other deep-shale oil and gas activities. AFCAN members have been active in opposing fracking and related oil-and-gas activities in Wayne County and elsewhere. They have filed appeals on permit approvals of wastewater injection wells and have strongly opposed Forest Service and BLM consideration of opening the Wayne to horizontal drilling. At least one ACFAN member cited the commitments the U.S. made at the climate summit in Paris late last year as a reason to oppose fracking in the Wayne, ignoring the significantly smaller GHG emissions profile of natural gas compared to coal.The group is promoting the complete cessation of oil and gas leasing on public lands, which would have devastating effects on local and state economies in fossil fuel-producing regions, destroy tens of thousands of energy production and associated jobs, and increase the cost of energy. Landowners have expressed concern about their property rights, noting that they are unable to lease their mineral rights without nearby national forest land also being available for leasing.

Consider proposal - Martins Ferry Times Leader --Despite low prices and a general downturn in the industry nationwide, the oil and gas industry remains very active in Eastern Ohio. Not only are new wells being drilled and fracked while existing operations produce record-setting amounts of the precious hydrocarbons, but waste from such operations is being disposed of every day.  This is a cause of concern for Ohio Rep. Debbie Phillips, D-Albany in Athens County, who wants to strengthen oversight of injection wells where waste products are dumped. She is especially concerned that waste generated in other states and brought to Ohio for injection may contain toxins and carcinogens that could contaminate our water supply or otherwise harm Buckeye State residents. The Ohio Department of Natural Resources lists 233 injection wells that are either active or being drilled, mostly in the eastern half of the state. Locally, there are three - one near Barnesville, one in the area of Piedmont Lake and one in Monroe County.  Phillips is proposing legislation that would designate injection wells that accept waste as Class I operations. Now listed as Class II wells, they are regulated by the Ohio Department of Natural Resources. Class I wells receive significantly more oversight from the Ohio Environmental Protection Agency because they accept hazardous and non-hazardous waste. The products are injected into deep, isolated rock formations that are thousands of feet below the lowermost underground source of drinking water. There are now only 10 of these in Ohio, as opposed to the 233 brine injection wells. Phillips' bill also would require companies to provide information about the chemical makeup of waste to first responders; prohibit open pits of waste; and levy a 1-cent per barrel tax on injected waste to cover costs of implementation.

Energy company shuts down fracking operation in Lawrence County: A company told by the Ohio Department of Natural Resources to stop fracking at a Poland Township site has now voluntarily stopped a fracking operation in Lawrence County, Pa. Earthquakes are the reason for both. Houston-based Hilcorp Energy Co. stopped its fracking operation at about noon Monday after a small earthquake occurred in Mahoning Township in Lawrence County, near its North Beaver NC Development well pad, the Pennsylvania Department of Environmental Protection confirmed Wednesday. Hilcorp, doing business as North Beaver NC Development, has four wells on that particular well pad. The first two wells were fracked starting March 30 going in the southeast direction and were completed, said department spokeswoman Melanie Williams in an emailed statement. The second two wells were going in a northwest direction and fracking was ongoing, but near completion. The department and the Pennsylvania Department of Conservation and Natural Resources are investigating the earthquake. On the United States Geological Survey website, there was a 1.9-magnitude earthquake reported just after midnight April 25 about two miles from Bessemer, Pa., 5.6 miles from New Castle and about eight miles from Struthers. In April 2014, the Ohio Department of Natural Resources ordered Hilcorp to halt all operations in Poland Township after multiple earthquakes shook the area in March. ODNR placed a moratorium on drilling at that site.

Proliferation of earthquakes may be price of fracking - Zanesville Times Recorder --According to the Ohio Department of Natural Resources, there are 214 active injection wells in Ohio that dispose of waste water from fracking operations. According to a January article in the Times Recorder, there are seven injection wells in Muskingum County. An application has been filed for an eighth well in Jackson Township. One waste water injection well is in Zanesville. To prevent earthquakes, an attempt is made by the state to locate disposal wells in areas that are seismologicaly stable, but some faults are unknown. In any event, locating a disposal well in a municipal area is questionable.  The millions of gallons of waste water injected into the disposal wells lubricate the layers of rock in an existing fault. This may reduce the friction, allowing the rock layers to slide past each other and cause an earthquake. There have been several hundred small earthquakes in the Canton, Ohio area,which were generally attributed to fracking or waste water disposal well activity. According to NPR, Oklahoma is a state with 3200 active fracking disposal wells, compared to Ohio's 214. According to a January article in USA Today, Oklahoma had 70 small quakes in one week in January. The article stated, “Oklahoma in 2014 had at least 5,415 earthquakes; 585 of them were magnitude-3 or greater. In comparison, the state had just 109 magnitude-3 quakes in 2013, according to the Oklahoma Geologic Survey.”  Although Ohio has not had the proliferation of earthquakes like Oklahoma, the situation needs to be closely monitored. According to ODNR, Ohio has 214 active disposal wells. The Oklahoma experience may be a preview of future Ohio earthquakes, unless the use of injection wells is curbed.

Court: Cities can lease drilling rights under parks without citizens' vote - — Citizens have no legal right to vote on whether to approve leases for drilling for oil and gas under city-owned parks and cemeteries, the Court of Appeals has ruled. A three-judge panel unanimously rejected a challenge by the nonprofit Don’t Drill the Hills Inc. to a decision by Rochester Hills to lease underground oil and gas rights to one company and to allow another company to relocate an oil pipeline. City attorney John Staran said the decision is significant to local governments across Michigan because the court found a lease is not a “sale” of parkland that would trigger a public vote. “The court applied common sense and the plain and ordinary meaning to ‘park’ and ‘open space,’” Staran said. “Park means park. Not the sky above and the subterranean minerals that are not part of the park.” But Don’t Drill the Hills argued that the proper legal interpretation of “park” shouldn’t be limited to the surface. “The park is the whole real estate parcel, and they’re saying a park is just the surface. If you extract this natural resource, which is then sold for a profit, then a portion of the property is gone because mineral rights are property,” said Megan Barnes, a cofounder of the group. Barnes also said the lawsuit was misinterpreted as a referendum on drilling in residential and school areas, but the legal battle was actually about citizens’ right to vote.

Company drops permit request for old pipeline (AP) — Members of Congress say a Houston company has dropped plans to seek a permit to move heavy crude oil through a 98-year-old pipeline under the St. Clair River in southeastern Michigan. U.S. Reps. Debbie Dingell and Candice Miller say too little is known about the condition of the pipes. In a statement Wednesday, they say any oil spill would have a devastating impact. The Detroit Free Press has said two pipes were built in 1918. Five-inch liners were added at an unknown date. The U.S. State Department in March extended a public comment period about the little-known permit sought by Plains LPG. The State Department has jurisdiction because the pipeline goes between Marysville, Michigan, and Canada.

Fracking a Possible Cause of Disturbing Birth Defects and Deaths Found in Horses - In New York’s Southern Tier, local newspapers are investigating the connection between a local racetrack owner’s sick foals and the fracking fluids present on his farmland. The Ithaca Journal featured a report by Tom Wilber in which he investigated the ongoing issue with foals being born without the ability to swallow — seventeen of them so far — on the breeding farm of Jeff Gural, owner of the Tioga Downs, Meadowlands Racetrack, and Vernon Downs. The foals have survived, although all of them have had to be transported to Cornell’s School of Veterinary Medicine, located fifty miles north in Ithaca, New York. An earlier study by Cornell professor Robert Oswald and Cornell veterinarian Michelle Bamberge linked the presence of the byproducts of hydraulic fracturing to numerous animal deaths and stillbirths. Their research included twenty-four case studies of multiple farm animals who had either been killed outright by the cocktail of chemicals or later proved unable to successfully reproduce after exposure.  The vets are conducting their own study of what may be causing the epidemic of horse birth defects. The veterinary team cite the presence of a gas well adjacent to Gural’s land that was drilled by Chesapeake Appalachia LLC as the “prime suspect” in the Gural farm problems. The Pennsylvania Department of Environmental Protection confirmed that the farm’s water is contaminated, although they failed to cite Chesapeake as the cause.

Pennsylvania voters torn over calls for a fracking ban - Reuters - For some Democratic voters in Pennsylvania, Tuesday's primary election will be more than just a chance to pick preferred candidates for public office - it will be a mini-referendum on the future of the state's downtrodden fracking industry. Three candidates on the ballot, including Democratic presidential hopeful Bernie Sanders and two Democratic U.S. Senate hopefuls, want to ban or pause the controversial oil and gas drilling technique, splitting an electorate in parts of the state concerned about both jobs and the environment.  The outcome of the presidential and senate primaries in a state that now the second biggest natural gas producer in America after Texas may reveal how residents of heavily drilled areas feel about an industry suffering from a decline in oil and gas prices. "Everyone is anxious," said Lois Martin, a sales manager at a store in Washington that sells gear, like steel-toe boots and drill-site clothes, to workers in the fracking industry. "Everybody is waiting for the elections to be over," she said. The question of a ban on fracking has also emerged as a key issue in the hotly contested race to select a Democrat to run for a U.S. Senate seat in Pennsylvania against the incumbent Republican Pat Toomey.Two candidates, former U.S. Congressman Joe Sestak and John Fetterman, a small town mayor, have called for a moratorium on fracking. The third candidate, Katie McGinty, the former head of the state’s environmental regulator, has been endorsed by President Barack Obama and Governor Tom Wolf, and is looking for stricter standards on the industry.

A new drill for Pa: Fewer gas rigs operate, and local economies suffer: - Gus Trejo supervised three drill rigs in this remote corner of Elk County for Seneca Resources Corp. until the industry crashed last year. He now manages one site, Seneca's sole remaining rig in the entire state. He's glad just to still be employed. "I'm sitting on the edge of my seat," Five years ago, the Marcellus Shale bonanza attracted 115 drilling rigs to the state, each requiring a battalion of suppliers, trucks, earthmovers, equipment manufacturers, and support services. This month, the rig count fell to 16, a number not experienced since 2007, before hydraulic fracturing entered the public debate and when Marcellus was just a gangster in Pulp Fiction. Last year's energy-price plunge undercut the business across the nation. Gas producers that borrowed heavily to acquire acreage and to drill struggled to cover their debt. They cut operations and sold assets to stay solvent. Some went bankrupt. Those financially strong enough to survive are hunkered down.  "We lost maybe $10 billion in capital spending in 2015, and are heading the same way in 2016 with the rig count."  Despite the slowdown in drilling, Pennsylvania is not likely to relinquish its new status as a natural gas giant. In 2008, it produced 198 million cubic feet of gas, about a quarter of the state's needs. Last year, Pennsylvania produced 4.6 trillion cubic feet, a fifth of the nation's gas demand. The volume of gas production remains stable because of the large inventory of wells awaiting pipeline connections. As soon as the price rises, a producer brings a waiting gas well online. Producers expect the drilling slowdown to last at least 18 months.

Pennsylvania oil, gas rules win key approval, but fight continues - Natural Gas | Platts - Despite winning the approval of a key state agency, a major revision to Pennsylvania's oil and natural gas regulations appeared on Friday to be heading for a showdown in the state legislature. The state's five-member Independent Regulatory Review Council, after a seven-hour meeting on Thursday, voted 3-2 to approve the regulations, which strengthen environmental protection rules for oil and gas well sites. In the case of most rulemakings, the IRRC approval would be just a stepping stone on the way toward eventual implementation of the regulations, but in the case of the controversial proposed oil and gas rules, the standing energy committees of both houses of the state legislature have expressed their disapproval of the rulemaking process, which could result in a legislative fight. "The legislature has an opportunity to put forward a concurrent resolution; if they would like to, they can stop the regulation," IRRC Executive Director David Sumner said in an interview Friday.Prior to the IRRC approval, both the Senate and House of Representatives Environmental Resources and Energy committees had passed resolutions disapproving the rulemaking. This unusual action by the lawmakers has set up a potential confrontation between the Republican-controlled legislature and Governor Tom Wolf, a Democrat who has called for the tighter regulation on the oil and gas industry.

Hilcorp halts fracking at Pa. shale site near earthquake - A natural gas company voluntarily halted fracking activity on a Marcellus shale well in Lawrence County this week while state officials investigate a minor, nearby earthquake.  Houston-based Hilcorp Energy stopped fracking one of the four wells it drilled on its North Beaver NC Development pad west of New Castle about noon Monday, hours after a 1.9 magnitude earthquake was detected nearby in Mahoning. The Department of Environmental Protection is investigating the tremor with the Department of Conservation and Natural Resources, said DEP spokeswoman Melanie Williams.  Researchers and industry officials have for several years debated a potential connection between fracking and earthquakes. Studies have connected swarms of earthquakes to underground injection wells into which companies deposit wastewater from fracking,  DEP and DCNR said last year they would increase monitoring for earthquakes in areas of oil and gas development. In 2014, authorities in Ohio stopped operations at a Hilcorp site in Poland Township — less than 10 miles from Mahoning — because five earthquakes ranging from 2.1 to 3.0 magnitude happened close to that pad.  Hilcorp had finished fracking two of the wells on the Mahoning pad, Williams said. Crews stopped work on the remaining wells and were removing all equipment from the site, she said.

Pa. officials investigating quakes near fracking operations - Pennsylvania officials are investigating the cause of a small earthquake in Lawrence County on Monday not far from the site of a natural gas well where fracking operations were ongoing. Department of Environmental Protection spokeswoman Melanie Williams said Hilcorp Energy Co., doing business as North Beaver NC Development, was hydraulically fracturing two wells on a four-well pad in Mahoning Township when seismic monitors detected a magnitude 1.9 earthquake, at 12:05 a.m. on Monday, according to U.S. Geological Survey records. That tremor was followed by another magnitude 1.9 earthquake at 10 p.m. Monday in the same township about a mile away, according to the USGS.  At about noon on Monday, “Hilcorp stopped fracking operations and demobilized the same day from that location,” Ms. Williams said.  Fracking has infrequently been suspected of directly triggering earthquakes, in cases in England, British Columbia, Oklahoma and Ohio, but researchers have never tied the gas extraction process to quakes in Pennsylvania. Pennsylvania is currently expanding its seismic network to include 42 monitoring stations so that seismic events anywhere in the state should be detectable as small as magnitude 2.0, which is generally below what humans can feel. The expansion was inspired, in part, by state officials’ desire to better understand seismic risks potentially associated with oil and gas activity. Ohio regulators determined that a series of small earthquakes in Mahoning County in 2014 showed “a probable connection” to fracking at a Utica Shale well operated by Hilcorp. Five quakes ranged in magnitude from 2.1 to 3.0, according to USGS records, and the closest was about a mile west of the Pennsylvania border.

Experts count 5 quakes in western Lawrence County  - – Experts now say that five low-magnitude earthquakes occurred Monday near a North Beaver Township fracking site. Only one was reported initially, about a mile from the Hilcorp Energy Co. of Texas’s well pad on Route 551 near McClelland Road. The site is known as the North Beaver NC Development. Won-Young Kim, a research professor at the Lamont-Doherty Earthquake Observatory in New York, told the New Castle News Thursday that the additional earthquakes were initially reported as having occurred in Youngstown. He said that after further analysis it was determined they were actually in Lawrence County. All five were 1.9 magnitude or less and are considered minor earthquakes. Kim said it was unlikely that residents would notice the tremblors. The quakes started at 12:05 a.m. Monday and continued, at intervals, until 10 p.m. the same day, according to the U.S. Geological Survey website. The Pennsylvania Department of Environmental Protection and the state Department of Conservation and Natural Resources are investigating, and an inspector was supposed to have visited the site Monday. The state has not determined whether fracking caused the earthquakes and has not ordered the drilling stopped. However, Hilcorp voluntarily suspended its operations at the well pad Monday. Kim, who was called in to advise on earthquakes caused by wastewater injection wells in Youngstown in 2011, said Thursday that earthquakes caused by fracking tend to be shallower than those caused by underwater injection of fracking fluid. However, he said that once drilling triggers an earthquake, there is no technology to prevent more earthquakes if the same well keeps operating.

Huge fireball in gas explosion burns homes, fleeing man: . (AP) — A natural gas pipeline exploded in a towering, roaring fireball Friday, destroying a home several hundred yards away, damaging at least three others and creating waves of intense heat that burned a fleeing homeowner as he ran down a road, authorities said. “It looked like you were looking down into hell,” said Forbes Road Volunteer Fire Chief Bob Rosatti. The fire and heat seared scores of acres of woodlands around the pipeline in Salem Township, about 30 miles east of Pittsburgh, turning tall trees into blackened poles, melting the siding off one property, and causing wet pavement to steam. People miles away reported hearing a huge whooshing sound and feeling the ground rumble. A quarter-mile evacuation zone was established, affecting about a dozen homes, said state Department of Environmental Protection spokesman John Poister. The pipeline was shut off and the fire brought under control within an hour, but residual gas burned for several hours before the fire was completely out by early afternoon, officials said. The man who was burned lived in the house closest to the fire. It was destroyed. “He told us that he heard a loud noise and compared it to a tornado. All he saw was fire and started running up the roadway and a passerby picked him up,” Rosatti said. “The heat was so intense that it was burning him as he was running,” he said.

40 MILE LONG GAS CLOUD AS PIPELINE EXPLODES! --  Massive explosion of 36″ gas transmission line was picked up by weather radar; the gas plume was 40 miles long and 4,000 feet high.   Local weather reporters thought it was a rain storm . Of flammable, planet-cooking methane gas. Pipeline company invokes force majeure, claiming:  “God did it! We had nothing to do with it. Honest.” Aerial pictures of monumental damage. Massive damage in Pennsylvania - An explosion and fire on a major Spectra Energy Corp. pipeline that crosses half the U.S. is disrupting natural gas shipments from western Pennsylvania to the Northeast.Crews shut off the gas feeding the flames, which burst out of Spectra’s 36-inch Texas Eastern pipeline in Salem Township at about 8:30 a.m., John Poister, a spokesman for the Pennsylvania Department of Environmental Protection, said in an e-mail.While repairs will start as soon as possible, it’s unclear when service will be restored, Spectra said in a notice. The company declared force majeure at midday, sending natural gas futures surging as much as 5.6 percent on the New York Mercantile Exchange on speculation that the outage will limit supplies to the Northeast.One of the country’s largest pipelines, Texas Eastern runs from the Gulf Coast up through the booming Marcellus and Utica shale regions all the way to New Jersey, where it hooks up with other lines into New York and New England. The Penn-Jersey section had been transporting 1.3 billion cubic feet of gas a day through the Delmont compressor in Westmoreland County, according to Het Shah, an analyst at Bloomberg New Energy Finance.Gas may still be able to move out of the region through an underutilized system known as the Capacity Restoration Project, which runs parallel to the Penn-Jersey system, according to BNEF analyst Joanna Wu. “That whole area is a big web of pipelines, so it will find its way to market, but in the short-term, it’s going to cut some flows,” Shah said. The explosion created a conflagration that damaged “several” homes near the pipeline, engulfing one of them and injuring a man inside who was transported to a Pittsburgh hospital, Poister said. Residents of the area told media outlets they could feel rumbling as far as 6 miles away. Passing motorists captured images of the fiery scene and emergency crews set up a quarter-mile evacuation zone.

Most states do bare minimum on fire-foam contamination - The military is checking U.S. bases for potential groundwater contamination from a toxic firefighting foam, but most states so far show little inclination to examine civilian sites for the same threat. The foam was likely used around the country at certain airports, refineries and other sites where catastrophic petroleum fires were a risk, but an Associated Press survey of emergency management, environmental and health agencies in all 50 states showed most haven’t tracked its use and don’t even know whether it was used, where or when. Only five states — Alaska, Minnesota, New Jersey, Vermont and Wisconsin — are tracking the chemicals used in the foam and spilled from other sources through ongoing water monitoring or by looking for potentially contaminated sites. A dozen states are beginning or planning to investigate the chemicals — known as perfluorinated compounds, or PFCs — which have been linked to prostate, kidney and testicular cancer, along with other illnesses. The rest of the states, about two thirds, are waiting for the U.S. Environmental Protection Agency to make a move. In addition to the Aqueous Film Forming Foam used in disaster preparedness training and in actual fires, PFCs are in many household products and are used to manufacture Teflon. Knowledge about the chemicals’ effects has been evolving, and the EPA does not regulate them. The agency in 2009 issued guidance on the level at which they are considered harmful to health, but it was only an advisory — not a legally enforceable limit.

Pipeline developers vow to fight New York permit rejection  (AP) — Developers of a 124-mile pipeline designed to transport natural gas from Pennsylvania’s shale fields say they’ll challenge New York’s rejection of a critical permit. The Constitution Pipeline Company said Monday that the Department of Environmental Conservation’s denial letter includes “flagrant misstatements and inaccurate allegations” and is driven by politics. The DEC on Friday denied a water quality permit, saying the project fails to meet standards that protect hundreds of streams, wetlands and other water resources in its path. The company, a partnership formed by Cabot Oil & Gas, Williams Partners and Piedmont Natural Gas Company, can appeal the state decision to the U.S. Circuit Court of Appeals. The company had planned to start construction at the end of summer.

NY comptroller urges more insurance for rail oil spills  (AP) — New York state’s comptroller is urging federal authorities to strengthen safety measures against oil spills and require trains to carry sufficient insurance to cover cleanup costs from major accidents. Comptroller Thomas DiNapoli is administrator of New York’s Oil Spill Fund. He cites a U.S. Transportation Department finding that oil shippers and rail companies carry insurance that may be insufficient to cover a serious accident involving tankers carrying crude oil or other hazardous materials. In a letter to the department and the Federal Railroad Administration, DiNapoli says a review of Securities and Exchange Commission filings shows CSX Corp. is self-insured for $25 million for “non-catastrophic” property damage and $50 million for natural catastrophes. He says Canadian Pacific Railway filings lack information. They are the two major carriers of crude oil in New York.

Firm suspends plans to build $3.3B natural gas pipeline (AP) — Plans to build a $3.3 billion natural gas pipeline from New York into New England through western Massachusetts and southern New Hampshire have been suspended. Houston-based Kinder Morgan Inc. announced Wednesday it has decided to stop work on the project. It cited a lack of contracts with gas distribution companies. The company also said New England states haven’t established needed regulatory procedures to allow it to move forward and the process in each state for creating those procedures remains open-ended. “There are currently neither sufficient volumes, nor a reasonable expectation of securing them, to proceed with the project as it is currently configured,” the company said in a press release. The company said, given the market conditions, continuing to develop the pipeline is an unacceptable use of its shareholder funds. “Innovations in production have resulted in a low-price environment that, while good for consumers, has made it difficult for producers to make new long term commitments,” the company added. U.S. Sen. Kelly Ayotte said she was pleased by the announcement, pointing to what the New Hampshire Republican called “the many unanswered questions and concerns raised by New Hampshire residents who would have been affected by this project.” Those sentiments were shared by fellow U.S. Sen. Edward Markey.

10 Fracking Infrastructure Projects Canceled or Delayed in the Last 24 Months - Here’s the list:

  • April 2014: The Bluegrass Pipeline in Kentucky was stopped by a court decision upholding landowners’ rights against the use of eminent domain to take their land for private profit.
  • November 2015: The Port Ambrose liquified natural gas (LNG) project was vetoed by New York Governor Andrew Cuomo. The project was proposed by Liberty Natural Gas off the shores of New York and New Jersey.
  • March 2016: The Jordan Cove LNG export terminal and 223-mile Pacific Connector pipeline in Oregon were rejected by the Federal Energy Regulatory Commission (FERC), signifying FERC’s first gas infrastructure rejection in 30 years.
  • March 2016: The Republican-dominated Georgia legislature voted overwhelming for a one-year moratorium on any new gas pipelines, setting back efforts to build the Palmetto Pipeline.
  • March 2016: FERC announced a seven month delay on making a decision about the Penn East pipeline in Pennsylvania and New Jersey and a 10 month delay for the Atlantic Sunrise pipeline in Pennsylvania and Maryland.
  • April 2016: The Oregon LNG company announced that it’s ending its years-long effort to build an export terminal and pipeline.
  • April 2016:  Kinder Morgan announced it is suspending its efforts to build the Northeast Energy Direct pipeline, which would have run from Pennsylvania through New York into Massachusetts and New Hampshire.
  • April 2016: Dominion Resources announces that the start time for beginning construction on the Atlantic Coast pipeline, going from West Virginia through Virginia into North Carolina, is being moved back from this fall to summer 2017.
  • April 2016: New York Governor Andrew Cuomo announced that the New York Department of Environmental Conservation rejected the application of the Constitution Pipeline company for a water quality permit, a permit it must have in order to begin construction.

West Virginia, Japanese leaders talk natural gas partnership  (AP) — West Virginia Gov. Earl Ray Tomblin, U.S. Sen. Joe Manchin and natural gas industry executives have met with Japanese business leaders to discuss investment opportunities. A Tomblin news release says executives from Energy Corporation of America and MarkWest Energy Partners joined for the meeting Friday in New York City. The release says almost 100 people attended, including representatives of dozens of Japanese companies; the Japanese Chamber of Commerce; the Ambassador of the Consulate General of Japan in New York; representatives from Japanese companies with West Virginia operations; and prospective investors. The event was hosted by the West Virginia Department of Commerce and the Discover the Real West Virginia Foundation.

US LPG export terminals poised to serve the Pacific Basin - Fueled by soaring domestic production of natural gas liquids (NGLs) like propane and butane, U.S. liquefied petroleum gas (LPG) export volumes the past three years have rocketed to the top, surpassing exports by the old Big Three of LPG: United Arab Emirates, Qatar and Algeria. But that rise in LPG exports may be ending, and the share of exports made from Gulf Coast docks may be in for a decline. More propane and butane will be pulled from the Marcellus and Utica to the docks at Marcus Hook, PA, and demand for propane on the Gulf Coast—from new propane dehydrogenation plants and flexible steam crackers—will be climbing. That suggests that less LPG may need to be exported from the Gulf Coast to keep the market in balance. In today’s blog we continue our look at the soon-to-open Panama Canal expansion with an updated examination of U.S. LPG export terminals along the Gulf Coast.  As we said in Episode 1, the wider, deeper locks being built along the Panama Canal will (finally) be in business within a few weeks, enabling the world’s growing fleet of Very Large Gas Carriers (VLGCs) that move most U.S. LPG exports to take that important short-cut between the Caribbean and the Pacific. (All but the world’s very biggest liquefied natural gas (LNG) vessels will be able to float through the expanded canal as well.) The time saved will be huge; a trip from the Gulf Coast to Asia around the Cape of Good Hope takes more than six weeks, compared with only three weeks-plus via the Panama Canal. And time, of course, is money. Cut the time it takes for a Houston-to-Tokyo round trip in half and (aside from the canal tolls) you’ve halved the LPG freight rates.  And that’s not the only way LPG shipping costs are coming down. According to a recent analysis by Fearnley Securities, average daily VLGC rates are now below $40,000 (in part because of all the new carriers being built—one a week in recent months) and daily rates may fall to $25,500 (at or below the representative break-even price) in 2017. That would of course be good news for those hoping to sell increasing volumes of U.S.-sourced LPG to Asian markets (including the India subcontinent), which use the propane/butane mix primarily for cooking and heating but also as a petrochemical feedstock.

Data Points From RBN Energy's Update On US LPG Exports -- April 29, 2016  --This is taken from "episode 2" of RBN Energy's update of US LPG exports from the Gulf coast. It really is quite an amazing story and suggests that one of the big stories of the 21st century will be the emergence of US as the global energy powerhouse.Some of the data points follow. First, the data points from "episode 1":

  • US domestic production of NGLs (like propane and butane is soaring
  • US liquified propane gas (LPG) exports in the past three years have rocketed to the top
  • US exports of LPG now surpasses exports by the old Big Three: UAE, Qatar ("cutter"), and Algeria
  • the rise in LPG exports may be ending
  • exports from the Gulf coast may be in for a decline
  • more propane and butane from the Marcellus and Utica will be re-routed to Marcus Hook, PA
  • demand for new propane dehydrogenation plans and flexible steam crackers will be climingg
This episode, episode 2, will focus on how the Panama expansion will affect LPG exports. The data points follow.
  • the Panama expansion will be operations within a few weeks
  • all but the world's very biggest LNG vessels will be able to transit the canal
  • huge times savings from the Gulf coast to Asia: from more than six weeks (around Cape of Good Hope) to three weeks (Panama Canal)
  • daily rates for these sea-going tankers have tanked
  • two "events" have changed LPG export dynamics: Marcus Hook and PDH
    • Mariner East 2 pipeline across Pennsylvania will re-route 275,000 bopd by 2017; to Marcus Hook, PA
    • once at Marcus Hook, LPG-BR (rail) across the US; propane at those terminals is at the expense of propane at Gulf coast terminals
    • more domestic processing through increased number of PDH plants
  • US LPG exports have been on a tear
    • January, 2013: 184,000 bopd LPG exports from Gulf coast
    • January, 2016: 1,047,000 bopd LPG exports from Gulf coast (nearly six-fold increase in three years)

Coalitions representing anti-pipeline groups holding summit (AP) — Dozens of organizations opposed to two multibillion dollar natural pipelines proposed in Virginia and West Virginia are coming together for a summit. The gathering Saturday in Weyers Cave brings together the Allegheny-Blue Ridge Alliance and Protect our Water Heritage Rights, or POWHR. The alliance represents nearly 50 members opposed to the Atlantic Coast Pipeline, while the POWHR represents organizations in 11 Virginia and West Virginia counties. The group is united against the Mountain Valley Pipeline. The proposed pipelines would snake through hundreds of rural locations to deliver fracked natural gas to the Southeast. One of the speakers Saturday will be the founder of a group that led the fight against the Keystone XL Pipeline. The pipelines have strong bipartisan support in both states.

US gulf coast propane exports headed back down - The prospects for an ever-expanding boom in propane exports from the U.S. Gulf Coast are dimming, even as export volumes stand at near-record levels and as new export capacity continues to come online. Why? It comes down to supply and demand.  With oil and NGL prices at today’s levels, propane production is leveling off, not rising, and U.S. Gulf Coast domestic demand for propane will be increasing—from new propane dehydrogenation (PDH) plants and propane’s use in ethylene steam crackers—at the same time that export volumes out of the East Coast are quadrupling.  In today’s blog we consider the possibility that what goes up must come down.  There’s a Woody Allen quote that’s relevant here: “If you want to make God laugh, tell him about your plans.”  Not so long ago, the general expectation was that through the latter half of the 2010s, the U.S. would be awash in ethane, propane and other natural gas liquids (NGLs). To take advantage of these plentiful (and presumably inexpensive) supplies, petrochemical companies planned ethane-only ethylene steam crackers and PDH units, and midstream companies planned NGL pipelines and export terminals to expedite the delivery of NGLs to international markets, including increasing amounts of liquefied petroleum gas (LPG, mostly propane with some butane) and previously unheard of waterborne ethane exports. 

PDH Plants Sited to Use Stranded Propane --  Several new propane dehydrogenation (PDH) plants are coming online along the U.S. Gulf Coast. Now developers in Alberta are making plans for the province to become the next hot spot for PDH plant development. Final Investment Decisions (FIDs) are due over the next year or so on two projects aimed at taking advantage of the increasing volumes of propane being produced in western Canada—propane so plentiful, in fact, that they are paying to have it hauled off. But what if propane prices rise due to increasing U.S. demand, more exports and lower U.S. production? What might such developments do to PDH economics? What could make Alberta different? Today, we consider the drivers behind two (maybe three) prospective PDH projects in Alberta, and look at how they may affect the propane market on both sides of the 49th parallel. We try not to play favorites among the hydrocarbon markets we blog about, but it’s hard not to like the propane sector, with its dynamic pricing, its variety of uses (heating, BBQ grilling, petrochemical feedstocks), its huge export potential, and the sometime remarkable differences between how much it costs at Point A versus Point B. As we have explained, propane is a “purity” product extracted from natural gas along with the other NGLs or (in smaller volumes) produced at refineries. Propane has three carbon atoms and eight hydrogen atoms (C3H8). We’ve written about propane frequently, and about propylene, a very in-demand petchem intermediary feedstock that for a long time was produced primarily by refineries or as a byproduct from ethylene steam crackers but more recently is increasingly being made “on purpose” at propane dehydrogenization (PDH) plants. As their name suggests, PDH plants remove some hydrogen (specifically, two hydrogen atoms) from propane (again, C3H8) to make propylene (C3H6).

Regulators relax monitoring of decade-old Gulf oil leak (AP) — Federal regulators have relaxed a pollution monitoring requirement for a company responsible for a decade-old oil leak in the Gulf of Mexico, a slow-motion spill that could last another century. In 2008, the Coast Guard ordered Taylor Energy Company to conduct daily flights over the site of its leak to visually monitor chronic oil sheens that often stretch for miles off Louisiana’s coast. That requirement remained in effect until December, when the Coast Guard amended the order to reduce the minimum number of required overflights to twice a week. Regulators didn’t announce the change at the time. The Coast Guard confirmed details of its new order on Tuesday in response to an Associated Press inquiry. Coast Guard Chief Petty Officer Bobby Nash said flights are often cancelled due to weather and “other safety issues,” and they rarely detect the presence of oil that could be recovered from the water’s surface. “Based on this historical knowledge and consistent patterns of sheening near the site, the new overflight frequency will target calm days when there is greater likelihood to observe dark, recoverable product on the water’s surface,” Nash said in a statement he attributed to “Unified Command,” which includes federal regulators and Taylor Energy itself. Government experts believe oil is still leaking at the site where waves whipped up by Hurricane Ivan in 2004 triggered an underwater mudslide, which toppled a Taylor Energy-owned platform and buried a cluster of its oil wells under mounds of sediment. Last year, regulators estimated the leak could last a century or more if left unchecked.

Groundwater quality changes alongside expansion of hydraulic fracturing: New research from The University of Texas at Arlington demonstrates that groundwater quality changes alongside the expansion of horizontal drilling and hydraulic fracturing but also suggests that some potentially hazardous effects may dissipate over time.The new research, published today in the journal Science of the Total Environment in the article "Temporal Variation in Groundwater Quality in the Permian Basin of Texas, a Region of Increasing Unconventional Oil and Gas Development," is the first to analyze groundwater quality in the Cline Shale region of West Texas before, during and after the expansion of hydraulic fracturing and horizontal drilling. The research team collected and analyzed private water well samples on the eastern shelf of the Permian Basin four times over 13 months to monitor basic water quality, metal ions, organic ions and other chemicals. They discovered the presence of chlorinated solvents, alcohols and aromatic compounds exclusively after multiple unconventional oil wells had been activated within five kilometers of the sampling sites. Large fluctuations in pH and total organic carbon levels also were detected in addition to a gradual accumulation of bromide. "These changes and levels are abnormal for typical groundwater quality," . "The results also suggest that contamination from unconventional drilling may be variable and sporadic, not systematic, and that some of the toxic compounds associated with areas of high unconventional drilling may degrade or become diluted within the aquifer over time," Schug said. "The next step is more research to precisely quantify and understand contamination cycles as well as to understand aquifer resilience to pollutants." The results also indicated that contamination pathways are complex. Various toxic compounds were detected in groundwater seemingly at random times in areas of high drilling activity.

New Mexico sues Texas oil company for lease payments (AP) — The New Mexico State Land Office is suing a Texas oil company for years of overdue fees and recent environmental cleanup costs at a wastewater injection well used by various oil producers. Siana Operating of Midland, Texas, was notified Thursday of the lawsuit in Santa Fe District Court seeking compensation, punitive damages and access to the company’s accounting records. State Land Commissioner Aubrey Dunn says Siana continued to operate a salt-water injection well on state trust lands in southeastern New Mexico after its lease expired in 2011 while avoiding $114,000 in disposal fees. In all, the agency says it is owed $284,000 in fees, cleanup costs and penalties. A Santa Fe-based attorney for Siana, Robert Stranahan, said his client was reviewing the lawsuit and had no immediate comment. The lawsuit comes as New Mexico well regulators at the Oil Conservation Division struggle to hold the financially distressed company accountable for a string of spills of oil, salt water and other oil-field waste at a collection of wells outside the town of Eunice. Siana is a major provider of well-water disposal services in New Mexico, operating two disposal wells that injected over 13 million gallons underground in 2014, with relatively small-scale oil and natural gas extraction operations at nine wells.  Oil wells in southern New Mexico draw up large quantities of salt water from ancient aquifers as they extract oil and natural gas. Beyond New Mexico, a Texas-based bank has filed a lawsuit in against Siana Operating, affiliate Siana Oil & Gas and corporate owner Tom Ragsdale seeking to ensure recovery of nearly $13 million in debts after the companies defaulted on loan payments.

ND official: Natural gas liquids spill at gathering pipeline (AP) — The North Dakota Health Department says about 42 gallons of natural gas liquids spilled at a gathering pipeline and entered a tributary to the Green River in Billings County. North Dakota Water Quality Director Karl Rockeman says Monday’s spill of about one barrel of condensate into Spring Creek was reported by pipeline operator Oneok Rockies Midstream. Rockeman says staff members from the North Dakota Industrial Commission Oil and Gas Division and the Department of Health are at the site and will continue to monitor the cleanup. The site is about 13 miles north and four miles east of Belfield. Condensate is a byproduct of natural gas production.

Contamination in North Dakota linked to fracking spills: Accidental wastewater spills from unconventional oil production in North Dakota have caused widespread water and soil contamination, a new Duke University study finds. Researchers found high levels of ammonium, selenium, lead and other toxic contaminants as well as high salts in the brine-laden wastewater, which primarily comes from hydraulically fractured oil wells in the Bakken region of western North Dakota. Streams polluted by the wastewater contained levels of contaminants that often exceeded federal guidelines for safe drinking water or aquatic health. Soil at the spill sites was contaminated with radium, a naturally occurring radioactive element found in brines, which chemically attached to the soil after the spill water was released. At one site, the researchers were still able to detect high levels of contaminants in spill water four years after the spill occurred. "Until now, research in many regions of the nation has shown that contamination from fracking has been fairly sporadic and inconsistent,"  "In North Dakota, however, we find it is widespread and persistent, with clear evidence of direct water contamination from fracking." "The magnitude of oil drilling in North Dakota is overwhelming," . "More than 9,700 wells have been drilled there in the past decade. This massive development has led to more than 3,900 brine spills, mostly coming from faulty pipes built to transport fracked wells' flowback water from on-site holding containers to nearby injection wells where it will be disposed underground."  As part of the study, the team mapped the distribution of the 3,900 spill sites to show how they were associated with the intensity of the oil drilling.

Sioux tribe to meet with fed official over pipeline concerns (AP) — Members of the Standing Rock Sioux plan to meet with a federal official later this week to express their concerns over a planned oil pipeline. The $3.8 billion Dakota Access pipeline planned by Dallas-based Energy Transfer Partners would carry crude from North Dakota’s Bakken oil fields to Illinois. Tribal officials oppose it because they fear an oil spill could contaminate drinking water on the reservation that straddles the North Dakota-South Dakota border. The proposed 1,130-mile pipeline would pass through the Dakotas and Iowa on its way to Illinois. Regulators in all states have approved the project, though it still needs approval from the U.S. Army Corps of Engineers. Tribal officials have scheduled a meeting with a corps official on Friday in Mobridge, South Dakota.

Victory of American ingenuity over crude pipeline delays and congestion -- The story of crude-by-rail (CBR) in North America is that of a victory of good old U.S. ingenuity over the lack of pipeline capacity that stranded booming shale oil production in 2012. The lower cost to market of “on-ramp” rail terminals allowed surging crude production a route to (mainly) coastal refineries - igniting a building boom over 4 short years that has left 82 load terminals and 44 destination terminals operating today  - many of them now underutilized.  Along the way monthly lease rates for rail tank cars that reached $2,750/month at the height of the boom are down to $325/month after the bust – with many lease holders paying daily rent to park their empty cars. Today we conclude our series reviewing the state of CBR today. Recap: This is Part 10 – the grand finale in our series updating the sorry state of the CBR business in North America in 2016 compared to its heyday a few years back. In Part 1 of the series we noted CBR declines in response to narrower spreads between U.S. domestic crude benchmark WTI and international equivalent Brent. The lower spreads reduce the incentive to move crude from inland basins to coastal refineries by rail because the latter is a more expensive transport option compared to pipelines. CBR became a big deal when WTI was discounted to Brent by upwards of $25/Bbl in 2011 and 2012 because of congestion caused by a lack of pipeline capacity.

North Dakota natural gas output hits milestone : (Argus) — Natural gas production from North Dakota reached an all-time high in February as flaring declined and gas output from oil wells in of the Bakken and Three Forks formations increased. Gas production in February rose to 1.69 Bcf/d (48mn m³/d), up by 3pc from January and about 1pc higher than the previous record set in November 2015, according to the North Dakota Department of Mineral Resources. The amount of flared gas in February dropped to 11pc, down from 13pc a month earlier as processing capacity rose. The Tioga gas plant increased its operational capacity to 84pc, up by 5 percentage point from January. Nearly all of the gas produced in North Dakota comes from the state's oil wells. But gas production grew despite a decline in producing wells. The well count dropped at the end of February to 13,012, down by 129 from a month earlier. Producers have been focusing on the most prolific areas of the Bakken and simultaneously shutting smaller, less profitable wells amid a prolonged downturn in energy prices.Spot gas prices on Northern Border pipeline at Ventura, Iowa, averaged $1.95/mmBtu in February, down by more than half from a year earlier and was down by 16pc from January. Northern border can receive gas from North Dakota and delivers into major markets in the midcontinent, including Chicago. Oil production in North Dakota has declined since December and in February averaged at 1.12mn b/d, down by 4,129 b/d from January, according to the agency data.

Bakken Update: U.S. Small-Cap Oil Producers May Be Responsible For Balancing World Supply And Demand - Summary:

  • US oil production continues to decrease approximately 20K bbl/d each week although Gulf production continues to increase.
  • Producers had planned to increase production significantly from 2014 to 2015 but low oil prices pulled barrels from the market.
  • 2016 oil production from shale could see a much larger decrease year over year as increases may be seen from Iran, Saudi Arabia, Iraq, Russia, Kuwait, etc.
  • U.S. small cap unconventional oil producers could shoulder the majority of the 2016 production cut if 2015 numbers were a preview.

Toxic ND: Fracking related spills cause pervasive soil & water contamination - Brine spills from oil development in western North Dakota are releasing toxins into soils and waterways, sometimes at levels exceeding federal water quality standards, scientists reported Wednesday. Samples taken from surface waters affected by waste spills in recent years in the state’s Bakken oilfield region turned up high levels of lead, ammonium, selenium and other contaminants, Duke University researchers said. Additionally, they found that some spills had tainted land with radium, a radioactive element. Long-term monitoring of waters downstream from spill sites is needed to determine what risks the pollution might pose for human health and the environment, geochemistry professor Avner Vengosh said. But the study revealed “clear evidence of direct water contamination” from oil development using the method known as hydraulic fracturing, or fracking, he said, describing the problem as “widespread and persistent.” Wastewater spills are a longstanding yet largely overlooked side effect of oil and gas production that worsened during the nation’s recent drilling boom, when advances in fracking technology enabled North Dakota’s daily output to soar from 4.2 million gallons in 2007 to 42 million gallons in 2014. The Associated Press reported last year that data from leading oil- and gas-producing states showed more than 175 million gallons of wastewater spilled from 2009 to 2014 in incidents involving ruptured pipes, overflowing storage tanks and other mishaps or even deliberate dumping. There were some 21,651 individual spills. The numbers were incomplete because many releases go unreported.

One oil field a key culprit in global ethane gas increase - A single U.S. shale oil field is responsible for much of the past decade's increase in global atmospheric levels of ethane, a gas that can damage air quality and impact climate, according to new study led by the University of Michigan. The researchers found that the Bakken Formation, an oil and gas field in North Dakota and Montana, is emitting roughly 2 percent of the globe's ethane. That's about 250,000 tons per year. "Two percent might not sound like a lot, but the emissions we observed in this single region are 10 to 100 times larger than reported in inventories. They directly impact air quality across North America. And they're sufficient to explain much of the global shift in ethane concentrations,"  The Bakken is part of a 200,000-square-mile basin that underlies parts of Saskatchewan and Manitoba in addition to the two U.S. states. It saw a steep increase in oil and gas activity over the past decade, powered by advances in hydraulic fracturing, or fracking, and horizontal drilling. Between 2005 and 2014, the Bakken's oil production jumped by a factor of 3,500, and its gas production by 180. In the past two years, however, production has plateaued. Ethane is the second most abundant atmospheric hydrocarbon, a family of compounds made of hydrogen and carbon. Ethane reacts with sunlight and other molecules in the atmosphere to form ozone, which at the surface can cause respiratory problems, eye irritation and other ailments and damage crops. Surface-level ozone is one of the main pollutants that the national Air Quality Index measures in its effort to let the public know when breathing outside for long periods of time could be harmful. Low-altitude ozone also plays a role in climate change, as it is a greenhouse gas and the third-largest contributor to human-caused global warming after carbon dioxide and methane.

Study: US oil field source of global uptick in air pollution: — An oil and natural gas field in the western United States is largely responsible for a global uptick of the air pollutant ethane, according to a new study. The team led by researchers at the University of Michigan found that fossil fuel production at the Bakken Formation in North Dakota and Montana is emitting roughly 2 percent of the ethane detected in the Earth’s atmosphere. Along with its chemical cousin methane, ethane is a hydrocarbon that is a significant component of natural gas. Once in the atmosphere, ethane reacts with sunlight to form ozone, which can trigger asthma attacks and other respiratory problems, especially in children and the elderly. Ethane pollution can also harm agricultural crops. Ozone also ranks as the third-largest contributor to human-caused global warming after carbon dioxide and methane. The study was launched after a mountaintop sensor in the European Alps began registering surprising spikes in ethane concentrations in the atmosphere starting in 2010, following decades of declines. The increase, which has continued over the last five years, was noted at the same time new horizontal drilling and hydraulic fracturing techniques were fueling a boom of oil and gas production from previously inaccessible shale rock formations in the United States. Searching for the source of the ethane, an aircraft from the National Oceanic and Atmospheric Administration in 2014 sampled air from directly overhead and downwind of drilling rigs in the Bakken region. Those measurements showed ethane emissions far higher than what was being reported to the government by oil and gas companies. “These findings not only solve an atmospheric mystery — where that extra ethane was coming from — they also help us understand how regional activities sometimes have global impacts,”

How 10 Years of Fracking Has Been a Disaster for Our Water, Land and Climate -  In the last decade, the combination of horizontal drilling and hydraulic fracturing--the process known as 'fracking'--has unlocked vast reserves of shale gas across the country, and unleashed a torrent of chemical pollution and environmental harm in its wake. Plenty of unknowns remain about the environmental impacts of fracking, due in large part to a lack of baseline testing before drilling began, and industry secrecy abetted by lack of sufficient government regulations. But what we do know, compiled in a new report by Environment America Research & Policy Center and Frontier Group, is cause for alarm.  The study, Fracking By the Numbers, quantifies the environmental harm caused by more than 137,000 fracking wells permitted since 2005. Because it relies largely on industry-reported data, modest estimates of the average toll each well takes on the environment, and a patchwork of information from state and federal regulators, the report paints a conservative -- but still frightening -- picture of fracking's devastation. Once lauded as "bridge" to a clean energy future, fracking is now clearly adding to the problem of global warming. First, burning shale gas extracted during fracking creates carbon pollution. Even more damning, methane, a greenhouse gas exponentially more potent than carbon, is released at multiple steps during the fracking process. Fracking released 5.3 billion pounds of methane into the atmosphere in 2014 during just one of these stages -- well completion -- as much global warming pollution as 22 coal-fired power plants produce in a year.Perhaps most notorious for causing tap water to light on fire, fracking also poses critical risks to our water supplies. Fracking requires huge volumes of water for each well - water that is often needed for other uses or to maintain healthy aquatic ecosystems. At least 239 billion gallons of water have been used in fracking since 2005, an average of 3 million gallons per well.

Highly Explosive Bakken Crude Makes It To The Netherlands (Europe) Safely -- April 25, 2016 -- MRT is reporting: A petroleum tanker laden with 175,000 barrels of North Dakota crude was being offloaded in Europe on Wednesday, the first such overseas shipment of the state’s oil since Congress lifted a 40-year ban on crude exports in December. North Dakota’s congressional delegation and industry officials hailed Hess Corp.’s shipment as a milestone that could open more markets in faraway refineries where premium prices are typically fetched based on foreign prices. “It’s a big deal,” said Ron Ness, president of the North Dakota Petroleum Council, a trade group that represents about 500 companies working in the oil patch in the western part of the state. “Once you get a barrel to sea, it will fetch a better price.” The ban on crude exports was put in place in response to the energy crisis of the 1970s. It’s not immediately clear what impact exporting North Dakota oil will have on prices or production, which is currently pegged at about 1.1 million barrels daily. And environmental groups have said they worry that increased supply by U.S. energy companies will lead to more pollution and higher global emissions. Hess spokesman John Roper said the crude originated from Tioga, North Dakota in early April. It was shipped by rail to St. James, Louisiana. There, it was loaded on a tanker with ExxonMobile Corp.’s offshore oil from the Gulf of Mexico. The tanker arrived early this week in Rotterdam, Netherlands, where ExxonMobile (sic) has a refinery, Roper said. Workers were unloading the shipment Wednesday.

As U.S. Oil Rigs Shut Down, Job Pain Spreads Across Cities - In more than a quarter of the nation’s metropolitan areas, the jobless rate is higher than it was a year ago as the fallout from the fracking downturn drifts outward. In March, 98 out of 387 metro areas had unemployment rates higher than in March 2015, the Labor Department said Wednesday. In recent months, many of the metro areas with the largest increases in unemployment have consistently been in energy states such as Louisiana, Texas and Wyoming. “The crackup of the fracking economy is leading to significant employment losses in places across Louisiana, Texas, Wyoming, and North Dakota, and it’s a pretty large number of metro areas,” said Mark Muro, senior fellow and policy director at the Metropolitan Policy Program at the Brookings Institution, noting that many smaller metro  areas are highly linked to the fracking economy. As the national unemployment rate dropped from 10% at the height of the recession to a seasonally adjusted 5.1% in March, most metro areas saw their unemployment rates fall alongside it. But in March, the number of areas posting year-over-year declines in unemployment fell to 270, the lowest number showing improvement since January 2013. Some of that is a natural deceleration in improvement as the labor market tightens. But combined with the sharp rise in areas with rising unemployment, it suggests more oil-patch pain to come.  In March, Lafayette, La., Houma-Thibodaux, La., and Odessa, Texas, had the largest year-over-year decreases in payroll jobs, losing nearly 20,000 jobs between them. The areas with the largest percentage decreases in employment were Casper, Wyo., Houma-Thibodaux, and Odessa, which each saw employment fall by 5.3% or more.

Oil Crash Creates Glut Of Petroleum Engineers - More Layoffs Coming -- Back in 2013, published an article about a cook on an Australian offshore platform earning this kind of salary during the heydays in the oil sector. But things have changed in the oil patch. For many years one of the most lucrative jobs in the already lucrative field of engineering was as a petroleum engineer. While industrial, mechanical, and chemical engineering grads all commanded respectable salaries, usually ranging from $55,000 to $75,000, in recent years petroleum engineering salaries often top $100,000 or more. The days of that prosperity are ending or at least on hold for now though. Jobs for petroleum engineers are becoming increasingly scarce even for grads from traditionally good universities. Part of the problem is that as U.S. shale oil boomed, so did the number of petroleum engineering grads. There are more than three times as many students graduating today with petroleum engineering degrees as there were in 2008. In that sense, the petroleum engineering glut is even worse than the oil glut. While the oil markets will rebalance over a period of a couple of years, many petroleum engineers will likely leave or never enter the industry in the first place. Now to be fair, engineering is an extremely useful field and there is considerable overlap between many of the engineering disciplines. My undergrad training and initial work experience is in industrial engineering, which has significant commonalities with mechanical engineering. In the same way, petroleum engineers will be able to get jobs in other technical fields – mathematical and scientific skills are always in demand. Still, for many students who went to school and took on student loans under the expectation of getting a six figure petroleum engineering job, a rude awakening is likely ahead. Petroleum engineering became a much more attractive field thanks to the shale boom, which meant that these engineers were no longer likely to have to take a job abroad or on an offshore platform. If shale is dead or partially dead, that changes the calculus for many petroleum engineers. To employ a meaningful number of the current stock of engineers, oil prices would likely have to get back to around $70 a barrel which would make shale at least reasonably profitable in many geographies.

Hess 1st-quarter loss widens, but tops Wall Street’s view — Hess Corp.’s first-quarter loss widened, as the oil and gas producer dealt with lower realized selling prices and a decline in production. Still, its performance beat analysts’ estimates. For the three months ended March 31, Hess lost $509 million, or $1.72 per share. A year earlier the New York-based company lost $389 million, or $1.37 per share. The results surpassed Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for a loss of $1.81 per share. Revenue declined to $993 million from $1.55 billion. Hess said Wednesday that oil and gas production totaled 350,000 barrels of oil equivalent per day, compared with pro forma production, which excludes assets sold, of 355,000 barrels of oil equivalent per day in the prior-year period.

Hess Production YoY Flat; Reported Loss Less Than Forecast; Unnecessary Talk About Rig Counts -- April 27, 2016 -- Hess reports; link here. Quarterly revenue dropped 36% year over year to $993 million, falling short of estimates of $1.02 billion for the first three months of the year.  Before today's market open, New York City-based Hess posted a loss of $1.72 per share for the quarter, beating estimates of a loss of $1.83 per share for the quarter. Last year, Hess reported a loss of 98 cents per share for the 2015 first quarter. Oil and gas production fell to 350,000 barrels of oil equivalent per day for the latest quarter, compared with 355,000 barrels of oil equivalent per day in the same period last year. Exploration and production capital and exploratory expenditures declined 56% to $544 million. If this was in response to an analyst's question, it speaks volumes about the analyst -- I'll explain why after the link. The Dickinson Press is reporting: Hess Corp. said on Wednesday it would add drilling rigs in North Dakota's Bakken shale basin, its largest area of operations, if oil prices approach $60 per barrel, a level executives believe offers the best chance to return to profitability. The update came after the U.S. oil producer reported a smaller-than-expected quarterly loss, with cost cuts helping offset more than 60 percent drop in crude prices in the past 18 months. It seems to me I recall another company saying the same thing some time ago, maybe EOG, although maybe it was Hess.  I think this (the number of rigs) will be interesting to watch. As I've always said, rig count provides a measure of activity, but seems to be fairly irrelevant in the Bakken where 29 active rigs now are producing what 200 rigs did two years ago, and on top of that: 1,000 DUCs; 1,500 inactive wells; and, countless wells taken off-line every day.

Pioneer Announces It Will Add More Rigs As Soon As Oil Hits $50 -- One month ago we presented the simple reason why numerous oil producers did not believe the oil rally: they were aggressively hedging future production at prices - some as low as the mid-$30's - which were considered uneconomical as recently as 6 months ago, and while they were eliminating future downside risk should oil resume its plunge, they would also cap their were oil to soar much higher.  As a traders quoted by Reuters said then, "Brent's flattening contango since January comes as many producers want to cash in immediately on recent price rises. They've been heavily selling 2017/2018 and beyond, and it shows that they don't quite trust the higher spot prices yet. This means that even the producers don't really expect a strong price rally until well into 2017 or later." Then last night, the WSJ also picked up on this and wrote that "in an about-face, companies are using hedges to lock in prices that they turned their noses up at a few months ago. Last September, Energen Corp. officials told investors they would hold out for roughly $60 a barrel before using the futures market to hedge their production. But the company recently said it had locked in about half of its expected 2016 production—or more than 6 million barrels—at around $45." Many others have followed suit: EV Energy Partners LP hedged in recent weeks at prices slightly above $40, even though last spring it opted not to hedge when prices were between $50 and $60, finance chief Nicholas Bobrowski said. “We thought we were smarter than everyone,” Mr. Bobrowski said of the missed opportunity. “Lessons learned.” Others have learned from his lesson too and have rushed to hedge. Here the WSJ repeats the simple logic of hedging, namely that doing so now "means giving up possible higher prices if oil continues to improve. Producers have pounced anyway—due to pressure from their investors and fear that the rally could be temporary." They are far more worried not about lost gains as much as another round of major losses should oil tumble back to the mid-$20s.

BP sees Q1 earnings slide as low oil prices take their toll  (AP) — Cost-cutting and a solid performance from the refining and marketing arm helped British energy producer BP cushion the hit from low oil prices in the first quarter. Though the company reported a 79 percent slide in earnings, its share price spiked 4.5 percent higher Tuesday to 377 pence as the result was better than anticipated in markets. BP reported that its underlying replacement cost profit — the oil industry standard, which excludes non-operational items and the value of oil inventories — dropped to $532 million from $2.58 billion in the first quarter of 2015. Though that’s quite a precipitous decline, the result was about $100 million better than analysts had forecast. BP also said it would maintain its dividend at 10 cents a share — a key factor as the stock is held by many pension funds. “We think the key takeaway is the strong message on dividend sustainability today,” brokerage firm Bernstein said in a statement. “BP is clearly delivering on its cost reduction plans which are offsetting commodity price weakness and delivering earnings and cash flow ahead of expectations.”

Statoil swings to Q1 profit partly offset by cost cuts (AP) — Norwegian oil and gas company Statoil ASA has swung to a profit of $611 million in the first quarter as reduced costs helped offset low crude prices. The figure reported Wednesday compares with a loss of $4.57 billion in the same period last year, when Norway’s biggest oil producer had large write-downs. Revenue at the partly government-owned company dropped 34 percent to $10.1 billion. CEO Eldar Saetre said the industry “is facing challenges,” adding Statoil was “radically improving our project break-evens and we are on track to reset costs.” The company has been stepping up its cost-cutting program and reining in spending in recent months. Statoil’s average production in the quarter was 2.05 million barrels of oil equivalent per day, virtually similar to 2.06 million barrels daily a year ago.

ExxonMobil loses AAA credit rating as debt increases: Standard & Poor stripped ExxonMobil of its AAA credit rating due to a plunge in oil prices and weak forecast. The Texas-based company was downgraded to an AA+ credit rating. The ratings agency cited “low commodity prices, high reinvestment requirements, and large dividend payments.” The decision comes as Exxon’s debt has increased substantially. “The company’s debt level has more than doubled in recent years, reflecting high capital spending on major projects in a high commodity price environment and dividends and share repurchases that substantially exceeded internally generated cash flow,” Standard & Poor said. Shares of Exxon remained steady after the announcement. Exxon’s decision to spend $54 billion on stock buybacks in the past four years, even with mounting debt, was questioned by S&P. Exxon prefers to return cash to shareholders, but that may hurt its ability to stockpile cash and pay down debt, according to the credit rating company. The company may have to spend more to maintain production, replacing oil reserves over the next couple of years. S&P also said that Exxon’s credit measures will remain below its expectations for the AAA rating through 2018. Production challenges also contributed to the reduced rating. The energy producer only found enough new oil to replace 67 percent of its production last year. “In our view, the company’s greatest business challenge is replacing its ongoing production,” S&P said.

For The First Time Since The Great Depression, Exxon Mobil Loses 'AAA' Rating - Exxon Mobil has been rate AAA by S&P since 1930 according to Bloomberg. Today that ended as the global crude explorer with sales that dwarf the economies of most nations wascut to AA+ (Outlook stable). Having been put on notice in February (negative watch),citing concern that credit measures would remain weak through 2018. Credit measures will be weak for a AAA rating due, in part, to low commodity prices, high reinvestment requirements and large dividend payments, S&P says. Maintaining production and replacing reserves will eventually require higher spending, S&P says.Greatest business challenge is replacing co.’s ongoing production, S&P says.

Exxon's 1Q profit plunges 63 percent on lower oil prices: (AP) — Exxon Mobil produced its weakest quarter in more than 16 years as lower oil prices pushed its profit down by 63 percent. Revenue tumbled 28 percent, and the oil giant lost money in its vaunted exploration and production business despite a 2 percent increase in production. It made more money, however, in chemicals. Exxon continued to slash capital spending to cope with lower prices, which this week cost the company the perfect AAA credit rating that it had held for more than six decades. Exxon said Friday that it earned $1.81 billion in the first quarter, down from $4.94 billion a year ago. It was Exxon’s smallest quarterly profit since it earned $1.5 billion in the third quarter of 1999, according to FactSet figures. On a per-share basis, the Irving, Texas-based company said it earned 43 cents per share, which beat Wall Street expectations. Nine analysts surveyed by Zacks Investment Research and 20 analysts surveyed by FactSet had forecast an average of 31 cents per share. Revenue fell to $48.71 billion but topped forecasts. The FactSet analysts expected $44.75 billion. The company lost $76 million in its exploration and production business because of an $832 million loss in the U.S. A year ago, the so-called upstream business earned about $2.9 billion on a much smaller U.S. loss of $52 million. Exxon’s refining and fuels-marketing business was profitable, but not as much as a year ago partially due to weaker margins on refining. The chemical business, however, earned $1.4 billion, an improvement of $373 million over the same period last year.

Exxon sees smallest profit in 16 years, Chevron posts loss: Exxon Mobil posted its smallest quarterly profit in more than 16 years Friday, while Chevron lost $725 million, its worst showing since 2002, and raised the number of jobs it expects to cut this year from 7,000 to 8,000. Other oil companies are expected to report weak earnings in the next few days. Oil prices have tumbled from their 2014 highs of over $100 a barrel, bottoming out at under $30 in mid-February, because of a worldwide glut. Giant companies like Exxon and major petroleum-producing countries such as Saudi Arabia have continued to pump more from the ground despite the slide in prices. Forecasters expect U.S. shale producers to cut production, however, which could ease the glut, and prices have been recovering over the past three months. Exxon Mobil Corp., the world’s biggest publicly traded oil company, made a profit of $1.81 billion in the first quarter, down 63 percent from $4.94 billion a year ago. It was Exxon’s smallest quarterly profit since a $1.5 billion gain in the third quarter of 1999, according to FactSet figures. The company lost money in its vaunted exploration and production business despite pumping slightly more oil and gas than a year ago. Profit fell by nearly half in its refining and marketing division. Only the smaller chemicals division made more money than last year. Revenue at Irving, Texas-based Exxon tumbled 28 percent to $48.71 billion. Chevron Corp. recorded its second straight losing quarter. Its $725 million loss was a sharp contrast from the first quarter of last year, when it made $2.57 billion. Revenue plunged 32 percent to $23.55 billion. Chevron CEO John Watson said the company is controlling spending, focusing more on shorter-term projects, and completing key projects under construction to boost revenue. Exxon, too, is cutting capital spending — by 33 percent in the first quarter, compared with a year ago.

ConocoPhillips Reports First-Quarter 2016 Results; Announces Revised 2016 Capital Expenditures Guidance - ConocoPhillips today reported a first-quarter 2016 net loss of $1.5 billion, or ($1.18) per share, compared with first-quarter 2015 earnings of $272 million, or $0.22 per share. Excluding special items, first-quarter 2016 adjusted earnings were a net loss of $1.2 billion, or ($0.95) per share, compared with a first-quarter 2015 adjusted net loss of $222 million, or ($0.18) per share. Special items for the current quarter were related to non-cash impairments in the Gulf of Mexico and United Kingdom and pension settlement expense.  Summary:

  • Achieved first-quarter production of 1,578 MBOED.
  • Lowered operating costs by more than 20 percent year over year.
  • Reduced 2016 capital expenditures guidance from $6.4 billion to $5.7 billion.
  • Raised $4.6 billion of low-cost debt and ended the quarter with $5.2 billion of cash and short-term investments.

Halliburton Says It Cut 6,000 Jobs In 1Q, Delays Earnings Call  |(Reuters) - Halliburton Co said on Friday that it cut more than 6,000 jobs in the first quarter, during which revenue slumped 40.4 percent and it took a $2.1 billion restructuring charge mainly for asset write-offs and severance costs. The No.2 oilfield services provider also said it would now hold its earnings conference call on May 3, instead of April 25, to accommodate the April 30 deadline for its acquisition of Baker Hughes Inc. Halliburton's "operational update" was issued in a statement after the market closed on Friday. The company is scheduled to report first-quarter results on Monday, April 25. Halliburton and Baker Hughes have set a deadline of April 30 to close the deal, which will help close the gap on market leader Schlumberger Ltd. But, the merger, which was announced in 2014, faces stiff regulatory hurdles. The U.S. Justice Department filed a lawsuit this month to block the deal, citing competition worries. European Union antitrust regulators could make its objections to the deal known to Halliburton next week, Reuters reported on Wednesday, citing sources. The deal between the two companies was in part to help them weather the current oil price downturn, which started in 2014, and its aftermath. Since 2014, Halliburton has reduced its headcount by about a third and reduced costs drastically.

Top Oil Service Firms Mull North America Retreat As Losses Mount  - Two of the three largest oil rig operators and frackers are considering pulling back from the North American market as losses mount. Schlumberger Ltd. -- after posting its first North American operating loss since at least the turn of the century, according to Barclays Plc -- is evaluating whether it’s worth temporarily shuttering its business in the region. Baker Hughes Inc. said Wednesday it has decided to limit its exposure to unprofitable onshore fracking work in North America because of the "unsustainable pricing." It’s the first time in at least a decade that those companies and Halliburton Co., the big 3 in oil services, all lost money in the region during the first three months of the year. "Activity is coming down to basically critical-mass type of levels," Schlumberger Chairman and Chief Executive Officer Paal Kibsgaard told analysts and investors Friday on a conference call. "What’s the benefit of taking the losses versus shutting down and then making the investments later on to start back up again?" Even FMC Technologies Inc., the largest provider of subsea equipment to the industry, said Wednesday the amount of lost work in the region was surprising. As companies report first-quarter results, laments about the "unsustainable" business in North America is a common refrain among service providers. Jeff Miller, president of Halliburton, was one executive using the word this past week to describe operations. "My definition of an unsustainable market is one where all service companies are losing money in North America, which is where we are now,” he said Friday in a statement in which the Houston-based company reported an operating loss margin of 2.2 percent. More than half of U.S. fracking equipment, measured at a total of 17.5 million horsepower, is unused. Prices charged for fracking are estimated to have fallen as much as 40 percent since the downturn began in the third quarter 2014.

We Could Be Witnessing the Death of the Fossil Fuel Industry—Will It Take the Rest of the Economy Down With It?  - In just two decades, the total value of the energy being produced via fossil fuel extraction has plummeted by more than half. Now $3 trillion of debt is at risk. It’s not looking good for the global fossil fuel industry. Although the world remains heavily dependent on oil, coal and natural gas—which today supply around 80 percent of our primary energy needs—the industry is rapidly crumbling. This is not merely a temporary blip, but a symptom of a deeper, long-term process related to global capitalism’s escalating overconsumption of planetary resources and raw materials. New scientific research shows that the growing crisis of profitability facing fossil fuel industries is part of an inevitable period of transition to a post-carbon era. But ongoing denialism has led powerful vested interests to continue clinging blindly to their faith in fossil fuels, with increasingly devastating and unpredictable consequences for the environment.In February, the financial services firm Deloitte predicted that over 35 percent of independent oil companies worldwide are likely to declare bankruptcy, potentially followed by a further 30 percent next year—a total of 65 percent of oil firms around the world. Since early last year, already 50 North American oil and gas producers have filed bankruptcy. The cause of the crisis is the dramatic drop in oil prices—down by two-thirds since 2014—which are so low that oil companies are finding it difficult to generate enough revenue to cover the high costs of production, while also repaying their loans. Oil and gas companies most at risk are those with the largest debt burden. And that burden is huge—as much as $2.5 trillion, according to The Economist. The real figure is probably higher.

Oil Producers Lock In Once-Snubbed Prices - WSJ: U.S. oil producers aren’t letting the rally go to waste. In an about-face, companies are using hedges to lock in prices that they turned their noses up at a few months ago. Last September, Energen Corp. officials told investors they would hold out for roughly $60 a barrel before using the futures market to hedge their production. But the company recently said it had locked in about half of its expected 2016 production—or more than 6 million barrels—at around $45. EV Energy Partners hedged in recent weeks at prices slightly above $40, even though last spring it opted not to hedge when prices were between $50 and $60, finance chief Nicholas Bobrowski said. Companies that produce oil or gas typically hedge by trading options or futures to guarantee a price for their output. Previously established hedges helped them through much of 2015, but their withdrawal from the market as prices fell to new lows is expected to show up as damage to their earnings when they start reporting first-quarter results this week. Now they are getting a break. Benchmark U.S. oil prices have shot up by more than 65% since hitting a 13-year low in February, giving producers a chance to lock in better prices just as many banks are re-evaluating how much credit to extend to the sector. Oil futures rose 1.3% to $43.73 a barrel Friday in New York, wrapping up the eighth week of gains out of the past 10. While the rally has been sharp, prices are still well below the $60-plus level they occupied a year ago. Hedging now means giving up possible higher prices if oil continues to improve. Producers have pounced anyway—due to pressure from their investors and fear that the rally could be temporary.

Rising Oil Prices Throw Lifeline to Shale Producers (Reuters) - Brent prices for 2017 ended trading above $50 per barrel on Wednesday for the first time since mid-December following the largest and most sustained rally in prices since the oil slump started. The average for the 12 futures contracts expiring in 2017, called the calendar strip, has risen by 34 percent from its recent low of $37.45 on Jan. 20 to $50.26 on April 27 (). Spot prices, represented by the nearest futures contract, dominate the headlines and are of most interest to analysts and financial investors. Most hedge funds and other money managers concentrate on nearby futures contracts because they are the most liquid. Calendar strips for future quarters and years are far less prominently reported in the media and analyst commentaries. But the majority of crude producers and consumers such as airlines rely on calendar strips to hedge future sales and purchases. For producers struggling to meet debt payments and avoid breaching the terms of loan covenants, rising prices are a chance to lock in future revenue and reduce downside risks. Many producers, especially in the U.S. shale industry, must be hoping prices continue to rise in the second half of 2016 and through 2017 as the oil market rebalances. But the calendar strip has already risen to the point where it is line with the average price forecasts for 2017 made back at the start of March. At that point, half the respondents to a broad price survey expected prices to average between $45 and $55 per barrel in 2017. By remaining unhedged, producers have the chance to benefit from further price increases. But any pull back could put their very survival at risk. For many shale producers, the difference between an average price of $35 and $50 per barrel is the difference between insolvency and survival. Prudence counsels most shale producers should protect part, if not all, of their production for 2017 at current price levels against any reversal. 

As Oil Rises, US Shale Companies Have Begun Increasing Oil Production -- Three days ago, Pioneer surprised oil market watchers when it not only said that it has already produced more oil than it had initially forecast, but that once crude returns to $50, all systems are go. This is what it said in its Q1 press release:

  • producing 222 thousand barrels oil equivalent per day (MBOEPD), of which 55% was oil; production grew by 7 MBOEPD, or 3%, compared to the fourth quarter of 2015, and was significantly above Pioneer’s first quarter production guidance range of 211 MBOEPD to 216 MBOEPD; oil production grew 10 thousand barrels oil per day during the quarter, or 9%, compared to the fourth quarter;
  • expecting to deliver production growth of 12%+ in 2016 compared to the Company’s previous production growth target of 10%; the higher forecasted growth rate reflects improving Spraberry/Wolfcamp well productivity;
  • expecting to add five to ten horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive

Then yesterday it was another US shale giant to admit that $45 oil is good enough, and that it is "increasing its production forecast to a range of 131,400 BOE/d to 136,900 BOE/d"adding that "with the majority of completions scheduled for the second half of the year, the Company expects to realize the full production benefit in late 2016 and 2017." It was not immediately clear if Pioneer and Whiting were restoring production due to recently implemented hedges. What is clear is that as the EIA reports, drilling costs have tumbled in recent years, which suggests that breakeven drilling prices have followed suit.

The "Fracklog Trigger": Why 500,000 Barrels Of Shale Crude Could Hit The Market At Any Moment -- Yesterday, when reading through Pioneer's results we stumbled on something unexpected: not only was the company pumping more than its had previously guided, but announced it was waiting for $50/barrel to reactivate five to ten horizontal drilling rigs. To wit:

  • producing 222 thousand barrels oil equivalent per day (MBOEPD), of which 55% was oil; production grew by 7 MBOEPD, or 3%, compared to the fourth quarter of 2015, and was significantly above Pioneer’s first quarter production guidance range of 211 MBOEPD to 216 MBOEPD; oil production grew 10 thousand barrels oil per day during the quarter, or 9%, compared to the fourth quarter;
  • expecting to add five to ten horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive

Whether this is due to aggressive hedging (as also explained previously) or simply because Pioneer and its peer companies have dramatically reduced their all-in costs of production is unclear, but what is clear is that with every dollar that the price of oil rises, the risk of US shale coming back to market in an aggressive fashion become ever greater. Today, we turn our attention to another potentially disruptive source of oil supply, one also covered previously, namely Drilled, Uncompleted Wells, or DUCs. As Bloomberg writes, drilled, uncompleted wells could return 500,000 barrels a day back to the market, according to Richard Westerdale, a director at the U.S. State Department’s Bureau of Energy Resources. The inventory of wells is known as the fracklog. “Once we start approaching $45 and above, the risk of a much sharper pullback starts to increase as a lot of shale becomes profitable again,” Angus Nicholson, an analyst at IG in Melbourne, said by phone. “It’ll bring more supply back into the market. This happened last year when a swathe of output hit the market after a price gain and subsequently led to oil dropping to record lows.”

Plan To Ship Fracked Gas To China is DOA! -- America’s gas reserves won’t be going to China via Oregon.  Or from New York – which just denied a scheme to export fracked gas.  After a decade of fighting Oregon LNG’s push to build a $6 billion terminal and pipeline project on the Skipanon Peninsula, Cheryl Johnson had no idea if an end was in sight.“I hoped that I would see it in my lifetime, but I didn’t know,” said Johnson, the 65-year-old co-chairwoman of Columbia Pacific Common Sense.“We really wanted to export America’s gas reserves to the Chinese.”The fight came to an abrupt end Friday, when Oregon LNG informed city and state officials that the company will withdraw the proposed liquefied natural gas development. The move ended a long period of acrimony over a controversial project that galvanized residents to protect the Columbia River and caused political upheaval in Clatsop County. Warrenton Mayor Mark Kujala said he was told by a company representative that Leucadia National Corp., the New York-based holding company behind the project, was no longer willing to bankroll the effort. Skip Urling, the city’s community development director, said he was told Oregon LNG would not proceed with an appeal of a city hearings officer’s decision to deny the terminal. The hearings officer had approved the pipeline portion of the project. A hearing on Oregon LNG’s appeal was scheduled before the City Commission for early May. But Urling said he was informed that “they’re done. They’re not going to fight the hearings officer’s position.”“The Chinese will have to get their fracked gas somewhere else.” Richard Glick, a Portland attorney representing the company, advised the state Department of Environmental Quality in an email Friday afternoon that the company is “ceasing development of its terminal and pipeline projects.” Oregon LNG could not be reached for comment. Their phone line was dead.

This Six-Year Running Oil And Gas Trend Just Reversed Itself -- The U.S. Senate this week approved a bill to speed permitting of new liquefied natural gas (LNG) export facilities. Just as news from one of the world’s most important LNG consumers shows the market isn’t what it used to be.  The place is Japan. Where statistics released Wednesday showed that annual Japanese LNG demand fell for one of the first times in recent memory. Trade data showed that Japan’s total LNG imports for the fiscal year ended March 31 were down 6.2 percent as compared to the previous fiscal. With the country bringing in a total of 83.571 million tonnes of LNG for the 12-month period. Here’s the most critical point. This was the first time in six years that Japanese LNG demand has fallen year-on-year. That’s a crucial data point for the global LNG market. With rampant Japanese demand having been one of the major drivers of positive sentiment — and resulting business expansions — in the industry during recent years. As the chart below shows, much of that ramp up in LNG demand came following the Fukushima incident in 2011. We can see how nuclear power generation (yellow bars) went to zero after 2011 — and natural gas use (red bars) jumped, along with coal (black). But with Japanese nuclear plants now coming back online, it appears that Japan’s rush for natural gas is over. A fact that had been strongly suggested by LNG prices such as the Platts Japan-Korea Marker — which has fallen to as low as $4.25/MMBtu recently, from as high as $20 back in 2012/13 when Japanese imports were surging.

Do fracking activities cause earthquakes? Seismologists and the state of Oklahoma say yes - Edmonton - CBC News: In the heartland of Oklahoma sits a pretty town dotted with American flags and a quaint main street of century-old brick buildings. But in Guthrie, the devastating impact of oil-industry-induced earthquakes is being felt hard. Look closely and you see cracks in the historic buildings, where the old masonry is giving way to a shifting ground. Guthrie has seen a wave of earthquakes since hydraulic fracturing — or fracking — picked up in the area. Cracked walls, crumbling brickwork: the legacy of fracking in Oklahoma PHOTOS | Oklahoma earthquake damage There's no denial from the Oklahoma government or seismologists from 20 countries who met in Reno, Nev., last week that practices related to fracking are behind the swarms of earthquakes that have increased in volume and intensity since 2011. "There's definitely a relationship between deep well disposal and the earthquake activity," the state's oil and gas regulator, Tim Baker, said in an interview with CBC News, referring to the practice of injecting fracking waste water deep into the ground.At the Reno meeting, seismologists from Canada also warned that fracking in Alberta and British Columbia could bring similar consequences. "In Western Canada, most of the seismicity we're experiencing is being actually directly related to hydraulic fracturing," says Gail Atkinson, a specialist in induced seismicity from Western University in London, Ont. While there's been little noticeable damage in Canada so far, she warns it could happen. "I think damage is a function of getting the wrong ground motions in the wrong place at the wrong time." Atkinson helped chair a day-long session on the impacts of fracking and earthquakes at the annual meeting of the Seismological Society of America. She also presented her own Canadian research. She says smaller earthquakes shouldn't be ignored because they can lead to larger, more destructive ones. "For every 100 magnitude three earthquakes, you'll get 10 of magnitude four and one magnitude five," she says. "The higher the rate of seismicity, the greater likelihood you'll trigger at least one large event."

Enbridge pipeline replacement gets conditional approval — Canada’s National Energy Board has granted conditional approval to a massive Enbridge Inc., project to replace a pipeline that would enable more Canadian crude to flow into the U.S. The $7.5-billion Line 3 Replacement project involves rebuilding a 1031-mile (1,660-kilometer) pipeline that’s nearly a half-century old and has had several ruptures over the years. The pipeline would enable 760,000 barrels a day to be shipped from Hardisty, Alberta, to Superior, Wisconsin. The aging line is currently shipping about half of that. The board’s decision Monday comes with 89 project-specific conditions to enhance public safety and environmental protection. There are separate U.S. permitting processes the project must undergo before construction can begin. The project would be the largest undertaking in Enbridge’s history but has drawn less attention than other pipeline proposals.

NEB approves Enbridge Line 3 pipeline replacement -  The National Energy Board will allow Enbridge to replace an aging pipeline across the Prairie provinces as long as the company meets 89 conditions. The federal government must now make a decision on the project. Enbridge wants to spend $7.5 billion to replace its Line 3 pipeline, which stretches 1,660 kilometres from Hardisty, Alta., to Superior, Wis.  The pipeline is currently operating at about half capacity after the company voluntarily reduced pressure because of reliability concerns. "The Enbridge Line 3 project is in the Canadian public interest and is not likely to cause significant adverse environmental effects," said Robert Steedman, the NEB's chief environmental officer. As part of the NEB's decision, Enbridge must develop a plan for Aboriginal groups to participate in monitoring construction. Several groups oppose the pipeline project, including First Nations and environmental groups in Manitoba and Minnesota. The company has already delayed its expected completion date from 2017 to 2019 because of the regulatory process in Minnesota. "The hearing panel believes there is an important opportunity at this juncture for Enbridge to renew, and in some cases, improve its relationship with Aboriginal groups," said Steedman.

Q1 Canadian oil, gas drilling falls 40%: Precision Drilling - The number of oil and natural gas wells drilled in the first quarter of 2016 in Canada fell nearly 40% to 1,062, with there still being no signs of a bottoming out of oil prices, a leading drilling contractor said Monday. In the same quarter of 2015 the total number of wells drilled in Canada was 1,783, Kevin Neveu, CEO of Precision Drilling, said on an earnings webcast. Q1 "has been a very, very tough quarter and with WTI prices falling ... customers have responded by trimming drilling plans," he said. "We started the year with 61 rigs and 42 rigs in Canada and the US [respectively] and at the end of the first quarter we were down to 13 rigs and 24 rigs." The company also saw five rig contracts canceled in Q1, of which three were in the US and two in Canada, Neveu said.The cancellations in Canada were in the Cardium play in the Western Canadian Sedimentary Basin, where oil drilling activity slowed significantly due to low commodity prices and unfavorable differentials faced by the Western Canadian Select blend, he added. The cancellations in the US were in Texas and Colorado, Neveu said. He did not give any reasons, but said more cancellations were expected. "It is a still a structured market and not all oil companies will survive with there being a consolidation of [exploration and production] players. Winter signifies the onset of peak drilling activity in Western Canada. But this has been one of weakest in decades. We have little visibility for Q2 and Q3," Neveu said. However, reduced rig counts and drilling activities have not resulted in decreased revenues from rig deployment.

Venezuela Starts Power Rationing, Oil Production Likely To Fall -- Venezuela - home to the largest oil reserves in the world - will for the next 40 days experience a four-hour blackout every single day, and there are fears that the rationing could lead to unrest and trigger a decline in oil output at a time when the country is barely hanging on. The decision to ration electricity was brought about by a severe drought that has rendered the level of the Guri dam – the country’s major source of power generation – so low that if the weather doesn’t change, the authorities will have to shut it down. The blackouts will affect households and industrial users alike--and it’s very likely that oil production will drop. This drop, however, will not be too significant, especially in the current state of oversupply. The Financial Times last week quoted analysts as estimating that irregular power outages couldlead to a daily decline in oil output of between 100,000 and 200,000 barrels. That’s a little less than 10 percent of the average daily output in the country for last year, according to OPEC data. Besides the power outages and the 40-day power rationing, the Venezuelan oil industry has been hit extremely hard by the recession that Venezuela has plunged into because of the oil prices crash. No cash for investments and infrastructure deterioration are the main problems of the industry and they are unlikely to get a solution anytime soon. Venezuela’s economy is entirely dependent on oil revenues, which is why the country was so insistent on agreeing to a production freeze with other OPEC members. Unfortunately for the South American nation, no freeze was agreed upon, so it has been left to take care of its problems on its own. The International Monetary Fund (IMF) has warned that this year, inflation could jump to a staggering 481 percent, up from 122 percent last year. The economy is expected to contract by 8 percent. Whatever action the government takes, it seems ineffective. Limiting access to foreign currency, food and essential item shortages, as well as price controls have been all deemed as failures by observers.

Video appears to show river erupting into flames near fracking site in Australia: A video posted by New South Wales Greens party MP Jeremy Buckingham appears to show the Condamine River erupting in flames as a result of methane gas buildup, believed to be caused by nearby fracking. Several gas fracking mines are located in the vicinity of the southern Queensland river, and gas was reported to be leaking into the water as early as 2012. Flames burst out from the river Credit: Facebook Bucking tweeted he was “shocked by force of the explosion”. He told ABC News the river held the flame for more than an hour. A RIVER ON FIRE! Gas explodes from Australian river near fracking site. I was shocked by force of the explosion...  He later posted on Facebook “Fracking must be banned. Everywhere. No ifs, no buts, no exceptions. Ban it.”

Condamine River set on fire after Greens MP lights bubbling methane gas, blames fracking - ABC News --  Part of a Queensland river bubbling with methane gas has burst into flames after being ignited by a Greens MP, who blames nearby coal seam gas (CSG) operations for the "tragedy in the Murray-Darling Basin".  MP Jeremy Buckingham has released vision of himself on a boat sparking a kitchen lighter above the Condamine River. "Holy f***. Unbelievable. A river on fire," he exclaims in the video. "The most incredible thing I've seen. A tragedy in the Murray-Darling Basin." Mr Buckingham said the river held the flame for more than an hour.  The methane seeps in the river, near Chinchilla in south-west Queensland, were first reported in 2012, triggering a series of investigations. Professor Damian Barrett, the CSIRO's lead researcher into unconventional gas, has been monitoring the Condamine gas seeps. "The isotopic signature is telling us it's coming from coal at that point in the landscape but coal is quite close to the surface and there's a naturally existing small fault line, which cuts the river at that point," he said. He said research over the past 12 months showed the rate of the flow was increasing. Origin Energy, which operates CSG wells in the district, has also been monitoring the bubbling. "We're aware of concerns regarding bubbling of the Condamine River, in particular, recent videos demonstrating that this naturally occurring gas is flammable when ignited," a statement from the company said.

‘We did not expect it to explode’: Australian politician blames fracking after setting river ablaze with a lighter - Some people want to watch the world burn. Others — like Jeremy Buckingham, a member of the Australian Parliament — will settle for rivers. In an act of protest against coal seam fracking, the Greens Party member recently took an aluminum boat down the Condamine River in Queensland, Australia. This was no lazy afternoon cruise. The surface of the river fizzed with bubbles of methane gas. Methane is colourless and odourless — but it’s also quite flammable. Buckingham leaned over the side of the boat, and, as though lighting a barbecue, set the methane ablaze. Presto: Instant river flambé. “We did not expect it to explode like it it did,” Buckingham told The Washington Post early Monday in a phone interview. He’s calling for the gas industry to halt fracking in Australia until the source of the methane can be determined. “This is the future of Australia if we do not stop the frackers, who want to spread across all states and territories,” Buckingham said in a video of the river fire, which he posted to Facebook. The flames lasted for an hour as the methane continued to churn out of the river bed and feed the fire, he said. As of early Monday morning, more than 3.3 million people had viewed the video.

Oil Companies’ Bet on Kurdistan Turns Sour - WSJ: Oil companies that piled into Iraqi Kurdistan after Saddam Hussein’s ouster are running into trouble, unraveling the region’s promise as source of easy-to-drill oil and threatening Iraq’s production surge. Chevron Corp. and Exxon Mobil Corp. have been exploring for oil in Kurdistan since 2012, but have yet to develop anything. Two of the region’s leading producers are stumbling: Genel Energy in February said its largest oil field had only half the oil it thought, while Gulf Keystone Petroleum Ltd. said it is running out of money to pay its debts because of low oil prices and the lack of regular payments from the Kurdistan Regional Government for the oil it has pumped. The regional government’s Ministry of Natural Resources declined to comment. Any slowdown in Kurdistan’s oil production could affect energy markets because previous drilling success there helped Iraqi output climb by almost 20% in 2015 to 3.99 million barrels a day—about 4% of global output. This mounting production contributed to a global glut and helped sink prices to $27 a barrel in January, the lowest level in 12 years. Kurdistan, a region about the size of Switzerland, was once believed to hold as much petroleum as the North Sea. It has been a magnet for Western investment in the past decade—a rarity in the Middle East, where most international oil companies are either banned from exploring for and pumping oil or are forced to work under stingy contracts.

Massive Oil Theft By Pirates Costs Nigeria $1.5 Billion Every Month -- Depressed oil prices, rampant corruption, and pipeline vandalism are only parts of Nigeria’s oil problem. It’s now losing a massive 400,000 barrels of crude daily to pirates in the Gulf of Guinea, an amount equal to the entire daily export capacity of its Forcados terminal. Overall damage from piracy, theft and fraud for Africa’s largest oil exporter is estimated at some $1.5 billion a month, according to U.S. deputy ambassador to the UN, Michele Sison, citing a Chatham House report. Attempts by local governments and the UN to put a stop to piracy have met with some success, but the practice continues—shifting location and adapting to new security measures, so now the UN Security Council is calling for a comprehensive framework of measures aimed at eradicating it. Since 2014, says the UN, Gulf of Guinea piracy has increased at an alarming rate. Two pirate attacks on 11 April affected seven countries. The cargoes came from Nigeria, Turkey and Greece; the ships were flying Maltese and Liberian flags; and the 8 missing crewmen were from the Egypt, the Philippines and Turkey. In the first quarter of this year alone, there were six recorded pirate attacks in the Gulf of Guinea, and six attempted attacks. Nine of those were off the coast of Nigeria, while one was off the coast of Côte d’Ivoire, and two were within the territorial waters of the Democratic Republic of the Congo. Last year, there were 100 similar incidents in the Gulf of Guinea, according to the UK’s ambassador to the UN, Peter Wilson. Dealing with the pirates requires an international effort, and particularly a coordinated effort by those countries near the Gulf of Guinea. There isn’t much Nigeria can do on its own. Without a major overhaul of intelligence sharing and local law enforcement collaboration and training, the piracy scourge will continue to worsen.

50% Of Proved Oil Reserves May Have Just Vanished -- An extensive new scientific analysis published in Wiley Interdisciplinary Reviews: Energy & Environment says that proved conventional oil reserves as detailed in industry sources are likely “overstated” by half. According to standard sources like the Oil & Gas Journal, BP’s Annual Statistical Review of World Energy, and the US Energy Information Administration, the world contains 1.7 trillion barrels of proved conventional reserves. However, according to the new study by Professor Michael Jefferson, this official figure which has helped justify massive investments in new exploration and development, is almost double the real size of world reserves. Wiley Interdisciplinary Reviews (WIRES) is a series of high-quality peer-reviewed publications which runs authoritative reviews of the literature across relevant academic disciplines. According to Professor Michael Jefferson, who spent nearly 20 years at Shell in various senior roles from head of planning in Europe to director of oil supply and trading, “the five major Middle East oil exporters altered the basis of their definition of ‘proved’ conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their ‘proved’ conventional oil reserves of some 435 billion barrels.” Global reserves have been further inflated, he wrote in his study, by adding reserve figures from Venezuelan heavy oil and Canadian tar sands – despite the fact that they are “more difficult and costly to extract” and generally of “poorer quality” than conventional oil. This has brought up global reserve estimates by a further 440 billion barrels. Jefferson’s conclusion is stark: “Put bluntly, the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite the fall in crude oil prices from a new peak in June, 2014, after that of July, 2008, the ‘peak oil’ issue remains with us.”

Where did all the oil go? The peak is back - An extensive new scientific analysis published in Wiley Interdisciplinary Reviews: Energy & Environment says that proved conventional oil reserves as detailed in industry sources are likely “overstated” by half. According to standard sources like the Oil & Gas Journal, BP’s Annual Statistical Review of World Energy, and the US Energy Information Administration, the world contains 1.7 trillion barrels of proved conventional reserves. However, according to the new study by Professor Michael Jefferson of the ESCP Europe Business School, a former chief economist at oil major Royal Dutch/Shell Group, this official figure which has helped justify massive investments in new exploration and development, is almost double the real size of world reserves. Wiley Interdisciplinary Reviews (WIRES) is a series of high-quality peer-reviewed publications which runs authoritative reviews of the literature across relevant academic disciplines. According to Professor Michael Jefferson, who spent nearly 20 years at Shell in various senior roles from head of planning in Europe to director of oil supply and trading, “the five major Middle East oil exporters altered the basis of their definition of ‘proved’ conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their ‘proved’ conventional oil reserves of some 435 billion barrels.” Global reserves have been further inflated, he wrote in his study, by adding reserve figures from Venezuelan heavy oil and Canadian tar sands - despite the fact that they are “more difficult and costly to extract” and generally of “poorer quality” than conventional oil. This has brought up global reserve estimates by a further 440 billion barrels. Jefferson’s conclusion is stark: "Put bluntly, the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite the fall in crude oil prices from a new peak in June, 2014, after that of July, 2008, the ‘peak oil’ issue remains with us.”

The end of oil as we know it -- Oil has crashed. But a short-term drop in the price of oil is nothing compared with the end of demand for oil as we know it. The more extreme scenario is what Bernstein Research is now talking about. Energy analyst Neil Beveridge is out with a new note that explores the question of demand — with a prediction that the end of oil as we know it is coming in 2030. It won't be a linear, slow burn, the note says; it suggests that demand will actually come back a little bit over the next decade. "A key conclusion from our analysis is that demand growth through to 2020 will be stronger than the previous decade," the note says. "For investors who equate the slowdown in China with the end of the commodity super-cycle, the resilience in demand could be a surprise. The cure for low prices is low prices." Prices will recover, the note says, but not to the triple-digit levels we saw before last year's crash. Instead prices will level off at $60 to $70 until the end of the decade. We'll then see a final push of demand beyond 2020, until it peaks after 2030. And then that's all folks.

The Beginning of the End of the Old Oil Order  - Sunday, April 17 was the designated moment. The world’s leading oil producers were expected to bring fresh discipline to the chaotic petroleum market and spark a return to high prices. Meeting in Doha, the glittering capital of petroleum-rich Qatar, the oil ministers of the Organization of the Petroleum Exporting Countries (OPEC), along with such key non-OPEC producers as Russia and Mexico, were scheduled to ratify a draft agreement obliging them to freeze their oil output at current levels. In anticipation of such a deal, oil prices had begun to creep inexorably upward, from $30 per barrel in mid-January to $43 on the eve of the gathering. But far from restoring the old oil order, the meeting ended in discord, driving prices down again and revealing deep cracks in the ranks of global energy producers. It is hard to overstate the significance of the Doha debacle. At the very least, it will perpetuate the low oil prices that have plagued the industry for the past two years, forcing smaller firms into bankruptcy and erasing hundreds of billions of dollars of investments in new production capacity. It may also have obliterated any future prospects for cooperation between OPEC and non-OPEC producers in regulating the market. Most of all, however, it demonstrated that the petroleum-fueled world we’ve known these last decades—with oil demand always thrusting ahead of supply, ensuring steady profits for all major producers—is no more. Replacing it is an anemic, possibly even declining, demand for oil that is likely to force suppliers to fight one another for ever-diminishing market shares

Causes and consequences of the oil price decline of 2014-2015 (Video) - Dr. James Hamilton

From One Extreme To Another: Record Oil Shorts Are Now Record Oil Longs -- At the end of January, when looking at the positioning in the oil futures market, we warned that there is a a "Constant Short Squeeze Threat" because "Oil Shorts Are At All-Time Highs."  Everyone knows what happened next; for those who missed it we explained precisely two months later, following an epic surge in the price of oil, in: "It's Official: The Oil Surge Was Driven By The Biggest Short-Squeeze Ever." In other words, just as we had warned, the oil trade so far in 2016 has been all about positioning, and the sparking of a historic short squeeze in oil.We bring this up because less than three months following our  warning about a "constant oil short squeeze", it is time to unveil the next warning: one of a potentially big drop in the oil price as now record speculative oil longs proceed to cover on the other side, unleashing a selling scramble lower. Is that possible? Well, according to Deutsche Bank's latest investor positioning and flow report last night, "oil speculative net longs are at record highs as gross longs rose and shorts fell last week."

Global crude oil deficit seen in H2 2016 as markets re-balance: FGE chairman - A global crude oil deficit will develop before the end of this year, the chairman of Facts Global Energy consultancy Fereidun Fesharaki said Monday. In his opening keynote speech at the Middle East Petroleum and Gas Conference in Abu Dhabi, Fesharaki also said medium-term crude price recovery was a given as the market moved towards balance, although there could still be another short-term price dip. "The oil markets will self-correct. Within two to three years, prices will rise to $60-$80/b range. this is inevitable," he told delegates. Fesharaki predicted that global oil supply would fall worldwide by at least 500,000 b/d in 2016, while demand would rise by around 1.4 million b/d, noting that he was "optimistic" on global oil compared to some other organizations, such as International Energy Agency, on the strength of strong upturns in demand for gasoline in China, India and the US. By 2020, global demand for crude would increase by over 5 million b/d, Fesharaki predicted. "Supply will have problems catching up without a price increase," he added.

We Have Raised Our Oil Target to $55 by July 4th (Video) -- Declining U.S. Production, the Massive drop in RIG Counts, and robust Demand Growth for 2016 are all bullish fundamentals for the Oil Market heading into the Seasonally Strong part of the Demand Curve from a consumption standpoint.

The Reason Why Oil Dropped: Saudis Set To Boost Production In Scramble For Chinese Demand  -- After meandering steadily higher for the past week, and completely ignoring the negative newsflow out of the Doha meeting, today oil took an unexpected leg lower to 4-day lows, leaving many stumped: what caused this drop? The answer, according to Citi, is the realization Saudi Arabia is actually making good on its threat to boost production (recall that just days ahead of Doha the deputy crown prince said he could add a million barrels immediately) something we noted a month ago in "Why Saudi Arabia Has No Intention To End The Oil Glut." As Citi's Ed Morse notes, the biggest bear risk to the oil market right now is that Iran’s ramp-up accelerates (which might in fact be happening with recent data indicating that April crude exports are running at ~1.9-m b/d) and then that Saudi Arabia does the same. This would come as a surprise to many because one argument against the notion that the Saudis would turn on the taps is that "this would require ripping up their marketing playbook which relies on long term contracts with select buyers." Today’s news that Saudi Arabia is selling a cargo on the spot market to Asia may mark the turning of a dramatic new chapter in the Saudi playbook.

Crude Extends Gains After Surprise Inventory Draw -- With expectations for a 1.75m barrel build, API shocked by reporting a 1.1m inventory draw sending WTI crude above $44.50 - running stops from last week's highs. Gasoline (-400k) and Distillates (-1.02m) also saw draws. Cushing, however, after recent declines from pipeline closures, saw a 1.9m barrel build.

Oil prices surge towards $47 a barrel: Oil prices have powered towards their highest level for the year so far after weeks of bullish trade. The global benchmark price broke above $46 a barrel and by late morning was seen skirting the $47 mark, in what could be the market’s strongest monthly gain for a year. US oil data indicating a fall in supply sparked a bullish run in overnight trade, with Brent crude closing at $45.74 on Tuesday. “A weaker US dollar together with bullish US inventory data released overnight continues to support prices,” said Shakil Begg, head of oil research at Thomson Reuters. The US dollar has traded lower ahead of today’s Fed meeting – which is not expected to show any change in monetary policy – while data from the American Petroleum Institute suggested US crude inventories may have fallen last week, he said. “Official inventory data from the EIA [Energy Information Administration] is expected this afternoon, and could add to growing expectations of tighter market balances for this year,” Mr Begg added.

Has the Oil Price Rally Gone Too Far? | Oil speculators are growing more confident that prices are gaining ground on the back of rising demand and shrinking supply. U.S. gasoline demand is at a record high for this time of year, with the four-week consumption rate for gasoline above 9.3 million barrels per day (mb/d). That is important because the summer months typically see higher consumption than in the spring, so demand could continue to rise. At the same time, production is falling. Weekly EIA data shows that output has declined to 8.95 mb/d, sharply down from a peak of nearly 9.7 mb/d in April 2015. The converging of supply and demand has speculators increasing their bullish bets on crude oil. Net-long positions for the week ending on April 19 rose to their highest level since May 2015. Short positions fell for the week and long positions jumped. “Investors are looking for larger exposure to crude oil and showing a continuing willingness to buy on the dips,” Tim Evans, an energy analyst at Citi Futures Perspective, told Bloomberg. Not everyone is convinced. A group of investment banks cautioned not to get too excited about the rally. Barclays said in a report on Monday that it is “not yet convinced that prices will remain here or go even higher.” Morgan Stanley said the rally had more to do with macro factors as well as speculators trying to profit. There are some temporary production outages in several OPEC countries that could be resolved in the coming months, bringing some supply back to the market. The outage in Kuwait from a workers strike was short-lived, and the Kuwait state-owned oil company hopes to boost production to above 3 mb/d by June. Iran has also added around 1 mb/d to production since January when western sanctions were removed. Speculators could be overextending themselves. Any time there is a run up in bullish bets, the chances that long positions could start to be trimmed rises. Speculators could realize that the rally has run out of steam and then decide to pocket their profits. The liquidation could then spark a correction, forcing prices back down. As Morgan Stanley put it, “a macro unwind could cause severe selling given positioning and the nature of the players in this rally.”

Oil Sets Another 2016 High - WSJ: U.S. oil prices set another 2016 high Wednesday, even after U.S. data revealed a jump in stored domestic crude stockpiles. Weekly data from the U.S. Energy Department showed an increase in stored supplies of nearly 2 million barrels. The U.S. contract dropped more than 2%, falling into negative territory before bouncing back to settle up 2.9% to $45.33 a barrel. The Brent benchmark gained 3% to $47.09 a barrel. The increase in U.S. inventories was even more than the 1.7-million-barrel gain projected in a survey of analysts by The Wall Street Journal. Market bulls have been optimistic that the two-year glut of overproduction in the crude market is beginning to abate, and supply-and-demand conditions are starting to come back into balance. That has fueled a 70% rally in U.S. crude prices since touching a 13-year low in February. “We’re still working off one of the biggest gluts in history, no doubt about that,”  U.S. oil production has fallen below 9 million barrels a day in recent weeks, down from a peak of 9.7 million barrels a day last April, according to the Energy Department, but the rate of decline remains slow, dropping 15,000 barrels last week to 8.938 million barrels a day.  Meanwhile, the report also said motor gasoline inventories rose, refinery processing rates fell and inventories at the key U.S. hub in Cushing, Okla., rose 1.75 million barrels, more than expected. One bright spot in the report was a decline in distillate stocks such as diesel fuel, which are falling as demand picks up with the start of the farming season.

OilPrice Intelligence Report: Can Oil Continue To Rally Like This?: Oil prices have bounced around a bit after last week but have held more or less in the range of $43 per barrel for WTI and $45 for Brent. The price gains over the past few weeks come as the fundamentals have improved. At the same time, if the rally runs out of steam, speculators could cash out, taking their profits by liquidating their long bets. That could spark a price correction, pushing oil prices back down a bit. Keep an eye on the upcoming data releases in our Friday newsletter for more direction.  BP posted a profit of $532 million for the quarter, which beat analysts’ estimates of a $140 million loss. That result excludes charges related to the Deepwater Horizon disaster – $917 million in pre-tax charges, which when included, flips the quarterly number to a $485 million loss. BP posted its second consecutive loss, and even when excluding the Deepwater Horizon charge, its profit was down about $2 billion from a year ago. Net debt increased to $30 billion. Still, investors are heartened by the better-than-expected result, and BP’s share price surged 4 percent on the news. Crucially, the company said that it has lowered its breakeven oil price to about $50-$55 per barrel, down from a previous target of $60. The first quarter results are being closely watched as they reflect the worst of the oil price downturn. 

Sit back, relax, and enjoy the oil thriller - Pepe Escobar -- The famous Hollywood adage – 'nobody knows anything' – seems to perfectly apply to the current turbulence in the oil market. So in an effort to clarify where the global oil economy is heading to, let’s engage in a Battle of the Oil Analysts. Relying on these Oil Analysts (OA) does not necessarily mean you will be handed straightforward answers, but perhaps with some luck you will see a ray of light. Saudi Arabia is saying that they are raising oil production to 12 million barrels a day. That’s highly debatable. Russia is saying that they can raise oil production to 13 million barrels a day. OA1 cuts to the chase: “Both are bluffing. Prices are still rising. That means no one believes them.” OA2 kicks in, reminding that, “oil price is holding because of the 1.5 million barrels a day pulled off the market by a strike in Kuwait of about 10,000 workers. That cut their 3 million barrels a day production in half. Now they are going back to work. Yet the price of oil is still rising.” I had explained before how the oil price was holding over $40.00 a barrel even with concerted Washington pressure over Saudi Arabia to keep it down. Then, OA3 had told me: “that’s because oil demand and supply is tightening.”But then OA4 came up with a totally different outlook; the whole thing was about 'The Big Long', upon which I based my prediction of $45/$50 per barrel when I was in Tehran in November 2011 and the price was approaching $100 a barrel. The Saudis have been supporting the price and while they have plenty of capital to do so at high prices, storage is finite.  OA5, predictably, could not agree that the Saudis are supporting the market and about to let it collapse. He elaborated on how “hard it is to predict day-to-day prices. The only way you can know what is happening is to watch by satellite or surface observation the tankers coming out of each exporter, assume they are full, check their names to look up their capacity, and then add up what is leaving each exporter. What they say otherwise means nothing. There are services that do this that cost about $300,000 a year.”

Crude Plunges After DOE Reports Big Build -- Following last night's surprise inventory draw (1.1m via API), WTI soared above the week's high holding $45 into this morning's DOE data which was dramatically different. Instead of a draw, DOE reported a bigger-than-expected 2.00m build along with a major build at Cushing and Gasoline stocks also rose. Despite a small drop in production, WTI prices are plunging, erasing the hope-driven API ramp.  API:

  • Crude -1.1m (+1.75m exp)
  • Cushing +1.9m
  • Gasoline -400k
  • Distillates -1.02m


  • Crude  +2.00m (+1.75m exp)
  • Cushing +1.746m
  • Gasoline +1.61m
  • Distillates -1.70m

The biggest build at Cushing since Dec (after the pipeline delay ends) and surprisingly large build overall... And here is the situation for the all important gasoline market which has served as the biggest bullish catalyst in recent weeks, as supposedly the US has had a massive surge in gasoline demand. Gasoline consumption:

Oil price hits highest level since November - Oil prices hit their highest in almost six months as traders bet the worst of the rout is over, with the global surplus expected to shrink in the second half of 2016. International benchmark Brent crude rose above $47 a barrel, while US marker West Texas Intermediate topped $45 a barrel — the highest since November. Price gains were trimmed in afternoon trading following the release of data showing US crude stockpiles continued to rise last week, scaling a fresh record as supply still outstrips demand. Commercial crude oil inventories rose for a third consecutive week, up 2m barrels to 540.6m barrels, US energy department data to April 22 showed. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 1.75m.Oil prices have rebounded since sliding to a 13-year low in January, boosted by signs global supply and demand are coming into balance. This has prompted a rush of new investment into crude futures, with speculators raising their holdings to a record high.

Focused On The Wrong End Of Oil -- The front end of the oil price complex continues to get all the attention because it seems to further the more optimistic narrative. It is the back end, however, that is most significant. The nearer maturities of the futures curve reflect more the funding environment than the fundamental view of oil and the economy. The lack of continued liquidation has “allowed” investors (and speculators who are no longer, apparently, deserving of mainstream scorn) to bid up the front, but the outer years remain flat and unimpressed. The entire curve has moved higher, to be sure, but the $6 or so in 2018 maturities and out isn’t nearly as impressive as the $18 at the front. Viewing the curve as it is now compared to what it was entering the last liquidation wave, however, reveals the changed disposition especially upon more macroeconomic considerations.  The steepness is almost gone with the flattening centered around $50. At one time not all that long ago, such a low level was unthinkable. A year ago, the curve was settling more toward $65 to $70. The difference is reality, where the gravity of desperate funding “pulled” on the front end leading in anticipation of what we see now, where the back end followed to confirm the depressing “dollar” instincts. The crude or energy imbalance is widespread now, historic in its level, and, more importantly, continuing to get worse. Thus, the flatter curve at $50 is, in view of the past few months, maybe as optimistic as it can be. Production levels in the US have started to decline and steadily at that.

WTI Crude Soars To $46 - Highest In 5 Months -- The panic-buying continues in the crude complex. Oil prices are up for the 3rd day in a row, trading up to $46 for the first time since December 4th 2015. Despite continued growth in inventories and worse than expected economic growth, it appears speculative traders in black gold just can't get enough... Of course, as we just detailed, this merely accelerates the self-defeating re-birth of shale production as cash-flow desperation trumps rationality. June crude is back at its highest sicne Dec 4th 2015... and above its 200dma... The last time June crude was here, the rest of the curve was over $4 higher... think about what that says about the real confidence in this bounce...

US Gulf Coast gasoline prices reach eight-month high on refinery issues - Oil | Platts -  Another unexpected refinery outage Thursday on the US Gulf Coast helped push gasoline prices to their highest levels in nearly eight months. Conventional 9 RVP gasoline was assessed Thursday at NYMEX June RBOB minus 12.40 cents/gal, up 5.10 cents/gal from its monthly low on April 18. The benchmark's outright price was assessed at $1.487/gal, a 22.23 cents/gal climb from April 18 and its highest level since August 31. Gulf Coast gasoline prices have climbed steadily since mid-April, supported by refinery outage and a contango in the NYMEX RBOB futures contract.Motiva on Thursday started unplanned maintenance on a fluid catalytic cracker at its 603,500 b/d refinery in Port Arthur, Texas. The 88,000 b/d unit is expected to be down seven to 10 days, traders said. The shutdown marked the third unexpected Gulf Coast refinery outage in as many weeks. Shell shuttered a FCC at its 340,000 refinery in Deer Park, Texas, last week and Houston Refining's 263,776 b/d plant is expected to operate at just 75% of capacity through the second quarter after a fire broke out early this month.

OilPrice Intelligence Report: Oil Rallies On As Traders Ignore Red Flags: Oil prices continued their gains this week, breaking out of a trading band that could mark a new period for the market. As of early trading on Friday, WTI was above $46 per barrel and Brent traded above $48 per barrel. There are some warning signs that the oil rally may not last – the EIA reported another uptick in storage levels – but for now, traders are feeling optimistic.On Friday, Exxon reported its first quarter earnings, revealing a profit $1.8 billion, down from $4.9 billion a year ago and its lowest result in more than a decade. But the news was not all bad. The company saw production rise on by 1.8 percent year-on-year on an oil equivalent basis. Its downstream unit performed well, and the oil supermajor reduced spending by 33 percent compared to the first quarter of 2015. Chevron reported a first quarter loss of $725 million, compared with a $2.6 billion profit a year earlier. But the company feels more optimistic because it recently completed several large projects – including the massive $54 billion Gorgon LNG export facility in Australia – which should improve cash flow moving forward.   Italian oil giant Eni (NYSE: E) reported a 792 euro loss ($897 billion) in the first quarter, down from a profit of 832 euros in the first quarter of 2015. Although it sounds bad, the result was largely in line with expectations and the company’s share price barely budged.  ConocoPhillips reported a quarterly loss of $1.5 billion, down from a profit of $272 million in 2015. It also cut 2016 spending from $6.4 billion to $5.7 billion the company said that bringing its debt below $25 billion would be a top priority. The company’s CEO Ryan Lance also said that Conoco would not “grow for growth’s sake.”  China’s state-owned oil company, PetroChina, reported a quarterly loss of 13.8 billion yuan ($2.13 billion), which was its first quarterly loss on record. The company has many aging and expensive wells, with production starting to decline. In order to meet a spike in summer demand, Saudi Arabia is expected to increase its oil production in the coming weeks, with some analysts expecting output to rise to 10.5 million barrels per day (mb/d), up from 10.15 mb/d in April.

US rig count drops 11 this week to 420, another all-time low: (AP) — The number of rigs exploring for oil and natural gas in the U.S. dropped by 11 this week to 420, again reaching an-time low amid depressed energy industry prices. A year ago, 905 rigs were active. Houston oilfield services company Baker Hughes Inc. said Friday 332 rigs sought oil and 87 explored for natural gas. One was listed as miscellaneous. Among major oil- and gas-producing states, New Mexico and Oklahoma each lost three rigs. Kansas, Louisiana, Texas and West Virginia were down two apiece. Colorado declined by one. Alaska, Arkansas, California, North Dakota, Ohio, Pennsylvania, Utah and Wyoming were all unchanged. The U.S. rig count peaked at 4,530 in 1981. The previous low of 488 set in 1999 was eclipsed March 11, and has continued to plunge.

US oil drillers cut rigs for 6th week to Nov 2009 lows - U.S. energy firms cut oil rigs for a sixth week in a row to the lowest level since November 2009, oil services company Baker Hughes Inc said Friday, as drillers remained cautious in returning to the well pad despite crude futures climbing to their highest levels this year. Drillers cut 11 oil rigs in the week to April 29, bringing the total rig count down to 332, Baker Hughes said in its closely followed report.  The number of U.S. oil rigs currently operating compares with the 679 rigs operating in the same week a year ago. Energy firms have slashed spending by sharply reducing oil and gas drilling since the collapse in crude markets began in mid-2014. U.S. crude futures fell from over $107 a barrel in June 2014 to a near 13-year low around $26 in February. U.S. crude futures, however, have spiked nearly 80 percent in the past two months and hit 2016 highs of just under $46 on Friday as market sentiment turned more upbeat despite the persistent oversupply. U.S. crude futures were above $47 a barrel for the balance of 2016 and about $49 for calendar 2017. Baker Hughes said at its quarterly earnings release on Wednesday that it expected the U.S. rig count to start stabilizing in the second half of the year, although it did not expect any meaningful hike in oil drilling activity. Whiting Petroleum Corp's Chief Executive Jim Volkers said the firm would like oil prices to stay at or above $50 for at least 90 days before deciding to reduce drilled-but-uncompleted well count in Colorado. The world's No. 1 oilfield services provider Schlumberger NV also said it will remain cautious in adding capacity even after energy firms show signs of recovery since it believes the industry will continue cutting costs through the coming quarter.

U.S. oil rig count falls by more than 3 percent in a week | Fuel Fix: The number of rigs actively drilling for oil dropped by 11 this week as the industry continues to scale back its exploration and production efforts during a time of ongoing layoffs and spending cuts. The oil rig count dipped down to 332 rigs nationwide on Friday, while the overall rig count, including natural gas-seeking rigs, stands at just 420, according to weekly data collected by Baker Hughes. That represents the lowest total count since the oil field services company first began compiling the data in 1944. Texas lost a cumulative total of just two rigs on the week, including small losses in both the Permian Basin and Eagle Ford shale plays, while Oklahoma and New Mexico lost three rigs each. Texas is still home to 44 percent of the nation’s operating rigs. The oil rig count alone is now down nearly 79 percent from its peak of 1,609 in October 2014 before oil prices began plummeting. Analysts have projected the rig count would dip through most of the first half of 2016. The benchmark price for U.S. oil was down slightly on Friday, but still trading at about than $45.70 per barrel. That’s almost a 75 percent gain from a low of $26.21 a barrel on Feb. 11. While many companies have stopped actively drilling new wells, it hasn’t stopped them from producing oil from existing wells. So oil production is taking much longer to fall than the rig count.

Crude Unable To Bounce Despite Biggest Rig Count Decline In 6 Weeks -- After its earlier pump and rapid dump, WTI crude is unable to bounce for now despite thebiggest rig count decline in 6 weeks. The oil rig count declined by 11 to 332 - the lowest since October 2009 - tracking lagged crude prices. If the co-dependence continues we would expect to see rig counts begin to rise (or stop declining) very soon. Total US rig count dropped to 420 - a new all-time record low.


US oil ends April with nearly 20 pct monthly gain: U.S. oil prices dipped on Friday after an early rise to 2016 peaks, but posted a gain of about 20 percent for April, the largest monthly gain in a year. Futures held losses after oilfield services firm Baker Hughes reported its weekly U.S. oil rig count fell by 11 to 332. At this time last year, drillers were operating 679 oil rigs. A weaker dollar and optimism that a global oil glut will ease have boosted crude futures about $20 a barrel or more since they plumbed 12-year lows below $30 in the first quarter. With prices less than $5 away from $50 a barrel, investment bank Jefferies said the market "is coming into better balance" and would flip into undersupply in the second half of the year. But others warned that the rally was driven by investors holding large speculative positions, while oil stockpiles were still high, with a Reuters survey showing OPEC output in April rising to its most in recent history.

Dallas Fed cautions on fresh oil bubble as glut keeps building -- The US Federal Reserve has warned that the world is awash with excess oil and starting to run out of places to store the glut, with no sustained recovery in sight for the oil industry until 2017 at the earliest. obert Kaplan, head of the Dallas Fed, poured cold water over talk of a fresh oil boom this year and said the US shale industry has taken far longer to cut output than many expected. “As we sit here today, Dallas Fed economists estimate that global daily oil production exceeds daily consumption by more than 1m barrels per day,” he told the Official Monetary and Financial Institutions Forum in London. “Excess inventories in the OECD member countries now stand at approximately 440m barrels. This is a record level and has raised concerns about whether there is sufficient storage capacity in certain geographic areas,” he said. Oil prices have surged by 80pc since touching bottom at $26 in mid-February. West Texas crude reached a five-month high of $46.70 this week. Speculative long positions on crude oil have risen to all-time highs on the futures markets, a sign that the rebound may have lost touch with fundamentals. There is an armada of tankers building up in the North Sea, while the latest loading data from China show that May deliveries are falling. 

Venezuela Needs Oil's Rally More Than Anyone as Economy Teeters -  Few countries need oil’s rally to last more than Venezuela, where the economy’s expected to shrink 8 percent this year and a lack of petrodollars has seen shops run short of consumer goods. The Latin American nation with the world’s largest oil reserves relies on crude shipments for 95 percent of export revenue. It will default this year barring a large jump in the oil price or a financial bailout, said Thomas Olney, a London-based analyst at consultants FGE. Credit-default swap traders have put the chances of non-payment through June next year at 67 percent, according to data compiled by Bloomberg. Following the collapse of oil-freeze talks in Qatar this month, Venezuelan Energy Minister Eulogio del Pino warned crude may revisit the 12-year lows of earlier this year as supply continues to swamp demand. Even with a rebound since February, prices remain 60 percent below their 2014 high. That’s crippling for a country facing spiraling debts, triple-digit inflation and rolling shortages of basic goods. Venezuela requires a higher price than almost every other OPEC member to balance its budget. RBC Capital Markets estimates it stands at $121.06 a barrel for this year. Only Libya, which didn’t attend the latest talks, needed more, according to the International Monetary Fund. International benchmark Brent crude traded at $47.12 a barrel at 12:55 p.m. on the London-based ICE Futures Europe exchange Thursday.

OPEC Set To Pump Even More Oil In April As Saudi Arabia Boosts Exports To Near-Record High Levels -- In one of the least surprising highlights from the ongoing earnings season, yesterday we reported that as oil continues to rise, US shale companies are starting to resume mothballed production. First, it was Pioneer who said it was "expecting to deliver production growth of 12%+ in 2016 compared to the Company’s previous production growth target of 10%" adding that it also expected to "add five to ten horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive." Then yesterday it was another US shale giant, Whiting Petroleum, who admitted that $45 oil is good enough, and that it is "increasing its production forecast to a range of 131,400 BOE/d to 136,900 BOE/d" adding that "with the majority of completions scheduled for the second half of the year, the Company expects to realize the full production benefit in late 2016 and 2017." And now, according to the latest Reuters production survey, in the aftermath of the failed Doha oil freeze agreement, OPEC will be the next to boost production in the coming month, expanding supplies from an already oversupplied 32.46MMb/d to 32.64MMb/d.As Reuters notes, its survey indicates output from the Organization of the Petroleum Exporting Countries rose by 170,000 bpd in April. OPEC has no supply target. At a Dec. 4 meeting the producer group scrapped its output ceiling of 30 million bpd, which it had been exceeding for months.The Reuters survey aims to assess crude supply to market, defined to exclude movements to, but not sales from, storage. Saudi and Kuwaiti data includes the Neutral Zone.Venezuelan data includes upgraded synthetic oil. Nigerian output includes the Agbami stream and excludes Oso and Akpo condensates. Totals are rounded. There are no individual quotas for the OPEC member countries.        The full Reuters table:

Putin's Decade-Old Dream Realized as Russia to Price Its Own Oil - Russian President Vladimir Putin is on the verge of realizing a decade-old dream: Russian oil priced in Russia. The nation’s largest commodity exchange, whose chairman is Putin ally Igor Sechin, is courting international oil traders to join its emerging futures market. The goal is to increase revenue from Urals crude by disconnecting the price-setting mechanism from the world’s most-used Brent oil benchmark. Another aim is to move away from quoting petroleum in U.S. dollars. If Russia is going to attract international participation in Russian-based pricing, the Kremlin will need to persuade traders it’s not simply trying to push prices up, some energy analysts said. The government is dependent on oil revenue to fund its budgets. “The goal is to create a system where Russian oil is priced and traded in a fair and straightforward way,” said Alexei Rybnikov, president of the St. Petersburg International Mercantile Exchange, or Spimex, in a phone interview. Russia, which exports about half its crude, has long complained about the size of the discounts for lower quality Urals oil compared to North Sea Brent prices, which are assessed by the Platts agency. With world oil prices down by half in the past two years and Russia facing the prospect of its worst budget deficit as a percentage of its economic output since 2010, it needs every dollar of petroleum revenue it can get. Having its own futures market would improve Russian oil price discovery as well as help domestic companies generate extra revenue from trading, said Rybnikov.

Cheap Oil Shaved $390 Billion From Mideast Economies in '15 - The International Monetary Fund estimates the Middle East's oil-dependent economies have missed out on $ 390 billion in oil revenues last year alone and face up to $150 billion in income losses this year as a result of cheap oil prices. The drop in revenues stemming from the export of oil is the direct result of the plunge in crude prices from around $ 115 a barrel in the middle of 2014 to below $30 at the start of the year and now above $40, the IMF said. The loss in potential revenues has put an enormous strain on the economies of major oil exporters such as Saudi Arabia and Kuwait who have posted massive budget deficits in the past year. The IMF had previously calculated that the declining energy prices would erase around $360 billion in oil receipts. "2016 is year number two in a multi-year adjustment process to reach balanced budgets," said Masood Ahmed, director of the IMF'sMiddle East and Central Asia Department. "Probably another four to five years of action will be needed both on spending and on revenues before reaching a comfortable fiscal situation for many countries," he said. Economic growth for the region's oil exporters is set to rise to 3% in 2016 from 2% last year but that is mainly due to the improved prospects of Iraq, which increased oil production, and Iran, which is looking to benefit from the gradual lifting of sanctions, the IMF said. For the oil-rich Persian Gulf countries, economic activity is expected to further slow as governments are cutting spending to rein in widening budget deficits.

IMF expects $500 billion revenue loss for Mideast oil exporters (AP) — Oil-exporting countries in the Middle East lost a staggering $390 billion in revenue due to lower oil prices last year, and should brace for even deeper losses of more than $500 billion this year, the International Monetary Fund said Monday. The fund had projected in October that oil exporting countries in the region would see revenue losses of $360 billion in 2015, but oil prices took a tumble by year's end and the drop in revenue amounted to $30 billion more. In a revised economic outlook report released Monday, the IMF said these countries will see revenues from oil exports drop even more in 2016, to between $490 billion to $540 billion compared to 2014, when oil prices were higher. Oil prices plunged to around $30 a barrel in January compared to $115 in mid-2014. IMF Director for Middle East and Central Asia Masood Ahmed said these losses translate into budget deficits and slower economic growth, particularly for countries like Saudi Arabia that are still heavily dependent on oil to finance their spending. Though the kingdom has been working on plans to overhaul its economy, oil still accounted for 72 percent of total revenue last year and Saudi Arabia projects a budget deficit of nearly $90 billion this year. The report said that economic growth in the six Gulf Cooperation Council countries of Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates will slow from 3.3 percent in 2015 to 1.8 percent this year. Saudi Arabia, the region's biggest economy, will see growth at just above 2 percent. The IMF has encouraged reforms that would limit public spending on welfare programs and handouts that citizens in the Gulf have become accustomed to, such as lifting subsidies and tightening public sector wage bills to offset the impact of declining revenues. Already, most GCC countries have raised fuel, water, and electricity prices.

What Oil Recovery? Saudi Borrowing Costs Spike To 7 Year Highs -- Despite oil's rebound off cyclical lows and the world's exuberance that the energy space may be saved (on the basis of headline-reading algos pumping momentum into commodity futures products that only leveraged Chinese speculators could find value in), something ugly is occurring in Saudi Arabian money-markets.There appears to be a growing funding squeeze in The Kingdom as 3-month interbank rates spike above 2% for the first time since Jan 2009 prompting King Salman to approve a 'post-oil economic plan'.  Whether this spike is responsible or not, The Kingdom is clearly seeking ways to reduce its reliance on crude. As Bloomberg reports, King Salman approved a blueprint for diversifying the country’s economy away from oil on Monday, a package of developmental, economic, social and other programs. Saudi Arabia’s plan for the post-hydrocarbon era will have to overcome habits developed over decades of relying on crude sales to fuel economic growth, create jobs and build infrastructure. Almost eight decades after oil was first found in the country, officials on Monday are to unveil Deputy Crown Prince Mohammed bin Salman’s “Saudi Vision 2030,” a blueprint seeking to reduce the reliance on revenue from crude exports. King Salman approved the package of developmental, economic, social and other programs. Prince Mohammed, known as MbS among diplomats and Saudi watchers, disclosed details of the plan in interviews with Bloomberg in Riyadh. “Shifting from an oil-based economy to something different is very difficult,” . “The Saudis have been talking about it for decades, but have made little progress. So MbS has his work cut out for him.”

Key Saudi rate hits 2009 high amid funding squeeze -- A key interest rate in Saudi Arabia climbed to the highest level in seven years as oil’s slump and increased government borrowing put further strain on bank funding in the biggest Arab economy. The three-month Saudi Interbank Offered Rate, a benchmark used to price loans, advanced 1.5 basis points to 2.004 per cent on Sunday, surpassing 2 per cent for the first time since January 2009, according to data compiled by Bloomberg. The rate has risen 46 basis points this year, the biggest increase for the period since 2005, the data show. Banks are feeling the squeeze as oil’s more than 60 per cent decline since the middle of 2014 curbs deposits, while the government boosts borrowings to plug an $87 billion (Dh319.5 billion) budget deficit this year. The quest for funding may get some relief this month after three people with knowledge of the deal said in March Saudi Arabia is poised to seal a $10 billion syndicated loan from international banks. “We have seen government deposits falling in the banking system, at the same time its borrowing requirements have increased,” . “This is reflected in the rise in interbank rates as well as Saudi Arabia turning to the international market to raise a syndicated loan to limit further domestic liquidity tightening.” Oil’s decline pushed Saudi Arabia to post a budget deficit of about 16 per cent of economic output in 2015, its biggest since 1991, according to data compiled by Bloomberg. The government raised 98 billion riyals ($26 billion; Dh95.94 billion) from selling bonds to local institutions last year, and will probably sell about 120 billion riyals of debt in 2016, Saudi Fransi Capital said in October. Saudi Arabian banks’ loan-to-deposit ratio worsened to 88.1 per cent in February from 86.1 per cent in January, according to the monthly report of the Saudi Arabian Monetary Agency.

Saudi prince unveils sweeping plans to end 'addiction' to oil | Reuters: The powerful young prince overseeing Saudi Arabia's economy unveiled ambitious plans on Monday aimed at ending the kingdom's "addiction" to oil and transforming it into a global investment power. Deputy Crown Prince Mohammed bin Salman said the world's top oil exporter expects state oil company Saudi Aramco to be valued at more than $2 trillion ahead of the sale of less than 5 percent of it through an initial public offering (IPO). He added that the kingdom would raise the capital of its public investment fund to 7 trillion riyals ($2 trillion) from 600 billion riyals ($160 billion). The plans also included changes that would alter the social structure of the ultra-conservative Muslim kingdom by pushing for women to have a bigger economic role and by offering improved status to resident expatriates. "We will not allow our country ever to be at the mercy of commodity price volatility or external markets," Prince Mohammed said at his first news conference with international journalists, who were invited to a Riyadh palace for the event. "We have developed a case of oil addiction in Saudi Arabia," he had earlier told al-Arabiya television news channel. His "Vision 2030" envisaged raising non-oil revenue to 600 billion riyals ($160 billion) by 2020 and 1 trillion riyals ($267 billion) by 2030 from 163.5 billion riyals ($43.6 billion) last year. But the plan gave few details on how this would be implemented, something that has bedevilled previous reforms.

Saudi Prince Shares Plan to Cut Oil Dependency and Energize the Economy— The ambitious young prince who oversees the economy of Saudi Arabia rolled out a grand vision for the future of the kingdom on Monday that aspires to reduce its dependence on oil, stimulate the private sector and reduce government subsidies — all while ensuring rising living standards for Saudi citizens. The plan seeks to steer the Arab world’s largest economy through the double onslaught of low oil prices, which have undermined government revenues, and youthful demographics, which will add millions of job-seekers in the coming years. The plan’s introduction, which was exhaustively covered by the Saudi-owned news media, also signaled a milestone in the meteoric rise of the prince, Mohammed bin Salman, who has gone from being a little-known member of a sprawling royal family to the kingdom’s most prominent official in just over a year. Prince Mohammed, who is about 30, has been given a broad array of positions since his father, King Salman, ascended to the Saudi throne last year and has not hesitated to wield his influence. As defense minister, the prince has overseen a costly war in Yemen and Saudi efforts to push back Iranian influence in Syria and elsewhere. He is also second in line to the throne, and leads a powerful council that oversees the economy. Saudi officialdom has been abuzz for months about a comprehensive National Transformation Plan, though its release has been repeatedly delayed. Monday’s announcement of the “Saudi Vision 2030” was billed as an aspirational guide, with details to be filled in later.  In an extensive prerecorded interview with Saudi-owned Al Arabiya television broadcast in conjunction with the plan’s release, Prince Mohammed painted an optimistic picture of the kingdom’s future, one in which declining oil revenues would be replaced by the returns from enormous government investments and a robust private sector.

Saudi investment fund will turn kingdom into a global player: top prince | Reuters: Saudi Arabia's new investment fund will turn the world's top oil exporter into a global investment power, Deputy Crown Prince Mohammed bin Salman said in a television interview on Monday. He said in an interview on al-Arabiya television to announce sweeping reforms known as Vision 2030 that the kingdom's existing Public Investment Fund had made returns of 30 billion ($8 billion) riyals in 2015. Asked by Arabiya whether he thought the management of PIF would be too autocratic, he said there would be an elected board that would make investment decisions for PIF.

Saudi prince vows Thatcherite revolution and escape from oil: Saudi Arabia has launched a radical ‘Thatcherite’ shake-up to an avert economic crisis and prepare the kingdom for the post-carbon world, stunning analysts with claims that it could break reliance on oil within just four years. Prince Mohammad bin Salman, the country’s de facto ruler, vowed to build a $3 trillion wealth fund and break onto the world stage as an investment superpower, the spearhead of an historic package of measures intended to bring the deformed economy kicking and screaming into the 21st Century. “We have an addiction to oil. This is dangerous. I think that by 2020 we can live without it,” he told Al Arabiya television. It is an extraordinary claim for a government that has historically relied on oil exports for 90pc of its income and has yet to achieve much success in building alternative industries. Gulf veterans say his words should be understood as poetic licence.Prince Mohammad, a 31 year-old tornado determined to smash the status quo, has amassed immense power over the economy and defence that belies his title as deputy crown prince, filling the cabinet with modern technocrats and startling his sinecure cousins from the Al Saud family with the unfamiliar prospect of hard work. The plan known as “Vision2030” aims to slash $80bn of wasteful spending each year and impose some degree of order on the kingdom’s chaotic finances with a consumption tax and fresh levies. Water prices have already risen tenfold as subsidies are paired back, though this prompted a protest storm on Twitter and is a warning of how hard it will be to dismantle the cradle-to-grave welfare system that keeps a lid on dissent.

Weakened Saudi Arabia Could See Social Unrest After Economic Shakeup | Despite oil's rebound from cyclical lows and the world's exuberance that the energy space may be saved (on the basis of headline-reading algo pumping momentum into commodity futures products that only leveraged Chinese speculators could find value in), something ugly is occurring in Saudi Arabian money-markets. There appears to be a growing funding squeeze in The Kingdom as 3-month interbank rates spike above 2 percent for the first time since January 2009, prompting King Salman to approve a 'post-oil economic plan'. (Click to enlarge) Whether this spike is responsible or not, The Kingdom is clearly seeking ways to reduce its reliance on crude. As Bloomberg reports, King Salman approved a blueprint for diversifying the country’s economy away from oil on Monday, a package of developmental, economic, social and other programs. Saudi Arabia’s plan for the post-hydrocarbon era will have to overcome habits developed over decades of relying on crude sales to fuel economic growth, create jobs and build infrastructure. Prince Mohammed is leading the biggest economic shakeup since the founding of Saudi Arabia in 1932, with measures that represent a radical shift for a country built on petrodollars. His drive may face resentment from a population accustomed to government largess and power circles that have been stunned by the rapid rise of the 30 year-old prince, political analysts say.

Less Than 5% Of Saudi Aramco To Be Sold (Reuters) - Saudi Arabia plans to sell less than 5 percent of its state oil company Saudi Aramco through an initial public offering (IPO), Deputy Crown Prince Mohammed bin Salman said on Monday. He said in a television interview he expected Aramco, the world's biggest energy company, to be valued at more than $2 trillion and that he wanted it to be transformed into a holding company with an elected board. Subsidiaries of the company would also be sold by IPO, as part of a privatisation drive and to bring more transparency to the oil giant, Prince Mohammed said. "If one percent of Aramco is offered to the market just one percent it will be the biggest IPO on earth," he said. Aramco was once run by Americans but has long been a Saudi state corporation. It dwarfs all in the industry, with crude reserves of 265 billion barrels, more than 15 percent of global oil deposits. It produces more than 10 million barrels per day, three times as much as the world's largest listed oil company, ExxonMobil, while its reserves are more than 10 times bigger. If Aramco were ever to go public, it would probably become the first company to be valued at more than $1 trillion.

Why The Saudi Aramco IPO Will Not Be Enough | The Saudi Arabian sale of Saudi Aramco is already starting to attract widespread attention after Mohammad bin Salman, deputy crown prince of the Kingdom, indicated that an IPO for the state owned giant will proceed next year. That IPO, likely to be for less than 5 percent of the company, is being talked about as a way for Saudi Arabia to raise funds in a time of continued low oil prices. While the additional funding would be a welcome boon – Saudi Aramco would likely be valued at over $2 trillion dollars – the reality is that the IPO only distracts from the Kingdom’s deep well of future challenges. Saudi Arabia has run its own state-owned oil company for decades now, which should lead prudent investors to question why the country would be interested in giving up even a piece of the firm now. There are only two possible answers. Either Saudi Arabia needs the funding and sees profits from Saudi Aramco being depressed for years to come, or the Kingdom is looking to diversify its holdings. The timing of the IPO certainly suggests that the Kingdom expects persistent low oil prices for years to come, which should make buyers of the IPO wary. In addition, while the company is highly profitable and controls vast swaths of lucrative resources, only a portion of those assets will be up for sale. Specifically, its oil reserves are unlikely to be included in the IPO. Instead the IPO will probably be for a subsidiary, which includes downstream assets of Saudi Aramco.  Given that Saudi Arabia is not looking to sell its unproven reserves and the fact that it is selling less than 5 percent of the biggest national assets, the view that the Kingdom is trying to exit oil before a long period of depressed profits doesn’t seem to hold much water.

Saudi Arabia to overhaul military in plan for life after oil | Saudi Arabia’s plans to overhaul every corner of its economy won’t spare the military. The kingdom will put its armaments industry under a holding company as it prepares for a post-oil era. Part of that reboot will seek to meet more of its military needs domestically and diversify its economy, Deputy Crown Prince Mohammad Bin Salman said. Prince Mohammad, second in line to be king and the power behind the throne, is leading the biggest economic shake-up since the founding of Saudi Arabia in 1932, with steps that include selling less than 5 per cent of Saudi Arabian Oil Co., cutting subsidies and bringing more Saudis into the labour market. His goal: end eight decades of the dependency on oil. “When I enter a Saudi military base, the floor is tiled with marble, the walls are decorated and the finishing is five stars. I enter a base in the US, you can see the pipes in the ceiling, the floor is bare, no marble and no carpets. It’s made of cement. Practical,” Prince Mohammad said in an interview with Saudi-owned Arabiya television before details of the “Vision 2030” plan were announced. “We have a problem with military spending.” Saudi Arabia has one of the biggest military budgets in the world, and was the leading Middle East spender on arms in 2015 at $46 billion (Dh169 billion), according to IHS Jane’s. It allocated 213 billion riyals (Dh208 billion or $57 billion) in its 2016 budget for defence spending. “We are the third- or fourth-largest in terms of military spending in the world, yet our army is ranked in the twenties. There is a problem,” the prince said.

Saudi builder Binladin terminates 50,000 jobs: newspaper | Reuters: Construction company Saudi Binladin Group has laid off 50,000 staff, a newspaper reported on Friday, as pressure on the industry rises amid government spending cuts to survive an era of cheap oil. The total workforce at Binladin, one of Saudi Arabia's biggest firms and among the Middle East's largest builders, is around 200,000, according to its LinkedIn page. Saudi newspaper al-Watan, citing unnamed sources, reported that the group has terminated the contracts of 50,000 workers - apparently all foreigners - and given them permanent exit visa to leave the kingdom. The paper said the workers refused to leave the country without getting paid and some had not received wages for more than four months. They were protesting in front of the Binladin's offices in the country almost daily, the paper added. Binladin did not immediately reply to an email seeking comment on Friday, a day off in the Gulf region.

The Real Reason Saudi Arabia Killed Doha - Saudi Arabia single-handedly scuttled the Doha meeting, knowing all along that Iran would not participate, with a valid reason. The Russians and others agreed to proceed without Iran, planning to include them at a later date. So if everything was known beforehand, why did the Saudi’s pour cold water on the aspirations of the remaining members, risking its alienation from Russia and the OPEC community? Was it simply Saudi enmity toward Iran? Not exactly. Upon closer scrutiny, we can find the Saudi masterstroke behind Doha. It is well known that Saudi Arabia is heavily dependent on oil revenues, and that those revenues are on the brink of collapse. But the trick here is to determine exactly how desperate the Saudis are. Certainly not as desperate as other countries.  Angola has recently sought support from the International Monetary Fund (IMF). Venezuela’s struggles started well before crude prices dropped to 12-year lows and is fighting to avoid a disaster. Azerbaijan has also approached the IMF and the World Bank for help. Nigeria is also seeking the World Bank’s support. Without external support, Iraq will find it difficult to continue its war against the Islamic State (ISIS). Lower oil prices continue to make matters worse, and Iraqi Kurdistan has taken advantage of the situation and works towards independence and beefing up its unilateral export plans. Ecuador is the worst hit, and now the devastating earthquake has crippled the nation. It will need help from the IMF, the World Bank and a few other lenders to reconstruct. After a 3.5 percent contraction in 2015, Russia’s gross domestic product will take a further 1.5 percent hit in 2016, as projected by the Central Bank. Kazakhstan is faring no better. Its growth shrunk to 1.2 percent in 2015 from an impressive 6 percent in 2013 and is expected to slow down further to 0.1 percent in 2016. Most of the participating nations are financially ruined.  But if crude prices rise above $50 per barrel, the shale producers have made their intentions clear, that they will be back in business. If Saudi Arabia had accepted the deal, oil prices would have jumped to $50/b, giving the shale oil industry a new lease on life. Shale producers would have started pumping at a frantic pace, increasing the glut and pushing oil prices back down.

Obama may be preaching 'tough love' to Saudi – but arms sales tell another story -- When President Barack Obama arrived in Saudi Arabia on Wednesday for a meeting of Gulf leaders, he was greeted at the airport by the governor of Riyadh, instead of the Saudi king. Unlike his previous visits, Obama’s arrival was not broadcast on Saudi state television with its usual pomp and circumstance. It was one sign of how livid Saudi leaders are at Obama and his administration – the decades-long Saudi-US alliance has rarely been more tense. Saudi rulers believe that Obama has shifted US foreign policy to be more friendly toward Iran, especially after his administration expended considerable political capital to reach a nuclear deal with Tehran last summer. Obama also reduced direct US involvement in the Middle East, resisting calls to intervene military in Syria and to send more US troops to Iraq. And Saudi leaders were particularly upset after Obama suggested in an interview with The Atlantic magazine that they should figure out ways to “share the neighborhood” with Iran. Despite Saudi anger and US public perception, Obama has not fundamentally altered the “special relationship” between the kingdom and the United States. As Obama has preached a kind of tough love – telling the Saudis that he won’t commit US military resources to reflexively support them against Iran – his administration has dramatically ramped up arms sales to the kingdom and other Gulf allies. Since 2010, the Obama administration authorized a record $60bn in US military sales to Saudi Arabia. Since then, the administration concluded deals for nearly $48bn in weapons sales – triple the $16bn in sales under the George W Bush administration.

Post-sanctions Iran's impact on OPEC and the global oil market: Iran's planned post-sanctions oil production path is colliding with crude market realities, keeping the country's production and exports from ramping up to meet initial expectations. Platts senior oil editors Herman Wang and Brian Scheid discuss the obstacles Iran is encountering,including factors from other countries like Russia, Saudi Arabia and the US. Vandana Hari, editorial director with Platts in Asia, and Sara Vakhshouri, president of SVB Energy International and a senior fellow at the Atlantic Council, talk about the state of Iranian oil and Iran-s new roles in both OPEC and the global market.

Iran Might Still Outwit the Saudis on Oil -- Iran's oil exports are growing much more quickly than analysts predicted back in January when sanctions were eased. If the recovery continues at its recent pace, it could raise an interesting dilemma at OPEC's next meeting in June.  As Bloomberg reported earlier this month, Iran exported more than 2 million barrels per day of crude during the first half of April -- a figure calculated from tracking ships loading at Iranian export terminals. This compares with 1.45 million barrels a day in March. Neither figure includes the country's exports of condensate (a type of light oil recovered from gas fields). If we add the volume of oil refined in Iran -- estimated at about 1.6 million barrels per day -- to the exports, we get a total daily crude supply of about 3.6 million barrels. Keep that number in mind.  When oil producers, led by Venezuela and Russia, began to talk about an output freeze back in February, Iran made it very clear that it wouldn't participate until it restored production to pre-sanctions levels. It put that figure between 4 million and 4.2 million barrels per day, although a look back at its official OPEC-supplied production numbers shows it reported daily output at between 3.7 million and 3.8 million barrels before fresh sanctions were imposed in 2012.  Bloomberg, and the six organizations OPEC used for its "secondary sources" estimate of its members' production, saw Iran's output falling during the first half of 2012 as buyers went elsewhere before sanctions came into force. The official figures given to OPEC by Iran show production continuing at about 3.7 million barrels per day throughout 2012 and most of the following year. The difference probably reflects Iran's unwillingness to admit sanctions were having any impact. It's possible, though, that production didn't fall as steeply as outside observers thought, with the additional oil going into onshore storage tanks (much harder to track than oil stored on tankers).  Iran claims it's now producing 3.5 million barrels per day, pretty close to the 3.6 million indicated by my calculation above. This suggests that the restoration of Iran's pre-sanctions production, which analysts said would take a year -- if it could be achieved at all -- has just about been managed within three months.

Iran's Supreme Leader Accuses Obama Of Lifting Sanctions Only "On Paper" -- Relations between Iran and Saudi Arabia, which supposed had thawed as part of Obama's landmark 2015 nuclear deal which also allowed Iran to resume exporting its oil, are once again on the fence following a statement by Iran's Supreme Leader, Ayatollah Ali Khamenei, which accused the United States of scaring businesses away from Tehran and undermining a deal to lift international sanctions.  According to Reuters, Khamenei told hundreds of workers that a global deal, signed between Iran and world powers, had lifted financial sanctions, but U.S. obstruction was stopping Iran getting the full economic fruits of the agreement. "On paper the United States allows foreign banks to deal with Iran, but in practice they create Iranophobia so no one does business with Iran," he said in quotes from the speech posted on his website.  Iran has repeatedly urged Washington to do more to remove obstacles to the banking sector, in the spirit of the July deal with the United States, the European Union, Russia and China to lift most sanctions on Iran in return for curbs on its nuclear programme.

Iran Daily: “We Will Force US to Implement Nuclear Deal” - Iran’s Speaker of Parliament Ali Larijani has declared that Tehran will force the US to meet its commitments under the July 2015 nuclear deal. “The Westerners are not trustworthy, but if they don’t fulfill their commitments, we will force them into implementation with our own means,”  Larijani told a forum in Tehran on Thursday. Implementation of the agreement between Iran and the 5+1 Powers was announced in January, but Iranian officials — led by the Supreme Leader — have criticized the US for maintaining and adding sanctions and for failing to return Iranian assets. The tension has risen this month with claims that the US Government is preventing American and European companies from doing business with Iran, and by a Supreme Court decision allowing families of the victims of terrorism to sue for up to $2 billion in frozen Iranian assets. Under pressure from MPs to act, President Rouhani assured on Thursday that the Government would spare no effort to retrieve the money from the “definitely illegal” Court ruling. Larijani denounced the “unfair behavior” of the Americans, saying Iran has its “own means to make them regret” their actions. The Speaker did not elaborate about the Iranian responses.

With Iraq Mired in Turmoil, Some Call for Partitioning the Country --With tens of thousands of protesters marching in the streets of Baghdad to demand changes in government, Iraq’s Shiite prime minister, Haider al-Abadi, appeared before Parliament this week hoping to speed the process by introducing a slate of new ministers. He was greeted by lawmakers who tossed water bottles at him, banged on tables and chanted for his ouster.“This session is illegal!” one of them shouted. Leaving his squabbling opponents behind, Mr. Abadi moved to another meeting room, where supportive lawmakers declared a quorum and approved several new ministers — technocrats, not party apparatchiks — as a step to end sectarian politics and the corruption and patronage that support it. But, like so much else in the Iraqi government, the effort fell short, with only a handful of new ministers installed and several major ministries, including oil, foreign and finance, remaining in limbo. A new session of Parliament on Thursday was canceled. With the surprise visit to Baghdad on Thursday of Vice President Joseph R. Biden Jr. — who, as a senator, called in a 2006 essay for the partition of Iraq into Sunni, Shiite and Kurdish zones — it seems fair to ask a question that has bedeviled foreign powers for almost a century: Is Iraq ever going to have a functioning state at peace with itself? “I generally believe it is ungovernable under the current construct,” said Ali Khedery, an American former official in Iraq who served as an aide to several ambassadors and generals. Mr. Khedery said that a confederacy or a partition of Iraq might be the only remedy for the country’s troubles. He called it “an imperfect solution for an imperfect world.”

Iraq is second-leading contributor to global liquids supply growth in 2015 -- EIA - Iraq was the second-leading contributor to the growth in global oil supply in 2015, behind only the United States. Crude oil production in Iraq, including fields in the Kurdistan Region of northern Iraq, averaged 4.0 million barrels per day (b/d) in 2015, almost 700,000 b/d above the 2014 level. Iraq is the second-largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC) and accounted for about 75% of total OPEC production growth in 2015. Iraq's oil consumption decreased slightly in 2015, and as a result, all of the crude oil production increase was exported to international markets.  In southern Iraq, where almost 90% of the country's oil was produced in 2015, the upgrade of midstream infrastructure (pipeline pumping stations and storage facilities) and improvements to crude oil quality contributed to increased production. In June 2015, Iraq started marketing Basra Heavy grade crude oil, distinguishing it from the Basra crude it had traditionally marketed as a light crude oil. Before this distinction, Iraq limited its production at oil fields producing heavy oils to maintain the minimum standard for the light grade Basra crude oil. Once Iraq began marketing Basra heavy separately from Basra light, it was able to increase production at fields producing the heavier oil and improve the quality of Basra light. In northern Iraq, where the remaining 10% of Iraq's oil was produced in 2015, the Kurdistan Regional Government (KRG) increased the capacity of its independent pipeline, allowing output increases. Despite the record level of production and exports, the Iraqi government has asked international oil companies (IOCs) to reduce spending plans at southern oil fields in 2016 because Iraq has been struggling to keep up its share of payments to IOCs. In 2015, Iraq (excluding KRG) earned slightly more than $49 billion dollars in crude oil export revenue, $35 billion dollars less than the previous year, despite a substantial increase in export volumes.

Saudi Arabia cuts May Arab Heavy crude oil exports to Asia due to field maintenance - Saudi Arabia has temporarily cut May term volumes of its major export grade, Arab Heavy, to Asia due to field maintenance, several market sources said this week. Total May-loading Saudi term volumes appear to have been cut for a few Asia-Pacific refiners, said an Asian refining source whose total volumes were, however, not trimmed. For other refiners, the drop in Arab Heavy crude volumes has been replaced by higher volumes of Arab Light or Arab Medium, both medium sour grades, other market sources said. The cuts in Arab Heavy are said to be down to field maintenance from May to June, which appears to affect fields feeding the Arab Heavy blend, three market sources said. The maintenance does not appear to be major, however, said another market source. Asian refining sources affected by the cuts said the changes were minimal and would have little impact on their operations. "The total [overall] volume remains more or less the same. We can easily switch [our requirement for heavy sour crude] with Latin American crude. It is not a big issue," said a trader with a Northeast Asian refiner.

One Chart Shows Where The World's Record Surplus Oil Has Gone -- In the aftermath of China's gargantuan, record new loan injection in Q1, which saw a whopping $1 trillion in new bank and shadow loans created in the first three months of the year, many were wondering where much of this newly created cash was ending up. We now know where most of it went: soaring imports of crude oil. We know this because as the chart below shows, Chinese crude imports via Qingdao port in Shandong province surged to record 9.86 million metric tons last month based on data from General Administration of Customs. As Energy Aspects pointed out in a report last week, "Imports through Qingdao surged to another record as teapot utilization picked up, leading to rising congestion at the Shandong ports." And sure enough, this kind of record surge in imports should promptly lead to another tanker "parking lot" by China's most important port. This is precisely what happened when according to reports, some 21 crude oil tankers with ~33.6 million bbls of capacity signaled from around Qingdao last Monday, according to data compiled by Bloomberg. 12 of those vessels, with about 18 million bbls, were also there 10 days earlier, data show. As Bloomberg adds, port management had met to discuss measures to ease congestion, citing an official at Qingdao port’s general office, however for now it appears to not be doing a great job. Incidentally, putting Qingdao oil traffic in context, last year the port handled 69.9 million metric tons overseas oil shipments, or ~21% of nation’s total crude imports, more than any other Chinese port.

Russia And Saudi Arabia Locked In Relentless Fight Over China's Oil Market -- Russia and Saudi Arabia have been (relatively) quietly fighting for market share in China ever since oil prices started their downward spiral in mid-2014 - now the battle is heating up, and teapot refineries are what could tip the balance. Though the Saudis had historically been China’s biggest oil supplier, Russia managed to take the top spot several times during that period, thanks to the so-called teapot refineries. This has now forced the Saudis to do something they’ve never done before—target teapots on the spot market in order to regain lost market share. Teapot refineries rose to fame due to their greater processing flexibility as compared with state-owned Chinese oil giants. Last year, they finally won import quotas for crude, most of which they then export in the form of oil products.Russia was quick on the uptake and until recently was the leading supplier to these teapots.Now, however, the Saudis have stepped up their game and have offered teapots spot oil contracts. That’s very unusual for Saudi Arabia, which  prefers to trade its oil on the futures markets and at a fixed price--but the stakes seem to be high enough to justify this move. owever, life is not all easy for the teapots, either. Last year, they faced tightened credit requirements from local banks, who got worried about falling returns. The independent refiners found a solution to this problem this year, when 16 of them agreed to ally in order to improve their purchasing power.The China Petroleum Purchase Federation of Independent Refineries was formed in early March with the ambition of covering the whole chain of imports, processing and exports.According to shipbroker Gibson, teapots could come to account for 20 percent of all Chinese crude oil imports this year.

Analysis: China tackles problem of plenty with record high gasoil exports - Oil | Platts News Article & Story: China shipped record high volumes of gasoil in March as refiners, holding plentiful export quotas, scouted around for overseas buyers in an effort to cut burgeoning stocks at home because of sluggish domestic demand, a trend market participants expect to continue in April. Gasoil exports hit a record 1.25 million mt in March, surpassing the previous all-time high of 1.11 million mt in September 2015. It was also over four times the 300,230 mt exported a year earlier, General Administration of Customs data showed Friday. "The severe inventory pressure pushed out gasoil cargoes in March, and the trend will continue in April," a Beijing-based trader said.With exports rocketing, gasoil stocks fell 6.25% month on month at the end of March, in contrast to a surge of 38.26% at the end of February, China petroleum stockpile statistics compiled by official news agency Xinhua showed Tuesday. The stock build in February was the highest since January 2010. "The pressure on domestic stocks is still there due to sluggish demand from end-users," a Guangzhou-based trader from PetroChina said. "A few vessels carrying gasoil from Northern China to Guangdong have been queuing up at ports and are waiting for tank space to discharge, as storage at ports are full," he added. Traders said on Monday domestic gasoil buyers were not keen to buy cargoes to stock up, despite expectations prices would go up because there was no available storage space. 

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