Sunday, January 15, 2017

oil imports highest since Sept 2012, oil refining at all time high, US rigs down, global rigs up, Canadian rigs up 110

the OPEC inspired oil rally finally ran out of steam this week, as oil prices retreated for the first time in 5 weeks, and by the most in 11 weeks...after closing at $53.99 a barrel last Friday, oil prices fell all day long on Monday, after news of record-high exports from Iraq's southern crude terminals spread doubt about the effectiveness of the OPEC production cuts, leading to a reversal of speculative bets by hedge funds and other money managers, which ultimately pushed crude for February delivery $2.03 lower, as it ended the day at $51.96 a barrel....crude prices continued to slump on Tuesday as oil production from Nigeria jumped and Kuwait's oil minister suggested other non-compliance with OPEC's cuts, and went on to close at $50.82 a barrel, after the announcement that the US will sell 8 million barrels of oil from the Strategic Petroleum Reserve later this month, with delivery in February....oil prices then steadied on Wednesday morning and then turned around to rise more than $1.50 Wednesday afternoon, despite the EIA report of massive builds in supplies of oil, gasoline and distillates and the largest jump in US oil production in 20 months, after the Saudi oil minister said they cut oil production to below 10 million barrels per day and planned to cut deeper cut in February, which would put them more than 100,000 barrels per day below their promised target and 625,000 barrels per day below their recent output high...after closing Wednesday at $52.25 a barrel, oil prices continued rising on that Saudi news Thursday and closed higher at $53.01 a barrel, before the doubts about OPEC compliance crept back in on Friday, and oil prices then dropped back to close the week at $52.37 a barrel, 3.0% lower than last week's close, amid concerns about the biggest drop in Chinese exports since 2009 and what impact that slowdown would have on their demand for crude...

natural gas prices, on the other hand, made a round trip this week, diving to their lowest level since mid-November on Monday, and then regaining most of the prior week's losses over the rest of the week...after rising to a high of $3.93 per mmBTU on the Wednesday after Christmas, natural gas prices had slid more than 45 cents last week to $3.285 per mmBTU, after forecasts for an arctic cold spell faded...facing further forecasts of warmer than anticipated weather conditions for January, natural gas prices fell another 18.2 cents on Monday of this week, ending at $3.103 per mmBTU...that drop was almost completely reversed on Tuesday, as natural gas prices rose 17.5 cents to close at $3.278 per mmBTU, on the possibility of cooler temperatures late January to early February...natural gas prices then reversed again to edge lower on Wednesday, closing at $3.224 per mmBTU, as exceptionally warm weather continued to weigh on the market....natural gas prices then jumped 16.2 cents on Thursday, closing the day at $3.386 per mmBTU, after the EIA's Weekly Natural Gas Storage Report indicated a larger than expected drop of 151 billion cubic feet (Bcf) of gas in storage during the week ending January 6th, which left our natural gas supplies at 3,160 billion cubic feet, 10.3% lower than a year ago but still close to the 5 year average for the fist week in January...natural gas then opened 2 cents lower on Friday as traders incorporated milder weather into their forecasts, but then went on to close more than 3 cents higher at $3.419 per mmBTU, as a couple of weather models added some risk that heating demand could return to seasonal averages by the end of the month...

The Latest Oil Stats from the EIA

this week's oil data for the week ending January 6th from the US Energy Information Administration indicated a jump to a 4 year high in our imports of crude oil and a increase to a new record high in our oil refining, which was still not enough to use all those extra oil imports, leaving our supplies of crude oil quite a bit higher than the prior week...our imports of crude oil rose by an average of 1,869,000 barrels per day to an average of 9,052,000 barrels per day during the week, the most oil we've imported since September, 2012, while at the same time our exports of crude oil rose by an average of 41,000 barrels per day to an average of 727,000 barrels per day, which meant that our effective imports netted out to 8,325,000 barrels per day for the the same time, our crude oil production rose by 176,000 barrels per day to an average of 8,946,000 barrels per day, which means the daily supply of crude oil from imports and wells totaled 17,271,000 barrels per day during the week, 2 million barrels more than the prior week...

refineries reportedly used 17,107,000 barrels of crude per day during the week, an increase of 418,000 barrels per day from the last week of 2016, while at the same time, 585,000 barrels of oil per day were being added to oil storage facilities in the US...thus, this week's EIA figures seem to indicate that we consumed or stored 421,000 more barrels of oil per day than were accounted for by our increased oil imports and production…therefore, the EIA inserted that phantom 421,000 barrels per day number into the weekly U.S. Petroleum Balance Sheet (line 13) to make it balance out...the EIA footnote to that line 13 says that number represents "unaccounted for crude oil", which is further described on page 61 in the glossary of the EIA's weekly Petroleum Status Report as "the arithmetic difference between the calculated supply and the calculated disposition of crude oil." you know, we've been calling that number that's inserted to make oil balance the EIA's weekly oil fudge factor...

that same weekly Petroleum Status Report tells us that the 4 week average of our oil imports rose to an average of 8.2 million barrels per day, now 6.3% higher than the same four-week period last year...our crude oil production for the week ending January 6th was 3.0% lower than the 9,227,000 barrels of crude that we produced during the week ending January 8th of last year, and 6.9% below our record oil production of 9,610,000 barrels per day that we saw during the week ending June 5th 2015...interestingly, this week's big oil production increase all came by way of the lower 48, as Alaskan production was down by 14,000 barrels per day...that suggests that oil prices over $50 a barrel the past 7 weeks has been bringing on additional completions of DUC (drilled, but uncompleted) wells..

US refineries operated at 93.6% of capacity in using those 17,107,000 barrels of crude per day, up from 92.0% of capacity the prior week, to hit a utilization level only reached once in 2016, during the first week of September during 2016...during the same week last year, refineries had consumed 684,000 fewer barrels of crude per day than they did this week, while running at 91.2% of capacity...gasoline production from US refineries rose by 199,000 barrels per day to 9,666,000 barrels per day during the week ending January 6th, which was 9.6% more than the 8,820,000 barrels per day of gasoline produced during the week ending January 8th a year ago, and 5.9% more than the 9,125,000 barrels per day of gasoline produced during the week ending January 9th, 2015, as there is normally a slowdown in gasoline output at this time of year...meanwhile, refineries' output of distillate fuels (diesel fuel and heat oil) actually fell by 5,000 barrels per day to 5,324,000 barrels per day, following the prior week's record high for distillates production...thus our distillates production was still up by 11.8% from the 4,760,000 barrels per day that was being produced during the week ending January 8th last year, and 4.2% higher than the 5,108,000 barrels per day of distillates produced during the same week of 2014...     

with the increase in our gasoline production, the EIA reported that our gasoline supplies rose by 5,023,000 barrels to 240,473,000 barrels as of December 30th, for a two week jump of 13.33 million barrels in our gasoline inventories...that was as our domestic consumption of gasoline rose by just 5,000 barrels per day from last week's one year low to 8,470,000 barrels per day, and as our gasoline imports fell 39,000 barrels per day to 683,000 barrels per day while our gasoline exports fell by 15,000 barrels per day to 981,000 barrels per day...even with the back to back large increases, however, our gasoline inventories as of January 6th were little changed from 240,434,000 barrels of gasoline that we had stored on January 8th of last year or the 240,334,000 barrels of gasoline we had stored on January 9th of 2015..

in addition to the near record two week jump in gasoline supplies, our supplies of distillate fuels also rose, increasing by 8,356,000 barrels to 170,041,000 barrels by January 6th, following the prior week's increase of 10,051,000 barrels, which looks to be the largest two week jump in distillates supplies on record...the amount of distillates supplied to US markets, a proxy for our consumption, was up from last weeks record low by 175,000 barrels per day to 2,792,000 barrels per day, but still remained well below normal, while our exports of distillates fell 165,000 barrels per day to 1,035,000 barrels per day, which was somewhat below the average of last year....after the two weeks of oversized increases, our distillate inventories are now 2.7% higher than the distillate inventories of 165,554,000 barrels of January 8th last year, and 21.6% above the distillate inventories of 139,851,000 barrels of January 9th, 2015…

finally, even though we refined a record amount of crude oil, our oil imports were even higher, and as a result our inventories of surplus crude oil rose by 4,097,000 barrels to 483,109,000 barrels by January 6th, a level which was was still  5.7% below the April 29th record of 512,095,000 barrels...nonetheless, we still ended the week with 7.1% more crude oil in storage than the 451,190,000 barrels we had stored January 8th of 2016, and 36.4% more crude than the 354,195,000 barrels of oil we had in storage on January 9th of 2015... furthermore, even though our supplies of residual fuel oil fell by 627,000 barrels to 41,846,000 barrels and our supplies of propane/propylene fell by 4,464,000 barrels to 79,659,000 barrels during this same week, our total supplies of crude and refined products rose by 13,436,000 barrels to 2,030,421,000 barrels during the week ending January 6th, the largest weekly increase since the week ending April 3rd of 2015...

This Week's Rig Count

US drilling activity slowed down for the first time in 11 weeks during the week ending January 13th, in what seems to be a chance anomaly rather than a basic change in drilling intentions...Baker Hughes reported that the total count of active rotary rigs running in the US fell by 6 rigs to 659 rigs in the week ending this Friday, which was still up by 9 rigs from the 650 rigs that were deployed as of the January 15th report last year, but still down from the recent high of 1929 drilling rigs that were in use on November 21st of the same time, drilling activity in Canada rose by 110 rigs, from 205 rigs a week ago to 315 rigs this week, an increase of more than 50%, which left them well ahead of last year's 227 rig deployment...

rigs drilling for oil in the US decreased by 7 rigs to 522 rigs during the week, only the 2nd retreat in oil drilling in the past 28 weeks...but oil drilling is still up from the 515 oil directed rigs that were working in the US on January 15th last year, while down from the recent high of 1609 oil rigs that were drilling on October 10, 2014...Canadian oil drilling increased by 89 rigs to 170 rigs, which was way up from the 110 oil rigs deployed in Canada on January 15th of the same time, the count of US drilling rigs targeting natural gas formations increased by 1 rig to 136 rigs, which has now pushed US natural gas drilling above the 135 natural gas rigs that were in use a year ago, while it was still way down from the recent natural gas rig high of 1,606 natural rigs that were deployed on August 29th, 2008... Canadian rigs targeting natural gas increased by 21 rigs to 144 rigs, also up from the 117 natural gas rigs running in Canada a year US rig and one Canadian rig that were classified as miscellaneous also remained active, compared to a year ago, when no such miscellaneous rigs were deployed..

another drilling platform began working offshore from Louisiana in the Gulf of Mexico this week, which brought the Gulf of Mexico rig count up to 24, still down from 26 rigs working in the Gulf a year ago..another drilling operation was still ongoing in the offshore waters of Alaska, which means our total offshore count for the week was 25 rigs, also down from last year's offshore US total of 26...however, the last platform that had been drilling through an inland lake in southern Louisiana was shut down this week, so there are now no active rigs in the inland waters category remaining, down from 1 rig on inland waters a year ago..

the number of horizontal drilling rigs working in the US increased by 3 rigs to 537 rigs this week, which is now up from the 511 horizontal rigs that were in use in the US on January 15h last year, but still down from the record of 1372 horizontal rigs that were deployed on November 21st of the same time, two directional rigs were added to those active, increasing the directional rig count to 59, which was still down from the 62 directional rigs that were deployed during the same week last year...however, the vertical rig count fell by 11 rigs to 63 rigs as of January 13th, which left the vertical rig count down from last year's deployment of 77 vertical rigs...

as usual, the details on this week's changes in drilling activity by state and by shale basin are included in our screenshot below of that part of the rig count summary from Baker Hughes that shows those changes...the first table below shows weekly and year over year rig count changes for the major producing states, and the second table shows weekly and year over year rig count changes for the major US geological oil and gas both tables, the first column shows the active rig count as of January 13th, the second column shows the change in the number of working rigs between last week's count (January 6th) and this week's (January 13th) count, the third column shows last week's January 6th active rig count, the 4th column shows the change between the number of rigs running this Friday and the equivalent Friday a year ago, and the 5th column shows the number of rigs that were drilling at the end of that reporting week a year ago, which in this case was for January 15th of 2016...       

January 13 2017 rig count summary

as you can see from the tables above, the US drilling pullback was fairly widespread, with 6 different states (plus Alabama) and 8 different basins seeing rigs shut down...but as we saw from the Canadian count increase, there does not seem to be a fundamental or economic reason for US drillers to be shutting down rigs this week, so until we hear.otherwise, we've got to consider this week's report anomalous, an odd circumstance wherein several drillers in several states just happened to be shutting down rigs at the same least Ohio was included in that, as we're now back down to 19 rigs, which was still up from 13 rigs a year ago...and as we mentioned, Alabama, which is not included above, also shed a rig this week, and now they have none, an improvement from a year ago, when they had one rig deployed..

International Rig Counts for December

Baker Hughes also released the international rig counts for December earlier this week, which unlike the weekly North American count, is an average of the number of rigs that were running in each country during the month, rather than the total of those rig drilling at month end....Baker Hughes reported that an average of 1,772 rigs were drilling for oil and natural gas around the globe in December, which was up from the 1,678 rigs that were drilling around the globe in November, but down from the 1,969 rigs that were working globally in December of last year...increased North American drilling again accounted for most of the global increase, as the average US rig count rose from 580 rigs in November to 634 rigs in December, which was still down from the average of 714 rigs that were working in the US in December a year ago, while the average Canadian rig count rose from 173 rigs in November to 209 rigs in December, which was also up from the 160 Canadian rigs that were deployed in December a year earlier....outside of Northern America, the International rig count rose by 4 rigs to 929 rigs in November, which was still down from 1,095 rigs a year ago, as increases in drilling in Latin America and Eastern Asia more than offset a decrease in Middle East activity.. 

drilling activity in the Middle East fell for the 8th time over the past 12 months, as the countries included in this region pulled out a net of 4 rigs, reducing their active rig average to 376 rigs for the month, which was also down from the 422 rigs deployed in the Middle East a year earlier....OPEC member Kuwait cut back from 47 rigs to 44, which was still up from the 43 rigs the Kuwaitis were running a year ago...the Saudis reduced their active rig fleet from 127 rigs to 125, which was also down from the 129 rigs the Saudis were running in December last year, but still up from the 112 rigs they were running in November of 2014, before their attempt to flood the global market...Dubai, an emirate in the United Arab Emirates, also cut their rig count by 2 rigs to 2, also down from 4 rigs in December a year ago...Oman, who is not an OPEC member but who has committed to a production cut of 45,000 barrels a day, also reduced their drilling by 2 rigs, from 61 rigs in November to 59 rigs in December, which left them well below the 73 rigs they were running in December a year ago...on the other hand, Egypt, who is not an OPEC number and who has not agreed to output cuts, added 2 rigs in December and thus had 24 rigs active, which was still down from the 44 rigs they were running a year addition, OPEC members Qatar and Abu Dhabi both added a rig; that brought Qatar up to 10 rigs, also up from 7 a year earlier, and brought Abu Dhabi up to 48 rigs, which was still one less than their year ago total...and Israel, who's never had more than 1 rig running over the past two years, started up one rig in December, their first drilling activity since February...  

meanwhile, a three rig increase in the Latin American region masked a number of variances in the member states...the region saw its active rig count increase from 181 rigs in November to 184 in December, as their offshore count rose from 28 rigs to 32, while overall drilling was still down from 270 rigs in December of 2015, largely because the region had idled 92 rigs over the first 6 months of 2016...Brazilian and Colombian drillers, neither of whom are party to the production cuts, both added 3 rigs during the month; for Brazil, that brought their active rig count back up to 13 rigs, which was still down from the 38 rigs deployed in Brazil a year earlier, while for Columbia, their count rose to 19 rigs, up from the 12 rigs they had running a year earlier...OPEC member Ecuador and non-OPEC member Chile both added 2 rigs; for Ecuador, that lifted their active rig count to 7 rigs, up from 2 rigs a year earlier, while the Chilean count rose to 4 rigs, up from the 1 rig they were running a year earlier...OPEC member Venezuela started up one more rig and thus had 52 rigs running, still down from 70 rigs a year earlier, as did non-aligned drillers in Bolivia and Peru, where the rig counts rose to 5 rigs and 1 rig respectively, unchanged from a year ago for Bolivia but down from 2 rigs a year ago for Peru....Mexico, who has agreed to cut their oil output by 100,000 barrels a day, also added a rig; they now have 19 rigs active, which is well down from the 42 rigs they were running last December...almost offsetting all of those increases, however, was Argentina, where they cut their drilling activity from 70 rigs down to 59 rigs...that was down from 91 rigs a year ago, and from over 100 active rigs in Argentina in every prior month of 2015

in addition, drilling activity in the Asia-Pacific region increased by 4 rigs to 192 rigs in December, even as their offshore deployment fell from 92 rigs to 87, which was down from the 198 rigs working the region a year earlier, which only included 76 working offshore at that time....Australia added 5 rigs, bringing their total to 9 rigs active nationwide, which was still down from the 16 they were running a year earlier...Thailand and Indonesia both added 2 rigs, bringing their counts up to 12 rigs and 16 rigs respectively, which was down from 4 rigs last year for Thailand  and down from 25 rigs last year for Indonesia...the Philippines also started a rig, after having no activity in November, but they were still down from the 4 rigs they had deployed a year ago...on the other hand, China shut down 3 offshore rigs, leaving 25 offshore, same as they had running last the same time, Brunei shut down both of the rigs they had active, while a year ago they had just one, and India reduced their rig count from 177 to 116 rigs, which was still up from the 100 rigs working in India a year earlier....

drilling activity also increased in Europe, rising by 2 rigs to 99 rigs, which was down from the 114 rigs working in Europe a year ago at this time, as their offshore drilling increased from 33 rigs to 35, same as they had offshore a year ago...the offshore increases were of one rig each offshore from Norway and the U.K., which brought the offshore counts in those countries up to 16 rigs and 11 rigs respectively, down from 17 last December for Norway but up from 9 offshore rigs a year ago for the U.K....other European countries adding land based rigs were Hungary and Albania, both of which increased to 2 rigs, same as each had a year earlier...meanwhile, both Bulgaria and the Netherlands shut down a rig; for Bulgaria, that left them with no drilling, down from 2 rigs a year earlier, and for the Netherlands, that left them with 2 rigs active, down from 4 rigs a year ago...

lastly, the African continent saw a net decrease of 1 rig in to 78 rigs in December, which left them down from the 91 rigs working in Africa last year at this time...the Congo Republic shut down all 3 rigs they had active in November, which was also their rig count a year ago...OPEC members Nigeria and Algeria shut down 1 rig each, leaving 4 rigs still drilling in Nigeria, down from 8 rigs a year ago, and leaving 52 rigs still working in Algeria, still up from 49 rigs a year ago....meanwhile, four African nations added 1 rig each: OPEC member Angola, Cameroon, Liberia and Kenya...that brought Angola back up to 4 rigs, still down from last year's 11; brought Cameroon back to 1 rig, same as a year ago, and brought Kenya back up to 11 rigs, same as a year earlier, while the new rig working in Liberia was their first drilling in 2 and a half years....finally, note that Iranian, Russian, and Chinese rig counts are not included in this Baker Hughes international data, although we did note that China's offshore area, with an average of 25 rigs active in December, were included in the Asian totals here... 


Constitutionally questionable slap at Medina and Portage counties, other anti-fracking localities, signed into Ohio law - -- The legislature just made it harder for anyone to use local ballot issues to fight fracking, thanks to a bill rammed through the legislature, House Bill 463, which Gov. John Kasich signed WednesdayHB 463 takes aim at attempts to propose county charters, or city or village ballot issues, that would ban fracking or any other local initiative that would run counter to statewide law (example: ballot issues to soften marijuana penalties). HB 463 gives county Boards of Elections and the Ohio secretary of state power to decide if a municipal initiative or proposed county charter fails to follow proper procedures for reaching the ballot - or (this is key) tries to claim local control over powers the state reserves for itself. (A 2004 law gives the state sole authority over oil and gas production.)In 2016, the Ohio Supreme Court again backed refusals by elections boards in Portage, Athens and Meigs counties to place similar proposed charters on the ballot. (Meigs County is in southeast Ohio along the Ohio River.) But what the Supreme Court didn't specifically decide was this: whether any officeholder or any government agency could keep a proposed county charter off the ballot because the proposed charter tried to assume power over things the state has reserved for itself (e.g., fracking). That's where HB 463 comes in. It gives county Boards of Elections power to yank an initiative if it would give a city or village more municipal home rule power than Ohio's constitution authorizes. And HB 463 says a county charter can be kept off the ballot if it tries to assume power the state doesn't give counties.A range of lobbies, with the Statehouse oil-and-gas crowd at or near the head of the parade, backed the anti-voter-initiative amendment. Ohio's Bill of Rights says "all political power is inherent in the people" - not, as the General Assembly seems to think, in the Statehouse's lobbies.

State law adds another obstacle to local charter efforts - A bill signed into law last week apparently will make it more difficult for local activists to get charter amendments on the local ballot in Ohio, when those amendments are deemed in conflict with state law. That would spell bad news for efforts in Athens County and other Ohio counties to pass county charters that regulate or ban oil and gas production activities, as well as efforts by Ohio communities to decriminalize marijuana. In both cases, the local charter would be at variance with a state law that Ohio courts and lawmakers say constitutionally trumps the local law. The provision in question was inserted by the state Senate into a grab-bag House Bill (463) that also included provisions involving autism services, property foreclosures and recall of municipal officials. The House passed the bill on Dec. 14 after getting it back from the state Senate, and Gov. John Kasich signed it on Jan. 4. These types of bills – containing many unrelated provisions – are common at the end of legislative sessions when lawmakers are trying to wrap up the two-year term. Dick McGinn, who leads the Athens County Bill of Rights Committee (ACBORC), said Friday that the group is leaning toward preparing another charter amendment for the Athens County ballot as a way to directly challenge H.B. 463. “The irony is that possibly the only way that the Bill of Rights Committee can defeat this new law is to give our local Board (of Elections) the opportunity to use it against us, and if they do, we will appeal to the Court of Common Pleas,” McGinn said.

Eastern Ohio Sets Record For Shale Production - Last year, the EPA stated that, despite an average of 9,100 gallons worth of chemicals used for each fracking job, the process does not create “widespread, systemic impacts on drinking water resources.” On Tuesday, however, EPA officials said they “identified cases of impacts on drinking water at each stage in the hydraulic fracturing water cycle.” “It is beyond absurd for the administration to reverse course on its way out the door,” said Erik Milito, who serves as upstream director for the Washington, D.C.-based American Petroleum Institute. “The agency has walked away from nearly a thousand sources of information from published papers, technical reports and peer-reviewed scientific reports demonstrating that industry practices, industry trends and regulatory programs protect water resources at every step of the hydraulic fracturing process.” As the fracking debate continues, Ohio drillers are smashing shale production records. From July 1 through Sept. 30, records provided by the state Department of Natural Resources show companies drew 360 billion cubic feet of natural gas during the period, which is up from the prior three-month record of 334 billion cubic feet set from April 1 to June 30.Formally known as hydraulic fracturing, fracking is the process by which drillers extract natural gas, oil and liquids from Marcellus and Utica shale. Officials estimate it takes anywhere from 1 million to 10 million gallons of water to frack a single well, along with about 4 million pounds of sand, in addition to a chemical cocktail. Milito and other industry leaders believe fracking helps consumers save an average of $1,337 per household every year, helps curb carbon dioxide emissions because of natural gas replacing coal for electricity generation and supports millions of jobs.

Ohio's Fractured Lands - Effects of fracking could be far-reaching - The Post - In Ohio, underground layers of the rock shale hold reserves of natural gas, which can be extracted through wells drilled into the ground, according to the Ohio Department of Natural Resources. Wells often use “horizontal drilling,” where the well is initially drilled downward and then across a layer of shale.  “With horizontal drilling, it allows pretty pinpoint accuracy,” Natalie Kruse, associate professor of environmental studies at OU’s Voinovich School, said. “(Companies) can direct that well into whatever rock formation they’re trying to hit.” Fracking is a technique used to force the natural gas out of the shale, and it became a more common practice in the mid-2000s, Kruse said.   About 1 million oil and gas wells in the U.S. have used hydraulic fracturing since the process first began in the late ’40s, according a report from the Environmental Protection Agency. Fracking accounted for more than 50 percent of U.S. oil production and nearly 70 percent of gas production in 2015.  In recent years, wells have become more efficient by extending farther across shale layers to extract more natural gas from a single well, Jason Trembly, an associate professor of engineering at OU said. Just as coal has affected people in Southeast Ohio in past decades, natural gas extraction presents similar challenges, Buckley said. “Both mining coal and also in the gas industry, those tend to be pretty migratory industries.” Buckley said. “So if a new mine (or well) opens up somewhere, that really doesn’t employ many locals.” Residents like Mettler, however, are more concerned about the impacts of fracking — whether through air or water pollution — on people’s health. “It is a health issue,” Mettler said. “For me, it doesn’t have anything to do about the industry itself, it’s because it’s not safe.” “There are a lot of potential costs that don’t get factored into our use of fossil fuels: environmental costs, public health costs, things like that,” Buckley said. “That’s probably one of the things that tend to bring people together (in Southeast Ohio), when it’s extracted right under your nose, and the negative consequences can affect everybody.”

REX, Zone 3 (Ohio To Missouri) Has Been Completed; At/Near Full Capacity -- January 13, 2017 - Today, EIA posts its update of Rockies Express Pipeline (REX) Zone 3: REX Zone 3 capacity expansion enters full service, increasing Northeast takeaway capacity.  On January 5, Tallgrass Energy and Rockies Express Pipeline LLC (REX) announced the completion of the Zone Three Capacity Enhancement Project, providing an additional 800 million cubic feet per day (MMcf/d) of east-to-west capacity out of Ohio and into Midwestern markets. The recently completed capacity expansion project has increased REX's Zone 3 east-to-west capacity to 2.6 billion cubic feet per day (Bcf/d) by adding three additional compressor stations and upgrading two others. The project received approval from FERC in March of 2015; it is estimated to have cost $532 million. Capacity on the east-to-west expansion is currently fully subscribed under long-term contracts. In its first full week of service, east-to-west flows have been close to full capacity, averaging 2.6 Bcf/d at the Chandlersville compressor station in central Ohio (PointLogic Energy). Zone 3 has 20 different pipeline interconnects and delivery points, which has expanded markets for Appalachian natural gas. This includes interconnects with several major interstate pipelines, the largest of which are with Natural Gas Pipeline of America (NGPL) and ANR Pipeline. These interconnects also see the greatest throughput, both averaging 764 MMcf/d over the last two months (PointLogic Energy). NGPL extends from the Permian basin and Texas Gulf Coast into the Chicago market; its REX interconnect at Moultrie, Illinois, has a capacity of 1.55 Bcf, which was recently expanded as part of its Chicago Market Expansion Project. ANR has a 1.25 Bcf/d interconnect with REX at Shelbyville, Indiana, that provides access to upper Midwest markets, including Detroit and the Dawn hub in eastern Canada.  In addition to providing access to Midwestern markets, both pipelines will also connect Appalachian natural gas to the Gulf Coast, which is evolving into a demand center as liquefied natural gas export and petrochemical facilities come online.

Mariner East II pipeline makes waves in PA -- It looks as though North Dakota isn’t the only state affected by pipeline struggles. Similar to arguments against the Dakota Access in Iowa, the eminent domain issue continues to frustrate landowners. A Dec. 29 article by Matt Miller in reported that the Pennsylvania Supreme Court refused to hear an appeal by Cumberland County property owners fighting against Sunoco Logistics, owner of the Mariner East II natural gas transmission pipeline.  Three couples, R. Scott and Pamela Martin, Douglas and Lyndsey Fitzgerald, and Harvey and Anna Nickey, have lost against the pipeline giant in defending their land. The lower Commonwealth Court refused to hear the couples’ complaints after Judge Edward E. Guido ruled in favor of Sunoco against the property owners fighting against the use of eminent domain for the pipeline project.The Commonwealth Court ruled that Sunoco is a “public utility corporation” that has the power to seize private land for its multi-state pipeline,” according Pennlive.In Huntingdon County, Ellen Gerhart, was left with a jumbled mess of trees after Sunoco hired a logging company to remove trees on her property to make way for the pipeline. She, too, appealed a lower court’s decision to take a portion of her land through eminent domain. She and her daughter, Elise, are also fighting criminal charges of disorderly conduct stemming from protests against the pipeline.But the fight against the pipeline isn’t just about eminent domain. StateImpact Pennsylvania reported on Jan. 6 that some communities in Philadelphia’s western suburbs have concerns, saying the pipeline could endanger public safety.StateImpact reported that documents filed against Sunoco Logistics in eight townships or boroughs say residents would be “vulnerable to releases of toxic and flammable gases if there was a leak or explosion. The documents also note Sunoco’s poor safety record, with 263 spills of hazardous liquids since 2006. Sunoco company spokesperson Jeff Shields said many layers of safety are in place to prevent a major incident, including additional safety standards in populated places.” He also noted that the pipeline will have federal regulation and emergency response plans in addition to education to first responders who might deal with any safety issue.The $2.5 billion Mariner East II pipeline would run from western Ohio to the Marcus Hook refinery south of Philadelphia. It will carry propane, butane and ethane, not natural gas.

NYMEX February gas popped 16.2 cents to $3.386/MMBtu - NYMEX February natural gas futures contract settled 16.2 cents higher to $3.386/MMBtu Thursday, on a larger-than-expected storage withdrawal. US natural gas in storage fell 151 Bcf to 3.160 Tcf in the week ended January 6, the US Energy Information Administration said Thursday. The withdrawal was significantly larger than an S&P Global Platts survey of analysts who expected a 137-Bcf pull. In the corresponding week in 2015, the EIA reported a 152-Bcf draw, while the five-year average is a withdrawal of 168 Bcf, according to EIA data. Total inventories now are 52 Bcf less than the five-year average of 750 Bcf in the East, 14 Bcf more than the five-year average of 851 Bcf in the Midwest, 24 Bcf higher than the five-year average of 173 Bcf in the Mountain region, 36 Bcf less than the five-year average of 299 Bcf in the Pacific, and 46 Bcf more than the five-year average of 1.091 Tcf in the South Central region. According to the National Weather Service, the eight- to 14-day outlook calls for above-average temperatures from the Eastern Seaboard to the Rocky Mountains. Meanwhile, the Southwest and the Pacific Northwest are expected to to experience below-normal temperatures. Lower-48 natural gas demand reached 135 Bcf on January 6, 2017, according to Bentek Energy, which is only 3 Bcf less than the highest consumption day during the polar vortex three years ago. And yet this winter heating season has been nearly 15% warmer than normal for the country as a whole since October 2016. The February gas contract traded in a range of $3.294-$3.450/MMBtu.

US EIA ups expected Q1 Henry Hub spot gas price forecast 29 cents to $3.65/MMBtu -  The US Energy Information Administration on Tuesday raised its forecast for first-quarter 2017 Henry Hub natural gas spot prices to $3.65/MMBtu, 29 cents above its December estimate. The agency, in its January Short-Term Energy Outlook, projected Henry Hub gas prices would average $3.55/MMBtu across all of calendar-year 2017, up from an average of $2.51/MMBtu in 2016. Those forecasts are up 28 cents and 2 cents, respectively, from estimates EIA issued in December. EIA lowered its US gas consumption estimate for Q1 by 0.68 Bcf/d to 91.05 Bcf/d. However, "US natural gas exports are expected to continue growing over the next two years as several liquefied natural gas export terminals come online," EIA Administrator Adam Sieminski said Tuesday.

US will be a net exporter of natural gas in 2017 - The U.S. is set to become a net exporter of natural gas in 2017 as dependence on foreign oil imports falls, according to the federal government’s latest energy projections. The Energy Information Administration, the independent analysis arm of the Energy Department, made the assessment Thursday in its Annual Energy Outlook for 2017. The outlook said all test-case scenarios point to the nation becoming a net energy exporter of natural gas, while its oil imports fall. Becoming a net exporter of natural gas means the U.S. will be able to meet demand on the global market while still producing enough to meet demand domestically. “Exports are highest, and grow throughout the projection period,” the outlook said. It said favorable geology and technology are combining to help the nation’s oil and gas companies produce at lower prices. The glut has hurt oil and gas producers that use hydraulic fracturing, or fracking, in the United States to break shale rock deep underground to release fossil fuels. Fracking has made the U.S. a top oil and natural gas producer. U.S. production is expected to decline sometime in the 2030s, reversing projected growth in net energy exports.

Natural Gas Industry Preps To Meet Demand - By 2040, global energy demand should increase by about 25 percent — which is roughly equivalent to the total energy used today in North America and Latin America — according to natural gas industry leaders. However, officials with Exxon Mobil and the American Petroleum Institute do not believe this means there will be more air pollution from electricity generation, as they highlight the fact that carbon dioxide emissions are declining at the same time the industry is producing more natural gas. “As economies expand around the world, energy demand will increase as more people seek higher standards of living,” William Colton, vice president of corporate strategic planning for Exxon, said. “Humanity’s dual challenge is to meet growing energy demand while managing the risk of climate change.” According to Exxon’s “2017 Outlook for Energy” report, the global population is expected to grow by nearly 2 billion by 2040, while emerging economies in nations such as China, India and Indonesia will continue to grow. The report states 55 percent of energy demand will be tied directly to electricity generation in support of an increasingly digital society. Average electricity use per household will increase about 30 percent by 2040, according to the study. However, the share of the world’s electricity generated by coal is expected to fall to about 30 percent by 2040, which would be down from approximately 40 percent in 2015.The number of motor vehicles on the road is projected to increase by 80 percent to 1.8 billion by 2040, which will also drive energy demand.   Electricity producers such as American Electric Power and FirstEnergy Corp. have gradually been shifting their main generation fuel from coal to natural gas, which results in lower carbon dioxide emissions. Gerard expects this to continue, despite promises from President-elect Donald Trump to use more coal.

New pipelines teeing up supply for more trains at Sabine Pass LNG -  Northeast producers are about to get a new path to target LNG export demand at Cheniere Energy’s Sabine Pass LNG terminal. Cheniere in late December received federal approval to commission its new Sabine Pass lateral—the 2.1-Bcf/d East Meter Pipeline. Also in late December, Williams indicated in a regulatory filing that it anticipates a February 1, 2017 in-service date for its 1.2-Bcf/d Gulf Trace Expansion Project, which will reverse southern portions of the Transcontinental Gas Pipe Line to send Northeast supply south to the export facility via the East Meter pipe. Today we provide an update on current and upcoming pipelines supplying exports from Sabine Pass. In the 11 months or so since it loaded and shipped its first export cargo in February 2016, Cheniere’s Sabine Pass liquefaction and export facility in Cameron Parish, LA, has made a noticeable dent on the natural gas market, helping the market to reduce a massive year-on-year surplus in storage over the injection season and also enabling the U.S. to become a net exporter of natural gas for the first time last fall (see Feels Like the First Time Part 2 and We’ve Only Just Begun). To date, the terminal has loaded and shipped off 61 cargoes, and the pace has accelerated in recent months. Twenty-seven cargoes (44% of the total) have  been exported since November 1, 2016, five of those in the first six days of 2017 alone, according to Genscape’s North American LNG Supply & Demand report.

An aging pipeline has driven this Native American tribe into an unprecedented move -- A Wisconsin Native American tribe wants a 64-year-old oil pipeline removed from its reservation due to concerns that it poses a grave environmental threat. The Bad River Band of Lake Superior Chippewa’s tribal council approved a resolution on Wednesday, Jan. 4, to refuse new easements along 12 miles of Enbridge’s Line 5 pipeline, which carries oil and natural gas liquids 645 miles from Canada to eastern Michigan. In a very rare move, the resolution also calls for the decommissioning and removal of the pipeline from all Bad River lands and watershed along the shores of Lake Superior in far northern Wisconsin. “We really don’t know how everything is going to play out,” said Dylan Jennings, a Bad River council member. “We can’t speak for Enbridge and what they are thinking or what they intend to do. This is kind of an unprecedented thing from our understanding. We know of communities that attempt to stop pipelines, but don’t know of any booting out or uprooting them.” Jennings said that while they stand with the protesters around Standing Rock Indian Reservation fighting to stop the Dakota Access pipeline in North Dakota, their decision has been a long time coming and was not spurred by the recent attention to the issue. “This is a really important time for our society and our communities to stand up and to be that voice of reason.”Jennings called the decision “long overdue,” saying that the tribe has been “silent observers” as the world news has show what kind of devastation can happen from an oil spill. He noted that the nearby Kalamazoo oil spill in 2010 happened on a similar sized pipeline, but that pipeline was only 43 years old when it ruptured.

US shale oil producers expected to spend more in West Texas in 2017 – Platts snapshot video - NYMEX crude futures are in the low $50s/b, smack in the middle of the 'Goldilocks zone' for US shale oil producers, particularly in the West Texas Permian Basin. Jeff Mower explains why US oil producers are getting a bit more optimistic about production prospects over the next few years, bolstered by lowered breakevens and higher returns.

Pipeline protesters face tough road ahead --  Tipis and tents still stand against a frigid North Dakota winter in the Oceti Sakowin camp along the banks of the Cannonball River. The occupants in what is the largest Dakota Access protest camp have withstood blizzards and extreme temperatures, but a force of nature is coming that the camp won’t be able to withstand. Substantial spring floods in the Cannonball River area appear likely, with the Bismarck-Mandan area already receiving 55.3 inches of snow. That is the most accumulation on record for that area through Jan. 10, according to National Weather Service data. The above-average precipitation is likely to continue. A La Nina weather pattern still has the Great Plains in its grasp, which tends to result in winters that are colder and wetter than average. Weather forecasters have predicted the trend will continue for at least the next month — if not longer. The amount of precipitation, however, is just one of the many factors that will play into how big localized flooding gets in the vicinity of the protest camps. Garland Erbele is an engineer with the North Dakota State Water Commission, and is among state officials with eyes on the situation. “Snowfall amounts for the remainder of this winter, the timing of the spring melt, future rainfall events, and potential ice jams will all influence flows in Cantapeta Creek, the Cannonball River and the Missouri River/Lake Oahe,” he said. State and federal officials, tribal officials and camp leaders are all aware that the potential risk of substantial flooding is growing, and that this presents significant safety risks to people and property in the location.In 2013, the entire area on which Oceti Sakowin now sits was inundated by a sea of icy cold water and gigantic ice rocks — some of them the size of 4 and 5-foot boulders. Standing Rock Sioux’s tribal chairman David Archambault talked about the dangers ahead during a Jan. 5 meeting between the tribal council and representatives of the protest camps. The council called the meeting to urge camp leaders to share more information with them about plans to vacate the camps so the area can be cleaned up. Another flood like the one in 2013 would not only put the camp’s estimated 500 to 800 occupants in harm’s way, Archambault said during the meeting, but debris from the camps — which include abandoned vehicles and buried human wastes — could result in contamination of the very river protesters have said they came to protect. “We had a flood in 2013 where the whole area was inundated,” Archambault told the assembly of camp leaders and members. “So we know that is a real risk today, because of the amount of snow we are experiencing. So what we want to do is make sure that none of that waste gets into the Missouri River.”

North Dakota Governor: DAPL Likely to Get Easement Once Trump Is President -- Even though the U.S. Army Corp and the Obama Administration denied a key easement needed to complete the Dakota Access Pipeline (DAPL) last month, the struggle against the controversial pipeline is far from over. North Dakota's new Republican Gov. Doug Burgum has reaffirmed his favor of the project, telling Reuters that he is confident that the pipeline will be approved by Donald Trump when he comes into the White House. "I expect the world's going to change dramatically on that day relative to finding resolution on this issue," Burgum said. "I would expect that (Energy Transfer Partners, DAPL's parent company) will get its easement and it will go through." The president-elect formally announced his support for the completion of the DAPL last month. His transition team noted that his support for the pipeline "had nothing to do with his personal investments and everything to do with promoting policies that benefit all Americans." Burgum has requested that the demonstrators clean up the protest camps near the Standing Rock Sioux Reservation before spring floods from rain and melting snow create a "potential ecological disaster."  According to Reuters, more than 300 vehicles, along with dozens of temporary dwellings and other detritus, have been abandoned at the encampment, with at least one campsite sitting on a flood plain. "The amount of cleanup that needs to take place is enormous," Burgum said. "We've got a potential ecological disaster if this land floods and all the debris flows downstream into tribal lands."  About 700 to 1,000 pipeline protesters remain at the Oceti Sakowin camp even though Tribal Chairman Dave Archambault II's has requested them to leave due to the harsh winter conditions. The chairman said the pipeline fight will continue in court.

Trump taps well of protest with calls for more drilling in national parks | Reuters: President-elect Donald Trump aims to open up federal lands to more energy development, tapping into a long-running and contentious debate over how best to manage America’s remaining wilderness. The U.S. government holds title to about 500 million acres of land across the country, including national parks and forests, wildlife refuges and tribal territories stretching from the Arctic to the Gulf of Mexico. They overlay billions of barrels of oil and vast quantities of natural gas, coal, and uranium. With Trump poised to take office on Jan. 20, energy companies and their lobbyists are eyeing a new gusher of federal drilling and mining leases after a period of stagnation under the administration of Barack Obama. Oil output on federal land made up about a fifth of the national total in 2015 - down from more than a third in 2010 - while the number of onshore drilling leases fell about 15 percent, according to federal data. "This opportunity is unique, maybe once in a lifetime," said Jack Gerard, president of the Washington D.C.-based American Petroleum Institute lobby group, referring to prospects for increased access to federal leases. The hoped-for land run by energy companies, however, could get bogged down by lawsuits and lobbying from environmental groups and some local residents. "It would only take one serious mistake - one well to go bad - for our town’s water supply to be damaged," said Josh Ewing, the leader of a southern Utah conservation group.

Big Oil Cheers as Trump Plans to Open National Parks for Drilling - The president-elect plans to open up federal lands for more energy development and, according to Reuters , energy companies and industry lobbyists are already expecting a flurry of new federal drilling and mining leases with the incoming administration. "This opportunity is unique, maybe once in a lifetime," Jack Gerard, president of the Washington DC-based American Petroleum Institute lobby group, told the news service in regards to increased access to federal leases.  Vast quantities of oil, natural gas, coal and uranium are tucked away in government-owned national parks and forests, wildlife refuges and tribal territories from the Arctic to the Gulf of Mexico. As Reuters noted, under the Obama administration, oil output on federal land made up about a fifth of the national total in 2015, down from more than a third in 2010. Onshore drilling leases also fell about 15 percent. However, Trump campaigned on a promise to "unleash America's $50 trillion in untapped shale, oil, and natural gas reserves, plus hundreds of years in clean coal reserves." He has accused Obama of "denying millions of Americans access to the energy wealth sitting under our feet" by restricting leasing and banning new coal extraction.  The U.S. government owns roughly 640 million acres of land, and the U.S. Department of the Interior (DOI) manages most of it. In December, Trump nominated U.S. Rep. Ryan Zinke of Montana, a climate change skeptic and coal mining advocate as head of the department.  As it happens, The Wilderness Society calculated that 90 percent of the lands held by the Bureau of Land Management, a bureau of the DOI, is already open to oil and gas development. Most of these lands are in the West and Alaska.

Is this the year the Arctic National Wildlife Refuge will be targeted for oil drilling? - Less than a month after the Obama administration announced that it was banning offshore oil and gas production in most of the Arctic, there are new signs that a place many conservationists regard as the crown jewel of the Arctic — the coastal plain of the Arctic National Wildlife Refuge — could one day be open for drilling. After decades of unsuccessful attempts to gain access to oil beneath the pristine coastal lowlands, Alaska’s Republican congressional delegation this week began yet another effort to open a region experts say may hold one of the nation’s largest reserves of oil and natural gas. This time, however, there may be reason to expect a bill to actually pass and be signed into law. “On a practical level, this might be the best opportunity we’ve had in a couple of decades to do what many people in Alaska thought should have happened years ago,” Andy Mack, commissioner of the Alaska Department of Natural Resources, said in an interview Friday. “Politically, in Washington, D.C., we have all the right folks in place.” One of those folks, of course, is President-elect Donald Trump, who has promised to roll back regulations and expand oil and gas production on public lands. Another is U.S. Sen. Lisa Murkowski, who is now chairwoman of the powerful Senate Committee on Energy and Natural Resources. On Thursday, Murkowski and Alaska’s junior senator, Daniel Sullivan, introduced Senate Bill 49, the Alaska Oil and Gas Production Act, which Murkowski’s office said “would allow limited oil and natural gas development” in areas of the coastal plain that are not federally declared wilderness. Her office emphasized that the bill calls for a very small oil and gas footprint in a vast region, and said the legislation would only allow development on 2,000 “surface acres” within the 1.5-million-acre coastal plain, an area known as the “1002 area.” The plan would rely heavily on horizontal drilling from a limited number of platforms.

Sessions Led Deregulation of Fracking... And Then Profited From It –- Last month, Steve Horn at DeSmog published a fascinating story revealing that Sessions introduced the first bill to try to exempt fracking companies from regulation under the Safe Drinking Water Act. We looked a bit more at what Sessions was up to, and found that that same year — in 1999 —his wife held big investments in the oil and gas company leading the fracking charge in Alabama. DeSmog reported that during Sessions’ first term as senator, he was the sole co-sponsor of the original Halliburton Loophole bill, introduced in March 1999 by fellow climate science denier Senator James Inhofe.The bill, which was folded into the Energy Policy Act of 2005, would ultimately exempt underground injections of fracking fluids from regulation under the Safe Drinking Water Act. DeSmog uncovered that this was done with strong backing from the Interstate Oil & Gas Compact Commission, and it stemmed from controversy surrounding the practice in Sessions’ home state.From the late 1980s through the 1990s, coal beds in Alabama were being fracked for natural gas. After residents complained of impacts to their drinking water, they petitioned the EPA to enforce its regulations of fracking injections under the Safe Drinking Water Act. Under the Clinton Administration, the EPA refused to reconsider approval of what Alabama underground injections regulators were doing on fracking: looking the other way. (For more on this history, read Steve Horn’s piece on DeSmog and this 2002 U.S. Supreme Court decision.)  Building off of the DeSmog story, we’ve discovered that when Senator Jeff Sessions introduced the original Halliburton Loophole, he and his wife had sizable stakes in Energen, the Alabama-based oil and gas company that pioneered fracking in the state. In 1995, as Sessions was running for his senate seat, his wife held between $1,001-$15,000 in Energen stock. They reported the same for 1996. In 1997 and 1998, the same range in value was posted as jointly owned. But in 1999 — the year Inhofe and Sessions introduced the bill to exempt Energen’s and other fracking operations from regulation under the Safe Drinking Water Act — the senator reported that his wife had separately acquired through inheritance an additional stake in Energen, valued at $15,000-$50,000.

Putin's Other American Propaganda Effort: Anti-Fracking News -- Energy politics makes strange bedfellows, none stranger than Robin Hood and Russian President Vladimir Putin.  RT, a media organization that the U.S. intelligence community calls "the Kremlin's principal international propaganda outlet," published an article on Jan. 2 under the unlikely headline: “Robin Hood’s Sherwood Forest hideout under threat from frackers.” The article, which carries no byline and cites the work of environmental activists, laments plans of a unit of Ineos Group, a Switzerland-based chemical company, to conduct seismic testing for natural gas near Major Oak, the millennium-old tree that served in legend as headquarters to Robin Hood and his merry fellows. (Ineos Shale and Friends of the Earth have been involved in a public dispute over the environmental group's depiction of fracking, with the U.K.'s Advertising Standards Board weighing in.) This wasn't the only foray by RT, formerly known as Russia Today, into anti-fracking coverage. The media organization has regularly published articles and aired segments that appear to oppose fracking, the fossil-fuel extraction technique that has made the U.S. an energy superpower again. One "exclusive" interview about the extraction technique features the opening question: "There are a lot of studies that say fracking is dangerous, so why do you think some countries and companies think it’s worth the risk?"  RT's practice is so marked that U.S. intelligence officials used it last week as an example of how Russia promotes its national interests abroad. The Office of the Director of National Intelligence (ODNI) states in the public version of its report on Russian interference in the U.S. presidential election (PDF):

U.S. Oil And Gas Jobs See First Gains In 2 Years - Rising rig counts and an uptick in drilling activity is leading to a rebound in employment in the oil and gas industry, according to recent data.Payrolls in the oil and gas sector in the United States rose for the month of November, recent U.S. government data shows, the first monthly gain in over two years. Employment in oil and gas extraction and support services rose by 3,300 for the month, rising to 384,300. That comes after the industry lost over 150,000 jobs during the two-and-a-half-year downturn.While one month’s worth of statistics does not make a trend, the data suggests that the worst is over. The market is passed the low point and even as companies continue to repair balance sheets, oil trading above $50 per barrel is sparking a rebound in drilling activity and hiring. The rig count is already up by more than 200 oil rigs since the middle of last year, posting six consecutive months of gains. U.S. shale output is also rising, up about 300,000 bpd from a last summer, according to preliminary data.The big question is whether or not spending on drilling will rise substantially this year or simply level off at these low levels. Estimates from market watchers vary. Cowen & Co., a financial services company, surveyed 25 E&Ps and found an average increase in capex by 33 percent this year compared to last. Barclay’s expects a more modest 7 percent growth in capex across a more comprehensive measure of 215 global oil and gas companies. The industry could more aggressively ratchet up spending if oil prices rise. Raymond James says spending could double if oil rises to $65 per barrel in the first quarter. These bullish estimates are a departure from the rather downbeat assessments prior to the OPEC deal in November. The IEA had repeatedly warned last year that the global oil industry risked a third consecutive year of a contraction in spending in 2017, a development that no longer looks likely.  Nevertheless, all is not well for oil drillers. The rebound in spending, drilling and hiring could reverse one of the oft-cited “achievements” of the two-year downturn. Across the industry, companies big and small achieved major cost reductions in order to adapt to a lower price environment. Some of that came from real reductions in the cost of operations and more efficient drilling techniques.

Short-Term Energy Outlooks anticipates gains in oil, natural gas -- On Tuesday, the Energy Information Administration (EIA) released its Short-Term Energy Outlook, which includes its first forecasts for 2018. A more detailed look at the EIA’s crude oil forecast was released Thursday, January 12. The report slightly reduced its forecast for dry natural gas production in 2017 to 43.78 billion cubic feet per day. In 2016, drilling activity slowed due to low natural gas prices. 2016 showed the first yearly production decline since 2005, according to a Reuters analysis. While EIA projected lower production and consumption for 2017 that its initial predictions, the 2018 forecast shows significant increases. The forecast for natural gas demand in 2018 “would rise to an all-time high of 76.86 bcfd,” says Reuters. The U.S. also became a net exporter of gas in November 2016 with the increase of LNG exports to Mexico, likely to occur once again in October 2017. Annually, the U.S. is not expected to become a net exporter of gas until 2018, which has not happened since 1957. Crude oil is forecast to increase as well, with a modest increase in prices over the next two years. Of course, production is related directly to price, as the past two years have shown, as inventories increased alongside production. The OPEC agreement to cut production makes way for a price increase, but EIA names the agreement as one of the uncertainties that could affect price going forward. Forecast increases in global production should provide downward pressure on prices and mitigate the potential for significant crude oil price increases through 2018. Despite the recent OPEC agreement, EIA expects global petroleum and other liquid inventory builds to continue, but at a slowing rate, in 2017 and 2018. Crude oil production is forecast to increase to 9.3 million b/d by 2018, reflecting increases in offshore Gulf of Mexico production. EIA also cites a rise in tight oil production that are a result of increases in drilling activity, rig efficiency, and well-level productivity. This is consistent with other similar forecasts regarding oil production across the shale plays that cite efficiency and increased technological advances that have boosted production while cutting costs.

Oil Production Vital Statistics December 2016 - Global total liquids production hit yet another record high of 98.24 Mbpd in November led by OPEC and Russia! Libya’s drive to restore production is a significant factor with production up 280,000 bpd from recent lows. The US oil rig count has risen for 32 consecutive weeks and US oil production has stopped falling. Production from the North Sea and Asia are in decline as the past low price and drive to restore profitability works through the system. The oil price has significantly broken above the $51 / bbl resistance and Brent is currently at $57. With OPEC + Russia due to decrease production from January first and to maintain lower plateau levels, combined with the relentless rise in demand, the oil price should rally from here, but not by much. The ceiling is set by the cost of new supply that currently resides with the N American LTO frackers. US production has halted its decline which is perhaps a sign of what is coming. The following totals compare November 2016 with November 2015:

  • World Total Liquids +780,000 bpd
  • OPEC +950,000
  • Russia + FSU +440,000
  • Europe -170,000 bpd
  • Asia -640,000
  • North America -640,000

The net figures from the above are +1.39 Mbpd and -1.45 Mbpd leaving a net -0.06 Mbpd increase compared with the + 0.78 Mbpd global total liquids figure. Year on Year, OPEC and Russia are the big winners. North America, Asia and Europe the big losers.

US EIA STEO highlights: Decline in US oil production may be over -- The decline in US oil production appears to be over, the US Energy Information Administration said Tuesday. US oil output, which climbed from 6.14 million b/d in January 2012 to a recent peak of 9.5 million b/d in December 2014, may have bottomed out at 8.69 million b/d in July 2016 and now appears to be on a new upswing, the EIA said in its Short-Term Energy Outlook. The agency forecast US production, which averaged 8.89 million b/d in 2016, to climb back above the 9 million b/d threshold in April 2017 and reach as high as 9.44 million b/d by December 2018."The general decline in US crude oil production that began almost two years ago is likely over, as higher average oil prices and improvements in drilling efficiency are giving a boost to output," EIA Administrator Adam Sieminski said in a statement. US production late last year climbed from 8.81 million b/d in October to 8.86 million b/d in November and to 8.9 million b/d in December, marking the first output increase over three consecutive months since early 2015, Sieminski said.Production is expected to average 9 million b/d in 2017 and 9.30 million b/d in 2018, both up from the 2016 average of 8.89 million b/d, but below the 9.42 million b/d hit in 2015 -- the highest level in decades. EIA has been steadily increasing its supply estimate for 2017, as the decline in US supply in response to relatively low prices has not been as significant as initially assumed. In April, for example, EIA had forecast that 2017 production would fall to average of 8.04 million b/d, nearly 1 million b/d below what it is currently forecasting.

US to sell 8 million barrels of sweet crude from three SPR sites - The US government plans to sell up to 8 million barrels of light, sweet crude from three of the Strategic Petroleum Reserve's four sites later in January, with first deliveries planned for as early as February, a Department of Energy official said Friday. DOE plans to sell 3 million barrels from its Bryan Mound SPR site and 3 million barrels from its Big Hill site, both in Texas, and 2 million barrels from its West Hackberry site in Louisiana, according to the official, who spoke on the condition of anonymity. The crude will be sold at multiple delivery points throughout the SPR system. "Companies could make offers for oil coming out of one site only, for all three sites, for pipeline deliveries only for marine vessels or combinations of both," the official said.The agency plans to issue a notice of sale by mid-January, according to the official, beginning the process for what is expected to be the first of 18 expected SPR sales through fiscal 2026 that would put nearly 200 million barrels of government-owned crude up for auction. The US SPR, the largest government stockpile of crude in the world, currently holds 695.1 million barrels of crude, including 266.1 million barrels of sweet crude. The estimated 8 million barrels to be sold this month are part of an appropriation by Congress to sell up to $375.4 million of SPR crude to partially fund an effort to modernize the SPR and add marine terminal capacity. Once the notice of sale is issued, companies will have eight days to submit bids. In order to bid, companies need to be registered in the SPR's Crude Oil Sales Offer Program and must submit an offer guarantee of $10 million or 5% of maximum potential contract amount, whichever is less.

Oil, Gas Investment to Grow in 2017 for First Time since Price Crash - The oil and gas investment cycle will show the first signs of growth in 2017 since the oil price crash in 2014 and new projects in the upstream industry will double compared to 2016, according to a new report from Wood Mackenzie. "2017 will demonstrate how efficient the oil and gas industry has become, showing projects in better shape all round,” Malcolm Dickson, a principal analyst for Upstream Oil and Gas for Wood Mackenzie, said. According to Wood Mackenzie's global upstream outlook for 2017, exploration and production spend is set to rise by 3 percent to $450 billion. “This is still 40 percent below the heady days of 2014 … but for all the pain of the downturn a leaner industry is starting to emerge,” Wood Mackenzie said in a company statement. The number of final investment decisions (FID) will rise to more than 20 in 2017, compared with nine in 2016, Wood Mackenzie reported. “This is still well short of the 2010-2014 average of 40 a year, but these are generally smaller, more efficient projects, and capex per barrel of oil equivalent averages just $7 per barrel, down from $17 per barrel for the 2014 projects,” a Wood Mackenzie spokesperson said. The impending growth is also good for jobs in the sector, Dickson told Rigzone. "Rising oil and gas investment is generally good news for jobs, in terms of safe-guarding existing roles and creating new ones. For oil companies, these will be associated with new projects, and on the supply chain side, for the delivery of required kit,” Dickson said. In its new report, Wood Mackenzie predicts that deepwater projects will spring back to life in 2017, but warns that more cost cutting is needed in the long run.

Big Oil Hits Sweet Spot as Projects Reap Rewards of Recovery (Bloomberg) -- Big Oil is poised to reap rewards this year as investments made before the crude-price slump pay off just as the recovery starts. Seven of the world’s largest energy companies will together boost oil and natural gas output by 398,000 barrels a day, the most since since 2010, according to data from Oslo-based consultant Rystad Energy AS. In 2018, output will rise even faster.The oil majors aren’t increasing their drilling budgets. Instead they’re benefiting from money invested before the rout. Lower costs combined with higher output would allow companies including Exxon Mobil Corp. and Royal Dutch Shell Plc to maximize their gains from improved oil prices. Should crude remain above $50 a barrel, 2017 could be a break-out year, eliminating the need to borrow to pay dividends, according to analysts at Sanford C. Bernstein.“They could hit a sweet spot this year,” said Mark Tabrett, a London-based analyst at Bernstein. “Heavy investments of previous years are paying off with more production, costs have been cut and the companies are in a position to take advantage of that when oil prices rise.”After reaching an intraday low of $27.10 a barrel on Jan. 20, Brent oil prices more than doubled to a high of $57.89 on Dec. 12. Futures traded Wednesday at $53.97 a barrel, up 0.6 percent, as of 11:46 a.m. London time. The global benchmark rose 52 percent last year, its biggest yearly gain since 2009. Shares in the majors, meanwhile, rose across the board, led by Shell, whose B shares gained 53 percent in London, the best annual increase since at least 1990.Brent averaged about $45 a barrel in 2016, and is expected to rise above $55 this year, according to the median of 45 analyst estimates compiled by Bloomberg. Yet the majors, still smarting from more than two years of depressed prices, have expressed a reluctance to increase spending. “For us this will be about not starting to run too fast,” Statoil Chief Executive Officer Eldar Saetre said at a conference in Oslo last week. “There won’t be a lot of new activity initiated when it comes to larger projects in 2017.”

Energy companies are about ready to loosen the purse strings -  The lean years are unlikely to be over for energy companies amid rising crude-oil inventories and global uncertainty, but the industry is expected to start spending again after years of belt-cinching. OPEC and other major players have agreed to cut production starting this month, but the market continues to be plagued by concerns that some oil-producing countries will not comply with the terms. Crude futures are off about 2% so far this year but gained 45% in 2016 after two years of double-digit losses that peaked with a 46% slide for 2014.To face the precipitous price declines, companies have cut their expenses, laid off employees, and sold so-called “non-core” assets. Spending ticked higher by the end of last year, and Wall Street expects that trend to continue. With OPEC putting a floor on prices, exploration and production companies “have greater confidence to drill and complete, although the early stages of the recovery will be uneven,” analysts at Barclays said in a recent note. North American E&P companies are seen as the biggest spenders this year, with Barclays projecting a spending increase of 27% for the year. Overall, spending is seen up 7% globally, Barclays said, citing the results of a yearly survey it conducted with more than 200 companies worldwide. Spending dropped 26% in 2015 and 23% last year.

Oil Discoveries To Rebound From Rock Bottom - The tough couple of years that oil companies had to go through with the oil price crash has forced many of them to slash exploration investment. Significantly reduced capital expenditure resulted last year in the lowest amount of conventional oil finds since 1952, with the number of wells drilled in 2016 coming in at just one-third of wells drilled in 2014. As bleak as the 2016 figures are, analysts reckon that last year was the bottom of the investment cycle, and companies are cautiously looking up to increasing exploration and production investments. The E&P sector is emerging ‘leaner and meaner’ from a doom-and-gloom two years after cutting costs, increasing efficiency, and optimizing the most promising and efficient projects. Last year was probably the low point for conventional oil discoveries, with just 3.7 billion barrels found, according to analysts at energy consultancy Wood Mackenzie. This was 14 percent less than the conventional oil finds in 2015 and the lowest level in 65 years. Even if WoodMac’s updated figures are not as gloomy as earlier forecasts from August of last year, the numbers remain extremely low, with only 431 wells drilled last year. “We may come to see 2016 as a turning point for conventional exploration,” WoodMac said in its global exploration review of 2016. Still, one bright note last year was that although far fewer wells were drilled, discovery costs were below the 2014 costs for a second year running, according to WoodMac’s review. Last year was surely not the year of exploration investment and drilling booms. But Wood Mackenzie now sees 2017 “as the dawn of a cautious recovery for the E&P sector, with investment edging upward”.

Energy's Drunken-Sailor Legacy Hangs Over Debt Rescue Plans - Debt-laden energy companies that still don’t have a financial escape plan in place are running out of time and willing lenders even after oil doubled from its February lows.Crude prices topping $50 a barrel helped to ease pressure on distressed energy companies, allowing at least 27 issuers to sell $16 billion of junk-rated bonds in last year’s final quarter, according to data compiled by Bloomberg. That still leaves about $44.5 billion maturing by the end of 2020, according to Fitch Ratings. A "mountain" of more than $18 billion in credit-line commitments comes due in 2019, said Spencer Cutter at Bloomberg Intelligence.Those still vying for new capital such as Vanguard Natural Resources LLC and Pacific Drilling SA need prices above $55 to $60 to win over lenders, according to credit analysts. What’s more, banks face tougher limits from U.S. regulators on energy loans, spurred by memories of previous booms and busts. Creditors remain mindful that drillers "get very happy about their cash flow” during good times, Evercore ISI analyst James West said. “And when financial markets become wide open, they spend like drunken sailors."Borrowers are trying to avoid the fate of more than 230 exploration, drilling, production, servicing, transportation and storage companies that have gone bankrupt since the start of 2015, affecting about $96.2 billion of debt, according to data tracked by the Haynes and Boone law firm. Despite last year’s rally, oil prices are still down from more than $107 a barrel in mid-2014, making debt loads based on those near-record levels unaffordable. Lenders may want to see sustained prices of at least $55 a barrel before agreeing to extensions, Cutter said.

Exxon’s 2040 Outlook: Fossil Fuels Aren’t Going Anywhere The global energy mix will not look that much different for oil and gas in 2040, according to Exxon Mobil’s recently released 2017 Outlook for Energy: A View to 2040. Both the middle class and world GDP is expected to double in the next 15 years, accelerating demand for air conditioned homes, cars, and appliances such as refrigerators, washing machines, and smart phones. Non-OECD nations, particularly China and India, will experience the most economic growth, driven by urbanization. Oil is expected to remain the world’s primary energy source, driven by demand for transportation fuel and feedstock for the chemical industry. Plastics and other advanced materials provide advantages to manufacturers and consumers including energy efficiency gains. Natural gas is projected to grow the most of any energy type, accounting for a quarter of all demand by 2040. Increasing electrification will drive the growth in global energy demand over the next 25 years, 55 percent of energy demand growth coming from power generation to support increasingly digital and plugged-in lifestyles and electricity will grow the most of any sector. Natural gas demand will increase significantly, with the fuel gaining share across all sectors due to its abundance and flexibility. Different sectors will use different types of energy based on their economic supply options and suitability to different purposes. A wide variety of energy types will support electricity generation, with gas, nuclear, and renewables all increasing their share in the mix to offset the decline of coal.

'Significant' oil supply-demand gap possible in three to four years: IEA's Birol - Oil price volatility is here to stay, notwithstanding recent producer pledges of output cuts aimed at calming the international market, the executive director of the International Energy Agency said Friday. "We are entering an era of more oil price volatility," Fatih Birol said in a keynote address to delegates at the Atlantic Council Global Energy Forum Forum in Abu Dhabi. "We believe that this year, if there are no major oil projects starting, ... in three to four years' time we may see a significant supply-demand gap, with major consequences," he elaborated. "This will not be filled by shale oil. This is why we may now be entering an era of greater oil volatility." Birol stressed that the two consecutive years of declining global investment in oil development in 2015-2016 had no parallel in the history of the oil industry. Globally during the two years following the sharp decrease in international oil prices of second-half 2014, no major oil projects were started and there were zero large oil discoveries. "There were no discoveries because there is no money for exploration. You find something if you look for it," he said. Global tightness in oil supply could be felt within two to three years, Birol predicted, echoing similar comments at the energy form Thursday by Saudi energy minister Khalid al-Falih. "In 2017 we have to see major new investment to calm the market, otherwise, in two to three years, that supply-demand gap will be with us," he said.

British Columbia First Nations groups file suit to stop LNG project - The proposed Pacific Northwest LNG project, which a consortium led by Malaysia's Petronas plans to build on an island off the northwest coast of British Columbia, ran into another roadblock this week, with the filing of a lawsuit by First Nations groups who argue they were not properly consulted. A group of hereditary chiefs with the Gitxsan First Nation, representing several sub-groups of indigenous people who live in the interior of the province, are seeking to overturn the federal government's approval of the project.The suit calls for the Canadian government to review an environmental approval granted to the project in September. Attempts to reach a Pacific Northwest spokesman for comment on the suit were unsuccessful. John Ridsdale, chief of Tsayu clan of Wet'suwet'en, whose group was not a party to the litigation, nevertheless said he supports the legal challenge on behalf of all First Nations peoples in the region. He said the LNG terminal, which the developers want to build on Lelu Island at the mouth of the Skeena River, could threaten a salmon spawning habitat in the river estuary. The suit brings to four the number of legal actions filed by Native American groups to try to halt the proposed $8.32 billion (C$11 billion) LNG export project. Yvonne Lattie, Gitxsan hereditary chief of the Wilp Gwininitw group, and Charlie Wright Gitxsan, hereditary chief of Wiip Luutkudziwuus, announced the request for judicial review in Vancouver Tuesday.

Natural gas production pumped up in 2016: Figures - Natural gas production in B.C., and exports to the U.S., increased seven per cent over the first nine months of 2016 despite dismal numbers for drilling new wells, statistics from the Ministry of Natural Gas Development show. That short-term rise runs counter to longer-term projections from the U.S. Energy Information Agency that estimate U.S. imports of Canadian natural gas will fall dramatically over the coming decades with increases in American domestic production. B.C. natural gas producers produced a net 35.6 billion cubic metres of gas between January and the end of September of last year and exported 11.8 billion cubic metres to the U.S., which reverses a decline in U.S. exports experienced in 2015. The production figures are a brighter spot for B.C.'s energy sector than new drilling activity. Gas producers drilled just 341 new wells in 2016, according to figures from the B.C. Oil and Gas Commission, a 23-year low. Over the longer term, however, the U.S. EIA predicted "U.S. imports of natural gas from Canada, primarily from the West where most of Canada's natural gas is produced, (will) continue to decline," according to the agency's annual energy outlook for 2017. B.C. produces about one-third of Canada's natural gas. U.S. natural gas production is also on the rise, according to the report, driven by a continuing drilling boom as producers use hydraulic fracturing to tap shale gas reserves in eastern states such as Pennsylvania, which has fuelled American gas exports to Eastern Canada. And for the moment, that increase in production is helping fuel U.S. exports of liquefied natural gas, the report said. The first U.S. export plant at Sabine Pass in Louisiana sent its first shipments to market starting in 2016.In the meantime, B.C. producers with drilling rights in the so-called Montney shale-gas formation that surrounds Fort St. John and Dawson Creek in the province's northeast are bumping up drilling activity which is proving attractive for the other hydrocarbons its shale deposits contain.

Natural gas prices in 2016 were the lowest in nearly 20 years | Hellenic Shipping News Worldwide: Natural gas spot prices in 2016 averaged $2.49 per million British thermal units (MMBtu) at the national benchmark Henry Hub, the lowest annual average price since 1999. The monthly average price fell below $2.00/MMBtu from February through May, but later increased, ending the year at an average of $3.58/MMBtu in December. Warmer-than-normal temperatures for most of the year and changing natural gas demand were the main drivers of natural gas prices in 2016.Natural gas prices in U.S. regional markets were volatile in 2016. In the first quarter of the year, much warmer-than-normal winter temperatures and large amounts of natural gas in storage caused prices to decrease. Prices began to gradually increase in late spring, with increased natural gas demand from multiple sectors and decreasing natural gas production, before sharply increasing at the end of the year with the onset of cold temperatures in mid-December. In the Northeast, where natural gas pipeline capacity is often constrained, cold weather can cause monthly average prices at hubs such as Algonquin Citygate (near Boston) and Transco Zone 6 NY (New York) to spike. Although this happened in 2016, new pipeline capacity and increased natural gas production in the Appalachian Basin, along with warmer-than-usual winter weather, contributed to price spikes that were considerably lower than in previous years. Because of warm weather, natural gas consumption in the residential and commercial sectors in 2016 declined 7% and 4%, respectively, from the previous year. Warmer winter temperatures also limited natural gas storage withdrawals. As a result, natural gas storage inventories were at or near record levels throughout most of the year and reached a record 4,047 billion cubic feet (Bcf) for the week ending November 11. Despite the overall decrease in residential and commercial demand in 2016, late-year increases in these sectors and increased demand from other sources contributed to increasing natural gas prices later in the year.

EIA Natural Gas Inventories Fall 151 Bcf, Prices Continue Recovery: The weekly Energy Information Administration (EIA) natural gas storage data recorded a decline of 151 Billion Cubic feet (Bcf) for the week ending January 6th following a 49 Bcf draw the previous week. This was the eighth successive draw and marginally above consensus forecasts of a 150 Bcf decline. Overall stocks are now 10.3% below the year-ago figure and a slight 0.1% below the five-year average. The sharp drawdown in weekly stocks will help boost confidence in the market, although there were sharp reductions in stocks during 2016 and the annual comparisons are liable to be less favourable over the next few weeks. Natural gas prices have been subjected to further high volatility this week with sharp fluctuations driven mainly by shifts in weather forecasts. After sliding to one-month lows on Monday, with lows near $3.70 per mBtu, prices had declined by more than 20% from the highs seen in late 2016, which technically put natural gas into a bear market. There was, however, a rebound the following day with evidence of strong buying support, as weather forecasts switched once again and the positive tone has been sustained with a recovery to $3.37 ahead of the inventories data. Prices rose sharply to $3.44 after the storage data and maintained a firm tone just above $3.40 as the substantial draw helped underpin sentiment.

Natural Gas Price Pops on Larger-Than-Expected Inventory Drop -  The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks decreased by 151 billion cubic feet for the week ending January 6. Analysts were expecting a storage decline of around 144 billion cubic feet. The five-year average for the week is a withdrawal of around 167 billion cubic feet, and last year's storage decline for the week totaled 168 billion cubic feet. Natural gas inventories fell by just 49 billion cubic feet in the week ending December 30.Natural gas futures for February delivery traded up by about 3.8% in advance of the EIA's report, at around $3.35 per million BTUs, and traded around $3.45 immediately after the data release. Natural gas closed at $3.22 per million BTUs on Wednesday, after falling from a high of $3.36 last Friday. The 52-week range for natural gas is $2.49 to $3.90. One year ago the price for a million BTUs was around $2.81. Natural gas prices remained low over the past week as warmer weather moved through the middle of the country toward the east coast. Cold weather over the northern tier boosted consumption above the consensus estimate, but still below the five-year average and last year's consumption. Continued warmer weather east of the Mississippi should keep prices in check again during the next week. Stockpiles have now dropped to 10.3% below their levels of a year ago, and just 0.1% below the five-year average. The EIA reported that U.S. working stocks of natural gas totaled about 3.160 trillion cubic feet, around 4 billion cubic feet below the five-year average of 3.164 trillion cubic feet and 363 billion cubic feet below last year's total for the same period. Working gas in storage totaled 3.523 trillion cubic feet for the same period a year ago.

US Gulf Coast refiners look to Algeria to feed FCCs: trade - Sluggish trade in Houston vacuum gasoil barges this week turned attention of market players to substitute feedstock from Algeria, market sources said Thursday. Low-sulfur straight-run fuel oil at maximum 0.30% sulfur can be substituted for VGO in the gasoline-making fluid catalytic cracker at a refinery. The 335,000 b/d refinery complex at Skikda, Algeria, has been a major source of the low-sulfur feedstock for US use. Much US-produced straight run fuel oil reflects higher sulfur levels up to 3.00%, with that product used as coker feed. A small fraction of US-produced straight run fuel oil tests beneath 0.3% sulfur, market sources have said. "The Skikda is basically the poor man's VGO," a US feedstocks source said. "That should make further moves up in VGO less likely." The differential for straight run fuel oil at 0.30% sulfur ("low-sulfur straight run") rose 25 cents Thursday to cash February WTI plus $5.5/b. Low-sulfur VGO fell 25 cents to $8.25/b. Market players offered different ideas Thursday on the fuel oil-VGO breakdown this month at the maw of Gulf Coast FCCs. Brokers said the balance was tipping to fuel oil, and a trader at one US refiner said the balance was in favor of VGO. Another market source had the split as level among the feedstocks. But nearly all market sources agreed that US VGO trade has slowed. Only a handful of barge trades have been heard since last Friday.

A major shift in marine fuel rules - Shipping companies now know that within three years all vessels involved in international trade will be required to use fuel with a sulfur content of 0.5% or less—an aggressive standard, considering that in most of the world today, ships are currently allowed to use heavy fuel oil (HFO) bunker fuel with up to 3.5% sulfur. This is a big deal. Ships now consume about half of the world’s residual-based heavy fuel oil, but starting in January 2020 they can’t—at least in HFO’s current form. How will the global fuels market react to a change that would theoretically eliminate roughly half the demand for residual fuels? How will ship owners comply with the rule? What are their options? Today we discuss the much-lower cap on sulfur in bunker fuels approved by the International Marine Organization, and what it means for shippers and refineries.

What's Next for Mexico's Energy Sector?  - Mexico’s recent deepwater bidding round marked a major milestone for the country in its transformation of its energy sector. However, more work is needed to prepare Mexico and its state energy firm, Petroleos Mexicanos (PEMEX), for competition in the global oil market. The success of Mexico’s Round 1.4 deepwater bidding compared with other Round 1 bids shows that major international oil companies were waiting for the right properties and fields to be bid out, Juan Francisco Torres Landa R., partner with the Mexico City office of law firm Hogan Lovells, told Rigzone. The award of fields to key global industry players in the deepwater round, and PEMEX’s farm-out agreement with BHP Billiton, would not have been possible a few years ago. Both PEMEX and Mexican government officials deemed the deepwater auction process and results as a major success. However, government officials from 2013 to 2015 expressed a “na├»ve optimism” regarding the production and reserve replacement and short and mid-term impact of upstream reform. It wasn’t until last year that officials realized that the upstream auctions will have little effect on production and fiscal revenues during this decade, Adrian Lajous, a fellow with Columbia University’s SIPA Center on Global Energy Policy, stated in a Jan. 9 research paper on Mexico’s deepwater auctions. “The compounding impact of low oil prices and falling oil production on public finance and particularly on the financial position of PEMEX has forced the oil industry to limit debt and drastically cut expenditures,” Lajous said. “The mid-term consequences of these constraints should not be underestimated.” Despite president-elect Donald Trump’s controversial comments on building a wall along the U.S.-Mexico border and tough talk on immigration, Mexico still wants the United States investing in its energy sector, Antonio Garza, U.S. ambassador to Mexico during the George W. Bush Administration and now Counsel in the Mexico City office of the White & Case LLP, told Rigzone. “There is far too much strategic expertise and know-how not to want them involved. I think the response of Mexican leadership, the Mexican private sector and the Mexican people would [be that] the U.S. energy sector is best-in-class – of course, they’re welcome. Of course, we want them to participate.”’

Mexican Drug Cartels Looting State-Owned Gas Pipelines For Black Market Sales --A couple of weeks ago we highlighted the protests that had engulfed Mexico after the finance ministry announced plans to raise gasoline prices by 20.1% starting January 1st.  Amid the chaos, the country's powerful Jalisco New Generation cartel threatened to to burn down gas stations as retribution for taking advantage of "the majority of the people who don't make even a minimum wage."But before readers blow this off as just another protest by an angry population which fails to grasp the "global deflationary collapse" while focusing on "fringe, outlier events"  - at least in the words of central bankers -  things suddenly got serious when none other than the country's powerful Jalisco New Generation cartel has entered the fray, threatening to burn gas stations in response to the price hikes, according to Jalisco authorities cited by TeleSur."They are speculating in order to obtain million dollar profits from the majority of the people who don't make even a minimum wage, we have already realized that the (shortage) of fuel is because dealers don't want to sell fuel unless they can do so at a profit, all of our people are now ready to start the mission," the Mexican drug cartel stated in a WhatsApp message circulating in Jalisco. "The CJNG, in support of the working class, commits itself to making burn all the gasoline stations that to December 30 of the current year, at 10:00 p.m." — before the price increases go into effect — "have not normalized the sale of fuel at the fair price," the message said, according to the Mexican news outlet Aristegui Noticias.

Friends of the Earth to withdraw fraudulent anti-fracking leaflet - Friends of the Earth (FoE) has agreed to withdraw an anti-fracking leaflet that made misleading claims about the environmental and social costs of extracting shale gas. The charity has agreed not to repeat unsubstantiated claims that fracking involves the use of cancer-causing chemicals or causes house prices to plummet, the Advertising Standards Authority (ASA) said. The leaflet also showed a picture of Grasmere in the Lake District emblazoned with the words “Don’t let fracking destroy all of this”. But it was pointed out by Michael Roberts, a retired geologist who complained to the ASA, that Grasmere is a volcanic landscape and contains no coal, oil or gas. Roberts and another individual complained to the ASA along with Cuadrilla, the energy firm that has been given governmental permission to frack in Lancashire. Francis Egan, chief executive of Cuadrilla, said: “FoE’s repeated falsehoods have been exposed as nothing more than scaremongering designed to frighten the public into giving it money. It is the unacceptable face of the charity sector.”  FoE was keen to point out that it had reached an agreement with the ASA rather than losing a settlement. It has vowed to continue campaigning against fracking and maintain that it is detrimental to the environment.

Bone-Chilling Winter From Berlin to Davos Causes Energy Scramble - From the rivers criss-crossing eastern Europe to the Mediterranean ports of Greece and France, everyone is hunting for energy supplies. Blizzards, gale force winds, arctic temperatures and river ice thicker than a house has left the stewards of the European energy business frenzied. Prices of natural gas, primarily a heating fuel, has soared to the highest in more than two years. Blackouts across Eastern Europe caused electricity rates to spike to record levels. It’s chaotic, but yet familiar. While energy grid operators, producers and traders prepare for winter’s chill every year, they tend to rely on meteorological forecasts that sometimes turn out to be dead wrong. So when a winter that’s expected to be mild develops into an extended deep freeze, a mad dash to meet demand ensues. “Those who became sure that such a cold spell was unlikely given the overall trend in global warming are like those who get drowned in a stream that averages three inches deep,” “The Black Swan is your constant companion.” For Europe’s natural gas traders, this winter was supposed to be boring, with a glut damping any potential for wild price swings. Norway and Russia exported at record levels, while the increasingly global liquefied natural gas trade gave utilities a cushion. By September, prices from gas to power were still near six-year lows. But gas ended the year with its biggest bull run in a decade as Centrica Plc delayed the return of the U.K.’s biggest gas store by more than two months after the start of the heating season. Long-term reserves in the region’s biggest gas market are now only about half of normal. In Turkey, the state-owned gas grid operator asked private power plants to reduce gas demand by 90 percent as Istanbul got covered in snow. France issued its strongest warning that the southeast part of the country had an urgent need for extra gas. Bulgaria, Romania and Serbia last week deployed emergency services to evacuate remote villages where people were stranded without electricity or heat.

Australia raises 2016-17 LNG exports forecast to 52.4 mil mt, 2017-18 to hit 67.3 mil mt - The Australian government has bumped up its forecast for LNG exports for fiscal 2016-2017 (July-June) to 52.4 million mt, and given an estimate for 2017-2018 of 67.3 million mt, the Department of Industry, Innovation and Science said Monday in its Resources and Energy Quarterly. In its previous quarterly report, the department had the forecast for fiscal 2016-2017 at 51.50 million mt. A rise to 67.3 million mt in fiscal 2017-2018 would be an 82.4% spike from the 36.9 million mt shipped in fiscal 2015-2016. "The four LNG projects currently under construction are expected to commence production by mid-2018, bringing Australia's LNG export capacity to around 87 million [mt]," the report said. "However, some uncertainty surrounds the timing of Shell's Prelude project in the Browse Basin, where start up could be complicated by the cyclone season -- which runs from November to April," the report added. Increased exports to Japan, South Korea and China are expected to drive the rise in Australia's export volumes. "Australian producers are expected to capture an increasing share of these countries' imports with the commencement of a number of long-term contracts over the outlook period [over 2017-2018]," the department said.

New LNG projects to boost Australia's condensate production in 2017-18 - The Australian government expects its crude and condensate output to increase to 380,000 b/d in fiscal 2017-2018 (July to June), up 21% year on year, on additional condensate production from the country's new LNG projects. Australian LNG production is set to double from 43 million mt in 2016 to more than 80 million mt in 2019, which would be even more than Qatar's estimated annual production of 77 million mt, making it the largest producer of LNG, according to Platts Analytics. Three more LNG projects -- Wheatstone, Ichthys and Prelude -- are due to startup in 2017, following the commissioning of the Chevron-led Gorgon LNG project last year. Condensate production at Ichthys is expected to peak at 100,000 b/d, while Prelude and Gorgon are expected to peak at 36,000 b/d and 20,000 b/d, respectively, according to the Department of Industry, Innovation and Science's Resources and Energy Quarterly report released earlier this week. Rising production and oil prices, following OPEC's agreement to cut output, are expected to increase the value of Australia's oil and condensate exports to $8.7 billion in fiscal 2017-2018, up $1.2 billion year on year. In the short term, the outlook seems less positive, with production in the year ending June 2017 expected to be 314,000 b/d, slightly lower than the 317,000 b/d produced a year earlier. Third-quarter data showed that Australia produced 291,000 b/d of crude and condensate, down 17% year on year. Reduced production and low prices led to a 23% decline in the value of Australia's crude and condensate exports year on year to $1.3 billion in Q3. Expenditure on oil and gas exploration fell 39% year on year in Q3 2016 to $355 million.

Japan's average LNG spot price for cargoes contracted in Dec rises 14% on month to $8/MMBtu - Japan's LNG buyers paid $8/MMBtu for spot cargoes contracted in December, surging 14.3% from November, data released by the Ministry of Economy, Trade and Industry showed Friday. The ministry does not disclose delivery months of cargoes contracted. Platts JKM averaged $8.935/MMBtu in December, which reflects spot deals concluded for January and February deliveries to Japan and South Korea. The JKM jumped during December as demand increased following an outage at Australian Gorgon LNG facility's Train 1. On December 1, the Platts JKM for cargoes for delivery in January was assessed at $7.7/MMBtu, while on December 30, the Platts JKM for cargoes for delivery in February was assessed at $9.75/MMBtu. Japan's METI on Friday also published the average price of cargoes delivered into Japan in December, which stood at $6.8/MMBtu, up from $5.9/MMBtu in November. The Platts JKM for November cargoes averaged at $7.030/MMBtu with the assessment covering the period from October 17 to November 15.

Energean Expects To Spend Up To $1.5B On Israeli Offshore Gas Project (Reuters) - Greek company Energean Oil & Gas plans to build its own production system in the eastern Mediterranean at a cost of up to $1.5 billion to tap two Israeli offshore gas fields, the group's chief executive said on Wednesday. Greece's only oil producer is also looking to bring a financial partner into the project to develop the Tanin and Karish fields which are situated in deep waters around 100 kilometres (62 miles) off Israel's coast and have combined gas reserves estimated at 2.4 trillion cubic feet. Energean bought Karish and Tanin last August for $148 million from U.S.-Israeli partners Delek Group and Noble Energy, who are developing two much larger fields nearby and were required by Israel to sell off other discoveries in an effort to open up the sector to competition. Rather than piggyback off that group's infrastructure, an idea previously floated by some experts, Energean plans to lease its own floating production, storage and offloading (FPSO) vessel and build a separate pipeline to Israel. "We are going to be a totally independent system," CEO Mathios Rigas told Reuters, adding that a combination of local and international banks will help finance the $1.3-$1.5 billion needed. Before making a final investment decision, which is expected in December, the Israeli government must first approve the development plan and Energean needs to secure sales contracts for 3 billion cubic metres of gas per year, Rigas said. Israel has determined that gas from Tanin and Karish must be sold domestically.

ExxonMobil Strikes More Oil Offshore Guyana - Exxon Mobil Corp. reported Thursday it had further established offshore Guyana as a significant exploration province with a new oil discovery and successful appraisal drilling at its Liza field. The Payara-1 discovery encountered over 95 feet (29 meter) of high-quality, oil-bearing sandstone reservoirs. Payara-1 was drilled in a new reservoir and marks the second oil discovery ExxonMobil has made at the 6.6 million acre (26,800 square kilometer) Stabroek Block, the company said in a Jan. 12 press statement. Located about 10 miles northwest of ExxonMobil’s 2015 Liza discovery, Payara-1 was drilled to 18,080 feet (5,512 meters) in 6,660 feet (2,030 meters) of water, ExxonMobil said in a Jan. 12 press statement. ExxonMobil started drilling Payara-1 on Nov. 12, reaching initial total depth Dec. 2. The company is drilling two additional sidetracks at Payara to quickly evaluate the discovery; a well test is underway to further evaluate the well results, ExxonMobil said. Appraisal drilling at Liza-3 also identified an additional, high quality, deeper reservoir directly below the Liza field, which is estimated to contain 100 to 150 million oil equivalent barrels. ExxonMobil said it was evaluating the additional resource for development in conjunction with the Liza discovery. The Liza field is estimated to yield the equivalent of 800 million to 1.4 billion barrels of crude.

Rosneft inks deal to supply crude to Glencore, QIA-backed trader - Rosneft said Tuesday it had signed a five-year deal to supply up to 55 million mt -- around 403 million barrels -- of oil to QHG Trading, a joint venture between Glencore and the Qatar Investment Authority. The deal comes shortly after Glencore and QIA jointly acquired a stake in Rosneft itself, with the purchase completed last week. The supply deal, which was signed Monday, envisages shipments for export of between 22.5 million mt and 55 million mt of oil, Rosneft said in a document posted on its website. Annual volumes included in the deal are between 4.5 million mt and 11 million mt. The deal is valid for five years starting January 1. "The financial size of the deal has not been set, as it depends on the market price for oil in the long term, the price of each shipment will be determined using a formula based on market prices for crude oil at the time of delivery," the document said. A Rosneft spokesman declined any further comment. Glencore did not provide immediate comment. The deal adds to existing cooperation between the three parties, after Glencore and QIA agreed in December to purchase a 19.5% stake in Rosneft from the Russian government for Eur10.2 billion ($10.8 billion). Last Tuesday Glencore said the transaction had closed. When the deal was announced in December, Glencore indicated it would have a significant impact on the volumes of Russian crude it trades. It said the deal included a five-year offtake agreement with Rosneft, representing a sizable additional 220,000 b/d for Glencore's marketing business.

China's CNPC Forecasts Record Oil Demand, Warns On Product Glut (Reuters) - China's crude oil demand will grow by 3.4 percent this year to a record of almost 12 million barrels per day (bpd), the country's top state-owned oil producer forecast on Thursday, as refiners in the world's second-biggest oil user ramp up output. The robust outlook for crude combined with surging vehicle sales in the world's largest auto market boosted oil futures even as the report cautioned that demand growth for products like gasoline and diesel will slow and the domestic fuel glut will remain a significant problem. Total crude oil consumption will hit 594 million tonnes, or 11.88 million bpd, state-owned China National Petroleum Corporation (CNPC) forecast in an annual report released by its research institute. Total refinery throughput will rise by 3.3 percent to 557 million tonnes, or 11.2 million bpd, with refiners adding 702,000 bpd of net capacity. That will increase to 11.8 million by 2020, it said. The rising refinery demand will lift crude imports by 5.3 percent to 396 million tonnes, or 7.95 million bpd. By 2020, it forecast imports will hit 8.2 million bpd. But, the rising refinery runs will maintain the domestic supply glut that has forced refiners to export into a saturated Asian market in recent years. The domestic refining glut will be at least 2.2 million bpd by 2020, but could surpass 3 million bpd if the market worsens, it forecast. CNPC predicted that net exports of diesel will surge by 55 percent this year to 22.4 million tonnes, or about 450,000 bpd. In addition, slowing growth in the world's second-largest economy and the shift to renewable energy will hamper the consumption growth for oil products, the report said. "Energy giants will die like dinosaurs if they don't diversify into other energy products and into clean energy," said Liu Zhaoquan, vice president at the CNPC institute, at a briefing.

Outlook 2017: India's oil demand growth rate to eclipse China's yet again - The dramatic rise in India's oil demand shows no signs of faltering, leading analysts to say that the country will remain a driver of Asian growth in 2017. Consumption is expected to rise 7-8% this year, outpacing China's demand growth for the third consecutive year. The cash crunch following New Delhi's move in early November to demonetize more than 80% of its currency is expected to temporarily dampen the country's appetite for oil products in the first quarter, or maybe a little longer. But gains in oil demand that the country is set to achieve from the "Make in India" initiative -- which aims to raise the share of manufacturing in GDP over the next few years -- will more than offset the negative effects of demonetization, analysts said. The government's clean fuel drive, sharp anticipated growth in transport demand and air travel, and the country's insatiable growth for petrochemicals will act as a boon for gasoline, jet fuel, LPG and naphtha, helping oil products to post close to double-digit growth in 2017 -- similar to that seen last year -- if not higher. "For the third year in a row, India's oil demand growth will outpace China's demand growth," Platts Analytics said in a note, adding that it was expected to grow at about 7% to 4.13 million b/d in 2017, compared with 3% in Chinese oil demand to 11.5 million b/d. India's demand for oil products in November rose 12% year on year to 16.6 million mt, or 4.35 million b/d, data from the Petroleum Planning and Analysis Cell showed.

Nigeria: Militant group Niger Delta Avengers warns government of more deadly attacks in 2017: The Niger Delta Avengers, a local militant group known for attacking oil pipelines in the delta region, on Friday (6 January) announced the launch of a more fierce war and bloodshed against the Nigerian government in 2017. The group alleged that the government has turned a deaf ear to their demands and was not ready for dialogue. It also blamed the government of not reciprocating its ceasefire efforts of 2016.The government, led by President Muhammadu Buhari, and the militant group have been engaged in talks for more than six months over the latter's concerns about oil revenues and poverty levels of the people of Niger Delta. However, the group claimed that the government was "politicising and blackmailing the process to forestall any genuine dialogue and negotiations"."Since, the declaration of cessation of hostilities in the region by all fighters and affiliates, it has been evidently clear that the Nigerian state is not ready for any form of dialogue and negotiation with our people to addressing the issues sustaining the unending sufferings and deprivation of the people of the Niger Delta."As we get prepared for the challenges ahead 2017, We make bold to tell the people of our Niger Delta, sane minds in Nigeria and the comity of nations that the remaining 11 months and couples of weeks in 2017 will be filled with surprises and a reconfiguration of the struggle for the liberation of our motherland.

Iran Picks 29 Foreign Companies To Bid In Oil, Gas Tenders --The National Iranian Oil Company has issued a list of 29 companies that have qualified for bidding in oil and gas tenders, of whom only one is a U.S. player, Schlumberger. The biggest European producers, including Shell, Eni, Total, and OMV have all qualified but BP has pulled out from the race because of worry that relations between Iran and the U.S. will get heated once Donald Trump takes office later this month, according to the Financial Times. Among those that qualified were China’s Sinopec, CNPC, CNOOC, and CNPW, as well as the state-owned oil companies of Indonesia and Malaysia – Pertamina and Petronas – plus Japan’s INPEX Corporation, Itochu, Mitsui, and Mitsubishi, and Japan Petroleum Corporation. Russian Gazprom and Lukoil were also among those qualified for the tenders, as were Danish Maersk, Indian ONGC, and Polish PGNiG.The domination of Chinese and Japanese companies on the list is understandable, as is the reluctance of U.S. energy companies to participate in Iranian oil and gas tenders. During his colorful election campaign, Donald Trump slammed the deal reached by Western powers and Iran on its nuclear program, which led to the lifting of most sanctions against it. The President-elect has also threatened to revoke the deal as soon as he takes office.  Iran, meanwhile, is eager to get its oil and gas industry back on its feet and has already struck deals with Lukoil, Total, CNPC and Sinopec, and Petronas for the development of oil and gas fields. Total is working on the huge offshore South Pars field; Petronas is drilling for oil at South Azadegan and Sheshmeh Hosh; and CNPC and Sinopec are developing Yadavaran and North Azadegan. Tehran’s leanings east and north could be seen as a safeguard against new sanctions coming from the West, in case Trump gets his way, which is by no means a certainty, especially in light of a recent appeal from top U.S. scientists to the President-elect to keep the deal as it is, arguing it is a deterrent to any further attempts by Tehran to develop nuclear weapons.

Libya’s oil revival gathers pace to highlight risks on OPEC deal - Libya, the holder of Africa’s biggest crude reserves, is ramping up output from its biggest oil field again after two years of internal conflict, the latest reminder of just how vulnerable OPEC’s quest to clear a global crude glut might be. The Sharara deposit in the Libya’s south west will ship almost 1.9 MMbbl this month from its Zawiya port near Tripoli, according to a loading program obtained by Bloomberg. That compares with a pumping rate from the field of almost 9 MMbbl a month as recently as late 2014, before internal conflict halted flows. So far Libya’s revival has done little to undermine a plan by the Organization of Petroleum Exporting Countries to prop up prices by restricting oil supply. The group said Nov. 30 it would curb almost 1.2 MMbopd but that several nations—Libya among them—didn’t have to commit due to exceptional circumstances. Nigeria was also allowed to boost output because of a militant campaign that damaged its flows, while Iran was also allowed to increase supplies from what it was pumping late last year in its recovery from sanctions. Libya reopened Sharara field last month and the nation’s total pumping rate stood at 650,000 bopd. As well as restarting fields, it has also resumed cargo loadings from key ports. If maintained, the amount Libya is pumping would be about 125,000 bopd higher than the North African country was producing in October, the starting point for when most other OPEC nations are supposed to limit their collective supply. Mustafa Sanalla, the chairman of Libya’s National Oil Corp., said Dec. 21 that output would reach 900,000 bpd early this year. By hitting that target, Libya would replace about one third of the supplies being cut by other OPEC nations.

Kuwait Slashes Oil Production To 2.707M BPD On OPEC Accord - Kuwaiti officials say the OPEC-member country has reduced oil production this month to around 2.707 million barrels per day, in line with the targeted amount under the OPEC output cut agreement reached on 30 November. So far, Saudi Arabia, Kuwait, Iraq and Venezuela are honoring the commitment to cut output, while Iran uses the time to shore up lost market share, and Libya and Nigeria struggle to ramp up production to avoid destabilization. Kuwait agreed in November to cut output by 131,000 barrels per day, starting on 1 January. This figure is down from its October baseline production of 2.838 million barrels per day, and down from December’s 2.9 million bpd in production, news agencies cited industry sources as saying. On 21 and 22 January, a committee responsible for monitoring whether the agreed upon cuts are being made will meet in Vienna to hash out a way to monitor compliance with the deal. On Sunday, OPEC Secretary General Mohammad Barkindo is set to visit Kuwait for preliminary discussions with the Kuwait Oil Minister regarding mechanisms for monitoring compliance. Meanwhile, Kuwait is benefitting from a slight recovery in oil prices since the November OPEC deal. For the second quarter in a row, Kuwait’s trade surplus has widened on oil price recovery, though its US$4.58-billion surplus is still far below the levels it had seen prior to the oil price crash of mid-2014.

Iraq Cuts Oil Production By 160,000 Bpd Under OPEC Deal | Rigzone- Iraq has cut oil production by 160,000 barrels per day (bpd) since the beginning of January in line with an OPEC decision to lower output, the oil ministry said in a statement on Tuesday. Oil Minister Jabar Ali al-Luaibi said he hoped that by the end of the month production would be cut by 210,000 bpd, in line with the OPEC-agreed cap for Iraq, according to the statement. Iraq, the second-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), said on Monday exports from its southern oil ports had reached a record 3.51 million bpd, but it was nonetheless lowering nationwide production. OPEC agreed in November to cut output by 1.2 million bpd from January 2017 to support prices. A separate ministry statement on Tuesday said Luaibi had invited Angolan oil company Sonangol to begin working at the Qayyara and Najma oil fields in northern Iraq by the end of February. The ministry was "working to enable oil companies in Iraq to operate by removing obstacles" in areas recaptured in recent months from insurgents. Sonangol had pulled out of an agreement to increase output at the Qayyara fields in 2014, citing the mounting security risk. Iraqi oil workers have capped a number of burning wells set alight by Islamic State militants as they retreated from Qayyara towards Mosul, where U.S.-backed Iraqi forces are pressing an offensive against the group. Qayyara and Najma used to produce up to 30,000 bpd of heavy crude before they fell under control of the ultra-hardline jihadists. Reliant on oil sales for most of its income, Iraq had resisted production cuts, saying it needed revenue to fund a war against Islamic State militants who seized a third of the country's territory in 2014. But it has accepted a lower production reference level as part of the OPEC deal that estimated its output at 4.561 million bpd.

Despite OPEC Cuts, Iraq To Boost February Oil Exports To Record High - One month ago, we were surprised to report that while oil traders and analysts were expecting OPEC member nations to, at least initially, pretend to comply and affirm their adherence to the production cuts as per the the Vienna meeting (before eventually cheating on their quotas), a very aggressive Iraq was not only not cutting output, but according to Iraq’s national oil company, the State Organization for Marketing of Oil (SOMO), had disclosed plans as of December 8, nine days after agreeing to cut production, to increase deliveries of its Basra oil grades by about 7% to 3.53 million barrels a day compared with October levels. The unexpected news was first reported by the WSJ which obtained a detailed oil-shipment program: such oil shipments represent about 85% of Iraq’s exports. To be sure, Iraq did come up with a convenient scapegoat when just days later it blamed the autonomous Kurdish region of exporting more than its allocated share of oil. As a reminder, as part of the deal, Iraq, OPEC's second largest producer, agreed to reduce output by 210,000 bpd to 4.351 million bpd. However, it immediately accused Kurdistan, over whose oil production Iraq's level of control is limited at best, of producing well more than its quota. "The region is exporting more than its share, more than the 17 percent stated in the budget,” Iraq oil minister Haider al-Abadi said at the time.Fast forward to this morning, when Reuters, looking at the same loading schedules, reportedthat Iraq plans to raise crude exports from its southern port of Basra to an all-time high in February, keeping exports high even as OPEC production cuts take effect this month.Just like last month, the country's State Oil Marketing Company (SOMO) announced plans to export 3.641 million barrels per day (bpd) of crude in February, according to trade sources and preliminary loading schedules obtained by Thomson Reuters on Tuesday, beating a record of 3.51 million bpd set in December. The February volume includes 2.748 million bpd of Basra Light and 893,000 bpd of Basra Heavy, the documents showed.Reuters adds that for January, SOMO had planned to export 2.627 million bpd of Basra Light and 903,000 bpd of Basra Heavy. Basra crude accounts for the bulk of oil exports from Iraq. Surprisingly, despite the jump in exports, Iraq's oil ministry said on Tuesday it has cut oil production by 160,000 bpd since the beginning of January in line with the OPEC decision.

Oil futures decline on record Iraqi exports, rising US rig count - Oil futures fell Monday as record-high exports from Iraq's southern crude terminals and rising US drilling activity sowed doubts over the effectiveness of OPEC's agreed supply cuts. NYMEX February crude settled $2.03 lower at $51.96/b. ICE March Brent settled down $2.16 at $54.94/b. Iraqi crude exports from southern ports averaged a record 3.51 million b/d in December, according to the country's oil ministry. Despite the rise in exports, Iraq remains committed to complying with its pledged output cut under the OPEC supply deal reached November 30, Iraqi oil minister Jabbar al-Luaibi said Monday. Iraq vowed to lower its output by 210,000 b/d from its October level, which OPEC pegged at 4.651 million b/d. OPEC's members agreed to lower their collective output by roughly 1.2 million b/d to 32.5 million b/d. Non-OPEC producers, including Russia, agreed to nearly 600,000 b/d of additional cuts. Iraq plans on satisfying its production cut obligations by implementing scheduled field maintenance, according to senior Iraqi oil officials. The UAE and Saudi Arabia have also been trying to move forward field maintenance to comply with pledged cuts that went into effect January 1, sources said. "For prices to push higher, we need verification that OPEC and Russia have cut production and decide to keep it there for more than a week or two,"

How Tillerson Could Jeopardize Geopolitics In Iraq -- Former oil executive Rex Tillerson’s history of politically damaging oil dealings in the Middle East could jeopardize the future of a united Iraq as he assumes the position of U.S. Secretary of State with the inauguration of President-elect Donald Trump on January 20th, pending a Senate confirmation vote. Under Tillerson’s management in 2011, Exxon Mobil approved oil contracts with Erbil, the capital of the Kurdish Regional Government (KRG), which spans almost 80,000 kilometers in northern Iraq, provided disputed territories are included in the calculations. These lands hold an estimated 45 billion barrels of recoverable oil. This strategic business move, which helped insulate the American oil major from the financial effects of the collapse of $25 billion in development contracts for West Qurna it had signed with the Iraqi government in 2009, affirmed the independent vision the KRG had been pushing in its domestic and international political agenda. “Part of the process of building our region has to do, of course, with dealing with oil, signing contracts, negotiations with various countries,” Fuad Hussein, chief of staff to Kurdistan’s president, told Reuters in 2014. The Exxon deal represented “a big victory for [the Iraqi Kurds]” because it affirmed the group’s economic ascension, apart from Baghdad’s volatility since the U.S.-led toppling of Saddam Hussain’s authoritarian regime in 2003. However, the new agreements with Erbil undermined the U.S.’ official position of supporting a unified Iraq and irked neighboring Turkey, which, to this day, vehemently opposes Kurdish militant factions pushing for political self-determination for those who belong to the minority group.

Oil Prices Fall As Markets Question OPEC Cuts - Oil prices declined sharply at the start of this week on fears of rising U.S. shale production and a reversal of speculative bets by hedge funds and other money managers, a sign that optimism in crude prices might be reaching its limits. WTI and Brent fell more than 2 percent on Monday and declined by another 1 percent during midday trading on Tuesday. Natural gas prices have also fallen sharply over the past week (although gas gained a bit on Tuesday) as warmer weather is set to arrive in much of the United States. With capex set to rise in 2017 for the first time in three years, payrolls in the oil industry will also expand. An estimated 440,131 jobs were eliminated around the world during the downturn, with more than three quarters coming from the oilfield services sector, including drilling contractors, equipment suppliers and service providers. After bottoming out in July, oil jobs started to rise in the U.S., and hiring will pick up momentum this year, according to industry consultant Graves & Co. In 2016, the global oil industry discovered 3.7 billion barrels of new oil, the lowest figure dating back to the 1950s, according to Wood Mackenzie. However, there is a good chance that last year’s total will be the low point, with discoveries set to rise this year as spending on exploration increases. Enbridge is trying to market a new stream of oil to U.S. customers, but is having trouble finding willing buyers. Canada’s oil industry is suffering from a dearth of pipeline capacity, forcing Canadian oil to sell at a steep discount to WTI. Much of Canada’s oil is of the heavier variety, but Enbridge is trying to market a new stream dubbed Canadian Heavy Sweet (CHS), a mixture of heavy and light oil. The idea is to send more oil along an existing but under-utilized pipeline that runs to Wisconsin, USA, which has been used to ship light oil. The new CHS blend would allow more heavy oil to be exported, but U.S. refiners are thus far wary of the unknown oil blend.

Oil prices running out of reasons to rally -- Oil prices faltered at the start of the second week of the year, as fears set in about a rapid rebound in U.S. shale production. For the better part of two months, optimism surrounding the OPEC deal has buoyed oil prices, but bullish sentiment from speculators are showing early signs of abating, raising the possibility that the oil rally is running out of steam. WTI and Brent sank more than 2.5 percent in intraday trading on Monday, after a report at the end of last week showed another solid build in the U.S. rig count, the tenth consecutive week that the oil industry added rigs back into the field. Aside from a single week in October, the U.S. oil industry has deployed more rigs in every week dating back to June, a remarkable run that has resulted in more than 200 fresh rigs drilling for oil. The gains in the rig count come even as oil prices have held steady in the mid- to low-$50s per barrel. At the start of 2017, there are two major dynamics at play occurring at the same time, each pushing in opposite directions on the market. The OPEC deal is slated to take oil off the market, while U.S. drilling is expected to add new supply. The pace and magnitude of each trend will ultimately drive oil prices one way or the other. On the positive side of the ledger, there are early signs that OPEC members are meeting their commitments. Saudi Arabia said last week that it is lowering its production in January by 486,000 barrels per day, a volume that it promised to cut as part of the November deal. That will take output down to 10.058 million barrels per day, a level that Riyadh was only required to meet as an average over the January to June time period. Cutting to that level ahead of time is a sign of good faith from Saudi Arabia, and increases the chances that OPEC will stay true to its promises. On top of that, Kuwait’s envoy to OPEC said that Qatar, Kuwait and Oman were also complying with the cuts. In an interview with Bloomberg, Kuwait’s Nawal Al-Fezaia said that those countries already told customers that cuts were imminent.

US To Sell 8 Million Barrels Of Oil From The Strategic Petroleum Reserve - Two weeks ago we previewed that the U.S. Department of Energy could begin to sell off some of its strategic petroleum reserve (SPR) as soon as January, the beginning of a multi-year process to shrink the nation’s stockpile of oil. Congress has authorized DOE to sell off $375.4 million worth of oil in its recent budget resolution. The DOE said that such a sale could be held in January 2017. Part of the motivation to sell crude is to finance upkeep for the SPR itself. The reserves are held in salt caverns in Louisiana and Texas, setup decades ago in the aftermath of the Arab Oil Embargo in 1973. The SPR system can hold more than 700 million barrels of oil, the largest strategic stockpile in the world. The idea is that the SPR holds 90 days’ worth of oil supplies, which could be released in the event of a global outage. A release has only occurred a handful of times, such as the Persian Gulf War, Hurricane Katrina and the Arab Spring. Some of the storage systems are rusting and corroding after decades of use. In September, the DOE issued a report to Congress, which came to a dire conclusion about the condition of the reserve. “This equipment today is near, at, or beyond the end of its design life,” the report said. The sale "will allow the Department to take necessary steps to increase the integrity and extend the life” of the reserve, a DOE spokesperson said in December after the budget resolution was passed.

Oil Slumps As Nigeria Production Jumps, Kuwait Hints At OPEC Deal "Non-Compliance", SPR Sale - Having already traded heavy much of the Monday despite pressure on the dollar index which is trading near session lows, oil took out session lows moments ago on what appear to be three most recent catalysts. First, Kuwait's oil minister shook some of the market's conviction that the Vienna OPEC oil production cut is being adhered to, when we said that the announced cuts so far make up just 60-70% of the total decrease pledged by OPEC and other major producers. Trying to put a positive spin on the news, Kuwait's Essam Al-Marzouk told reporters in joint conference with OPEC Secretary General Mohammad Barkindo in Kuwait City, that he is confident the remaining countries will comply with promises to cut oil production, even though as he admitted "not all producers have to cut output from Jan. 1" and that one should look at the cut as a phase in process to "average over 6 months." We can only assume he was referring (mostly) to Russia, which repeatedly warned it will need months to catch up to its promised quota. It would be troubling if other OPEC nations are having "problems" complying with the cuts. Recall that Iraq has already accused its semi-autonomous Kurdish region of oil production that was roughly double what it was afforded per the Vienna quota.  Complicating matters for the oil bulls, was a a second report according to which Nigeria's oil production in December rose to 1.9mmbpd, up roughly 100kbpd from the November output of 1.8mmbpd, which in turn was a nearly 30 increase from October. In a video posted on his Facebook account, Nigeria Oil Minister Emmanuel Kachikwu his country plans to sell oil blocks in 2017, adding “we are going to be conducting oil blocks allocation and marginal field awards to try and raise money for the government” in hopes of phasing out term contracts for crude this year.   Finally, topping off the trifecta of negative crude news was the previously reported announcement from the DOE that the US will soon sell 8 million barrels from the Strategic Petroleum Reserve over the next few weeks. As a result, oil which was down all day, just hit session lows.

Russia Cuts Oil Output By 100,000 Bpd In Early Jan (Reuters) - Russia cut its oil production in early January by around 100,000 barrels per day (bpd) from the previous month after an agreement with OPEC to cap global crude output, two sources from the energy sector told Reuters on Monday. Russia's oil and gas condensate output averaged 11.1 million barrels per day (bpd) in the period from Jan. 1 to Jan. 8, according to the two sources. This was down from 11.21 million bpd in December and October's level of 11.247 million bpd, a starting point for output reduction agreed with the Organization of the Petroleum Exporting Countries. The sources declined to give the reason for the fall or name the companies that reduced their production. The cuts came amid a cold spell in Russia and in its oil production heartland of Western Siberia in particular, where temperatures reached as low as minus 60 Celsius (minus 76 Fahrenheit). Russian Energy Minister Alexander Novak had said the targeted level of Russian output was 10.947 million bpd after the production cut deal. He also said that Russia plans to reduce oil output by 200,000 bpd in the first quarter and reach the cuts of 300,000 bpd thereafter, as agreed with OPEC last month. Some other countries, including Saudi Arabia, the world's top oil exporter and biggest OPEC producer, have also reduced their output. Saudi Arabia cut oil output in January by at least 486,000 bpd to 10.058 million bpd, fully implementing OPEC's agreement to reduce output, according to a Gulf source familiar with Saudi oil policy. Many analysts still expect Russian oil production to grow in 2017 overall and reach a record high due to new fields coming on line.

Markets Brace As API Estimates First Crude Inventory Build In Eight Weeks - The American Petroleum Institute (API) reported a 1.5-million-barrel build in its latest data release on Tuesday afternoon. The build to crude inventory sent oil prices downward, even though a build, although more modest, was expected. Analysts had forecast a 1.2 million-barrel build. This is the first increase to crude inventory in eight weeks. What the market was hoping for was another draw week, which would have been eight straight weeks of declines to crude inventory. Oil prices were already trading down more than 2% on Tuesday before the data release on a strong dollar, rising US production, and reservations that OPEC would follow through with its promised cuts—although Saudi Arabia and a handful of other OPEC members do appear to be putting on the brakes. Iraq, however, is upping February exports from its Basra port to all-time highs, worrying markets. Last week, the API reported a large draw on crude inventories, down 7.4 million barrels from the week prior, marking the fifth draw in seven weeks, and the largest draw since September 2016. Crude inventory at the Cushing, Oklahoma facility saw a draw of 187,000 barrels, after last week’s 482,000-barrel build. Shocking the markets further was a gasoline build of 1.7 million barrels, which although not a huge figure by itself, is tough to swallow combined with last week’s massive 4.25-milllion-barrel build, which was largest build in gasoline stocks in a year. Distillates also climbed by 5.5 million barrels, after last week’s 5.24-million-barrel build.U.S. light crude oil settled down $1.14, or 2.2 percent, at $50.82. That was its weakest daily closing level since Dec. 7. Brent crude was last down $1.26 a barrel, or 2.3 percent, to $53.68.

Oil Holds Losses After Inventory Data Shows More Builds --Having tumbled to a $50 handle during the day session, WTI Crude whipsawed to unchanged after API reported 1.53mm crude build (in line with expectations), a Cushing draw, and builds again (after last week's massive builds) for gasoline and distillates. API":

  • Crude +1.53mm (+1.5mm exp)
  • Cushing -187k
  • Gasoline +1.69mm
  • Distillates +5.48mm

After a big crude draw and massive product inventory builds last week, it appears things have calmed down a little...

US crude settles at $50.82, striking one-month low on strong dollar, OPEC cut doubts - Oil prices fell about 2 percent on Tuesday, extending the previous session's sharp sell-off, as the U.S. dollar strengthened and doubts over implementation of a global deal to cut output loomed. Members of the Organization of the Petroleum Exporting Countries (OPEC), such as Saudi Arabia, appear to be reducing production under a global deal to rein in oversupply but it is unclear whether other big producers like Iraq will follow suit. Iraq, OPEC's second-largest producer, said it would raise crude exports from its main Basra port to an all-time high in February. The country's southern oil exports in the first nine days of January held steady near a record high, despite the agreed start of OPEC cuts on Jan. 1, according to a source and loading data. "The petroleum markets are consolidating at the lower levels reached in Monday trade after doubts emerged over the degree of compliance with OPEC production cuts as Iraqi exports remain high, as well as the more general pace of market rebalancing," Tim Evans, energy futures specialist at Citigroup said in a note. "Fresh reports that non-OPEC producers Russia and Kazakhstan have reduced output have produced little price reaction, with the failure to rally on bullish news suggesting that the market is overbought and vulnerable to a further downward correction."

Too early to decide on extending OPEC's production cut deal: UAE minister - As OPEC producers begin cutting back their output, UAE energy minister Suhail al-Mazrouei said Wednesday producers were committed to making the necessary cuts, but it was premature to discuss whether the arrangement would be extended beyond the initial six months outlined in November. Speaking at an energy event in Abu Dhabi, Mazrouei said producers from the Gulf Cooperation Council -- which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE -- have all started talking with their customers about reduced volumes. "They already know what to expect," Mazrouei said, adding that this gave him confidence that the cuts were being implemented, and there was no need to be skeptical about this. This was not a "show me" scenario, he said, while also calling on the producers to be "vocal" about their cuts to bring total OPEC output down by 1.2 million b/d. Saudi Arabia pledged to take on the biggest burden of production cuts, slashing output by 486,000 b/d, but there has so far been little indication from the kingdom of current output levels. Kuwait announced earlier this month it had closed down as many as 90 oil wells to bring its production down by 131,000 b/d, while non-OPEC producer Oman has also begun cutting production by 45,000 b/d since January 1. The UAE's contribution is to cut production by 139,000 b/d, from just over 3 million b/d.

Crude Dumps'n'Pumps Despite Massive Inventory Builds, Biggest Jump In Production In 20 Months -- After last week's massive product builds (and crude draw), API suggested additional builds ahead of DOE data which confirmed even bigger than expected builds in Crude, Gasoline, and Distillates. WTI gapped lower on the print then accelerated lower as US crude production rose by the most since May 2015. Then the algos decided it was time to rip oil prices higher... DOE:

  • Crude +4.097mm (+1.5mm exp)
  • Cushing -579k (+100k exp)
  • Gasoline +5.023mm (+2.75mm exp)
  • Distillates +8.356mm

Biggest crude build since November and another week of massive builds in gasoline and distillates...The 13.4 million barrel increase in total U.S. crude and refined products stocks last week is the biggest weekly gain since April 2015. Crude prices have slipped this week on, among other things, concerns of rising US crude production which exploded higher in the last week...The biggest surge since May 2015

U.S. crude, fuel stockpiles soar amid record high refining: EIA | Reuters: U.S. inventories of crude and refined oil rose sharply and more than expected last week, with stocks of distillates hitting six-year highs, as crude imports and refining hit record highs, government data showed on Wednesday. Crude inventories rose 4.1 million barrels in the week to Jan. 6, the U.S. Energy Information Administration said, higher than analyst expectations for a 1.2 million-barrel build. "We have had a triumvirate of bearish builds from today's report. Counter-seasonal strength in refinery runs have boosted product inventories, while stronger imports have bolstered crude stocks," said Matt Smith, director of commodity research at energy data provider ClipperData in Louisville, Kentucky. The market's reaction was initially bearish, with a sharp fall across the energy complex, but the selloff was quickly reversed, in part because a record amount of crude was refined. Refinery crude runs rose 418,000 barrels per day to 17.1 million bpd, the highest level since EIA records begin in 1982. Refinery utilization rates rose 1.6 percentage points to 93.6 percent of nationwide capacity, with rates in the Gulf Coast region reaching 96.4 percent, the highest seasonal levels since the EIA began collecting the data in 2010. However, crude production also rose notably, particularly in the lower 48 states. Overall production was 8.95 million bpd last week, most since April of last year. That could undermine the Organization of the Petroleum Exporting Countries' deal to reduce a global glut. Crude stocks at the Cushing, Oklahoma, delivery hub for U.S. West Texas Intermediate (WTI) crude futures fell by 579,000 barrels, EIA said.WTI was up 2.6 percent, or $1.31, to $52.13 a barrel by 11:28 a.m. (1628 GMT). U.S. fuel prices also rose, with heating oil futures up 2.4 percent and gasoline over 3 percent higher.

Oil Erases Saudi Jawbone Gains Amid China Glut Concerns -- Oil prices rallied the last couple of days on the heels of Saudi jawboning about just how much they cut production, after concerns on US shale production surging. However, prices are falling back as despite near-record imports of crude reported overnight in China, it appears that historical demand has 'glutted' refiners (who exported record product in 2016) leaving a slew of oil tankers stranded off the Chinese coast. As Reuters reports, China's crude oil imports jumped to a record high in December as refiners stepped up purchases ahead of a possible OPEC deal to cut supply and bolster prices, and as more independent refiners won import permits. Exports of refined fuel also surged to a new high as the country's giant state refiners shipped more product offshore in the face of a growing domestic surplus, adding to pressure on Asian refining margins. Crude imports hit 36.38 million tonnes in December, data from the Chinese General Administration of Customs showed, or 8.57 million barrels per day (bpd).This was up 9 percent from November and well above the previous record of 8.04 million bpd set last September.Inbound shipments to China rose to a record average of 7.63 million barrels a day in 2016, boosted by the teapots, Bloomberg notes that government data shows. The purchases were one of the factors that helped crude prices recover from their worst crash in a generation. But then, authorities began clamping down on anyone skirting rules.

Oil price rise falters as doubts emerge over Opec cuts: The oil market’s tentative recovery has hit a setback as niggling concerns over Opec’s plans to cut supply punctured growing market optimism. The market enjoyed its strongest rally in six weeks on Thursday, taking the price of Brent crude to almost $56.50 a barrel, but as market jitters re-emerged the price tumbled back over $1 to $55.30. Earlier in the week the market was emboldened by fresh data suggesting deeper than expected oil supply cuts from Saudi Arabia, one of the world's biggest oil producers, and spurred on by a weaker dollar following president elect Donald Trump’s first press conference. The Saudis are reported to have exceeded the level of cuts agreed in the landmark supply deal and are producing less than 10 million barrels of oil a day, which suggests a cut of 625,000 barrels rather than the agreed 500,000 barrel slowdown. An investment note from brokerage Cenkos said: “This would suggest that Saudi is willing to wear the pain of short-term cuts over and above agreed quotas in order to absorb Libyan increases and thus preserve longer-term prices.” Libya has been exempted from the Organisation of Petroleum Exporting Countries' supply cuts as the battered North African nation tries to get its industry back on its feet.But traders still harbour concerns over whether the deal struck late last year between Opec and the world’s largest producers outside of the cartel will stick. Saxo Bank’s Ole Hansen said the short-lived price rally had been followed by a sell-off as traders tried to make sense of a range of supply news. “Key Opec members have cut production as promised but against this we have doubts about Iraq as well as rising production from Libya and an upgrade to US production,” he explained.

OilPrice Intelligence Report: Skepticism About OPEC Compliance Drags Oil Down -- Oil prices are set to close out the week slightly down. Speculators have taken a breather on bullish bets, which is taking the momentum out of the rally. Meanwhile, U.S. oil data is also putting downward pressure on crude (see below).  OPEC admits compliance with cuts won’t be 100%. "Compliance won't be 100 percent, it never is," an OPEC source told Reuters. The source went on to add that a compliance rate of 50 to 60 percent would be good enough to do the job, and as high as 80 percent would be a very positive result. The comments come after Saudi Arabia and Kuwait announced this week that they have cut more than they had promised to, reductions that will help make up for some non-compliance elsewhere. Saudi output is down below 10 million barrels per day and Saudi officials said it could fall further in February.   OPEC is doing its best to tighten the market but the U.S. is not cooperating. Crude stockpiles in the U.S. rose last week by 4.1 million barrels, leaving inventories stubbornly high. Gasoline stocks also saw a strong jump. And there are early signs of an uptick in production. EIA weekly data showed an increase in output by about 176,000 bpd last week, a shocking increase in production. It should be noted that weekly data is not as accurate as the monthly data that EIA publishes on a lag. However, the data suggests that production could be on the rise in the U.S., offsetting some of the cuts from OPEC.   A dearth of pipeline capacity in the U.S. northeast is leading to a shortage of supply, which is allowing the Haynesville Shale to receive more drilling activity, according to S&P Global Platts. That is because the pipeline bottleneck is forcing gas from the prolific Marcellus Shale to trade at a discount to gas in the U.S. South. As such, drillers are moving rigs to the Haynesville to take advantage. A major pipeline that could connect Alberta oil sands to the international market received an approval from British Columbia, one of its last major hurdles before construction can begin. Kinder Morgan’s Trans Mountain Pipeline Expansion will nearly triple the existing line’s capacity from 300,000 to 890,000 bpd when completed. The twin line was viewed as a less controversial pipeline since it will be built alongside the existing pipeline that runs from Alberta to the Pacific Coast.

Baker Hughes data show U.S. oil-rig count down for first time in 11 weeks - Data from Baker Hughes Friday revealed that the number of active U.S. rigs drilling for oil fell by 7 to 522 rigs this week. The decline follows ten consecutive weeks of increases. The total active U.S. rig count, which includes oil and natural-gas rigs, also fell 6 to 659, according to Baker Hughes. February West Texas Intermediate crude was trading down 46 cents, or 0.9%, for the session at $52.55 a barrel on the New York Mercantile Exchange, unchanged from the levels it traded at before the data.

U.S. Oil Rig Count Falls For The First Time In 12 Weeks | The number of active oil and gas rigs in the United States dipped on Friday by 6 for a total of 659 active rigs, according to oilfield services provider Baker Hughes, which is 9 rigs above the rig count last year. The number of oil rigs decreased 7 from 529 to 522, while the number of active gas rigs increased from 135 to 136 for a single-rig gain. This week marks the first week in the last 12 that the number of oil rigs has decreased, and 10 straight weeks of gas rig increases. Drillers in the United States have been slowly but steadily increasing the number of active drilling rigs in line with higher oil prices, particularly since the OPEC agreement on November 30 that saw OPEC agree to cut back production to 32.5 million bpd. This upward trend in the number of active rigs is expected to continue overall, barring any glitches in OPEC’s promise to make good on the production cut deal solidified in November. The number of active oil rigs is still well below 2014 figures, when the number of oil rigs operating in the United States sat comfortably above 1,500.A snapshot of the number of active oil and gas rigs by basin a year ago versus today shows a shift in activity, most notably away from Eagle Ford to the coveted Permian, which holds an estimated mean of 20 billion barrels of oil, 16 trillion cubic feet of associated natural gas, and 1.6 billion barrels of natural gas liquids. These figures signify the single largest continuous pool of oil that the U.S. Geological Survey has every surveyed.  WTI was trading down 0.85 percent at $52.56 half an hour before the data release, with Brent at $55.66, down 0.62 percent. Immediately after the rig count release, WTI was sitting at US$52.60, and Brent at US$55.68.

Rig count slides after 10 weeks of increases -- After ten weeks of gains, the U.S. rig count from Baker Hughes shows a decrease of six since last week, dropping from 665 to 659. However, the total is still up 9 from last year at this time when the count was 650. Colorado, North Dakota, Ohio, and Pennsylvania each lost one rig. Oklahoma and Texas were each down two while Wyoming added two new rigs. Louisiana also gained one. The Permian Basin still holds strong as the greatest area of oil and gas exploration, maintaining 268 rigs in the basin.Canada and the Gulf of Mexico both increased, with one offshore rig added in the Gulf and 110 new rigs exploring for oil and Gas up north. John Kemp, Reuters market analyst, notes that oil price forecasts for the next few years have increased, however, as risks fall. Kemp based his analysis on a questionnaire emailed to approximately 5,000 energy market professionals, with 1,000 responses. Expectations about price are slightly above the Energy Information Administration Short-Term Energy Outlook, released earlier this week. Kemp’s survey showed energy market professionals expect 2018 Brent prices to average between $60-$65 per barrel and reach $70 by 2020. Kemp also notes that 24 percent of those who were surveyed are directly involved in oil and gas production. The other respondents come from banking and finance, hedge funds, research, professional services and physical trading.Currently, the price of WTI crude oil sits at $53.53 at 12:52 pm CST, down 0.48. Brent crude is also down slightly at $55.61. Jillian Ambrose of the Telegraph suggests that oil’s slight drop is due to “niggling concerns over OPEC’s plans to cut supply punctured growing market optimism.” This is despite Saudi Arabia exceeding production cuts, producing less than 10 million barrels of oil a day in order to absorb increases by Libya who is exempted from the OPEC deal. The price of oil, including the forecast, affect the rig count. As confidence in the oil market returns, the rig count is expected to increase as well, although few believe the count will reach 2014 highs anytime soon.

OPEC output at 32.85 mil b/d in Dec, first fall in 7 months: Platts Survey -- OPEC oil output slumped 280,000 b/d in December, due to hefty falls in Nigeria and Saudi Arabia, a month before the group's pledge to rein in production, an S&P Global Platts survey of OPEC and oil industry officials and analysts showed Tuesday. OPEC's 13 members saw their collective December output fall to 32.85 million b/d from 33.13 million b/d in November. Including Indonesia, which suspended its membership at the organization's last meeting, total December output was 33.57 million b/d, also down 280,000 b/d. The producer group has agreed to cut 1.2 million b/d from its October output level for six months starting from January 1, and freeze production at around 32.5 million b/d, with the total including Indonesia. As part of global efforts to curb the crude supply glut, 11 non-OPEC countries led by Russia have also agreed to cut output by 558,000 b/d in the first half of 2017, with Russia shouldering the majority of that burden, with a 300,000 b/d reduction. The December slide comes after OPEC reached a new production record in November and is the first fall in seven months as Saudi Arabia provides an encouraging sign that it is set to lead the cuts by example. However, the main protagonist responsible for the fall in total output was Nigeria, which is exempt from the cut agreement, as it recovers from renewed militancy in the oil rich Niger Delta, while Iraq, OPEC's second-biggest producer, saw its exports rise sharply. Nigerian production fell to 1.44 million b/d from 1.68 million b/d in November, as planned maintenance halved loadings of its key export grade Agbami.

Saudi Energy Minister Says Output Below 10 MMBpd, Cut Will Deepen (Reuters) - Saudi Arabia has cut its oil production to slightly below 10 million barrels per day and plans a deeper cut in February under an agreement among global producers to reduce output, Saudi Energy Minister Khalid al-Falih said on Thursday. "The market first of all is extremely healthy - we had to cut deeply to get below 10," Falih told reporters at an industry conference. "And of course it is low demand season in Saudi Arabia so the combination of deep cuts and low demand in Saudi Arabia have kept our production in the month of January below 10. It is below 10 today and it will be below 10 by the end of the month." Saudi output was about 10.45 million bpd in December, according to a Reuters survey of shipping data and information from industry sources. Falih added, "We have also cut our nominations for our customers worldwide significantly for February. Saudi Aramco has just announced to their customers what they should expect in February and it is going to be even a deeper cut than in January. So we are committed." Asked if the agreement would need to be extended beyond six months, Falih said producers would watch the oil market and only intervene if necessary. OPEC and non-OPEC producers are very serious in complying with the agreement, he told reporters at an industry conference.

Oil market to become tight in next 2-3 years: Saudi energy minister - The world could run short of oil by 2020 due to the recent sharp global downturn in upstream investment, Saudi Energy Minister Khalid al-Falih said Thursday. "From what I can see, within two to three years there will be tightness because many projects have been deferred and delayed," Falih told delegates at the Atlantic Council Global Energy Forum in Abu Dhabi. Increasing the likelihood of a medium-term swing towards tight oil supply was the "not insignificant" natural decline in output from large, mature fields in the Middle East and elsewhere, he added. For the coming year, Falih said there were too many variables at play for him to predict market trends. However, he said he broadly expected global oil demand to continue growing while production from mature basins declined. "Uncertainty about the future has impacted investment levels and jobs in the industry, which is of particular concern to me. The good news is that we are moving towards a rebalanced market, too slowly for my liking. But the even better news is that the pace of re-balancing will be accelerated by the recent agreements," he said, referring to OPEC's late November agreement to cut output by 1.2 million b/d in the first half of 2017 and the group's subsequent deal with 11 oil producers from outside OPEC under which the non-OPEC countries agreed to cut by roughly a further aggregate 600,000 b/d. Falih said near-term uncertainty over oil supply -- including the extent of an ongoing rebound in US shale oil production -- was the reason for the limited duration of the OPEC deal. "The agreement is for six months for the specific reason that we don't know what will happen by mid-year; and then we will consider renewing it," he said.

Saudi Arabia’s Dream of Domination Goes Up in Flames: As recently as two years ago, Saudi Arabia’s half century-long effort to establish itself as the main power among Arab and Islamic states looked as if it was succeeding. A US State Department paper sent by former Secretary of State, Hillary Clinton, in 2014 and published by Wikileaks spoke of the Saudis and Qataris as rivals competing “to dominate the Sunni world”.A year later in December 2015, the German foreign intelligence service BND was so worried about the growing influence of Saudi Arabia that it took the extraordinary step of producing a memo, saying that “the previous cautious diplomatic stance of older leading members of the royal family is being replaced by an impulsive policy of intervention”.An embarrassed German government forced the BND to recant, but over the last year its fears about the destabilising impact of more aggressive Saudi policies were more than fulfilled. What it did not foresee was the speed with which Saudi Arabia would see its high ambitions defeated or frustrated on almost every front. But in the last year Saudi Arabia has seen its allies in Syrian civil war lose their last big urban centre in east Aleppo. Here, at least, Saudi intervention was indirect but in Yemen direct engagement of the vastly expensive Saudi military machine has failed to produce a victory. Instead of Iranian influence being curtailed by a more energetic Saudi policy, the exact opposite has happened. In the last OPEC meeting, the Saudis agreed to cut crude production while Iran raised output, something Riyadh had said it would always reject.In the US, the final guarantor of the continued rule of the House of Saud, President Obama allowed himself to be quoted as complaining about the convention in Washington of treating Saudi Arabia as a friend and ally. At a popular level, there is growing hostility to Saudi Arabia reflected in the near unanimous vote in Congress to allow families of 9/11 victims to sue the Saudi government as bearing responsibility for the attack.

Diving deeper: Gulf debt issuance to surge in 2017 - Debt issuance from the GCC is expected to surge in 2017 with sovereign issuers leading while conventional bonds outstripping sukuk both in terms of amounts raised and number of issues, according to market analysts. The decline in oil prices over the past two years has pushed GCC countries to raise capital to fund the expected budget deficits in the near term as the surpluses accumulated over the past decade or more could support future deficits for only a limited period of time.  “On the positive side, most of the regional oil exporters have adequate credit quality enabling them to comfortably raise debt in the international market. This is particularly the case with the GCC countries with almost all of the economies continuing to boast investment grade ratings despite several downgrades by rating agencies over the past 18 months,” said Faisal Hasan, Head — Investment Research at Kamco.The key drivers to bond issuances in the GCC during 2016, which more than doubled to $66.5 billion (Dh244.5 billion), was primarily the sovereign bond issuances by Saudi Arabia, UAE and Qatar. Bond issuances in 2016 almost doubled from the previous year in the Middle East and North Africa (Mena) primarily on the back of new sovereign issues by GCC countries that were aimed at plugging the budget deficit. Saudi Arabia’s first international bond issuance valued at $17.5 billion in October last year was the biggest recorded emerging market bond, far outpacing the previous record of Qatar’s $9 billion sovereign bonds issued in May 2016.

Saudi Arabia said to be mulling cancellation of $20bn projects - - Saudi Arabia is reportedly working with PricewaterhouseCoopers on plans to cancel about $20 billion of projects as the Gulf kingdom battle with lower revenues amid lower oil prices. Bloomberg reported on Monday that Ministry of Economy and Planning has appointed PwC to review $69 billion of government contracts with a view to cutting about a third of them, citing two people familiar with the matter. It said that projects under review include contracts awarded by the ministries of housing, transport, health and education. Bloomberg reported that PwC declined to comment, while a spokesman for the Ministry of Economy didn’t immediately respond to requests for comment. Last month, Saudi Arabia said it had successfully cut into its huge state budget deficit this year and will increase government spending in 2017 to boost flagging economic growth. The deficit shrank to 297 billion riyals ($79 billion) in 2016. That was well below a record 367 billion gap in 2015, and below the government's projection in its original 2016 budget plan of a deficit of 326 billion riyals.

Syria truce under strain; Assad ready to discuss 'everything' at talks | Reuters: A Syrian truce brokered by Russia and Turkey was under growing strain on Monday as rebels vowed to respond to government violations and President Bashar al-Assad said the army would retake an important rebel-held area near Damascus. Assad, in comments to French media, also said his government was ready to negotiate on "everything" at peace talks his Russian allies hope to convene in Kazakhstan, including his own position within the framework of the Syrian constitution. But he indicated any new constitution must be put to a referendum and it was up to Syrians to elect their president. His opponents have insisted throughout nearly six years of war that he must leave power under any future peace deal. But since Russia joined the war on his side in late 2015, his government's position on the battlefield has strengthened dramatically, giving him greater leverage now than at any time since the war's earliest days. The ceasefire which came into effect on Dec. 30 aims to pave the way for the new peace talks which Russia hopes to convene with Turkish and Iranian support. But no date has been set for the talks and the warring sides have accused each other of truce violations. The Moscow-led effort to revive diplomacy, without the participation of the United States, has emerged with Assad buoyed by the defeat of rebels in Aleppo, and as ties thaw between Russia and Turkey, long one of the rebels' main backers.

U.S. military aid is fueling big ambitions for Syria’s leftist Kurdish militia -- In a former high school classroom in this northeastern Syrian town, about 250 Arab recruits for the U.S.-backed war against the Islamic State were being prepped by Kurdish instructors to receive military training from American troops. Most of the recruits were from villages surrounding the Islamic State’s self- proclaimed capital of Raqqa, and the expectation is that they will be deployed to the battle for the predominantly Arab city, which is now the main target of the U.S. military effort in Syria.But first, said the instructors, the recruits must learn and embrace the ideology of Abdullah Ocalan, a Kurdish leader jailed in Turkey whose group is branded a terrorist organization by both Washington and Ankara. The scene in the classroom captured some of the complexity of the U.S.-backed fight against the Islamic State in Syria, where a Kurdish movement that subscribes to an ideology at odds with stated U.S. policy has become America’s closest ally against the extremists. The People’s Protection Units, or YPG, is the military wing of a political movement that has been governing northeastern Syria for the past 4 1 / 2 years, seeking to apply the Marxist-inspired visions of Ocalan to the majority Kurdish areas vacated by the Syrian government during the war. Over the past two years, the YPG has forged an increasingly close relationship with the United States, steadily capturing land from the Islamic State with the help of U.S. airstrikes, military assistance and hundreds of U.S. military advisers.

Russia says it starts Syrian drawdown with aircraft carrier — Russia announced on Friday that it is withdrawing its aircraft carrier and some other Russian warships from the waters off Syria as the first step in a drawdown of its forces in the war-torn, Middle Eastern country.  According to Russian General Staff chief Gen. Valery Gerasimov, the Admiral Kuznetsov carrier and accompanying ships are to be the first to leave.The declaration comes a week after Russia and Turkey brokered a cease-fire in Syria, following a decisive Moscow-backed victory for the government of Syrian President Bashar Assad over rebels in the city of Aleppo.It's also the second time Moscow has announced scaling back its military presence in Syria since Russia threw its military weight behind the Syrian government in September 2015. Russia's support, with airstrikes and military advisers — along with the boosting of its arsenal and a naval base on the Syrian coast — changed the course of the civil war, now in its sixth year, in favor of Assad.

Israeli Jets Bomb Damascus Military Airport; Syria Vows It Will Respond To "Flagrant Attack" -- Just as the Syrian proxy war showed some hopeful signs of finally dying down, the Syrian army command said on Friday that Israeli jets have bombed the Mezzeh military airport west of Damascus, accusing Tel Aviv of supporting terrorism, and warned Tel Aviv of repercussions of what it called a "flagrant" attack. Syrian state TV quoted the army as saying several rockets were fired from an area near Lake Tiberias in northern Israel just after midnight which landed in the compound of the airport, a major facility for elite Republican Guards and special forces. The airport was rocked by multiple explosions, some of which were captured by social media.Video shows large flames after military airport near Damascus bombed at least 8 times by suspected Israeli jets tonight. "Syrian army command and armed forces warn Israel of the repercussions of the flagrant attack and stresses its continued fight against (this) terrorism and amputate the arms of the perpetrators," the army command said in a statement.#BREAKING Israeli jets attacked Syria army base in Damascus as part of its 'support of terrorists groups: Sana news agency— Guy Elster (@guyelster) January 12, 2017The statement did not disclose if there were any casualties, but said the rockets caused a fire. Earlier, state television said several major explosions hit Mezzeh military airport compound near Damascus and ambulances were rushed to the area, without giving details.

Obama "Gifts" Iran With Massive Uranium Shipment From Russia Sufficient "For More Than 10 Nuclear Bombs" --In what amounts to an 11th hour "gift" by the outgoing Obama administration to Tehran's leadership to keep the country, which on Sunday was involved in yet another shooting incident with a US destroyer, content and compliant with Obama's landmark "Nuclear deal", the AP reported that Iran is to receive a huge shipment of natural uranium from Russia to compensate it for exporting tons of reactor coolant. The move was approved by the outgoing U.S. administration and other governments "seeking to keep Tehran committed to a landmark nuclear pact." AP cites two senior diplomats who said that the transfer which was recently agreed by the U.S. and five other world powers that negotiated the nuclear deal with Iran, foresees delivery of 116 metric tons (nearly 130 tons) of natural uranium. U.N. Security Council approval is needed but a formality, considering five of those powers are permanent Security Council members, they said. The swap is in compensation for the approximately 40 metric tons (44 tons) of heavy water exported by Iran to Russia since the nuclear agreement went into effect. Another 30 metric tons have gone to the U.S. and Oman.While Uranium can be enriched to levels ranging from reactor fuel or medical and research purposes to the core of an atomic bomb, Iran has claimed it has no interest in such weapons and its activities are being closely monitored under the nuclear pact to make sure they remain peaceful. As we reported at the time, Tehran previously received a similar amount of natural uranium in 2015 as part of negotiations leading up to the nuclear deal, in a swap for enriched uranium it sent to Russia. But the new shipment will be the first such consignment since the deal came into force a year ago.

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