well, the OPEC meeting that everyone had been waiting for came and went this week, and as it turned out, it was just a big non event....OPEC agreed to maintain their production cuts at the same level they've been at since the first of the year for another 9 months, Libya and Nigeria will continue to be allowed to produce whatever they can, Russia and a few other non-OPEC oil producers who were in the original pact will maintain their levels of production cuts but no new producing nations will join them, and the next OPEC meeting to check on their progress will be held November 30th...oil traders were clearly expecting something more, since oil prices dropped nearly 5% in the first few hours after the Thursday announcement, although prices did recover some on Friday...rather than explain how oil prices moved up to and after the meeting, we'll just include a graph of their hourly changes over the last three days of this week, so you can all see for yourselves..
the above graph is a screenshot of the interactive oil price graph at Trading Economics, an online platform that provides economic forecasts, historical data, and trading recommendations...each bar on the above graph represents oil prices for one hour of oil trading between late May 23rd and May 26th, wherein green bars represent the hours when the price of oil went up, and red bars represent the hours when the price of oil went down...for green bars, the hour's starting oil price is at the bottom of the bar and the price at the end of the hour is at the top of the bar, while in red or down hours, the starting price is at the top of the bar and the price at the end of the hour is at the bottom of the bar...this type of graph is called a candlestick because the range of oil prices outside of the opening and closing price for any given period is indicated by a thin 'wick' above or below the "candlestick" part of the graph...so above we can see that oil prices were driven almost as high as $52 a barrel on Wednesday and again early on Thursday morning before the OPEC deal was announced, but then started falling when it became apparent that nothing new would come out the meeting...once the meeting ended with the official press release, oil prices dropped more than 4%, as oil traders who had been betting on a better deal liquidated their positions, and oil closed Thursday at $48.90 a barrel...once that post-deal selling frenzy was over, buyers moved back in on Friday, pushing oil higher to close the week at $49.80 a barrel
note that oil prices being quoted this week are for July delivery....trading of the June contract, which we were quoting last week, expired on Monday at $50.73 a barrel, up 40 cents from last Friday's close of $50.33...the July contract closed last week at $50.67 a barrel, so this week's closing price represents a modest drop of 1.7% for the week, even though oil prices saw a drop of nearly 8% from their Thursday morning high to their Friday morning low...although July oil is down from its Thursday high of $52.00, it's still up from a low of $44.13 a barrel hit just three weeks earlier...
let's again look at why oil traders don't have much confidence in the efficacy of this latest OPEC deal to have much of an impact on global oil supplies....we'll start with a graph of OPEC oil production over the past dozen years..
the graph above was taken from the 'OPEC April Production Data" post at the Peak Oil Barrel blog and it shows total oil production, in thousands of barrels per day, for the 13 members of OPEC, for the period from January 2005 to April 2017, with the data sourced from the May OPEC Oil Market Report which we covered two weeks ago...while we can see that OPEC production during March and April, the two furthest right data points on the graph, was down quite a bit from their record production in November 2016, it's still not much changed from what they were producing between June 2015 and May of 2016, and moreover, is actually still much higher than what they produced during the three years before that, which is the period that produced the glut of oil the world is still trying to deal with...
next we'll look at the table of global oil demand forecasts from that May OPEC Oil Market Report of two weeks ago, and project what might happen to oil supplies if OPEC oil production remains unchanged from current levels, as they have now pledged they will do...
to review the above, this table comes from page 37 of the May OPEC Monthly Oil Market Report of two weeks ago, and it shows oil demand in millions of barrels per day for 2016 in the first column, and OPEC's forecast for oil demand by region and globally over each quarter of 2017 over the rest of the table...on the "Total world" line, starting with the third column, we've circled in blue the figures we're interested in, which is their estimate for global oil demand for the 2nd, 3rd and 4th quarters of 2017...
OPEC's estimate for the 2nd quarter of this year is that all oil consuming areas of the globe will be using 95.33 million barrels of oil per day, roughly 1.3% more than they used during the same period of 2016....during April, OPEC produced 31.73 million barrels of oil per day, 33.1% of April's global oil production of 95.81 million barrels per day... based on their demand projection, that means that even though OPEC's production for the month was their lowest in a year, there continued to be a surplus of around 480,000 barrels per day in global oil production in April, largely because global oil output was still 0.83 million barrels per day higher than it was in April of 2016...holding these global figures constant, we can figure that a similar surplus of oil will be produced during May and June...
for the third quarter, OPEC estimates that all oil consuming areas of the globe will be using 97.27 million barrels of oil per day, as it will be summer in much of the northern hemisphere, and many oil consuming nations, including members of OPEC burn oil or oil products to produce electricity for air conditioning....so the question for OPEC in the third quarter is will they hold their production steady at or near April's level and thus forego a sizable percentage of their exports, and hence their revenue, as they consume oil domestically for cooling...for instance, heading into last summer, the Saudis increased their oil production by 400 thousand barrels per day; the year before that, their summertime production increase was even greater...if OPEC members can hold their production near 31.73 million barrels of oil per day, and other non-OPEC producers don't increase theirs, then it's possible they can reduce the global oil glut at a rate of nearly 1.46 million barrels per day during the third quarter...but if they step up their production to cover their air conditioning needs, or other non-OPEC countries increase theirs, that reduction will be diminished, and the rebalancing they intend will be defeated...
next, in the 4th quarter, OPEC estimates that all oil consuming areas of the globe will be using 97.47 million barrels of oil per day....that oil demand would rise further in the 4th quarter seemed illogical to me, but looking at the details for 2016 in the oil demand chapter of their report, they show that 4th quarter increases of oil consumption in Africa, India, China and the Pacific more than offset the fall decreases in North American, European and the Middle Eastern oil use...so if that holds in the 4th quarter of 2017, and they maintain their production cuts through then, they can reduce the global glut at a rate of 1.66 million barrels of oil per day...that, of course, assumes the rest of the world's oil production remains stagnant as well..
OPEC also intends to extend their production cuts through the 1st quarter of next year, which is not shown in the projection above...but note in purple that we've circled the global demand growth percentage change in the far right column...if growth continues at that 1.33% pace, then we can expect oil demand for the 1st quarter of 2018 to rise to roughly 96.71 million barrels of oil per day...thus, if OPEC can hold the line until then, and no other producers fill the gap, they can also be reducing global oil supplies by roughly 900 thousand barrels per day during the first three months of 2018...
so, it appears that OPEC and the Russians have thought this through, and although they wont be reducing oil supplies at quite the 2.5 million barrels per day pace that oil supplies were increasing by through much of the two years proceeding their production cut agreement, they can be taking large chunks out of the glut if other parties not part of the agreement don't increase their oil output at the same time...however, remember that in April, the baseline for our figures above, Libya was producing 550 thousand barrels per day, and that as we noted two weeks ago, by May they had increased their output to 800,000 barrels per day...before the fall of Muammar Gaddafi, Libya had been consistently been producing 1.6 million barrels of oil per day, so if they can get back half of what they've since lost, they could easily add as much as 600,000 barrels per day to OPEC's output, and effectively cut the OPEC production cuts in half...
outside of OPEC, US oil production is seen as the biggest threat to their ability to control oil supplies...according to the unofficial weekly US oil production data, US oil production has increased by 550,000 barrels per day during the first 20 weeks of this year...since additional oil rigs have been added every week but one during that period and since the backlog of unfracked wells has been increasing at a rate equivalent to 20% of new producing wells, it seems clear that US oil production will continue to increase at close to the same pace it has been rising year to date, so the US could probably add another 800,000 barrels of oil per day to their output by the end of the year...in addition, both Canada, the 6th largest oil exporter globally, and Brazil, the 10th largest, are also increasing their output and pose an additional threat to OPEC's ability to reduce global supplies...furthermore, the U.K. and Norway are also producing more oil this year, and have to be considered when looking at whether OPEC's cuts will be effective or not...so in addition to the output from OPEC, oil output from these countries will have to be watched over the next 9 months, to see if OPEC's production cuts can realize the rebalancing of supply and demand they purport to achieve...
The Latest US Oil Data from the EIA
this week's US oil data from the US Energy Information Administration, covering details for the week ending May 19th, indicated that our refining of crude oil rose to near record levels, while our imports and exports of oil both decreased, and that oil needed to be withdrawn from US storage for the 7th week in a row....our imports of crude oil fell by an average of 296,000 barrels per day to an average of 8,294,000 barrels per day during the week, while at the same time our exports of crude oil fell by 461,000 barrels per day to an average of 625,000 barrels per day, which meant that our effective imports netted out to 7,669,000 barrels per day during the week, 165,000 barrels per day more than during the prior week...at the same time, our field production of crude oil rose by 15,000 barrels per day to an average of 9,320,000 barrels per day, which means that our daily supply of oil from net imports and from wells totaled an average of 16,989,000 barrels per day during the cited week...
during the same period, refineries reportedly used 17,281,000 barrels of crude per day, 159,000 barrels per day more than they used during the prior week, while 690,000 barrels of oil per day were being pulled out of oil storage facilities in the US....thus, this week's EIA oil figures seem to indicate that our total supply of oil from net imports, oilfield production, and from storage was 398,000 more barrels per day than what refineries reported they used...to account for that discrepancy, the EIA inserted a (-398,000) barrel per day figure onto line 13 of the weekly U.S. Petroleum Balance Sheet to make the data for the supply of oil and the consumption of it balance out, which they label in their footnotes as "unaccounted for crude oil"
details from the weekly Petroleum Status Report show that the 4 week average of our oil imports fell to an average of 8,192,000 barrels per day, still 8.1% above the imports of the same four-week period last year...the 690,000 barrel per day decrease in our total crude inventories came about on a 633,000 barrel per day withdrawal from our commercial stocks of crude oil and a 57,000 barrel per day sale of oil from our Strategic Petroleum Reserve, part of an ongoing sale of 5 million barrels annually that was planned 19 months ago...this week's 15,000 barrel per day crude oil production increase resulted from a 20,000 barrel per day increase in oil output from wells in the lower 48 states, which was partially offset by a 5,000 barrels per day decrease in oil output from Alaska...the 9,320,000 barrels of crude per day that we produced during the week ending May 19th was up by 6.3% from the 8,770,000 barrels per day we were producing at the end of 2016, and also up by 6.3% from the 8,767,000 barrel per day output during the during week ending May 13th a year ago, while it was still 3.0% below the June 5th 2015 record oil production of 9,610,000 barrels per day...
US oil refineries were operating at 93.5% of their capacity in using those 17,122,000 barrels of crude per day, which was up from 93.4% of capacity the prior week, but down from the year’s high of 94.1% four weeks earlier...the 17,281,000 barrels of crude per day that refineries took in during the week ending May 19th almost a new record, however, just 4,000 barrels a day less than the 17,285,000 barrels of crude per day that US refineries used during the week ending April 21st....oil refined this week was also 6.2% more than the 16,279,000 barrels of crude per day.that were being processed during week ending May 20th, 2016, when refineries were operating at 89.6\7% of capacity, and roughly 14% above the 10 year average of 15.2 million barrels of crude per day for the 3rd week in May ....
with the near record level of refining, gasoline production from our refineries increased by 223,000 barrels per day to 10,243,000 barrels per day during the week ending May 19th, the highest gasoline production ever this early in the year...gasoline production for the week was thus 3.8% higher than the 9,866,000 barrels of gasoline that were being produced daily during the comparable week a year ago....at the same time, refineries' production of distillate fuels (diesel fuel and heat oil) increased by 155,000 barrels per day to 5,197,000 barrels per day, which was just shy of an all time record and 11.5% more than the 4,661,000 barrels per day of distillates that were being produced during the week ending May 20th last year.....
even with the seasonal record level of gasoline production, our end of the week gasoline inventories decreased by 787,000 barrels to 239,882,000 barrels by May 19th, mostly because our domestic consumption of gasoline rose by 252,000 barrels per day to 9,704,000 barrels per day...in addition, our gasoline exports rose by 81,000 barrels per day to 589,000 barrels per day, while our imports of gasoline rose by 29,000 barrels per day to 725,000 barrels per day at the same time...but even with the seasonal decrease in our gasoline supplies, they are still less than 0.1% lower than the 240,111,000 barrels that we had stored on May 20th a year ago, but 8.7% higher than the 220,627,000 barrels of gasoline we had stored on May 22nd of 2015, and 13.4% more than the 211,575,000 barrels of gasoline we had stored on May 23rd of 2014…
likewise, even with the increase in distillates production, our supplies of distillate fuels fell by 485,000 barrels to 146,339,000 barrels during the week ending May 19th, somewhat less than the 1,944,000 barrel drop the prior week...that was because our exports of distillates fell by 258,000 barrels per day to 1,008,000 barrels per day, while our imports of distillates fell by 60,000 barrels per day to 101,000 barrels per day...at the same time, the amount of distillates supplied to US markets rose by 144,000 barrels per day to 4,359,000 barrels per day...even though our distillate supplies are still 3.0% below the 150,878,000 barrels that we had stored on May 20th, 2016, when a glut of heat oil persisted after last year's warm El Nino winter, they remain 13.6% higher than the distillate inventories of 128,839,000 barrels that we had stored on May 22nd of 2015, following a more normal winter…
finally, the ongoing record level of oil refining meant that our commercial inventories of crude oil saw a withdrawal for the seventh week in a row, as they decreased by 4,432,000 barrels to 516,340,000 barrels as of May 19th....but even though our crude oil supplies are down by 19.2 million barrels over the past 7 weeks, we still finished the week with 7.8% more crude oil in storage than the 479,012,000 barrels we had stored at the beginning of this year, and 2.1% more crude oil in storage than the 505,571,000 barrels of oil in storage on May 20th of 2016...compared to equivalent dates in prior years, we ended the week with 15.7% more crude than the 446,412,000 barrels in of oil in storage on May 22nd of 2015, and 42.9% more crude than the 361,382,000 barrels of oil we had in storage on May 23rd of 2014...
This Week's Rig Counts
US drilling activity increased for the 19th week in a row and for the 29th time in the past 30 weeks during the week ending May 26th, even as oil rigs saw their smallest weekly rise of the year....Baker Hughes reported that the total count of active rotary rigs running in the US increased by 7 rigs to 908 rigs in the week ending Friday, which was 504 more rigs than the 404 rigs that were deployed as of the May 27th report in 2016, and the most drilling rigs we've had running since April 24th, 2015, while it was still far from the recent high of 1929 drilling rigs that were in use on November 21st of 2014....
the number of rigs drilling for oil increased by just 2 rigs to 722 rigs this week, which was still well more than double the 316 oil directed rigs that were in use a year ago, and the most oil rigs that were in use since April 17th 2015, while it was still down by more than half from the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the count of drilling rigs targeting natural gas formations also rose by 5 rigs to 185 rigs this week, which was also more than double the 87 natural gas rigs that were drilling a year ago, but way down from the recent natural gas rig high of 1,606 rigs that were deployed on August 29th, 2008...in addition, a single rig considered unclassified remained active, same as last week and as a year ago...
offshore drilling remained unchanged with 23 rigs still this week, all of those in the Gulf of Mexico, down from a total of 24 offshore rigs a year ago...the number of rigs that were set up to drill horizontally increased by 7 to 766 horizontal rigs this week, which was the most horizontal rigs in use since April 10th of 2015, and up from the the 314 horizontal rigs that were in use in the US on May 27th of last year, while it was still down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014....in addition, a net of one vertical rig was added this week, increasing the vertical rig count to 77 rigs, which was up from the 46 vertical rigs that were deployed during the same week a year ago...on the other hand, the directional rig count was down by 1 rig to 65 rigs this week, which was still up from the 44 directional rigs that were deployed during the same week last year...
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 pdf 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 basins...in both tables, the first column shows the active rig count as of May 26th, the second column shows the change in the number of working rigs between last week's count (May 19th) and this week's (May 26th) count, the third column shows last week's May 19th active rig count, the 4th column shows the change between the number of rigs running on 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 week’s case was the 27th of May, 2016...
a few fairly obvious surprises this week...first, that this week's increase in drilling was led by a 5 rig increase in Colorado, which up until this week had been relatively stable this year - the 29 rigs they had active a week ago was the same number of rigs they had active during the first week of the year, although it had varied a bit in the interim...another surprise is that Texas saw its first pullback in drilling in 19 weeks; over that 19 week period, Texas drilling had increased by 123 rigs, so they're not exactly missing the one that was shut down this week...lastly, the increase in drilling for natural gas topped new oil rigs for the first time since January 13th, when oil rigs were down by 7 rigs during a week that natural gas rigs increased by one...gas rigs were added in the Arkoma Woodford of Oklahoma, where one oil rig was shut down while a gas directed rig started up, and in the Eagle Ford of south Texas, where oil rigs still outnumber gas rigs 77 to 9...meanwhile, 3 of the 5 gas rigs that we added this week were in other unnamed basins, as we can clearly see there was no change in activity in the Utica or the Marcellus...also note that other than the changes in the major producing states noted above, Alabama saw one rig removed this week and now have 3 rigs still active, still an increase from a year ago, when there were no rigs active in the state...
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Bill in Ohio House would permanently subsidize 2 coal-fired power plants - Columbus Dispatch - A new proposal in the Ohio House would provide a perpetual subsidy for two coal-fired power plants owned jointly by American Electric Power and just about every other major electricity utility in the state. House Bill 239 calls for the owners of Ohio Valley Electric Corp. to receive a guarantee of income at times when the market price of electricity is less than the cost to operate the power plants. That money would come from a charge to consumers. If the market shifts and the plants become profitable, customers would receive a credit. The Public Utilities Commission of Ohio already has approved a similar plan for AEP, which leads to a varying monthly charge that is now about $2 per month for a typical household.The legislation would take the PUCO’s action, which needs to be re-approved every few years, and make it last for the remainder of the life of the plants — which could be decades. Also, the bill would provide benefits to all Ohio Valley Electric co-owners in the state, not just AEP. There has been debate about having a similar arrangement for other Ohio plants owned by AEP and FirstEnergy, an idea opposed by consumer advocates, environmentalists and others. The opponents say that the subsidies distort the market and extend the life of plants that otherwise would face pressure to close. This proposal is much narrower, covering just the two plants.“(Ohio Valley Electric) is, for lack of a better term, an anomaly,” said Rep. Rick Carfagna, R-Genoa Township, a co-sponsor, speaking to the House Public Utilities Committee on Tuesday. He was referring to its unusual origins and its ownership by more than a dozen parties in several states. Ohio Valley Electric was founded in the 1950s to provide electricity for the uranium-enrichment facility near Portsmouth. The enrichment site has since closed, but the two coal-fired power plants remain in operation. AEP owns 43 percent of it, more than any other company. The other owners include Buckeye Power, which serves rural electric cooperative utilities, and several other large, investor-owned utilities, such as FirstEnergy, Duke Energy and Dayton Power and Light.
Forest along Ohio River sold to Nature Conservancy - The Columbus Dispatch - This past fall, after decades of discussions, the Gaffin family and another long-time family, the Lockharts, sold their land to the Nature Conservancy. The sale marks the Nature Conservancy's largest purchase ever in Ohio and brings its Edge of Appalachia Preserve system — the state’s largest privately owned nature preserve — up to 19,418 acres. The Nature Conservancy's plan is to eventually create an unbroken corridor for wildlife in southern Ohio that stretches from the original preserve in West Union to the Shawnee State Forest, about 20 miles to the east near Portsmouth. The tract of unbroken forest and bluffs lies in a confluence of “eco-regions,” where various layers of rock give way to different types of soils, each with their own special suite of plants, insects, flora and fauna. But since most of the land in the area is privately owned by families, the Conservancy has had to stitch together small parcels over time. Rich McCarty, an Adams County native and the Edge of Appalachia's naturalist, knocks on doors and tries to persuade families to consider selling their land. And for years, he and others at the Conservancy had been swinging for the Gaffin-Lockhart property. The parcel's size alone is remarkable. According to the Conservancy, most of Ohio’s forestland is found on parcels smaller than 50 acres.
3.4 Magnitude Earthquake Hits Vinton County – WOSU --A 3.4-magnitude earthquake was detected near McArthur, Ohio, by the United States Geological Survey at 12:24 p.m. on Wednesday. McArthur is the county seat of Vinton County, with a population of about 1,700, and sits near Wayne National Forest. According to the Vinton County Sheriff's Office, people reported houses shaking and things falling off countertops. Wednesday's earthquake follows a similar, 3.0-magnitude quake that also struck near Wayne National Forest, in Monroe County, in April. The April earthquake shut down oil and gas drilling operations in southeastern Ohio while the state investigated the causes.According to FracTracker, a number of hydraulic fracturing - or fracking - wells are in operation in the area surrounding the epicenter. A statement from ODNR, however, said the earthquake was "naturally-occurring." "Seismologists are examining the data to define a more precise location, but it appears to be in the McArthur area, and it is likely associated with the Athens fault line," said ODNR spokesperson Eric Heis.
State: Vinton County quake probably not related to oil and gas industry - The Columbus Dispatch -- Ohio Department of Natural Resources officials are investigating an earthquake reported Wednesday in southeastern Ohio, but don't believe it was related to oil and gas production. The initial analysis shows a 3.4 magnitude, "naturally occurring seismic event" happened at 12:24 p.m. in Elk Township, just south of McArthur in Vinton County, that was likely associated with the Athens fault line, department spokesman Eric Heis said. He said there were no reports of injuries from the earthquake. Scientists with the department's Division of Geological Survey calculated that the quake's epicenter occurred 20 kilometers (or nearly 12.5 miles) below the earth's surface, Heis said. That's a significant depth because usually any seismic event induced by a well occurs one to two kilometers (1.24 miles or less) below the earth's surface, he said "We're still looking into it," said Heis, who said the department received 21 "felt" reports about the earthquake. Melanie Houston, director of oil and gas for the Ohio Environmental Council, said the earthquake Wednesday renews the environmental coalition's concerns about fracking. Hundreds of earthquakes have been linked to drilling operations and injection wells in Ohio and other states. A wastewater injection well induced 12 earthquakes in Youngstown in 2011, a state investigation found. Wednesday's earthquake follows a similar 3.0 magnitude earthquake in the Wayne National Forest in Monroe County that occurred on April 2. Eight permitted Utica shale well sites are within five miles of the epicenter of that quake, according to the state. "This is really concerning, these earthquakes occurring," Houston said.
Group Demands Environmental Compliance Records for Rover Pipeline Construction -- The Center for Biological Diversity filed four public records requests Wednesday to state and federal agencies demanding disclosure of environmental compliance documents relating to the Rover Pipeline in Ohio. The natural gas pipeline is owned by Energy Transfer Partners, the company behind the controversial Dakota Access Pipeline . Earlier this month the Federal Energy Regulatory Commission halted construction of unbuilt pipeline sections and required a doubling of environmental inspectors after 18 spills were reported. One of the spills released about 2 million gallons of drilling fluid into a pristine wetland along the Tuscarawas River south of Akron. "Wildlife, including endangered species , can't afford more spills and environmental disasters," said Taylor McKinnon, with the Center for Biological Diversity. "We rely on state and federal agencies to protect us from these kinds of incidents, but clearly that didn't happen with the Rover Pipeline." Wednesday's requests target records relating to Endangered Species Act compliance in connection with all phases of the Rover Pipeline construction and operation from the Federal Energy Regulatory Commission, U.S. Fish and Wildlife Service, U.S. Environmental Protection Agency and Ohio Environmental Protection Agency. According to the U.S. Fish and Wildlife Service, 30 species protected under the federal Endangered Species Act live in Ohio, many of which are dependent on streams, rivers and wetlands that could be harmed by the pipeline or associated fracking spills. In the face of new information showing that a project may affect endangered species in a way not previously considered, or if a proposed development is modified in a way that may affect those species in ways not previously considered, the Endangered Species Act requires that projects be halted pending completion of new formal consultations between proponent agencies and the U.S. Fish and Wildlife Service.
Rover Pipeline Owner Disputing Millions Owed After Razing Historic Ohio Home -- Steve Horn -- After taking heat last fall for destroying sacred sites of the Standing Rock Sioux Tribe , the owner of the Dakota Access pipeline finds itself embattled anew over the preservation of historic sites, this time in Ohio. Documents filed with the Federal Energy Regulatory Commission (FERC) show that Energy Transfer Partners is in the midst of a dispute with the Ohio State Historic Preservation Office over a $1.5 million annual payment owed to the state agency as part of a five-year agreement signed in February. Energy Transfer Partners was set to pay the preservation office in exchange for bulldozing the Stoneman House, a historic home built in 1843 in Dennison, Ohio, whose razing occurred during construction of the Rover Pipeline . Rover isset to carry natural gas obtained via fracking from the Utica Shale and Marcellus Shale —up to 14 percent of it—through the state of Ohio. The pipeline owner initially bulldozed the historic home, located near a compressor station, without notifying FERC , as the law requires. FERC provides regulatory and permitting oversight for interstate pipeline projects like Rover , and as a result, is tasked with performing an environmental and cultural review. Because Energy Transfer Partners didn't notify the commission of the plan to tear down the historic home, citizens and other concerned stakeholders, including the Ohio State Historic Preservation Office, did not have the ability to file a formal protest of the action. In May 2015, Energy Transfer Partners purchased the Stoneman House from the Ohio State Historic Preservation Office for $1.3 million and bulldozed it just two weeks later, according to FERC documents. The $1.5 million annual payment owed to the Ohio State Historic Preservation Office was in addition to the initial cost of purchasing the home. On April 28, Lox Logan Jr., executive director and CEO of the Ohio State Historic Preservation Office, requested that FERC help with formal dispute resolution over the issue. "The Ohio State Historic Preservation Office has been in repeated contact with representatives from Rover LLC regarding the fulfillment" of the monetary commitments outlined in the Memorandum of Agreement [MOA], wrote Logan . "As of this date, no efforts have been made to meet those obligations. As the lead federal agency with jurisdiction over this undertaking, we are notifying you of this dispute."
FERC Rejects Rover Pipeline's Drilling Request - The Federal Energy Regulatory Commission (FERC) rejected on Thursday Energy Transfer Partners' request to resume horizontal directional drilling at two sites for its Rover fracked gas pipeline . This rejection comes after numerous leaks into Ohio's wetlands, and Clean Air and Clean Water act violations. FERC has halted the process at only eight locations of the 32 where drilling is taking place under Ohio's wetlands and streams. Since news of the 15 violations broke on April 18, Energy Transfer Partners has racked up 12 additional stormwater violations in northwest and southwest farming areas of Ohio, a spill of 10,000 gallons of drilling fluid in Harrison County, and failed to pay its 2nd installment of its 401 permit fee. Energy Transfer Partners is currently operating without a Clean Water Act permit in Ohio. Thursday's rejection is further evidence that FERC should never have approved the fracked gas pipeline in the first place. The Rover pipeline has repeatedly proven to be disastrous for Ohioans and our land, and this will only get worse should construction continue. We applaud FERC for taking action now, but continue our calls for all construction on this dirty and dangerous pipeline to be halted as a comprehensive review and investigation into Energy Transfer's practices and plans is conducted.
US FERC rejects Rover gas pipeline horizontal drilling request - US regulators have rejected a request by Energy Transfer Partners' Rover Pipeline to resume horizontal directional drilling at two key sites, putting further pressure on the operator's efforts to meet its in-service target of July 1 for the first phase of a 3.25 Bcf/d natural gas project being closely watched by Northeast and downstream markets.Following leaks of drilling fluids into Ohio wetlands in April, including one during horizontal directional drilling at the Tuscarawas River, the Federal Energy Regulatory Commission ordered Rover earlier in May not to conduct any more drilling of that type in some areas where it has not started work. ETP then asked to be allowed to continue the drilling at two sites where the activity was already underway, one in Ohio and the other in West Virginia. It said halting excavation there could cause further environmental problems and expressed concerns about the project being delayed. FERC said in a letter to Rover on Thursday that the agency must complete its review before allowing the horizontal directional drilling activities to resume. For now, it granted the operator permission to remove the drill stem from the borehole at the West Virginia location and install a casing to prevent the hole from collapsing. "Authorization to resume drilling activities in conjunction with the Rover Pipeline Project is contingent upon commission staff's consideration of the independent third-party contractor's analysis of all drilling activity at the Tuscarawas River HDD and the independent third-party contractor's recommended plan detailing the measures that Rover can put into place to ensure that the same level of impacts do not occur on the other HDDs during project construction," FERC said in the letter. The 500-mile Rover pipeline will impact upstream supply fundamentals in the Northeast and downstream gas markets in the Midwest and Southeast US, as well as the Dawn, Ontario, hub. Producers have been eagerly awaiting new infrastructure, to give them extra capacity to move their output out of the pipeline constrained Marcellus and Utica shale basins. With the possibility of a Rover delay, some producers have been hedging their production and considering alternative pipelines for moving some of their gas until Rover enters service.
Firm behind Dakota Access pipeline faces intense scrutiny for series of leaks - The oil company behind the Dakota Access pipeline is facing intense scrutiny from regulators and activists over a series of recent leaks across the country, including a major spill now believed to be significantly bigger than initially reported. Documents obtained by the Guardian suggest that a spill from the Rover pipeline that Ohio regulators originally described as 2m gallons might now be more than twice as large. The revelation was included in a legal challenge activists filed on Wednesday to block the natural gas pipeline run by Energy Transfer Partners (ETP), the corporation that operates the controversial Dakota Access pipeline and is now facing numerous government fines and violations. The complaint against the Rover pipeline – which has been cited for more than a dozen environmental incidents, including a spill into a wetland that Ohio regulators described as a “tragedy” – comes on the heels of reports that Dakota Access had three recent leaks before it was even fully operational. The growing number of problems with the two pipelines raises serious questions about the safety record of ETP and the effectiveness of the regulatory processes designed to protect the environment, according to activists fighting the projects. “Put together how the company has conducted itself, the environmental damage and the rejection of the authority of the state, we fear the impact to our water resources,” said Clifford Rowley, a Michigan resident who is part of a group challenging the Rover pipeline. Shortly after his inauguration, Donald Trump, who, records show, has close financial ties to ETP, ordered the expedited completion of the Dakota Access pipeline. While preparing for the formal launch over the last two months, small leaks were reported in South Dakota and North Dakota, according to government records. In April, there was a reported release of roughly 2m gallons of “drilling fluids” within a 500,000 sq ft wetland area, according to violation records from the Ohio Environmental Protection Agency (EPA). Another report cited the release of 50,000 gallons into a different wetland. There have been a total of 18 incidents across 11 counties, according to the complaint. The state EPA director Craig Butler recently described the problem to the Washington Post as a “pattern” of spills, saying the company’s response was “dismissive” and “exceptionally disappointing”. The rebuke from Butler is significant given that he is an appointee of Republican governor John Kasich, a former presidential candidate who supports increased drilling and a rollback of Obama-era restrictions.
Oil and gas still generating taxes - The Review — Oil and gas activity in Columbiana County may have slowed to a crawl, but there is still enough going on to have generated $1.6 million in property taxes between 2010 and 2015.A report issued in April by Energy In Depth Ohio and the Ohio Oil and Gas Association stated nearly $1.1 million of those taxes came in 2015 as production significantly increased. “Like many other Ohio counties, Columbiana County has been producing oil and gas for decades, and prior to the shale revolution, the total ad valorem tax from conventional production had been around $70,000 per year. But thanks to fracking that number jumped to $1,072,685 in 2015,” wrote report author Jackie Stewart. According to OOGA, 60 wells are currently in production in the county at 20 locations and they produced a combined 491,295 barrels of oil and 61.4 million mcf of shale gas between 2010 and 2015. A mcf is equal to 1,000 cubic feet.Stewart pointed out that these taxes are based on production from two years before, so the 2015 figures are based on 2013 production. “Considering Columbiana County’s Utica shale production showed moderate increases in 2014 and 2015, the county can expect higher tax receipts in 2016 and 2017,” she said. “In addition to this spike in tax revenue, Columbiana County Utica shale development has led to a $1.1 billion natural gas-fueled power plant, which will yield an incredible $30 million windfall to the county, townships and local school,” Stewart said.
Could the Aliso Canyon natural gas leak happen in Ohio? New study examines the risk -- Ohio has the most underground natural gas storage wells of any state and the highest number of those which might be vulnerable to leaks, according to a new study by researchers at Harvard University and Boston Children’s Hospital. Of Ohio’s 3,318 underground wells used for natural gas storage, 902 are repurposed wells. Those wells were initially drilled for something else, such as the extraction of oil and gas. That means they’re more likely to share age and design characteristics that contributed to the four-month methane leak at Aliso Canyon in California from 2015 to 2016, said Drew Michanowicz at the Harvard T.H. Chan School of Public Health. He is lead author of the study published Tuesday in Environmental Research Letters. Ohio has about two dozen active facilities that put natural gas into wells under pressure and take it out on an as-needed basis, compared to 47 in Pennsylvania and 44 in Michigan. Each facility can have dozens or hundreds of storage wells connected to it. “The primary function of gas storage is to meet peak demands of the winter heating season, especially for residential heating, and to balance the supply and demand on the system,” Dominion Energy Ohio spokesperson Tracy Oliver explained. Nonetheless, on a nationwide basis, “around half of the facilities have potentially obsolete wells that wouldn’t meet today’s standards for safety,” Michanowicz said. Those facilities raise concerns about potential risks to public health and the environment.Natural gas storage fields are typically between 1,000 and 5,000 feet underground. But, “when an accident occurs at these facilities, it can create a major public health risk for unsuspecting neighbors,” said Melanie Houston at the Ohio Environmental Council. “And that risk is amplified by the fact that there are very limited standards in place for operators of these facilities.”
Noble Energy sells Marcellus shale holdings in region | TribLIVE: Texas-based Noble Energy, which owns and operates about 50 hydraulic fracturing wells in Washington and Greene counties, will move out of Marcellus shale and move on to “more lucrative oil fields,” the company announced Tuesday. An undisclosed buyer agreed to purchase $1.2 billion worth of Noble Energy's Marcellus shale assets, according to a news release. Of the total amount, $100 million will be made in three separate payments as contingencies that depend on regional gas prices rising above a certain level over the next three years. The sold assets produce 415 million cubic feet of natural gas equivalent a day and span 385,000 acres in northern West Virginia and southern Pennsylvania, with proved reserves reaching 1.5 trillion cubic feet. Noble Energy CEO David L. Stover said the Marcellus shale play has been a strong performer for the last few years, but the company is moving to more lucrative plays in “liquid-rich, higher-margin onshore assets.” “This enables us to further focus our organization on our highest-return areas that will deliver industry-leading U.S. onshore volume and cash flow growth,”
Trump's rural voters fighting to keep their land from a growing web of pipelines - McClatchy -- MacQueen would seem to fit the profile of a property owner comfortable with an oil and gas pipeline running through his land. A retired oil refinery employee, MacQueen worked amid risky conditions for more than 20 years, as a pipe fitter and a welder. But early last year, MacQueen learned that an oil company, Sunoco, was planning to install two more pipelines past his family’s home in eastern Pennsylvania, where one already runs. According to MacQueen, Sunoco’s agents told him the company will force his neighbors and him to sell the rights to some of their land – through a process called eminent domain – if they don’t agree to turn it over. “These oil companies have so much power,” fumed MacQueen, standing in his yard on a recent weekday. “They think they can do anything they want.”Eminent domain is often used by governments to gain right-of-way for projects such as highways or government buildings. But state and federal regulators who authorize pipeline projects also typically grant the private companies that are building them the right to use eminent domain to secure needed right-of-way.That means rural and suburban landowners from Pennsylvania to the Dakotas are finding it increasingly difficult to combat an ever-growing network of pipelines that companies are racing to build to accommodate the prodigious amounts of oil and natural gas that fracking is producing.MacQueen, who voted for President Donald Trump, says he has no problem with the need for pipelines. His beef is with what he calls the industry’s “bullying tactics” and its mixed safety record. He and others describe a process in which agents pressure them to sign easement agreements and then threaten court action if they don’t agree to the offered terms.
Pennsylvania School Now Doing Emergency Drills in Case of Pipeline Explosion -- At the Glenwood Elementary School in Media, Pennsylvania, roughly 450 students interrupted their regular schedules one day this month for an unusual emergency drill. Just after 1:30 p.m. on May 3, the entire student body practiced sheltering in place in the school's gymnasium, then prepared to evacuate the campus by bus, under the watchful eye of the school's superintendent, state police, and local first responders. "Everyone took this seriously and it was reflected in how quickly they moved through the drill -- two minutes to be sheltered in place and three minutes to be completely evacuated from the building," Principal Eric Bucci told local reporters. It wasn't fears of natural disaster or terror attack that prompted the emergency drill. Instead, worries about a fossil fuel pipeline construction project nearby left the school district drafting emergency response plans and practicing safety protocols.The school is one of dozens neighboring the route for Sunoco Logistics' Mariner East 2 pipeline, now under construction and slated for completion this fall. At Glenwood Elementary, the Mariner East project will carry natural gas liquids like butane, propane, and ethane (used to make plastics) through a pipe under a road about 650 feet from the school's playground -- and some parents and safety experts are worried about the risks posed by leaks or other accidents. "The exercise raised more questions than it answered and seemed only to demonstrate that [the school district] is unprepared to deal with a large scale release of hazardous, highly volatile liquids near the school,"
ASPH Association of Schools of Public Health : Maryland Study Explores Chronic Noise Exposure from Natural Gas Compressor Stations in West Virginia -- People living near natural gas compressor stations may be subject to high environmental noise exposures, according to a study published in PLOS ONE by environmental health researchers at the University of Maryland School of Public Health (UMD SPH). Compressor stations are necessary to concentrate and move pressurized natural gas, which has been extracted through hydraulic fracturing ('fracking'), along gas pipelines. Environmental exposures from these stations, including toxic chemicals and noise, are a significant public health concern and a source of stress for nearby residents in communities like Doddridge County, West Virginia, where researchers conducted this study. 'Previous studies have documented noise exposure associated with the temporary process of gas extraction site development and preparation, but our research adds new information about the potential extent of noise exposure associated with compressor stations. These stations remain as a permanent structure in the impacted communities,' said Meleah Boyle, MPH, lead author of the study and a doctoral student in toxicology and environmental health. Outdoor noise pollution above 55 decibels and indoor noise pollution above 45 decibels may interfere with activities and lead to annoyance, according to the U.S. Environmental Protection Agency. The World Health Organization recommends nighttime noise levels below 40 decibels to reduce the risk of sleep disturbance, insomnia, and use of drugs for sleeping. 'We found that five out of six homes that we monitored which were located within 750 meters of a compressor station had combined outdoor average sound levels greater than 55 decibels over a 24 hour period,' said Ms. Boyle. Noise from compressor stations along interstate pipelines is regulated by the Federal Energy Regulatory Commission, whereas noise from compressor stations not located on an interstate pipeline is regulated at the state or local level. 'Noise regulation is primarily delegated to the state and local governments,' Ms. Boyle said. 'It is a patchwork system of regulation that varies across the country. To our knowledge, in Doddridge County, West Virginia, there were no noise standards at the time our study was conducted.' `Gas Apocalypse' Looms Amid Power Plant Construction Boom - The glut of cheap natural gas from a single, gigantic, shale basin that straddles the Northeast, mid-Atlantic and Midwest has sparked a massive construction boom of power plants. Dozens have been built in the past two years alone.There’s just one problem: There isn’t nearly enough electricity demand to support all the new capacity. And as wholesale electricity prices plunge, industry experts are anticipating a fire sale of scores of plants in the region. Many, in fact, have already been sold along the PJM Interconnection LLC grid, the nation’s largest, encompassing 13 states from Virginia to Illinois.“Everything in fossil fuels is for sale,” said Ted Brandt, chief executive officer at Marathon Capital LLC, a mergers-and-acquisitions adviser in Chicago. “People are bleeding.” Drawing from abundant, cheap and nearby natural gas in the country’s most prolific shale field, the new plants are adding a gigantic amount of power generation -- more than 20 gigawatts --- to a region that arguably has more than it needs. The new gas-fired plants are also coming online at a time of market turmoil, buffeted by Obama administration efficiency policies that have helped tamp down demand and by the Trump administration’s determination to keep old coal-fired plants going.Spot wholesale prices at PJM’s benchmark Western hub slumped to an average of $28.79 per megawatt-hour last year, falling by more than half since 2008 as the shale boom took hold. Many players are exiting the market.
US Northeast DUCs to continue boosting gas output - The puzzling drawdown in US Northeast inventories of drilled-but-uncompleted wells -- in sharp contrast to the broader industry trend -- is likely to continue buoying regional gas production in the near term as risk-averse producers cash in on recent infrastructure expansions and elevated gas prices. DUC counts in the Northeast have continued falling this year through April, according to the latest data available from the US Energy Information Administration. In the Marcellus, producers have added just three new wells to inventory since December. Over the same period, inventories in the Utica have fallen by 14 and are now at their lowest on record dating back to late 2013. Over the last five months, that drawdown lifted regional production by more than 2% to a record-high average of 23.7 Bcf/d in May to date, according to Platts Analytics, compared with output around 23.2 Bcf/d in December. In the EIA's other five production-reporting areas, well inventories continue to rise, led by the Permian where operators have cataloged 476 new DUCs this year alone.And while the motivation behind the recent builds in the Permian, Eagle Ford, Haynesville, Bakken and Niobrara likely vary by producer and basin, the Northeast drawdown in DUCs appears to be driven by a single factor -- uncertainty. "Forward prices for 2018 are below $3/MMBtu and there's a lot of uncertainty about capacity expansions due to pipeline construction delays," Chief among those uncertainties is the fate of the greenfield 3.25 Bcf/d Rover Pipeline. While developer Energy Transfer Partners has maintained its targeted in-service date of July for Phase I of the project, a recent order from the Federal Energy Regulatory Commission -- putting a stay on about half of the project's remaining horizontal directional drilling -- has raised serious doubts about the proposed timeline.
East Coast refiners eye Texas oil as North Dakota alternative | Reuters: U.S. East Coast refiners are looking to buy increasing volumes of domestic crude oil from the Gulf Coast, two sources said, the latest twist in a trade flow upheaval in the wake of the opening of the Dakota Access pipeline. Major U.S. East Coast refiners profited from railing hundreds of thousands of barrels of discounted Bakken crude to their plants daily from 2013 until 2015. But as more and more pipelines were built in North Dakota, the discount began to disappear, and so did the rail cars. Now, at least two East Coast refiners, Phillips 66 (PSX.N) and Delta Air Lines Inc's (DAL.N) subsidiary Monroe Energy, are looking to move more crude by ship from Texas into the Philadelphia area. The Dakota Access pipeline starts up in May, giving the Gulf access to the Bakken shale play, and will likely sap any lingering economic incentive for Bakken-by-rail, which is more expensive. This option is more expensive than oil imported to the East Coast, typically from Nigeria. Analysts and traders expected that once the Dakota line came into service, East Coast and West Coast refiners would rely on foreign barrels. In 2016, 13 million barrels of crude went from the U.S. Gulf to the East Coast, according to the U.S. Energy Information Administration. By comparison, the East Coast took in 323 million barrels of imported crude last year. Shipping sources say that costs could range between $2.60 to $3.50 a barrel for the two-week round trip on a U.S. flagged vessel. That is lower than the peak, brokers said, because a number of spare vessels are available. Taking a cargo of Nigerian Bonny Light to Philadelphia costs about $1.40 a barrel, brokers said.
Saudi Arabia’s Motiva plans for billions in Texas growth | Fuel Fix: Saudi Arabia’s Motiva Enterprises said it plans to spend billions of dollars more to expand its Port Arthur Refinery — already North America’s largest — and grow more in the petrochemical and refining sectors. Motiva, which finalized its divorce from Royal Dutch Shell in the beginning of May, said it plans to spend close to $18 billion in the U.S., largely along the Gulf Coast, within the next five years. Although scant on details, this comes after Motiva already expanded the Port Arthur Refinery in recent years. Motiva emphasized it will continue to expand its crown jewel asset in Texas near the Louisiana border. Motiva, which operated as a joint venture between Saudi Aramco and Shell for nearly 20 years, is now purely a Saudi venture with a growing headquarters in downtown Houston. The Motiva growth is intended as part of an overall Saudi strategy to diversify its global footprint, including substantial growth in Texas. Motiva kept the 600,000-barrel-a-day Port Arthur Refinery, while Shell received the Convent and Norco refineries in Louisiana, both of which combine to process less than 500,000 barrels daily. Aramco paid Shell $2.2 billion as part of the deal, including $700 million in cash and the assumption of additional Motiva debt. Likewise, Saudi Arabia’s Saudi Basic Industries Corp., called Sabic, has a joint venture with Exxon Mobil to develop a $10 billion chemicals and plastic complex north of Corpus Christi. Motiva said it plans to branch out into the chemical sector, explore more refining growth and expand its commercial operations. Motiva already is working with Northstar Terminals on a new marine terminal at the Port of Port Arthur set to open in July.
Putting Frac Sand Supply, Demand and Prices in Perspective -- The accelerating trend toward high-intensity completions in the Permian, SCOOP/STACK, Marcellus/Utica, Haynesville and other key shale plays is sharply increasing demand for frac sand. As a result, there's upward pressure on sand prices and there are shortages of certain grades of sand that may continue into 2018. There is also increased interest in developing sand mines near production areas. It’s important to remember, though, that (1) there’s no evidence that sand-supply issues will seriously curtail drilling and completion activity, and (2) higher sand costs can be offset by the production gains that usually come from using a lot more sand. Today we continue our surfing-themed series on sand costs and water-disposal expenses with a look at the forecast for 2017-18 demand for frac sand, sand pricing trends, efforts to develop regional sand supply sources and the bottom-line upside of high-intensity completions. Freeing the vast amounts of oil, gas and natural gas liquids (NGLs) trapped in shale and tight sands requires horizontal drilling to access the long, horizontal layers where the trapped hydrocarbons reside. In addition, a mix of water, other liquids and proppant (natural sand, ceramics and resin-coated sand) is forced out of perforated pipe in the horizontal portion of the well bore at high pressure to fracture openings in the surrounding shale/tight sands. When the pressure is released, the fractures attempt to close but the proppant contained in the fluids keeps them open, making a ready path for oil, gas, NGLs and produced water to flow into the well bore.
Permian output already outstripping pipeline expansion plans - Midland Reporter-Telegram: Billions of dollars are being poured into expanding the Permian Basin’s midstream infrastructure to allow moving crude to market. It still may not be enough. The growth in Permian Basin production could overwhelm pipeline capacity by early next year, according to Morningstar Commodities Research. “The key point is they’re reaching their limits faster than thought and continued expansion is needed,” Sandy Fielden, Morningstar’s director, oil and products research, said in a phone interview. He cited Energy Information Administration data showing Permian Basin crude output jumped by 143,000 barrels a day between December and March, as well as the EIA’s forecast that Permian output will rise another 155,000 barrels a day during April and May. This is an average increase of 60,000 barrels a day from December to June, and if that trend continues, it will overwhelm efforts to expand takeaway capacity in 2018, he said. Among the factors boosting Permian output are the big jump in drilling rigs at work in the region and an increasing number of wells coming in with higher initial production rates.Fielden offered a lower-production scenario based on a Bentek Energy forecast from earlier in the year that has Permian output reaching 2.43 million barrels a day by the end of the year and 3.5 million barrels a day by the end of 2022. But by continuing current production trends from December through May, Permian output could reach 4.2 million barrels a day by the end of 2019. Fielden said there are some things that could slow the rise in output, primarily the recent slump in crude prices, which could reduce drilling activity. New pipeline capacity is expected on line during the remainder of the year. With expansion of Sunoco’s Permian Express pipeline, there will be an increase of 100,000 barrels a day. Magellan Midstream-Plains All-American's BridgeTex Pipeline will have 100,000 barrels per day and Plains' Cactus Pipeline by 140,000 barrels per day.
How the Eagle Ford boom prepped Corpus Christi for a flood of Permian crude oil. Over the past five years, the Corpus Christi area’s ability to refine or ship out crude oil has increased substantially, driven initially by rising production in the Eagle Ford play in South Texas — growth that has since subsided. Now, Corpus is preparing for a coming onslaught of crude from the red-hot Permian, whose producers see the coastal port as the preferred destination for their light crude and condensates. Today we continue a blog series on Corpus Christi’s crude-related infrastructure with a look at what’s already there and how storage and marine-terminal upgrades made over the past few years will be coming in handy. As we said in Part 1, the Permian production area in West Texas and southeastern New Mexico defied the oil-price collapse that started nearly three years ago. Crude output in the 70,000-square-mile play continued rising through the downturn; it now tops 2.3 million barrels/day (MMb/d), and is likely to rise by at least another 1.4 MMb/d by 2022, perhaps a lot more — a testament to the region’s extraordinary, multistack hydrocarbon resource and producers’ ongoing ability to increase per-well productivity by drilling longer laterals and using more proppant (see Faster Horses and Wipe Out!). The Permian’s forecasted production growth already is having a ripple effect on crude oil infrastructure, not just within the play, where new gathering pipelines, storage and other assets are being built and planned, but hundreds of miles away. In Will It Go Round in Circles, we noted that three takeaway pipeline projects currently under construction will provide 610 Mb/d of incremental capacity out of the Permian, and that six or more takeaway projects in various stages of pre-construction development would add far more. These current and prospective projects would move crude to one of three destinations: the storage and distribution hub in Cushing, OK; Houston, the refining and marine-terminal giant; and Corpus Christi, an important refining center in its own right and an increasingly popular send-off point for ships transporting Eagle Ford and Permian crude (and condensate) to ports in the U.S. and export markets.
Taxpayers Charged $7 Billion a Year to Subsidize Fossil Fuels on Public Lands - The federal government is providing extensive support for fossil fuel production on public lands and waters offshore, through a combination of direct subsidies, enforcement loopholes, lax royalty collection, stagnant lease rates and other advantages to the industry, a report released Wednesday found. The government is contributing at least $7 billion per year in subsidies to support fossil fuel production on federally held lands and offshore waters alone, and is holding some $35 billion in public liabilities for drilling in public waters of the Gulf of Mexico. These subsidies support increased fossil fuel production on U.S. lands and waters out of step with efforts to meet international climate objectives. The report, released by Oil Change International in partnership with 350.org , WildEarth Guardians , Center for Biological Diversity , Clean Water Action , Food & Water Watch and Public Citizen , for the first time outlines in detail the subsidies and other public support being provided in the U.S. to the fossil fuel industry for its activities on public lands. The report, Unequal Exchange: How Taxpayers Shoulder the Burden of Fossil Fuel Development on Federal Lands , presents an accounting of the minimum amounts of direct taxpayer dollars going to support fossil fuels on public lands, not including externalities such as climate and health impacts, which would bring the totals even higher. If those factors are taken into account, for example, mining coal in the Powder River Basin alone would have a net cost to the U.S. public of some $17.8 billion per year as of 2015. " Rex Tillerson and other members of the Trump administration deny that these subsidies even exist just like they deny climate change . The reason is clear—in both cases, if you admit the truth, the only answer is a managed decline of the fossil fuel industry," said Stephen Kretzmann, executive director of Oil Change International.
Trump proposes sharp cuts at Interior Department while pushing for more drilling on public land --The White House wants to cut the Interior Department budget by about 12 percent as the Trump administration shifts the agency’s focus toward promoting fossil fuel drilling and extraction on public lands and in federal waters.The budget proposal released Tuesday would reduce Interior’s funding to $11.6 billion in fiscal 2018 — about $1.6 billion less annually — and eliminate programs that Interior Secretary Ryan Zinke has called unnecessary, duplicative or a low priority. Among them: discretionary grants to help reclaim abandoned mine sites, National Heritage areas that Trump administration officials say are more appropriately funded locally and National Wildlife Refuge payments to local governments.The budget also significantly decreases funding for new major acquisitions of federal land, cutting such appropriations by more than $120 million. The administration says it instead intends to focus on investing in and maintaining existing federal lands. In particular, Tuesday’s proposal would boost money to help address the roughly $11 billion maintenance backlog within the national park system.“It was not an easy job. There were difficult decisions that were made,” Zinke said in a call with reporters. “This budget overall speaks to the core mission of the Department of the Interior. It funds our highest priorities — safety, security, infrastructure.” The budget proposal would pour more funding into the development of oil, gas and coal investments on public lands. Onshore fossil fuel programs would receive $189 million annually, an increase of $24 million; offshore programs would get $343 million, including a $10 million increase to update the nation’s five-year offshore drilling plan. The Bureau of Land Management would get a $16 million increase in its oil and gas management program to accelerate the rate at which its staff processes permit applications and addresses right-of-way requests for infrastructure projects. The budget also includes a proposal aimed at opening the Arctic National Wildlife Refuge to oil and gas leasing, though that would require approval by Congress. “We have not been a good partner with industry,” Zinke said of the push for expanded energy production on public lands, adding that federal revenue from offshore drilling leases is only a fraction of what it was a decade ago. “Energy production is vital to our national security and our national economy.”
One Dead, Three Injured in Anadarko Oil Tank Explosion - An oil tanker in Mead, Colorado exploded , killing one and injuring three on Thursday. Authorities are continuing to investigate the cause of the explosion. The death is the third fatality caused by Anadarko's Colorado operations in just the past six weeks. On April 17, a home explosion in Firestone, Colorado was the result of an Anadarko oil well. In the days that followed, the company closed 3,000 of its wells across the area, disconnecting all one-inch lines and Gov. John Hickenlooper ordered a statewide review of oil and gas operations. Anadarko announced Thursday that it was permanently closing the well that caused the disaster along with two others in the neighborhood. The explosion in Mead is approximately four miles from the disaster in Firestone. Our thoughts and prayers are with the families of those killed and injured in yesterday's disaster. One injury, one life lost, is one too many. Anadarko must immediately shutter all of its operations while state and federal authorities conduct a comprehensive review of its operations. Anadarko, like so many fossil fuel companies across the country, have proven that it cannot be trusted to put its workers and the communities surrounding operations first, which is why we must expand—not shrink—federal oversight.
How Rollbacks at Scott Pruitt’s E.P.A. Are a Boon to Oil and Gas — In a gas field here in Wyoming’s struggling energy corridor, nearly 2,000 miles from Washington, the Trump administration’s regulatory reversal is crowning an early champion. Devon Energy, which runs the windswept site, had been prepared to install a sophisticated system to detect and reduce leaks of dangerous gases. It had also discussed paying a six-figure penalty to settle claims by the Obama administration that it was illegally emitting 80 tons each year of hazardous chemicals, like benzene, a known carcinogen. But something changed in February just five days after Scott Pruitt, the former Oklahoma attorney general with close ties to Devon, was sworn in as the head of the Environmental Protection Agency. Devon, in a letter dated Feb. 22 and obtained by The New York Times, said it was “re-evaluating its settlement posture.” It no longer intended to move ahead with the extensive emissions-control system, second-guessing the E.P.A.’s estimates on the size of the violation, and it was now willing to pay closer to $25,000 to end the three-year-old federal investigation. Devon’s pushback, coming amid an effort to ease a broad array of federal environmental rules, is the first known example under the Trump administration of an accused polluter — which has admitted violating the law — backing away from a proposed environmental settlement. It is already being hailed by other independent energy companies as a template for the future. The extraordinary about-face reflects the onset of an experiment in President Trump’s Washington that is meant to fundamentally reorder the relationship between government and business. Across the federal government, lobbyists and lawyers who once battled regulations on behalf of business are now helping run the agencies they clashed with.
Time for the oil industry to snuff out its flares -- The emission of air pollution from traffic in our cities is the last step for a fuel that produces air pollution at every stage of production, often starting with flaring at a distant oil well. The World Bank estimates that the 16,000 flares worldwide produce around 350m tonnes of CO2 each year.Black carbon from sooty flames adds to the problems, especially across the northern hemisphere where it darkens arctic and mountain snow encouraging melting. The flared gas is also a wasted resource.Despite increases globally in 2016 some areas have improved. Iraq is the latest country to join a World Bank initiative to eliminate routine flaring by 2030. Nigeria reduced flaring by 18% between 2013 and 2015. In 2017 it dropped from the second largest flaring nation to seventh place. Global media attention has focused on soot covering the city of Port Harcourt, but more than 20 million people across the Niger Delta are exposed to flaring pollution. This is mainly from onshore wells and refineries rather than the off-shore industry. The impacts are not just local to the well or refinery. Dominant south westerly winds carry pollution from flaring areas to those with little oil industry. Air pollution across hundreds of square kilometres is above World Health Organisation guidelines for nitrogen dioxide and ozone. These pollutants also cause acid rain across sensitive savanna, mangrove, rainforest and freshwater habits and directly attack crops. Twenty seven percent of the pollution came from just 14% of flares, suggesting targeted improvement could yield big results in Nigeria. But more action is needed worldwide.
Two More Spills for Dakota Access Pipeline - The Dakota Access Pipeline (DAPL) system leaked more than 100 gallons of oil in two separate incidents in North Dakota in March. This is the $3.8 billion project's third known leak. The controversial pipeline, which is not yet finished and not yet operational, also spilled 84 gallons of oil in South Dakota on April 4. The state's Health Department database shows that two barrels, or 84 gallons, spilled on March 3 in Watford City due to a leaky flange (the section connecting two sections of pipeline) at a pipeline terminal. Vicki Granado, spokeswoman for pipeline backer Energy Transfer Partners (ETP), told the Associated Press that the discharge came from a line operated by a connecting shipper on the Dakota Access Pipeline. "They are responsible for the operations, maintenance, etc.," she said. Then on March 5, a half a barrel, or 20 gallons, spilled in Mercer County due to a manufacturing defect of an above-ground valve, according to data from the federal Pipeline and Hazardous Materials Safety Administration. Both leaks were contained and cleaned up. No people, wildlife or waterways were affected.
Faulty weld behind Dakota Access leak - A faulty weld on the Dakota Access pipeline was responsible for a 20-gallon leak reported March 5 at an above-ground station in Mercer County, while an 84-gallon spill at a pipeline terminal in Watford City on March 3 was actually owned and operated by a different company, Caliber Midstream — though ultimately the line will feed oil into the Dakota Access system. The faulty weld that caused the 20-gallon leak on the Dakota Access line in Mercer County was identified during a standard commissioning process designed to identify problems before a pipeline is put into service, ensuring a line’s integrity before it begins operation. The spill was not reported to North Dakota, but was reported to the Pipeline and Hazardous Materials Safety Administration, as required. “Our crews were on site at this valve site as the commissioning process was under way, so it was immediately remediated,” Vicki Granado, a spokeswoman for Dakota Access, said. “It occurred during the process of getting the pipeline ready to go into service.” Caliber Midstream CEO Dave Scobel confirmed their company was also engaged in a commissioning process for their line, which will tie into Dakota Access in Watford City once it is put in service. “Ours was probably significantly less than two barrels, but we always take a conservative approach in reporting,” he said. “We don’t want people to accuse us of minimizing a spill, so we always exaggerate the size.”The spill occurred because of a loose bolt, Scobel said, which was immediately corrected. There was snow on the ground at the time, so most of the oil sprayed as a fine mist on top it, never reaching the ground, the incident report stated. All the contaminated snow was removed using a vacuum truck. There was some pooling in an area 10 feet by 20 feet, which had both snow and contaminated soil. This was also immediately removed by vacuum truck. No personnel, wildlife or waterways were affected, the report said.
DAPL Photographer Cleared of Charges After Drone Footage Proves His Case -- A Dakota Access Pipeline (DAPL) protester and photographer was cleared of all charges Thursday after he was accused of endangering a police plane with his drone.Aaron Turgeon, also known as Prolific the Rapper, faced seven years in prison after he was arrested in October and charged with reckless endangerment and physical obstruction of a government function. Prosecutors said he had put the pilot of a surveillance plane, as well as water protectors on the ground, in harm's way when he used a drone to capture protest footage over a DAPL site.The footage proved to be useful in the trial, which ended in one day after Judge Allan Schmalenberger found that Turgeon flew his drone in a "methodical manner" and did not put others at "substantial risk of bodily injury under circumstances manifesting extreme indifference to the value of human life," the Bismarck Tribune reported."The defendant did not fly the drone at the plane. He did not fly the drone in a reckless manner over either the people or at the plane," Schmalenberger said.Turgeon testified that he was flying the drone to film the protest, and that he was aware of the police plane's position and made sure to stay out of its way. He said protesters raised their fists when they saw the drone, indicating that they wanted to be filmed, the Tribune reported. Turgeon documented the DAPL resistance often, posting videos and livestreams to various Facebook groups. Among the footage he captured was of police assaulting protesters with water cannons and tear gas. North Dakota Highway Patrol Sgt. Shannon Henke, who spoke with Turgeon at the scene and briefly attempted to confiscate the drone, testified in court that the aerial device could have fallen from the sky and injured someone. The incident helped prompt the Federal Aviation Administration (FAA) to implement a no-fly zone over the protest sites.
Trump budget slashes EPA funding, opens Alaska refuge to drilling | TheHill: President Trump is proposing deep cuts for the Environmental Protection Agency (EPA), federal energy research and public lands oversight in his 2018 budget, the White House announced Monday. The administration’s budget document also includes a controversial plan to open up Alaska’s Arctic National Wildlife Refuge (ANWR) for oil drilling, and it proposes drawing down the nation’s oil reserve — two strategies for raising new federal revenues. Trump’s budget would cut the EPA’s funding by $2.6 billion, or 31.4 percent, the largest cut for any cabinet-level agency.In a preliminary budget outline released in March, the White House said those cuts would target the EPA’s regulatory efforts, climate change initiatives, research accounts, industrial clean-up measures, state grants and region-specific environmental work. Taken together, it would shutter 50 agency programs and eliminate 3,200 of the agency’s 15,000 jobs. The proposal — if enacted — would fulfill a key campaign promise from Trump, who has complained about what he considers excessive federal regulation, and promised to hobble the nation’s environmental regulators. The White House’s budget also aims to cut the Department of Energy’s (DOE) budget by $1.7 billion, or 5.4 percent. Trump officials are proposing an 11.4 percent increase in spending for the DOE office that oversees militarizing nuclear science, coupled with an 18 percent cut across the rest of the department’s budget, which includes programs like energy research and development, national laboratories and radioactive waste disposal. The Interior Department, responsible for the nation’s national parks, offshore drilling, wildlife refuges and much of its public land, would absorb a cut of $1.4 billion, or 10.9 percent. The cuts are part of a budget plan that would slash $54 billion in domestic discretionary spending next year while raising defense spending by the same amount. The budget document released on Monday includes a proposal to lease drilling sites in ANWR by 2022, something long opposed by Democrats and environmentalists. Such a plan, if enacted, would raise $1.8 billion by 2027, according to budget documents.
Trump budget would cut oil stockpile, open Arctic refuge to drilling | Reuters: U.S. President Donald Trump's White House would sell half of the nation's emergency oil stockpile and open the Alaska National Wildlife Refuge to drilling as part of a plan to balance the budget over the next 10 years, documents released by the administration on Monday showed. The White House budget, which will be delivered to Congress on Tuesday, is meant as a proposal and may not take effect in its current form. But it reveals the administration's policy hopes, which include ramping up American energy output. The U.S. Strategic Petroleum Reserve, the world's largest, holds about 688 million barrels of crude oil in heavily guarded underground caverns in Louisiana and Texas. Congress created it in 1975 after the Arab oil embargo caused fears of long-term motor fuel price spikes that would harm the U.S. economy. The Trump budget proposes to start selling SPR oil in fiscal year 2018, which begins on Oct. 1, with sales that would generate $500 million, according to the documents. The sales from the reserve would gradually rise over the following years, peaking at nearly $3.9 billion in 2027, and totaling nearly $16.6 billion from 2018 to 2027. Past SPR sales have sometimes caused crude oil futures prices to drop by adding to available supply. In this case, that would work against Trump's efforts to revive the downtrodden oil and gas drilling industries. U.S. crude oil prices on Monday settled at $50.73 a barrel, a relatively low level that has limited energy company profits. The Trump budget would also seek to raise $1.8 billion over the coming decade by leasing oil in the Arctic National Wildlife Reserve, the largest protected wilderness in the United States, believed to hold rich reserves of crude.
Trump’s Budget Delivers Big Oil’s Wish: Reducing Strategic Petroleum Reserve - Steve Horn - President Donald Trump‘s newly proposed budget calls for selling over half of the nation’s Strategic Petroleum Reserve (SPR), the 687 million barrels of federally owned oil stockpiled in Texas and Louisiana as an emergency energy supply.While most observers believe the budget will not pass through Congress in its current form, budgets depict an administration’s priorities and vision for the country. Some within the oil industry have lobbied for years to drain the SPR, created in the aftermath of the 1973 oil crisis.Leading the way has been ExxonMobil, which lobbied for congressional bills in both 2012 and 2015 calling for SPR oil to be sold on the private sector market. The Trump administration says selling off oil from the national reserve could generate $16.58 billion in revenue for U.S. taxpayers over the next 10 years.But EnergyWire’s Peter Behr reported that the Trump SPR budget proposal would potentially violate U.S. commitments as a member of the International Energy Agency. “As a member of the International Energy Agency, the United States must store enough petroleum to equal at least 90 days of U.S. crude imports, according to DOE,” wrote Behr. “The SPR held the equivalent of 141 days of imports as of last September, so cutting the supply in half would apparently put the United States below its commitment to global stockpiles, an insurance policy against a major loss of crude supply from conflict or natural disasters.” Trump’s budget plan would not only reduce the SPR storage to a level of 260 million barrels, it would shut down two of the four SPR sites. Exxon, as well as the American Petroleum Institute (API) and the Independent Petroleum Association of America (IPAA), have long lobbied for a drawdown of SPR‘s supply, according to lobbying disclosure records reviewed by DeSmog. They supported two key bills, proposed but never passed by Congress: H.R. 4136 in 2012 and S. 1231 in 2015.
Factbox: Trump administration's plans to halve US oil reserve, sell gasoline stocks - The Trump administration wants to sell 270 million barrels of crude oil from the US Strategic Petroleum Reserve over the next 10 years, shut two of four SPR storage sites on the Gulf Coast and sell its 1 million-barrel gasoline reserve in the Northeast. Along with a series of sales already approved by Congress, the SPR will hold about 250 million-260 million barrels of crude by 2027, according to the administration's proposal. The SPR, the world's largest government oil stockpile, held 687.7 million barrels of crude as of Friday, according to the Department of Energy, which manages it. The planned selloff, however, is complicated by a variety of factors, including the fact that it is contained in a proposed budget congressional leaders already say is dead on arrival. Here's a look at the administration's SPR plans and some likely complications along the way: The White House Tuesday unveiled a proposed, fiscal 2018 budget which included $28 billion for the DOE, down $1.7 billion, or 5.6%, from fiscal 2017. The DOE plan proposes a "half-liquidation sale" of the SPR, selling an estimated 270 million barrels of crude by 2027. According to details of the Trump budget proposal, in fiscal years 2018 and 2019, DOE would need to sell roughly $1 billion worth of crude. The budget estimates this would require about 15 million barrels of crude to be sold, which assumes an average price of nearly $67/b over those two years. The Energy Information Administration currently forecasts WTI spot prices to average about $55/b in 2018 and $64/b in 2019. Starting in fiscal 2020, the DOE would begin a schedule where a specified number of barrels would be sold each year until a total of 255 million barrels were sold by end-fiscal 2027. According to the schedule: 10 million barrels would be sold in fiscal 2020, 25 million barrels each in fiscal years 2021 through 2025 and then 60 million barrels in 2026 and another 60 million barrels in 2027. DOE estimates all the sales planned in the budget will raise nearly $16.59 billion over this 10-year span.
US E&Ps return to profitability after posting massive losses in 2015 - 2016. - Higher crude oil and natural gas prices, improved efficiency in drilling and completion and other factors combined to give most U.S-based exploration and production companies (E&Ps) solid financial results in the first quarter of 2017 — a stark contrast to their performance in 2015 and 2016. Better yet, the turnaround is providing E&Ps with the optimism and wherewithal to significantly ramp up their planned capital spending this year and in 2018. It’s also giving them an opportunity to zero in on shale plays with low breakeven costs that will help them maintain profitability even if commodity prices stay flat or sag. Today we analyze the first-quarter financial results of a group of 43 U.S. exploration and production companies. Recovering from nearly $160 billion in losses in 2015 and 2016, the universe of 43 major significant U.S. E&Ps we’ve been tracking earned $9 billion in operating income in first-quarter 2017 and generated an impressive $24 billion in cash flow. Higher realized prices for crude oil and natural gas and dramatically lower impairment charges primarily drove the return to profitability. This revival of profitability by U.S. E&Ps is greasing the wheels of the ongoing transformation of the E&P sector that we analyze in depth in Piranha!, a new market study of the same 43 E&Ps. Of that universe of companies, 21 focus on oil (60%+ liquids reserves), nine are gas-weighted producers (60%+ natural gas reserves) and 13 are diversified producers. All major U.S. shale/unconventional plays are represented in the combined portfolios of these firms.
U.S. oilfield service firms lag shale recovery; old deals hold -- U.S. oil services companies have been doing a lot more work as recovering oil prices have lifted the shale industry from a two-year slump, but producers have been pocketing much of the new cash generated by rising output and squeezing service providers to keep costs down. Oil service companies that provide the crews, labor and technology used to drill, construct and operate wells are lagging the recovery in U.S. shale producers. The lopsided situation could chill the production rebound or keep it from spreading to more shale fields, executives of services companies said. Rising demand for certain services means raising salaries to attract workers and refurbishing equipment, while often being paid under fixed contracts signed during harder times, these companies said. That has pressured margins, leading to further losses. Law firm Haynes and Boone LLP said the U.S. oilfield sector experienced 127 bankruptcies between 2015 and April 2017. Among the 10 largest oilfield service providers, just five were profitable last quarter, the same number as a year ago. In contrast, seven of the top shale oil producers posted a first quarter profit, up from just one a year ago. "Both of us have to be able to earn a return and give something back to our shareholders," David Lesar, chief executive officer of Halliburton Co (HAL.N), the world's second-largest oilfield services company, said in an interview. The sector is struggling to change onerous contract terms set when oil prices were much lower. Service companies agreed to those prices out of necessity; they needed cash flow to cover expenses. Those contracts, some of which extend into next year, are contributing to losses, preventing some companies from adding equipment or moving it to oil fields where it could be put to use.
OFS Crew Cuts May Shave Near Term US Crude Oil Production Growth | Rigzone -- The net result of the industry’s massive layoffs may be steeped in irony: Now that oil prices are gaining some steam, the workers needed to get the stuff out of the ground are increasingly harder to come by. Between March and April, the number of drilled but uncompleted (DUC) wells increased in the U.S. by 187, according to the U.S. Energy Information Administration (EIA). That’s part of an increase of 529 DUCs since the beginning of the year, which makes the April 2017 number of DUCs the highest since April 2014 – five months before the generally accepted ‘beginning’ of the downturn. Federal numbers show that the number of DUCs increased as oil prices decreased:
- April 2017 – 5,721
- April 2016 – 5,452
- April 2015 – 5,303
- April 2014 – 4,063
As Andrew Slaughter, executive director of the Deloitte Center for Energy Solutions, explains, there is a general base number of DUCs that will always exist. But upward of 500 DUCs has implications of a market trying to respond to steadily increasing commodity prices. “Given the fact we lost a lot of completion capacity – both in equipment and in crews during the downturn – it’s going to take time to bring back the completion capacity to start working off the DUC inventory,” he said. “But it’s not a quick process. It’ll be over months and quarters, not weeks.” And part of that process is finding workers to replace the hundreds of thousands cut during the last three years. “(Oilfield service companies) laid off a huge amount of people, beginning in 2015 and through 2016, so not all of those people are coming back clearly. You need to attract more people, get them trained, and it probably won’t be as efficient or as effective as experienced crews,” he said. “Over time it’ll work itself out – it usually does. But it’s one factor behind my statement that U.S. production maybe won’t increase as fast as many people are expecting.”
Resilient US Shale Has Flipped Imports Upside Down -- With shale production booming, why does the U.S. still import oil? It’s a common question. . It’s true that growing oil production from tight formations and shale beds has changed things in the U.S. Not only has shale production decreased the need for the U.S. to import as much oil as it historically has, but it has changed the type of oil that is being imported into the country. . In total, U.S. crude imports from 1986 to 2016—30 years of recording every incoming oil delivery—amount to just under 244,000 separate records representing tanker cargoes from abroad, pipeline shipments from Canada and other deliveries of crude oil—both large and small. The takeaway is this: during the last thirty years the U.S. has imported over 91 billion barrels of crude oil from the rest of the world. But U.S. production of oil has grown sharply in recent years, from a bottom of 5,000,000 barrels per day in 2008 to an average of 8,875.000 million barrels per day in 2016. This growth, more than 75% in eight years, has almost entirely been fueled by production from formations like the Bakken, Permian and Eagle Ford. These shale formations produce almost exclusively light sweet oil, which has filled U.S. markets. U.S. refineries are in large part set up to handle heavy, sour crude. Here’s why: before the shale boom U.S. production was declining steadily, and because of the fact that oil fields have a natural decline curve for production, no one had any expectation that there would be a reversal (‘Peak Oil’ theory). It appeared that the U.S would be reliant on imported crude, so refineries made large investments to improve heavy oil processing capabilities. Heavy oil requires much more extensive processing than light oil, and often sells for less than light, sweet oil. Total imports have dropped from a peak of 10.126 million barrels per day in 2011 to 7.877 million barrels in 2016. That’s a whopping decrease of 22% in just 5 years. Beyond the decrease in volume of imported oil, the type of oil being imported has changed. Oil with an API gravity lower than 25 is often defined as “heavy oil,” while oil between 25 and 35 is “medium” and oil with an API gravity above 35 it typically called “light oil.” In 1986 (gold columns), the first year the EIA carefully tracked imported crude, the U.S. imported 371.9 million barrels of heavy oil, or just under one quarter of the total for that year. Medium oil accounted for about 41% of 1986 imports, while light oil made up the remaining 34%. Overall, the U.S. imported a broad range of crude in 1986, 1.525 billion barrels in total. 2016 (gray columns) presents a very different landscape. Oil production was hampered by the downturn, but at 8,875 MBOPD production still exceeded 2005 levels by nearly 3,700 MBOPD. Crude imports totaled 2.883 billion barrels, down more than 25% from 2005. Heavy oil dominates imports, making up 55.6% of import volumes. Medium oil has fallen to about one-third of imports, while light oil accounts for less than 11% of volumes.
U.S. freight recovery spurs diesel demand - U.S. freight movements have started increasing again, which should help boost consumption of distillate fuel oil in 2017 and 2018.The tonnage of freight moved by road, rail, barge, pipeline and air cargo has been increasing year on year since October, after stagnating for much of 2015/16 (tmsnrt.rs/2qSDLAJ). Freight movements hit a new record in February, before slipping slightly in March, according to the U.S. Bureau of Transportation Statistics (tmsnrt.rs/2rTVx58). Most freight is hauled by equipment that uses diesel engines, or jet turbines in the case of air cargo.Freight is therefore the main driver for consumption of fuels refined from the middle of the crude oil barrel, including distillate fuel oil and jet fuel. The U.S. Energy Information Administration forecasts that distillate consumption will increase by 80,000 barrels per day in 2017 and a further 90,000 in 2018.By contrast, the agency forecasts gasoline demand will be flat in 2017 and grow just 30,000 barrels per day in 2018 (“Short-Term Energy Outlook”, EIA, May 2017). Forecast growth in distillate consumption is largely due to stronger freight demand, where a cyclical recovery is being driven by a general normalization of business inventories as well as specific improvements in the oil, gas and coal sectors. Freight movements were sluggish during 2015 and 2016 as U.S. businesses tried to reverse an unplanned build up in inventories of raw materials, work-in-progress and finished goods all along the supply chain. .After struggling in 2015, destocking finally began to pay off with inventory ratios turning down from April 2016 and falling to 1.35 by December.With better inventory control, manufacturers, wholesalers and retailers have shown more confidence to increase their orders and freight deliveries are picking up. Freight movements have also been strengthened by the resurgence in the oil and gas sector, where the number of active rigs has more than doubled in the last 12 months (tmsnrt.rs/2rkF9NT).The number of rigs drilling for oil and gas has increased from a low of just over 400 at the end of May 2016 to more than 900, according to oilfield services company Baker Hughes.Drilling and well completion need large amounts of equipment and materials, including sand, water and steel drill pipe, to be delivered to remote sites, usually by rail and road. Oil and gas drilling also supports distillate consumption directly because diesel-electric generators provide power for drilling rigs as well as auxiliary supplies for heating, lighting and other operations.
U.S. Oil and Gas To Contribute $1.9 Trillion to U.S. GDP by 2035 -- Since U.S. oil production started recovering at the end of 2016, coinciding with a pro-oil administration entering the White House, industry bodies and analysts have been projecting that the U.S. shale patch output will continue to rise.Earlier this week, the American Petroleum Institute (API) released a study it had commissioned which claims that not only will production grow, but investment in oil and gas infrastructure will contribute between US$1.5 trillion and US$1.89 trillion to U.S. GDP by 2035, or between US$79 billion and US$100 billion annually. Energy infrastructure is a leading catalyst for economic growth, said the oil industry association in the study commissioned to ICF.The study also sees rapid oil infrastructure development likely to continue for a prolonged period, with total capital expenditures (capex) for oil and gas infrastructure development between 2017 and 2035 ranging from US$1.06 trillion in the base case to US$1.34 trillion in the high case. The investments under consideration include existing and new infrastructure for surface and lease equipment; gathering and processing facilities; oil, gas, and natural gas liquids (NGL) pipelines; oil and gas storage facilities; refineries and oil products pipelines; and export terminals. Infrastructure development is expected to employ an average of 828,000 to 1,047,000 individuals annually across the U.S., not only in the states where infrastructure development takes place, and including indirect and induced labor impacts, the study finds. The projections are only for employment associated with oil and gas infrastructure development, “and do not include jobs more broadly across the upstream and downstream segments of the industry, nor do they include jobs related to operating and maintaining oil and gas infrastructure, each of which would add millions to the U.S. labor pool,” the study notes.
Shale Oil & Gas Production Costs Spiral Higher As Monstrous Decline Rates Eat Into Cash Flows- If you believe the recent surge in U.S. oil production suggests that good times are here once more, think again. While the U.S. oil industry continues to increase production by adding a great deal more drilling rigs, there is serious trouble taking place in the shale patch that very few are aware. This has to do with the rapid deterioration of oil and gas economics as horrendous decline rates eat into company cash flows.The advent of shale oil and gas production, which created the vision of ‘ US energy independence’ , has brought renewed interest in the economics of oil and gas production. What are the key parameters for productivity and costs? In short, it is the cost per produced barrel and not – as often referred in the media – the absolute cost per individual well. As a conclusion, the true costs are strongly dependent on the life span (or the yearly decline rate – referred to very often as ‘legacy’ rate) of the well. So, if a company boasts it has decreased its drilling costs from $10 million per well to $8 million per well, it is just half of the truth as the well may decline much faster and thus produce less oil over its life span and the drilling cost per barrel could be actually much higher, despite the reduction in costs per well. As it is difficult to assess the future performance of wells, we can luckily see a trend from the history of performance from existing wells. In its monthly drilling report, the EIA publishes the performance of new oil and gas wells versus existing wells. This gives an excellent insight into the status of the shale industry. Below chart 1 depicts the addition of new wells (blue line) in the Permian versus the legacy decline of existing wells (red line) and the resulting net growth for the field in million barrels per day (yellow bars right hand scale). The massive addition of nearly 2.5 million barrels per day and year of new production (blue line) is mitigated by the already equally monstrous decline of existing wells (red line). Furthermore, chart 1 shows a fast growing legacy decline rate, which is actually growing faster than the addition of new production. Therefore, the monthly production growth has been already decreased over the last two months. As a strongly rising decline rate reduces cash flow of companies very swiftly, I expect new production will decline considerably over the next few months.
Following the flow of US crude oil around the globe -- Capitol Crude podcast - US crude exports are in their nascent stages, relative to the rest of the world. But data about the exports reveals how the crude is entering the market. Mason Hamilton, petroleum markets analyst with the US Energy Information Administration, joins senior oil editor Brian Scheid and global director of energy news Beth Evans to parse the numbers and determine where US crude is being shipped. Additionally, Hamilton details what restrictions are limiting the domestic market, how tankers and shipping costs factor into the flows, how crude exports stack up against refined products like gasoline and why US crude ended up in the Marshall Islands.
Canada’s Oil Tanker Moratorium Act - On Friday Canada’s federal government introduced legislation that will turn its informal ban on crude oil tanker traffic off the North Coast of British Columbia into law. This new law, once enacted, would dash hopes of Canadian oil producers for a Canadian-domiciled Pacific export takeaway port to send its crude oil to Asian markets, and likely eliminate the need for the proposed Northern Gateway pipeline that would have brought oil from Alberta to export facilities on Canada’s Pacific coast. “This legislation will prohibit oil tankers carrying crude and persistent oils as cargo from stopping, loading or unloading at ports or marine installations in northern British Columbia,” the government’s press release said.
Kinder Commits to Pipe Linking Oil-Sands Crude to Asian Markets - -- Kinder Morgan Inc. has committed to expanding a pipeline that will allow Canadian crude to be exported to Asia, a controversial C$7.4 billion ($5.5 billion) project that’s set to face revitalized opposition amid political upheaval in the nation’s Pacific Coast province.The Houston-based company announced its final investment decision for the Trans Mountain expansion project Thursday, saying it expects to secure enough financing from an initial public offering of its Canadian subsidiary to proceed with the project. It expects to raise C$1.75 billion from the IPO by May 31, according to a statement.The project will nearly triple Trans Mountain’s capacity, giving producers from Alberta’s oil sands access to Pacific shipping routes from the coast of British Columbia. Currently, almost all of Canada’s oil is exported to the U.S. With the expanded line, Canada can export to Asian refineries capable of processing its heavy crude and pay higher margins than those in the U.S.The development will be "a game changer for global heavy oil flows," Wood Mackenzie said in November when Canadian Prime Minister Justin Trudeau approved the project amid strident environmental opposition."Our approvals are in hand, and we are now ready to commence construction activities this fall,” Ian Anderson, president of Kinder Morgan Canada Ltd., said in the statement. Those plans are likely to face a galvanized opposition in British Columbia, where the pipeline terminates near Vancouver. Two political parties -- the New Democratic Party and Green Party -- expanded their support in an election there earlier this month. Both are staunchly opposed to the project, which they say would increase tanker traffic and the risk of a catastrophic oil spill. Together they could muster a majority of lawmakers to overwhelm the more energy-friendly Liberal Party. The expansion will add 590,000 barrels a day of capacity for a total of 890,000. About 80 percent of that is underpinned by long-term shipping commitments of up to 20 years. Construction is set to start in September and complete in December 2019, according to the statement.
New rules aim to cut methane emissions in Canada’s oil, gas sector -- New rules to reduce methane emissions from Canada’s energy sector will cost the industry an estimated $3.3-billion over the next two decades, and will hit conventional oil and natural-gas producers the most dramatically. But federal officials also say that the value of conserved gas from 2018 to 2035, as a result of the regulatory changes, could total $1.6-billion – alongside billions saved in avoiding costs related to climate-change damage. The draft rules for the oil and gas sector, released on Thursday, are part of Ottawa’s climate-change plan that includes a goal of reducing methane emissions by 40 to 45 per cent from 2012 levels by 2025. The government argues that working to reduce methane emissions from leaky equipment or reducing gas venting is the low-hanging fruit as Canada works to mitigate climate change. It costs less to reduce potent methane emissions compared with other greenhouse gases. And most methane emissions from the oil and gas industry are not subject to the provincial and federal carbon-tax regimes designed to prompt GHG reductions – which is why the government is instead moving to set hard and fast regulations in this area.Methane is the colourless, odourless main component of natural gas, used to heat homes and run industrial factories. The oil and gas industry produces about 44 per cent of Canada’s methane emissions – with methane as a whole representing 15 per cent of Canada’s GHG emissions. Ottawa is proposing rules regarding equipment leaks, venting, pneumatic devices, compressors and well completions. Speaking after the announcement on Thursday, Shell Canada president Michael Crothers said the company supports controls on methane emissions, and has long had voluntary leak detection and repair programs in place at its Alberta and B.C. operations. But “maintaining cost competitiveness” remains an issue, he added. While the Trump administration in the United States continues to move to loosen environmental rules – including those related to methane emissions – Canada is enacting a wide swath of measures to combat climate change. In the industry, there are concerns the differences between the two countries could render the Canadian oil and gas sector less competitive.
WSJ: Why Canada and Brazil are hurting market balancing efforts - No one really thinks about how the “little guys” affect the effort to rebalance the oil market. Today, the Wall Street Journal reported that a “wave of new petroleum production from countries like Canada and Brazil is adding a new problem for oil traders.” The WSJ notes that the two countries are the seventh and 10th largest oil suppliers, and production in these two countries is growing fast. While they might not be “little,” production is overall far less than countries like the United States, Russia and Saudi Arabia. According to EIA data, in 2016, Canada ranked sixth in overall oil production while Brazil didn’t even make the top ten. In addition to Canada and Brazil, the U.K. and Norway are also producing more and pose a concern at the meeting next week in Vienna of the Organization of Petroleum Exporting Countries (OPEC) , according to the WSJ. Last year, OPEC agreed to cut production in order to help balance the markets and raise oil prices back into profitability. The 13 countries of OPEC plus 11 non-OPEC countries, such as Russia, pledged cuts of 1.8 million barrels per day (bpd). The deal is expected to extend to March of 2018, reports Reuters. While OPEC countries continue to make pledges to cut production, other oil-producing nations have taken advantage of the gap in the market. Today, Reuters also reported that oil tankers carrying around 10 million barrels of U.S. crude are en route to Asia. The OPEC production cuts, if extended, may be a big advantage to U.S. producers, since the premium for Brent crude over WTI continues to widen. However, the Doug King, chief investment officer at RCMA Asset Management and manager of the company’s Merchant Commodity hedge fund, told the WSJ that while everyone is focusing on increased production in the shale regions of the United States, increased production by smaller producers, like Canada and Brazil, are a factor “that people seem to overlook.” While the amount of production from these countries might seem significant, every extra bit of oil on the market contributes to the persistent oil glut that’s keeping prices from rising. In Canada, says the Journal, output is expected to hit an all-time high this year at 4.7 million barrels a day. Brazil , with as much as 50 billion barrels of recoverable resources, is expected to grow by 212,000 barrels a day to reach 2.8 million barrels per day.
Anemic drilling rates in Mexico point toward further gas output declines - Platts Snapshot video - Platts Analytics expects total Mexican dry gas production will fall another 0.4 Bcf/d by the end of 2017, further increasing Mexico's need for US pipeline imports. However, this year has seen a number of delays on new export pipelines. Ross Wyeno explains how much LNG could be imported to help fill demand, as well as how the power sector is turning to fuel oil.
Interview: Argentine energy minister sees $50/b oil supporting shale growth - Crude oil prices around $50/b are providing Argentina with a strong opportunity to push expansion of its nascent shale industry, which would ultimately help to improve the efficiency of its oil and gas sector, Minister of Energy and Mining Juan Jose Aranguren told S&P Global Platts Friday. "What these new price scenario is giving the whole oil and gas sector is the opportunity to improve our efficiency to be more competitive even at this low price," Aranguren said in an interview on the sidelines of the Japan-Argentina Economic Forum in Tokyo. "Of course if you have a higher price, you can have more opportunities, but in this particular case, I think the Argentine sector is adjusted to this price scenario," said Aranguren, who was accompanying Argentine president Mauricio Macri with other cabinet ministers. "At $50/b, companies are telling me that if we manage to improve productivity in the country, particularly labor productivity, they can cope with this price scenario." Argentina has among the largest shale oil resources in the world, which have started to come into production and are expected to offset dwindling conventional oil production at maturing fields. Although Argentina's oil production is falling to less than 500,000 b/d from an average of 511,000 b/d in 2016, Aranguren said: "It will be the balance between local production and opportunities to import crude." Argentina is not concerned about the current $50/b oil price, and is more concerned about gas prices because of its higher exposure, Aranguren said. "Honestly, we are more concerned about natural gas prices than oil prices," Aranguren said. "Of course we are producing oil, but you need to take into account that our energy mix in Argentina is dominated by natural gas --54% of our primary energy mix is gas."
Conservative manifesto: Energy efficiency focus, oil and gas support and ‘fracking revolution’ - The Conservatives have pledged to maintain the UK’s climate change commitments through enhanced clean technology and energy efficiency funding, but the Party’s manifesto also proposes continued support for the North Sea oil and gas industry and an additional focus on fracking. The 88-page document, launched by Prime Minister Theresa May this morning (18 May), places a large emphasis on the critical role of the private sector, promising to “create the conditions where successful businesses can emerge and grow”. The manifesto outlines a plan to “lead international action against climate change”, citing the importance of technologies such as battery storage and offshore wind to help the country meet its 2050 climate change targets to reduce emissions by 60% from 1990 levels. Friends of the Earth (FoE) has said the commitment sends a “strong message” to both Donald Trump and opponents of climate action in the UK. “The Conservatives have comprehensively rejected the siren voices calling for the UK to walk away from its international and domestic commitments to tackle climate change,” FoE campaigner Dave Timms said. But the decision to continue support for the North Sea oil and gas industry is likely to upset environmental groups, as will the commitment to develop fracking in the country.
The Tories’ Energy Manifesto -- The Tory party manifesto for the forthcoming UK general election is 84 pages long and the word energy appears on 8 of those pages from which we can conclude that energy is rising up the political agenda. The word “energy” appears 37 times and the word “electricity” once, from which we can conclude that the energy author of the manifesto does not have a clear grasp of the subject since it is mainly electricity that the Tories have in mind. This short post reproduces the main energy sections from the manifesto together with some commentary. The meat of the energy policy appears on pages 22 and 23 and reads as follows:
India Looking To The US For Alternate Oil Supplies -- May 23, 2017 - We've talked about this before. US operators bring a) transparency; and, b) guarantees when it comes to delivering oil. The Financial Times is reporting that India is looking to the US as it seeks alternatives to OPEC. India is complaining that Saudi Arabia is curtailing supplies and is marking up their prices. The US, he noted, had some fields that were able to produce economically at $25 a barrel, as costs have come down after the price collapse that has entered its third year. “The energy business has changed very fast in recent years,” he said. “We can’t put all of our eggs in a single basket.” Mr Pradhan used his meeting with OPEC delegates to air grievances with the group of producers from which India sources 86 per cent of its oil supplies. This feeds into its refineries that have processing capacity of 4.6m barrels a day. He said despite the collapse in prices since the middle of 2014, Asian customers traditionally dependent on Middle Eastern oil to meet their energy needs continue to pay a premium for crude compared with buyers in Europe or the US. India said oil output cuts by OPEC producers could prove a threat to its energy security, which together with higher prices, is pushing the world’s third-largest crude consumer towards alternative suppliers.
India moving beyond oil as seeks alternatives to OPEC | Reuters: OPEC production cuts and the prospect of more expensive oil are pushing India to consider U.S. and Canadian suppliers, as well as encouraging it to turn to renewable energy, the country's petroleum and natural gas minister said on Monday. Dharmendra Pradhan made the comments in Vienna ahead of OPEC's meeting this Thursday when members will decide whether to extend production cuts to ease the global oil glut that has grown in tandem with rising North American output. Pradhan said India, the world's third biggest consumer, would act in its national interest to secure inexpensive crude, expand its use of natural gas as it seeks to honor the Paris climate change agreement and is keen to explore biodiesel and other renewable fuels. "I want to protect my consumers' interests," Pradhan, who assumed his role in 2014, said in an interview. "India's leadership is very focused on energy security for all its citizens." The Organization of the Petroleum Exporting Countries had sought to undermine the North American oil boom for several years by raising output, which pushed prices too low for costly shale producers. But low prices also hurt OPEC states, encouraging them to change tack and limit output. Pradhan acknowledged that OPEC's production cuts are an attempt to stem the crude price slide, but said he was worried that it could result in under-investment in the energy sector and push prices up in the long run. "Gone are the days of market stability for consumers," he said. "Now, producers seek market stability."India has been in touch with oil suppliers it had not traditionally used and said Indian refiners were "working out details of the strategy to buy cargos, including from the USA and Canada, which happens to be becoming very competitive.
Will Extracting the World's Most Abundant Fossil Fuel Release the Methane Monster? -- Japan and China have successfully extracted methane hydrate —ice crystals with natural methane gas locked inside—from the ocean floor near their coastlines. Commercial development of this frozen fossil fuel is considered by many countries as a key to energy security. However, releasing this massive methane monster is a potential environmental disaster. According to the Associated Press , a drilling crew in Japan successfully extracted methane hydrate on May 4 near the Shima Peninsula. Similarly, Xinhuareported that a Chinese drilling rig extracted the fuel in the South China Sea on Thursday, with Chinese Minister of Land and Resources Jiang Daming heralding the event as a breakthrough that could spearhead a "global energy revolution." Methane hydrate is created by organic matter decomposing under the ocean floor and is often called "combustible ice" because it can be lit on fire. It also happens to be one of world's most abundant fossil fuels. As the AP reports, between 280 trillion cubic meters (10,000 trillion cubic feet) to 2,800 trillion cubic meters (100,000 trillion cubic feet) of it is trapped under permafrost and in seas around the Earth's continental shelves—meaning the fuel could meet global gas demands for 80 to 800 years at current consumption rates. In comparison, total natural gas production worldwide was only 3.5 billion cubic meters (124 billion cubic feet) in 2015. However, unlocking the globe's vast swaths of methane buried deep in the sea has a number of risks. First, it can be costly and difficult. Japan, for instance, has invested around $700 million on methane-hydrate R&D over the past decade, getting only $16,000 worth of natural gas in return. And although we often talk about carbon dioxide being a climate change villain, methane hydrate is much, much worse—about 23 times more potent as a heat-trapping gas. If methane escaped or leaked during the extraction process, it could significantly increase greenhouse gas emissions. It's already worrisome that the world's rising temperatures are causing permafrost to thaw , which is releasing methane. Now, countries are actively drilling into the world's seabeds to harvest this potentially dangerous fuel.
China unveils market reform for oil and gas industry - (Xinhua) -- Chinese authorities on Sunday announced a reform plan for the country's oil and gas industry, eyeing better efficiency and competitiveness by giving market a decisive role in the sector.The plan was approved by the Central Committee of the Communist Party of China (CPC) and the State Council, or the cabinet."Market should play a decisive role in resource allocation and the government role should be better played in order to safeguard national energy security, boost productivity and meet people's needs," according to the reform guideline.The long-awaited reform of the sprawling state-controlled sector is a priority for Chinese authorities as the world's second largest economy is slowing amid cyclical and structural changes.The reform is also a key plank of the country's 13th Five-Year Plan for 2016-2020.The plan reaffirmed the leadership's commitment to deepening the reform of state-owned oil and gas companies, encouraging eligible enterprises to diversify their shareholder base and introduce mixed-ownership reform.The prime goal of mixed-ownership reform is to create a flexible and efficient market-oriented mechanism with the incorporation of private shareholders, to improve the management of state-owned companies.According to the plan, efforts should be made to advance reshuffling of the oil and gas industry based on work specialization. Engineering companies and oil and gas equipment manufacturers are encouraged to perform as independent enterprises.State-owned oil and gas companies should "keep fit to stay healthy", free themselves from running social services, and explore ways to sort out problems left over from history.
Why China's Strategic Petroleum Reserve Is All That Matters For OPEC - When OPEC sits down on Thursday, keeping the price of Brent above $50 (to avoid a budget catastrophe and social upheaval in Saudi Arabia) and below $60 (to prevent US production from going exponential), will be just one problem the cartel nations and various hangers-on will be desperate to solve. A much bigger one, literally, is the problem that led to this week's OPEC meeting in the first place, and years of headache for OPEC and non-OPEC nations: a record global oil inventory glut.The supply glut that began in mid-2014 has dumped almost one billion barrels of petroleum into global inventories. However, of this only 35–45% has ended up in transparent OECD tanks. For OPEC, that is all the matters - in the past, OPEC oil ministers have repeatedly referenced the level of OECD petroleum inventories relative to their five-year average as a gauge of the rebalancing. And, as ScotiaBank notes, those inventories were more than 280 Mbbl above their five-year average as of January and, while European stocks have been falling into a healthier range, the same cannot be said of industry stocks in the US, which despite declining for several weeks, are just below all time highs. But forget OECD: an increasingly greater concern for OPEC is not the less than a third of above ground oil held in developed nations; it is the rest that is the big challenge. As ScotiaBank's Rory Johnston points out in the following chart, the majority of the remainder was absorbed by China’s vast and growing strategic petroleum reserve (SPR), which means that "the lion’s share of functional—and thus needing to draw from an OPEC perspective—industry inventories remain in the OECD, and specifically in the US (chart 3)."
Uganda, Tanzania Sign Deal for World's Longest Heated Pipeline - (Reuters) - Uganda and Tanzania signed a framework agreement on their proposed $3.55 billion crude export pipeline on Friday, a key milestone for the project, which is expected to start pumping Ugandan oil to international markets in three years.An official at Uganda's Ministry of Energy told Reuters the agreement covered terms on tax incentives for the project, implementation timelines, the size of the pipeline and local content levels, keeping it on track to complete in 2020.Adewale Fayemi, the manager for Uganda at Total, said the project will become "the longest electrically heated crude oil pipeline in the world"."It's a record," he told Reuters, adding it will increase the flow of foreign direct investment and open a new phase of economic development in the region when completed.The 1,445 km-long, 24-inch diameter pipeline will be heated so it can keep highly viscous crude oil liquid enough to flow.It will begin in landlocked Uganda's western region, where crude reserves were discovered in 2006, and terminate at Tanzania's Indian Ocean seaport of Tanga.Total is one of the owners of Ugandan oilfields, alongside China's CNOOC and Britain's Tullow Oil.Total has said it is willing to fund the pipeline's construction but has not what stake it will own in the project.Uganda estimates overall crude reserves at 6.5 billion barrels, while recoverable reserves are seen at between 1.4 billion and 1.7 billion barrels.Irene Muloni, Uganda's energy minister, said construction of pipeline would "facilitate and boost trade in the region" and create over 10,000 jobs.The agreement stipulated that Uganda would pay an estimated transit tariff of $12.20 per barrel for pumping its oil through the pipeline, she said.
Saudi Arabia's control of the global oil supply is 'on the ropes' thanks to Iran and US fracking - Revamped Iranian oil production and US hydraulic fracturing operations has Saudi Arabia’s control of the global oil supply "on the ropes," according to Bloomberg’s Sam Wilkin. The Saudi-led Organization of Petroleum Exporting Countries (OPEC) will meet Thursday to work out a plan to cut global oil supplies and boost prices, but OPEC member Iran has an incentive and the power to screw the whole plan up. Wilkin noted that Saudi Arabia’s previous attempts to boost prices failed due to rising oil production from the US and Iran, which are gaining on the Saudi’s oil market share. Iran is inviting foreign investment in its oil industry, which could boost oil production enough to harm Saudi Arabia. Experts see Iran’s gunning for Saudi Arabia’s oil business as an extension of lingering tensions between the two nations. "Iran and Saudi Arabia have had serious frictions in the past, but the last few years have seen a real increase in tension," John Gay, executive director of the John Quincy Adams Society and coauthor of the book "War With Iran," told The Daily Caller News Foundation. "They’re fighting a bit of a proxy war in Syria, and Iranian activists, likely with state collusion, stormed the Saudi embassy in Tehran after the execution of a Shia cleric in Saudi Arabia in January 2016, which led Saudi Arabia to cut relations," Gay said. OPEC wants to keep oil prices relatively higher than they have been in recent years, having lost $76 billion in 2016 due to cheap oil caused by rising American and Iranian oil production, according to a report by the US Energy Information Administration (EIA).
Fracking, Now The Dominant Technology, Will Keep Oil Price Around $55: Goldman Sachs – Oil prices may rise or fall in the short-term, but they will return to a range of $55 to $65 in the long term because that's the price of oil from fracking shale wells, the Goldman Sachs head of research said in Chicago Wednesday. Oil prices today were about $52 for West Texas intermediate and $54 for Brent crude, and Goldman Sach's "boring" forecast is that they will remain at $55 to $57 respectively, said Jeffrey R. Currie, the global head of commodities research for Goldman Sachs. "The key point is not that there’s a consensus developing around the price, there’s a consensus developing around the technology, the dominant technology," Currie said in a seminar at the University of Chicago's Saieh Hall for Economics. The dominant technology is the combination of horizontal drilling and hydraulic fracturing that have revolutionized oil and gas production in the United States. "If you think about it, we didn’t even know it was scalable until around 2012. By 2014 the scalability was shocking, and the returns from investing in it were absolutely impressive. Such that now we’re to the point that it is by far the dominant technology. You can see that by looking at the evolution of the supply curves in oil." The supply curves show that when cost reaches about $55, the supply looks nearly endless. That forces higher priced operations, like deepwater drilling, to lower their prices to compete with U.S. shale. And cheaper operations, like conventional wells in Russia, can safely raise their prices to just under the U.S. shale price. It also means OPEC loses the leverage its traditional oil producing countries have long enjoyed."Not only will cutting output do nothing to price, increasing output will do nothing to price," Currie said at a seminar hosted by the Energy Policy Institute of Chicago. Canadian oil sands are least likely to be able to adapt to the new price, Currie said. Two years ago, a McKinsey and Company expert said oil sands and deepwater wells need a price of $75 to $80 to compete. But Currie said oil companies have been able to reverse engineer deepwater platforms to lower the price: "One example would be BP Maddog in the Gulf of Mexico. It was $85, $95 a barrel. They just reengineered it to $45."
Saudis See All ‘on Board’ to Extend Oil Cuts for Nine Months - All oil producers participating in a deal to limit output agree on extending the cuts by nine months to help trim a supply glut, according to Saudi Arabia’s energy minister. An extension through the first quarter of 2018 will help producers reach their goal of trimming global stockpiles to a five-year average, Khalid Al-Falih said. OPEC and other global producers such as Russia had agreed to reduce production in the first six months of this year, and the decision to extend the cuts will be taken when they meet in Vienna at the end of the month, he said. “We believe that continuation with the same level of cuts, plus potentially adding one or two small producers if they wish to join, will be more than adequate to bring the balances to where they need to be by the first quarter of 2018,” Al-Falih said Sunday at a news conference in Riyadh. He spoke as Donald Trump spent his second day in Saudi Arabia, the world’s biggest crude exporter, on his first overseas trip as U.S. president. “We think we have everybody on board,” Al-Falih said earlier, in an interview on Saturday with Bloomberg television. “Everybody I’ve talked to indicated that nine months was a wise decision.”
OPEC heads towards supply cut extension as Saudi signals most on board | Reuters: OPEC and other oil producers are on course to agree an extension of supply cuts at a meeting on Thursday, with Saudi Arabia saying most participants are on board with the plan to rein in a global supply glut. Saudi Arabia's energy minister said on Sunday that extending the supply cuts by a further nine months until next March, and adding one or two small producers to the pact, should reduce oil inventories to their five-year average, a key gauge for OPEC to monitor the success of the initiative. "Everybody I talked to... expressed support and enthusiasm to join in this direction, but of course it doesn’t preempt any creative suggestions that may come about," Khalid al-Falih told a news conference in Riyadh. "We believe that continuation with the same level of cuts, plus eventually adding one or two small producers, if they wish to join, will be more than adequate to bring the five-year balance to where they need to be by the end of the first quarter 2018." The Organization of the Petroleum Exporting Countries, Russia and other producers agreed last year to cut production by 1.8 million barrels per day (bpd) for six months starting from Jan 1. Oil prices have gained support from reduced output, but high inventories and rising supply from producers not participating in the accord, such as the United States, have limited the rally, pressing the case for extending the curbs. Saudi Arabia and non-OPEC member Russia, the world's top two oil producers, last week agreed on the need to prolong he current deal on cuts, which expires in June, until March 2018, pushing up prices.
OPEC Thinks Deeper Cuts Might Not Be Required ---The addition of another couple of smaller producers to the OPEC-non-OPEC oil production cut deal will be enough to bring global supply to a more acceptable level.That’s what Saudi Oil Minister Khalid Al-Falih said at a news conference in Riyadh.The reduction will take the whole nine months of the output cut extension that should be announced next w eek at OPEC’s Vienna meeting, Al-Falih said.“We believe that continuation with the same level of cuts, plus eventually adding one or two small producers … will be more than adequate to bring the five-year balance to where they need to be by the end of the first quarter 2018.”The initial deal failed to bring supply back within the limits of the five-year average, which is considered by OPEC to be a fair measure of oil’s fundamentals.The new potential additions to the deal were not named, but there are also reports that OPEC may deepen the cuts, according to Reuters. This pushed prices up, so both Brent crude and West Texas Intermediate started the week with gains. For now, the prospect of deeper as well as more extensive cuts is only a rumor, but it could turn into reality as OPEC is eager to demonstrate its willingness to do whatever it takes to prop up prices. Meanwhile, shale producers are continuing to boost their production, with Goldman Sachs reporting a staggering 128-percent increase in the number of active drilling rigs since May. In absolute terms, the increase is of 404 rigs, allowing the shale patch to increase output to 9.3 million bpd, or 10 percent more than in mid-2016. This has the U.S. breathing down Saudi Arabia’s neck as the world’s third-largest producer, and raises the stakes for the output cut extension.
From suspicion to engagement: OPEC, hedge funds and the Sistine Chapel | Reuters: In the Vatican's Sistine Chapel in the summer of 2016, OPEC's new secretary general Mohammed Barkindo bumped into Citigroup's global head of commodities research Ed Morse. Their chat, at an energy industry event held in the Chapel, led to a series of meetings that have reshaped the way the Organization of the Petroleum Exporting Countries interacts with the hedge funds and trading houses that influence world oil markets. Barkindo, elected to OPEC's top job in June 2016 to deal with an oil price slump, told Morse that OPEC wanted to better understand the way financial players worked in the oil markets. It was a departure for OPEC from its long-held suspicion of such players. In the past it has routinely accused them of speculation that distorted oil prices, pushing them higher or lower than supply-demand fundamentals warrant. OPEC and non-OPEC oil ministers meet in Vienna on Thursday to decide whether to extend beyond June 30 their deal to reduce output, and perhaps deepen it, in an effort to support prices. "It was at the Vatican that we first discussed the idea of OPEC reaching out to the financial players in the oil markets," Barkindo told Reuters. "The world of oil has changed, including the fundamentals and its dynamics. And so must OPEC." He said Morse helped organise a meeting for OPEC officials with hedge funds at the end of 2016. "We went further to break the Berlin Wall with tight oil producers and met them in Houston in March," said Barkindo. Morse did not respond for a request for comment.
OPEC's Worst Cheater Will Get Harder to Ignore as Curbs Falter -- OPEC’s second-biggest producer is also its biggest cheater. And if past is prologue, that lengthens the odds the group will be able to squeeze too many more price gains out of its output cuts. Iraq pumped about 80,000 more barrels of oil a day than permitted by Organization of Petroleum Exporting Countries curbs during the first quarter. If that deal gets extended to 2018, the nation will have even less incentive to comply because capacity at key southern fields is expanding and three years of fighting Islamic State has left it drowning in debt. “Leaving that productive capacity idle will come with an opportunity cost that Iraq may prove reluctant to bear,” said Harry Tchilinguirian, the London-based head of commodity-markets strategy at BNP Paribas SA. He’s nonetheless optimistic that global inventories will fall by year-end as members like Saudi Arabia pick up the slack for Iraq’s transgressions. A risk, though, emerges if Iraqi compliance worsens to such an extent that other countries in the 13-member group start cutting corners too, exacerbating a global surplus that’s already erased much of the price gain that unfolded after the deal was struck in November. Brent crude tumbled below $50 a barrel this month as data showed U.S. shale producers were alive and kicking, confounding OPEC’s efforts to control the supply glut. While oil recovered losses after Saudi Arabia and Russia threw their weight behind extending the six-month output reductions, it’s still 7 percent off post-deal highs. “A lot of market participants have been a bit underwhelmed by the impact of the cut,” Martijn Rats, an oil analyst at Morgan Stanley, said in an interview in Dubai. He says OPEC members are most likely to respect curbs if Brent trades in the $50-$60 range, with prices on either side increasing the risk of non-compliance.
OPEC Deal: 9-Month Extension Looking Increasingly Likely | OilPrice.com: Oil prices continued to rebound on growing optimism over the likelihood of a nine-month extension of OPEC’s production cuts. Saudi energy minister Khalid al-Falih flew to Baghdad for some last-minute diplomacy. Iraq seemed resistant to a nine-month extension, but al-Falih’s efforts appeared to have paid off. Iraq’s oil minister said that his country would support a nine-month extension at the May 25 OPEC meeting, paving the way for a likely extension. Nevertheless, Iraq has fallen short of compliance and remains a question mark even if the nine-month extension is sealed. Goldman Sachs says that the nine-month extension should normalize oil inventories, but risks loom for the second half of next year. "A nine-month extension would normalize OECD inventories by early 2018, in our view, but we see risks for a renewed surplus later next year if OPEC and Russia's production rises to their expanding capacity and shale grows at an unbridled rate," Goldman wrote in a recent report. Essentially, the OPEC cuts will only work so long as they are in place. Once OPEC members ratchet up production, the surplus reappears because U.S. shale is expected to rise in the interim. The one way to prevent too much shale from coming online, Goldman says, is a state of backwardation – shifting the futures curve so that near-term oil is more expensive than futures for next year. That could potentially scare away new shale drilling. The Chinese government unveileda plan to radically transform its state-owned oil companies with the aim to have them perform more like their market-oriented peers. The plan seeks to allow state-owned giants like PetroChina to “lose weight and be fit,” a likely reference to job cuts. The reforms would also open up the state-owned companies to more private sector investment, echoing the opening up of Sinopec in 2014.
Saudi efforts to convince Iraq on 9-month extension bear fruit - Saudi Arabia's last-ditch efforts to convince Iraq to accept a proposal to extend output cuts for nine more months have borne fruit, according to comments from Saudi oil minister Khalid al-Falih. In a move that demonstrated Saudi Arabia's ardent desire to seal the deal ahead of Thursday's ministerial meeting in Vienna, Falih managed to convince the Iraqi oil minister, Jabbar al-Luaibi, to extend the cuts for nine months. This comes a week after Saudi Arabia and Russia unveiled a proposal for a nine-month extension to the OPEC/non-OPEC oil output cuts, with consensus now growing for the duration of cuts. "We have agreed after much discussion that it is better to extend it for another nine months, until March 2018," Falih said in a press conference in Baghdad. "In my visit today and during my meeting with the [oil] minister and the prime minister, the agreement is almost completed in reaching ... a [full] agreement in Vienna," he added. Falih, however, conceded that this does not mean that other suggestions will not be discussed. "We will still be open to any other suggestions. But I think the feeling now about the production deal is that it will be extended nine months," he said. Falih had traveled to Baghdad to clear the air with Iraqi oil minister Jabbar al-Luaibi, as Falah Alamri, who heads Iraq's state-run oil marketing company SOMO, told reporters in London that his country was only prepared to support a six-month extension.
Iraq Mulls Largest Sovereign Oil-Hedging Deal, Topping Mexico - Iraq is mulling an oil hedging program to lock in prices for future crude sales, potentially topping a similar deal run by Mexico that is considered the largest energy trade in Wall Street. The Middle Eastern nation is in the very early stages of exploring a hedge for as much as a quarter of either its crude production or exports, Falah Al-Amri, the head of Iraq’s state oil-marketing company, known as SOMO, said in an interview at the Iraq Petroleum Conference in London. "We will not rush. This is a long process," Al-Amri said. "We must make sure we do not lose money. You know the Iraqi parliament, it would not accept that." If Iraq goes ahead, that would require contracts giving price protection to about 400 million barrels a year of crude, according to Bloomberg calculations. That would be significantly larger than the Mexican oil hedge, run by the country’s finance ministry, which uses options contracts to cover about 250 million barrels a year. Petroleos Mexicanos, the state-owned oil producer also known as Pemex, this year also hedged its output, an additional 100 million barrels. Although oil hedging is common in the private sector, for example by U.S. shale producers to lock-in revenues and airlines to guarantee a maximum price for their jet-fuel, they are rare among oil-producing countries. On top of Mexico, only a handful other nations have publicly disclosed hedging programs, including Ecuador and Ghana. Oil-producing countries face a number of obstacles to hedge. Mexico has spent on average $1 billion a year buying options contracts that give it the right, but not the obligation, to sell at a predetermined price. The size of the transaction could roil the market, sending prices lower. Any losses could carry a heavy political price. Oil traders and bankers who monitor the Mexican oil hedge have said in the past the program contributed to push oil prices lower at least in 2008 and 2014.
OPEC Wants to Carry on Pumping Less and Earning More Anyway - At first glance, OPEC’s cuts haven’t worked -- global oil inventories remain well above normal levels. But the policy’s made a difference where it really counts: juicing the coffers of finance ministries from Baghdad to Caracas. The resurgent flow of petrodollars explains why Saudi Arabia and Russia have largely convinced everyone else in the deal to extend the production cuts another nine months to the end of March 2018. “Make no mistake, it is all about oil revenues,” said Bhushan Bahree, a senior director at consultant IHS Markit. “The bottom line for oil producers begins, unsurprisingly, with a dollar sign and ends in billions.” The International Energy Agency, which advises rich countries on oil policy, said earlier this month that OPEC has a “financial motivation to extend the supply cuts.” The IEA calculates the cartel earned almost $75 million extra a day in the first quarter of this year than in the last quarter of 2016, despite collectively cutting output to 31.9 million barrels a day from 33.3 million. IHS Markit said Russia, the largest country outside the group to join the cuts, also earned more. The Organization of Petroleum Exporting Countries and its allies believe they can continue earning more while pumping less. Even those countries that question whether an extension can rebalance the market and bring down elevated stockpiles don’t oppose maintaining the cuts. While oil ministers have a sense of defeat in their battle against high inventories, finance ministers are happy, one OPEC delegate said. Brent crude, the global benchmark, has risen to more than $54 a barrel from about $46 since production cuts totaling 1.8 million barrels a day were first decided in the final weeks of last year. But prices have dipped below $50 a barrel a couple of times as investors sold the commodity amid signs the global glut isn’t notably easing. “Charitably, one would argue that things have not quite worked out yet,” said Jan Stuart, chief energy economist at Credit Suisse Group AG in New York.
Global Shipping Fleet Braces for Chaos of $60 Billion Fuel Shock -- Little more than 2 1/2 years from now, the global fleet of merchant ships will have to reduce drastically how much sulfur their engines belch into the atmosphere. While that will do good things -- like diminishing the threat of acid rain and helping asthma sufferers -- there’s a $60 billion sting in the tail. That’s how much more seaborne vessels may be forced to spend each year on higher-quality fuel to comply with new emission rules that start in 2020, consultant Wood Mackenzie Ltd. estimates. For an industry that hauls everything from oil to steel to coal, higher operating costs will compound the financial strain on cash-strapped ship owners, whose vessels earn an average of 70 percent less than they did just before the 2008-09 recession. The consequences may reach beyond the 90,000-ship merchant fleet, which handles about 90 percent of global trade. Oil refiners still don’t have enough capacity to supply all the fuel that would be needed, and few vessels have embarked on costly retrofits. “We are talking about 2.5 million to 4 million barrels a day of fuel oil to basically shift into a different product.” Merchant ships around the world are required to cut the amount of sulfur emitted under rules approved in October by the International Maritime Organization, a UN agency that sets industry standards for safety, security and the environment. As well as contributing to acid rain, sulfur, combined with oxygen, can form fine sulfate particles that can be inhaled by humans and may cause asthma and bronchitis, according to the U.S. Environmental Protection Agency. There are two main ways to comply: vessel engines are fitted with scrubbers that would eliminate the pollutant, or oil refiners will have to make lower-emission fuels. The limit on sulfur content will drop to 0.5 percent from 3.5 percent.
Today's Stunted Oil Prices Could Cause Oil Price Shock In 2020 - As oil prices remain unsteady and OPEC continues to make headlines every hour, the world is focused on oil’s immediate future. As Saudi Arabia announces plans to slash production and move their economy away from oil dependency, many industry insiders are predicting that the now over-saturated market will reach an equilibrium with higher commodity prices by 2018 and U.S. shale production will continue to grow along with global demand. Robert Johnston, the CEO of one of the world’s biggest political risk consultancies, is unconvinced. In a speech made at the Association of International Petroleum Negotiators’ 2017 International Petroleum Summit, Johnston laid out his concerns for the future of oil.“What I don’t hear people asking is, ‘then what?’ Are the Saudis going to maintain these production cuts forever, or at some point do they have to start reversing that? I think in 2018 they will be reversing those production cuts,” he said. Despite the recent dip in oil prices, industry experts have been predicting a supply-gap and rising oil prices for years. This is due in large part to an oil investment drought marked by two year of consecutive decline, a statistic that has no precedent in the oil industry. This year a report by the International Energy Agency concluded that if oil investment remains stagnant over the next few years, by 2020 we will see a significant increase in the price of oil as global demand continues to climb. The IEA’s Executive Director Fatih Birol addressed these findings in a keynote address at the Atlantic Council Global Energy Forum in Abu Dhabi in January, announcing that no major oil projects were started in the last year and there were zero large oil discoveries “because there is no money for exploration. You find something if you look for it,"Birol said. The potential supply gap has far-reaching implications that we are not ready to combat. Gas and oil are still fundamental to much of the world’s infrastructure, despite a steady increase of research and utilization of renewable energy resources. While electric cars continue to show a promising future, especially in the light of ambitious new green car policy initiatives in India and China, they still account for less than 2 percent of the world’s cars. And, as the global middle class continues to grow and exercise their buying power, the demand for oil will continue to grow alongside them.
Art Berman: Don't Get Used To Today's Low Oil Prices - Oil expert and geological consultant Art Berman returns to the podcast this week to address head-on the question: Was the Peak Oil theory wrong? With the world "awash" in sub-$50 per barrel oil, were all the warnings about persistently higher future oil prices just a bunch of alarmist hand-wringing?In a word: No. Art explains how the current glut of oil created by the US shale boom -- along with high crude output by both OPEC and non-OPEC producers -- is a temporary anomaly. Fundamentally, we are not finding nearly as much oil as we need to continue the trajectory of our demand curve. And at the same time, we're extracting our reserves at a faster rate than ever. That's a mathematical recipe for a coming supply crunch. It's not a matter of if, but when:I’m not interested in spreading any kind of false ideas that we’re running out of oil. We’re not running out of oil. We’re not running out gas. The problem that we’ve had now for the past twenty years is that we seem to have run out of inexpensive oil and gas -- and that’s where the so-called shale plays, the offshore deep water kinds of ventures that have dominated the industry now for much of the last twenty years come in.So, you can always find more. The question is: At what cost? That’s I think an issue that we don’t really want to talk about very much.The second piece of that is the idea that somehow technology is always going to save us. I think that theme goes way beyond oil and gas and energy. But, it’s certainly prevalent in my line of work which is oil and gas and so the problem there is that people seem to lose the distinction between technology and energy. Technology does not create energy. Technology is simply a way to convert energy, or to convert resources, into work. So, you can improve the technology and basically it allows you to turn the faucet on harder. It doesn’t create any new energy and it certainly doesn’t help you conserve what you already have. In fact quite the opposite. The better the technology the quicker you run through what you have left. So, yeah, we can always find more oil and gas. But will be able to afford it? Is our global economy capable of managing that cost? That’s really the issue.
Goldman Warns Of "Sharp Oil Price Drop", Inventory Glut "If Backwardation Is Not Achieved" -- Increasingly some of the more prominent sellside analysts appear to be picking and choosing ideas from their competitors. Earlier, it was JPM echoing Goldman's reco when it cut its 10Y yield forecast. Now, in a note previewing the outcome of this week's OPEC meeting and proposing a way forward for OPEC, Goldman's Damien Couravlin adopted the "backwardation" idea presented last week by Morgan Stanley's Francisco Blanch.As a reminder, Blanch's latest thesis on oil market dynamics, is that "OPEC’s goal for the oil market is not a specific price level, but reaching backwardation", (which is also why he does not believe that OPEC will proceed with deeper cuts as this would likely mean ceding more market share to U.S. shale production). Fast forward to Monday, when Goldman's energy strategist Damien Couravlin effectively cribbed the whole note by writing that while "oil prices are rebounding with stock draws and greater certainty on an extension of the production cuts" and a "9 month extension would normalize OECD inventories by early 2018" he warns that he sees "risks for a renewed surplus later next year if OPEC and Russia’s production rises to their expanding capacity and shale grows at an unbridled rate."
Should OPEC worry about contango and backwardation? -- "Backwardation is the solution" to OPEC's problem of how to raise output and revenues without sparking another shale boom, according to the influential oil research team at Goldman Sachs. Backwardation would allow low-cost oil producers in OPEC to sell their output at a higher price linked to the spot market while curbing growth from shale firms that sell at prices linked to the forward curve. Goldman's strategy aims to "share growth" between OPEC and shale firms to avoid another repeat of boom and bust in oil prices ("Backwardation is the solution", Goldman Sachs, May 22). The plan exploits differences in pricing behavior between low-cost producers in OPEC that do not hedge and higher-cost shale drillers that hedge a substantial portion of their output. Because they do not hedge, OPEC members' revenues are linked to spot prices but shale firms' earnings and access to capital are more closely linked to futures prices one or two years forward. Since the end of 2014, Brent and WTI have generally been in contango, with futures prices higher than spot, which has meant shale hedgers have realized higher prices than OPEC non-hedgers. But if OPEC can shift the market into a sustained backwardation, the situation would be reversed, with shale producers realizing lower prices than OPEC. Contango is normally associated with an oversupplied oil market and high and/or rising levels of inventories while backwardation is associated with undersupply and low and/or falling stocks. Contango makes it profitable for crude traders to store large volumes of crude oil through "cash and carry" strategies which are no longer possible when the market is in backwardation. Many observers have therefore focused on backwardation as an essential element of any plan for rebalancing the oil market. Contango is sometimes blamed for causing crude traders to build up stockpiles and causing the oil market to carry excess inventories. But contango is a symptom of an oversupplied market with abundant inventories, not the cause. Likewise backwardation is a symptom not the cause of an undersupplied market with tight stockpiles.
Saudi Finance Minister: “I Wouldn’t Care If The Oil Price Is Zero” - The Saudi Deputy Crown Prince Mohammed bin Salman unveiled the nation’s ambitious “Vision 2030” in an interview with Al-Arabiya in April. The roadmap lays out a wide variety of economic reforms that will transition Saudi Arabia away from oil and into a broader array of investments. While Saudi Arabia’s economy is currently suffering from an 18-month decline in oil prices and soaring unemployment rates, they are planning for a future in which they won’t have to worry about the price of oil at all. Speaking of the plans outlined in Vision 2030, Saudi finance minister Mohammed Al Jadaan told CNN,“We will not really care much whether the price is 40, 45, 50, 55 at that time because we have gone significantly out of our way to be independent of the oil price…We are planning to totally [end] that dependency that we have been living for the last 40, 50 years. Hopefully by 2030, I wouldn’t care if the oil price is zero.” Vision 2030 proposes an economic restructuring that would in theory add 6 million non-oil jobs by 2030 and generate $100 billion per year in additional non-oil revenue by 2020 by reducing subsidies for gasoline, electricity and water and introducing a new value-added tax as well as initiatives to foster more non-oil industries like mining and military hardware. They have also suggested grandiose ideas to create the world’s biggest IPO for Aramco (the world’s biggest oil company) and to establish the world’s biggest sovereign-wealth fund worth over $2 trillion to invest in a wide variety of assets. These proposals, groundbreaking in their extent, are especially radical in a country relying on oil for 90 percent of its GDP. Whether these ambitious goals are realistic for Saudi Arabia, whose national deficit is expected to reach 13.5 percent of GDP this year after over a year of decreasing oil prices, remains to be seen. The 30-year-old Prince bin Salman also announced that he believed the plan could be realized even sooner, eliminating Saudi Arabia’s oil dependency by 2020, in a statement that the Economist referred to as “manic optimism among the youthful new policy-setters of the royal court.”
Producers Set to Extend Cuts as Rally Stalls: OPEC Reality Check - Reeling from the worst oil-market rout in a generation, producers controlling about 60 percent of the world’s supply came together last year determined to put an end to the global glut. Five months on, the historic deal has failed to drain inventories or sustain prices much above $50 a barrel after early gains brought output from U.S. competitors roaring back to life. On Thursday ministers from the Organization of Petroleum Exporting Countries and its allies will meet in Vienna to decide whether to re-up. All producers participating in the deal agree on extending the cuts by nine months beyond their June expiry, according to Saudi Arabia’s Minister of Energy and Industry Khalid Al-Falih. That may not be enough. OPEC’s own forecasts show it would need to double its cuts to clear the inventory surplus this year. While the group has impressed the market with unprecedented levels of compliance, the curbs will be harder to keep up if the deal is extended. Meanwhile Nigeria and Libya, two OPEC countries exempt from the cuts, threaten to undermine the accord as they restore lost output. Following is the latest position of each OPEC country plus Russia. The respective shares of supply are based on April levels. Estimates for the price each member needs to balance its 2017 budget are from the International Monetary Fund unless stated otherwise.
WTI/RBOB Pop-n-Drop After Mixed Inventory Data --More OPEC jawboning and continued (modest) draws in crude inventories beat production increases and SPR sales headlines heading into tonight's API data and with inventory drawdowns across the entire crude complex sending both WTI & RBOB prices jumped higher. However, prices quickly reversed lower as traders realized the Crude draw was smaller than expected...API
- Crude -1.5mm (-2mm exp)
- Cushing -210k
- Gasoline -3.15mm (-1.08mm exp)
- Distillates -1.85mm
The 7th weekly draw in crude inventories in a row (but it was smaller than expected). Gasoline continued to draw...
OPEC meets again but has it had an impact on oil prices? Kemp -- Ministers from OPEC and non-OPEC oil exporters are meeting in Vienna today and tomorrow to decide whether to extend production cuts that have been in effect since the start of the year. The formal conference comes after extensive consultations in recent weeks which seem to have produced a consensus to extend cuts at the same level for a further nine months to the end of March 2018. But with oil traders focused on Vienna, it is worth asking whether the cuts agreed by OPEC on Nov. 30 and non-OPEC on Dec. 10 have had any significant impact on prices so far. The front-month Brent futures contract is currently trading around $7.50 per barrel higher than before the OPEC cuts were announced. But front-month prices had already risen by more than $18 per barrel over the 10 months prior to the last OPEC meeting. There is no prima facie evidence that OPEC and non-OPEC production cuts changed the previous trend in prices (tmsnrt.rs/2qP9ZwJ). A proper evaluation of the output cuts requires a comparison with what would have happened to oil prices without them. As with any counterfactual, it is impossible to know with certainty what would have happened to prices in their absence. Cut supporters argue that the OPEC and non-OPEC deals averted a renewed collapse in oil prices by halting the rise in inventories. They can point to a remarkable turnaround in market sentiment and hedge fund positioning from very bearish prior to the OPEC meeting to very bullish afterwards which helped push prices sharply higher. For doubters, the production cuts and rising prices threw a lifeline to U.S. shale producers and encouraged them to ramp up drilling even faster, jeopardizing the long-term market balance. From the available evidence, it is difficult to conclude with any certainty whether or not the OPEC and non-OPEC agreements had a significant impact on prices.
Length of OPEC/non-OPEC oil output cut still in play: ministers - OPEC is still debating a three-, six- or nine-month extension of its oil output agreement but will not consider deeper cuts, Iranian oil minister Bijan Zanganeh said Wednesday. "All agree...to maintain OPEC's production ceiling, [but] the term is not clear," Zanganeh said on the sidelines of an Iranian cabinet meeting in Tehran, according to the country's ISNA news agency. "Maybe three months, six or nine months." He added that he was under the impression that "Saudi Arabia is looking to raise [oil] prices." Zanganeh is due to arrive in Vienna later Wednesday for OPEC's ministerial meeting on Thursday, when the organization will also meet with 11 key non-OPEC oil producers that agreed to last December's production cut deal.Under the deal, OPEC committed to a 1.2 million b/d cut, while the 11 non-OPEC countries led by Russia agreed to cut 558,000 b/d, from January through June. Saudi Arabia and Russia last week jointly declared their support for a nine-month extension through March 2018, and several ministers within the producer coalition appear to be coalescing around that. A five-country monitoring committee overseeing the deal is set to formally recommend the nine-month extension at a meeting today, according to Kuwaiti official news agency Kuna, but OPEC sources have told S&P Global Platts that the deal is not yet nailed down. "All options are open," Kuwaiti oil minister Essam al-Marzouq told reporters after a meeting of OPEC's Gulf Cooperation Council countries at the Kempinski Hotel in Vienna. "Everything is on the table. We will see the Q3 effect on the cuts and we will have other options."
Libya again seeking 'absolute' exemption if OPEC oil output cuts are extended: official - Libya will continue to ask for an "absolute" exemption if OPEC extends its current oil output cuts, according to Ibrahim al-Besbas, the country's ambassador to Austria, who is representing the North African country at Thursday's OPEC meeting in Vienna. "We are producing just under half of our original production quota so we will seek to be exempt [again]," he said to reporters. Civil unrest along with political instability prompted OPEC to grant Libya an exemption, along with Nigeria, from a production cut agreement signed late last year, in which OPEC agreed to lower output by 1.2 million b/d to help hasten the market's rebalancing. Ministers have indicated that Libya likely would receive another exemption in any extension, though full details of any deal are still to be negotiated. Besbas also said that the country was currently producing just below 800,000 b/d and because of the fluid security situation, output has been fluctuating a lot this year. Earlier in the week, Mustafa Sanalla, chairman of state-owned National Oil Corporation, told S&P Global Platts that oil production was averaging 788,000 b/d but that technical issues at Sharara oil fields were still a concern. Libyan oil output has been extremely volatile in the past month due to political and technical issues, and far below its full capacity of 1.6 million b/d. Production fell to a seven-month low of 492,000 b/d in late April only to rise to a two-and-a-half year high of over 800,000 b/d in early May, after NOC reached a deal on April 27 with militias blockading a pipeline leading to the Zawiya port, allowing production to restart at the Sharara and El Feel fields in the southwest of the country. Earlier this year, Sanalla has said that the country had set itself a target of reaching 1.1 million b/d by August.
Weekly Petroleum Data -- Only 38 Weeks Until US Crude Oil Stocks Reach Historical Levels -- May 24, 2017 --Weekly oil data starting to be posted. From John Kemp, via Twitter:
- US refinery throughput accelerated -- another seasonal record, and (almost) literally off the chart
- US refinery crude processing was up 1 million b/d higher than 2016 and up 2.1 million b/d higher than the 10-year seasonal average
- gasoline stocks at record seasonal highs despite falling 0.8 million bbls to 240 million bbls last week
- gasoline stocks remain very high (as in, "off the chart")
- US commercial crude oil stocks are tightening and now just up 10 million bbls (up 2%) higher than 2016, though up an astounding 162 million bbls (up 46%) over the 10-year average (or as we say, "off the chart")
- US commercial crude stocks have risen 37 million bbls since the start of the year, compared with an increase of 55 million bbls in 2016 and a 10-year average of a 44-million-bbl increase
- US commercial crude oil stocks fell 4.4 million bbls to 516 million bbls in most recent reporting period -- if this rate of decline were to continue, US supply of crude oil would be back to its "historical average" (350 million bbls) in only 38 weeks
WTI/RBOB Stumble After Mixed Inventory Data, 16th Straight Week Of Increased Crude Production -- WTI/RBOB prices were relatively unchanged from last night's API inventory print (despite some volatility from OEPC headlines) ahead of the DOE print, but that did not last long as Crude saw a much bigger than expected draw (-4.43mm vs -2mm exp) and gasoline a considerably smaller draw than API (-787k vs -3.18mm API) and the same with distillates.Lower 48 crude production rose for the 16th straight week and seemed to take the shine off the inventory data - sending WTI/RBOB prices lower. DOE:
- Crude -4.43mm (-2mm exp)
- Cushing -741k
- Gasoline -787k (-1.08mm exp)
- Distillates -485k (-493k exp)
Crude's 7th weekly draw in row was much bigger than expected, but Gasoline only saw a modest draw...
Oil prices dip as market awaits OPEC decision on output cuts: Oil prices retreated slightly Wednesday as investors reacted to a smaller-than-expected U.S. gasoline stock draws as they awaited the outcome of discussions in Vienna between OPEC and other oil-exporting countries on whether to extend output cuts. U.S. crude oil inventories fell for the seventh straight week as refiners processed a near-record amount of crude last week, the Energy Information Administration said on Wednesday, even as gasoline and distillate stocks also dipped. Crude inventories fell 4.4 million barrels in the week ended May 19, more than analysts' forecasts of a 2.4 million barrels decline. But gasoline inventories fell by only 787,000 barrels, compared with expectations for a 1.2 million barrel draw. The data comes one day before the Organization of the Petroleum Exporting Countries, along with non-member producing nations, are scheduled to decide whether to extend an agreement to cut world supply, an effort that has only recently started to bear fruit in global inventory figures. U.S. light crude oil ended Wednesday's session 11 cents lower at $51.36. Benchmark Brent crude oil was down 22 cents a barrel at $53.93 by 2:36 p.m. ET (1836 GMT). Both benchmarks have gained more than 10 percent from their May lows below $50 a barrel, rebounding on a consensus that OPEC and other producers will maintain strict limits on production in an attempt to drain persistent global oversupply.
OPEC still battling oil glut after five months of cuts | Reuters: How long will it take for oil inventories to drop to normal levels? That's the question OPEC and oil markets are grappling with before Thursday’s meeting of producer countries in Vienna. At just over 3 billion barrels, stockpiles in consumer nations are about 300 million barrels above their five-year average, little changed from levels in December when the Organization of the Petroleum Exporting Countries and its allies agreed to cut output by about 1.8 million barrels per day (bpd). The cuts were initially agreed to run during the first half of 2017. OPEC and other producers, including Russia, are now expected to agree to extend the deal on Thursday, possibly for nine more months until March. OPEC expects inventories to return to the five-year average of 2.7 billion barrels by the end of 2017. Other experts see a longer overhang, with one institution seeing it lasting into 2019. OPEC has repeatedly said eliminating excess stockpiles was one of its main goals but inventories remain stubbornly high. OPEC states have cut output at the wellhead, but kept exports to consumer countries high by draining their own stockpiles. The Paris-based International Energy Agency and most other experts say global oil demand is outstripping production, so at some point stocks held in consumer states will start to drop. But making forecasts is fraught with uncertainty because it depends on assumptions about supply and demand, the rate of exports from storage from producer nations and guesswork about storage in nations such as China, which does not disclose data. The IEA releases monthly data for inventories held by the OECD group of industrialized nations, saying stockpiles of crude, oil products and other liquids at the end of March stood at 3.025 billion barrels. But IEA inventory analyst Olivier Lejeune said this only covered 50 to 60 percent of the global picture, including inventories in Western Europe, North America, Japan, South Korea, Australia and New Zealand. It does not track stockpiles in China and India, the world's No. 2 and No. 3 oil consumers.
OPEC, non-OPEC extend oil output cut by nine months to fight glut -- OPEC and non-members led by Russia decided on Thursday to extend cuts in oil output by nine months to March 2018 as they battle a global glut of crude after seeing prices halve and revenues drop sharply in the past three years. Oil prices dropped more than 4 percent as the market had been hoping oil producers could reach a last-minute deal to deepen the cuts or extend them further, until mid-2018. [O/R] OPEC's cuts have helped to push oil back above $50 a barrel this year, giving a fiscal boost to producers, many of which rely heavily on energy revenues and have had to burn through foreign-currency reserves to plug holes in their budgets. Oil's earlier price decline, which started in 2014, forced Russia and Saudi Arabia to tighten their belts and led to unrest in some producing countries including Venezuela and Nigeria. The price rise this year has spurred growth in the U.S. shale industry, which is not participating in the output deal, thus slowing the market's rebalancing with global crude stocks still near record highs. "We considered various scenarios, from six to nine to 12 months, and we even considered options for a higher cut. But all indications discovered that a nine-month extension is the optimum," Saudi Energy Minister Khalid al-Falih said. He told a news conference he was not worried by what he called Thursday's "technical" oil price drop and was confident prices would recover as global inventories shrink, including because of declining Saudi exports to the United States.
Oil drops nearly 5% as OPEC’s 9-month output-cut extension disappoints - Oil prices suffered a drop of nearly 5% Thursday, marking their lowest finish in a more than a week, as traders showed disappointment with the Organization of the Petroleum Exporting Countries’ decision to extend production cuts by nine months. An extension was widely expected, but traders had started to speculate that the cartel would make deeper reductions to output or extend the out-limit deal by 12 months.July West Texas Intermediate crude dropped $2.46, or 4.8%, to settle at $48.90 a barrel on the New York Mercantile Exchange. That was the lowest price a front-month contract since May 16 and largest percentage decline since May 4, according data from Dow Jones. July Brent crude, the global benchmark, lost $2.50, or 4.6%, to $51.46 on the ICE Futures exchange in London. WTI oil finished below both its 50 and 200-day moving averages. Oil’s 50-day moving average is $49.59 a barrel, while its 200-day moving average is $49.55, according to FactSet data. “The market is sending a signal that they were looking from more out of the [OPEC] meeting, maybe a 12 month extension,” At the conference, Saudi Arabia oil minister Khalid al-Falih said the oil market “is on its way to recovery” but “more time is needed” to bring oil supplies back to their five-year average. The extension of the supply pact “was signaled well in advance by the Saudi and Russian oil ministers,” The extension “reflects the alliance’s concern that a large inventory overhang continues to weigh on prices and is taking longer to whittle down than expected”—in part because of “fast-rising output, notably from shale developments in the United States,” More than 20 OPEC and non-OPEC countries in November last year agreed to collective cut production by 1.8 million barrels a day in an effort to reduce the global supply glut that kept a lid on prices.
Oil Tumbles After OPEC Ends With A Whimper; Agrees Only To Nine Month Extension -- The OPEC Vienna meeting has not officially concluded just yet, but moments ago a delegate told the WSJ and Reuters that the oil producing cartel had decided to do what had been widely telegraphed previously, and merely extend output cuts by nine months to March 2018. While the full quota breakdown has not been released yet, the cuts are likely to be shared again by a dozen non-members led by top oil producer Russia, while several nations like Iran and Nigeria will remain exempt from production caps. Two delegates say: consensus reached for 9 month extension #OOTT #OPEC but other items on addenda OPEC cuts had helped push oil back above $50 a barrel this year, giving a fiscal boost to producers, many of which rely heavily on energy revenues and have had to burn through foreign-currency reserves to plug holes in their budgets, however in recent weeks oil dropped to the mid-$40s again, forcing OPEC to agree to the production extension in hopes of creating backwardation in the oil strip, in order to eliminate shale producers from the question. The rebound in oil prices has in turn spurred growth in shale output, which is not participating in the output deal and whose breakeven prices have tumbled, slowing the market's rebalancing with global crude stocks still near record highs while US producers steal market share from Saudi Arabia and other OPEC members.
Oil prices tumble after OPEC rollover - - Ministers from OPEC and non-OPEC oil-exporting countries agreed on Thursday to extend existing production cuts for a further nine months to the end of March 2018.Front-month Brent futures prices reacted by closing down $2.50 per barrel or more than 4 percent, reversing around half of their gain the run up to the meeting (http://tmsnrt.rs/2qVNoyz).The price decline was fairly predictable once OPEC decided to roll over existing production cuts rather than deepen them ("OPEC nears decision time: roll over or deepen cuts?" Reuters, May 19). The market reaction was consistent with research showing prices tend to fall when OPEC leaves output unchanged ("The behaviour of crude oil spot and futures prices around OPEC and SPR announcements", Demirer and Kutan, 2010).In this instance, the fall in prices reflects repositioning among market makers and short-term tactical traders rather than a re-evaluation of supply and demand fundamentals.Many crude traders closed out short positions and bid up prices in advance of the meeting in case ministers surprised with a deeper cut ("Hedge funds shuffle positions as OPEC decision nears", Reuters, May 23). OPEC and non-OPEC ministers signalled repeatedly that a rollover was the most likely outcome of the meeting but there was always the possibility, however small, of a deeper cut.Most market makers and tactical traders will therefore have wanted to hold flat or a small long position during the meeting in case a surprise cut sent prices rising sharply.Once the threat of a cut was removed and the rollover was confirmed many of those long positions became unnecessary and were liquidated. The simultaneous attempt to liquidate so many long positions at the same time and create fresh short positions resulted in a classic crowded trade ("Predatory trading and crowded exits", Clunie, 2010).In any event, the price decline was not especially large, equivalent to a daily move of just over 2 standard deviations and well within the normal range of daily fluctuations (http://tmsnrt.rs/2qqwPXX).OPEC and non-OPEC ministers may be mildly disappointed with the response to their announcement but they are unlikely to be seriously concerned.
Wall Street Throws Up On OPEC: Barclays Sees "No Light At The End Of The Tunnel"; MS Cuts WTI Price Target --Oil bulls were unhappy with yesterday's OPEC announcement, which disappointed by adding nothing to the 9 month supply cut extension announcement which had already been leaked and largely priced in while leaving key questions unanswered, including what it has planned for the long-term.The broader Wall Street commentary was similarly downbeat: “To say that yesterday’s performance was disappointing for bulls is an understatement,” Tamas Varga, analyst at PVM Oil Associates wrote in an emailed report. “It is, however, not a foregone conclusion that the trend is definitely turning. The question now is whether yesterday’s sharp drop in oil prices was a panic long-liquidation or the technical picture is now firmly turning bearish." Barclay's analyst Michael Cohen captured the mood best with a note overnight titled "No light at the end of the tunnel:, in which he writes that "OPEC and several non-OPEC countries finalized plans to extend production cuts for an additional nine months (through Q1 2018)without specifically articulating an exit strategy. During the press conference, Saudi Energy Minister Khalid Al-Falih expressed confidence in the plan to extend the cuts through Q1 2018, saying that inventories would fall below the five-year average before year-end, but cuts should remain in place during Q1 2018 due to seasonal demand weakness, which we highlighted yesterday (OPEC’s Vienna Meeting: Intermission, May 24, 2017). By our calculations, if half of the supply deficit is applied to OECD stocks, we do not see the inventory level approaching the five-year average by this timeframe."
OPEC Leaves Market Guessing on Exit Strategy After Oil Pact - OPEC may be celebrating an historic deal to extend supply cuts, but after the party, the organization will face a trio of questions it left unanswered.Will the lucrative yet delicate relationship between Saudi Arabia and Russia survive the life of the agreement? Will surging U.S. shale output prove too much temptation for OPEC countries to stick to their own production promises? And, perhaps most perplexing: What does OPEC have planned long-term?The deal to maintain the cut another nine months, hammered out this week in Vienna, could expire in March with a return to OPEC’s pump-at-will policy that prevailed between 2014 and 2016 and pushed prices below $30 a barrel. Or the organization could keep adjusting production.“What concerns me is that there is no clear messaging around the exit strategy,” Ebele Kemery, head of energy investing at JPMorgan Asset Management, told Bloomberg TV. “The way we look at the market going forward, there’s going to be oversupply in 2018. They’re talking about price stability. To get price stability we need to know what the end-game is.”Kemery’s concern over a lack of strategy appeared to be widespread. Brent crude fell 5 percent to $51.24 a barrel on the decision, wiping out most of the gains since Russia and Saudi Arabia publicly backed the nine-month extension last week. Futures in London slid 25 cents to $51.21 a barrel at 12:35 p.m. Singapore time, heading for a weekly decline. Despite an admission that November’s landmark agreement to limit output failed to eliminate the global oil glut, the commitment of two-dozen oil-producing countries did succeed in establishing a new floor for prices that’s well above the lows seen last year.
Prices tumble but OPEC/non-OPEC oil producers seek to maintain grip on fundamentals - Key oil producers led by OPEC sought to reassure a skeptical market Thursday after announcing a gentler extension of their output cut agreement than they had earlier teased, while downplaying the boon-canceling potential of their free-market rivals, especially US shale. Together controlling just more than half the world's oil output, the producer coalition composed of an expanded OPEC -- with Equatorial Guinea joining its ranks -- and 10 non-OPEC partners including Russia rolled over a 1.8 million b/d production cut agreement into March 2018. Militancy-wracked Libya and Nigeria, both of whose oil prospects appear to have improved in recent weeks, will remain exempt from the cuts, which amount to just 2% of global oil demand. Iran, which was allowed a slight increase in production as it recovers from western sanctions on its oil sector, also will maintain its quota level under the deal. Various ministers and delegates throughout the week had hinted that an extension of the cuts could include deeper output reductions or as long as a 12-month agreement. But after reviewing various proposals, the producers settled on their nine-month deal, sending oil prices tumbling. The rumored participation of Turkmenistan, Egypt and other producers also failed to materialize. "At a point in 2018, it is likely that those small reductions in output will no longer lead to a greater improvement in [producer] revenues because of other supply and demand offsets," analysts with Barclays said in a note. "Even if the curve moves to steep backwardation, producers will still hedge more output, and this will have ramifications for the supply and demand balance for the rest of 2018."
Cut extension agreed, OPEC/non-OPEC coalition now faces difficult path of compliance - With the world's largest oil producers Saudi Arabia and Russia having already announced their support for a nine-month output cut extension last week, getting the 24-nation OPEC/non-OPEC coalition to fall in line Thursday at its closely watched summit was the relatively easy part. Now comes the heavy lifting of continued strong compliance and commitment to supply management through the length of the agreement, to convince a wary market that the producer group's efforts to clear the glut of oil in storage are sincere.The deal, under which the producers will cut a combined 1.8 million b/d through March 2018, was intended to calm the market but instead had the opposite effect, generating doubts over the coalition's lack of exit strategy from the cuts amid resilient US shale oil production."Shale is roaring back and threatening OPEC's drive to rebalance the market," analysts with Citi said in a recent note.Many countries achieved their committed cuts through the first five months of the deal by bringing forward field maintenance, which can not be extended indefinitely without damaging infrastructure. Because of this, many barrel counters remain skeptical that deal participants will be able to maintain their high compliance levels. The OPEC/non-OPEC monitoring committee overseeing the deal pegged compliance among the deal's 24 members at 102% for April."Saudi Arabia and other Gulf producers will maintain high levels of compliance during the nine-month extension but compliance may be a challenge for others," said Joe McMonigle, an analyst for Hedgeye Potomac Research. "Morever, the market will continue to view non-OPEC compliance, especially Russia, with great skepticism."Libya and Nigeria, whose militancy-wracked oil sectors have shown signs of recovery in recent weeks, remain exempt from the deal, and with the extension into next year, have more time to restore their production levels.Ministers from the participating countries said they would be amenable to changing the deal to help juice the market rebalancing if the fundamentals turn against them, but have left unclear how this may happen. "The more accelerated declines we will see in stocks in the coming quarters and the floor OPEC has provided for the coming nine months are likely to result in aggressive growth in US tight oil," analysts with Barclays said in a note. "OPEC is likely to struggle to find a big enough hole to fit its incremental supply, keeping the proverbial light at the end of the tunnel out of reach for longer than just the first quarter of 2018."
Goldman: Oil Glut To Return When OPEC Deal Expires -- OPEC has agreed to extend its production cuts for another nine months in an effort to bring the oil market back into balance. Keeping in place the 1.2 million barrels per day (mb/d) of OPEC cuts, plus the 558,000 bpd of non-OPEC reductions, for nine months rather than six should be enough to “normalize” crude oil inventories, according to most analysts.Great. Mission Accomplished. By the end of the first quarter of 2018, the market will have tightened and OPEC members can go back to producing as they were before, producing as much as possible and fighting for market share.But here’s the thing. When the deal expires and OPEC members open up the spigots again, it could create another glut just as before. That is the warning from a new Goldman Sachs report, which says that the oil market could find itself once again awash in oil in the second half of 2018 after the expiration of the OPEC deal.“[W]e see risks for a renewed surplus later next year if OPEC and Russia’s production rises to their expanding capacity and shale grows at an unbridled rate,”Goldman analysts wrote in the research note.While the extension of the OPEC cuts will succeed in bringing down inventories to normal levels over the next nine months, the problem is that oil production capacity continues to grow both within and outside of OPEC. Everyone knows the story of surging U.S. shale – drillers are coming back quickly, having achieved lower and lower breakeven costs over the past several years. Energy watchers are having to repeatedly revise up their forecasts for shale growth. The EIA says that shale production will grow by more than 800,000 bpd this year, with an annual average output of 9.3 mb/d in 2017 and a staggering 10.0 mb/d in 2018.
OilPrice Intelligence Report: OPEC Sinks Oil With Lackluster Deal: OPEC and non-OPEC members secured a nine-month extension of their deal, pushing the combined 1.8 million barrels per day in reductions through to the first quarter of 2018. The cohesion among the disparate members was notable, although the markets, hoping for a bullish surprise, were less than impressed. After hinting at deeper cuts or perhaps an extension through the middle of 2018, oil traders were left disappointed. There is evidence that hedge funds and other money managers built up a bullish position ahead of the meeting on the off chance that OPEC would surprise the market with more aggressive action. Once that was off the table, there was a selloff in crude positions. OPEC officials shrugged off the price drop, arguing that they can’t be concerned with daily price movements.One of the principle motivations for Saudi Arabia to keep the production cuts going is to boost the valuation of Saudi Aramco when it stages an IPO next year. The Saudi government needs higher oil prices in 2018 in order to maximize the sale of Aramco. Saudi officials allege that the company is worth some $2 trillion, although others dispute that figure. Nevertheless, the timing of the Aramco IPO ensures that Saudi Arabia will do “whatever it takes” to keep oil prices afloat. . OPEC is confident that the nine-month extension will drain inventories back to average levels by the end of the compliance period. However, some analysts have raised the prospect of a renewed glut once the deal expires. If that were to happen, OPEC might find itself in a position of having to extend the cuts indefinitely. Obviously, it does not want to do that. When asked about an “exit strategy,” Saudi energy minister Khalid al-Falih said that they did not have one, but that they would work on coming up with a plan over the next nine months. The compliance rate from within OPEC has been very strong, save for Iraq. Non-OPEC cuts were less impressive over the initial six-month period. Nevertheless, the display of unity in Vienna on Thursday is a sea change from the past, and the understanding between Saudi and Russian officials in particular is important. However, compliance will be much more difficult going forward, with more members achieving higher levels of production capacity. Historically, such alliances to restrain output have proven to move oil prices in the short-run, but “they eventually fall apart,” Robert McNally, president of energy consultancy the Rapidan Group, told the Wall Street Journal.
Why OPEC Couldn't Move Oil Prices Higher - The latest OPEC meeting was uncharacteristically tranquil, with little of the eleventh hour infighting and arm-twisting that has been so prevalent in previous meetings. The cooperative spirit has allowed OPEC to roll over its production cuts for another nine months, as expected, a move that has to be described as a successful outcome. "Nine months with the same level of production that our member countries have been producing at is a very safe and almost certain option to do the trick,” Saudi energy minister Khalid al-Falih told reporters. Yet the oil markets are unimpressed. Crude prices dropped on Thursday as it became apparent that a much more aggressive move – a lengthier extension or deeper supply cuts – was off the table. For OPEC, the price reaction is surely frustrating. Keeping so many oil producers on board with a plan that requires significant sacrifice has always been a monumental task, not least because many of the countries involved seriously distrust one another. More importantly, they are extending the cuts for another nine months, longer than anyone expected up until just a few weeks ago. But oil traders are difficult to please. After Saudi Arabia and Russia signaled earlier this month that they had agreed to extend the cuts for nine months rather than six – a surprise announcement at the time – the oil markets essentially said, “Great. What else can you give me?” The nine-month extension became the baseline and was quickly incorporated into market assumptions. If OPEC had come away with anything less than a nine-month extension, prices would have plunged. So, the markets were a bit disappointed that OPEC only came away with nine months. "It is a disappointment that OPEC hasn't done more to balance the markets," "A nine-month extension of the output cuts is already baked into prices. This shows there's not much more OPEC can do."
U.S. oil-rig count rises for a 19th straight week, but rise is modest -- Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil climbed by 2 to 722 rigs this week. That marked a 19th weekly rise in a row, but the increase was the smallest weekly rise of the year. The total active U.S. rig count, which includes oil and natural-gas rigs, climbed by 7 to 908, according to Baker Hughes. Oil prices appeared unfazed in the wake of the data. July West Texas Intermediate crude was up 62 cents, or 1.3%, to $40.52 a barrel on the New York Mercantile Exchange, unchanged from where it traded before the data.
US Crude Production Hits 21-Month Highs As Rig Count Rises For 19th Straight Week --For the 19th week in a row, the number of US oil rigs rose (up 2 to 722). This is the largest number of oil rigs since April 2015 as Lower 48 crude production (much to the chagrin of OPEC) surges to its highest since August 2015. Lagged WTI prices lead rising rig counts...NOITE - if the relationship holds then we would expect the rig count rised to stall here... And rising rig counts lead US crude production... And this is why it matters...(graphs) And prices are holding their post-OPEC losses... “It was so well telegraphed a lot of people were probably thinking they’d take it the extra mile,” Jasper Lawler, senior market analyst at London Capital Group, told Bloomberg. “One of the things worth noting is that the ramp-up into the meeting and the drop down have averaged out; markets are definitely not as optimistic as they were”
BHI: Colorado, gas-directed rigs lead latest US rig count rise - The Baker Hughes Inc. US rig count’s 19th straight weekly increase came by way of Colorado and gas-directed rigs instead of the usual lift from Texas and oil-directed rigs.The overall count gained 7 units during the week ended May 26 to 908, up 504 units since a bottom in recent BHI data on this week a year ago and its highest point in more than 2 years (OGJ Online, May 19, 2017). Since May 27, 2016, the count has risen in all but 5 weeks.Gas-directed rigs rose 5 units to 185, up 104 units since Aug. 26, 2016, as part of their own rebound. Oil-directed rigs increased 2 units to 722, up 406 units since their nadir in recent BHI data on May 27, 2016. One rig considered unclassified remained active.According to US Energy Information Administration data, US crude oil production for the week ended May 19 gained 15,000 b/d to average 9.32 million b/d. The Lower 48 contributed a 20,000-b/d increase, slightly offset by a 5,000-b/d decrease from Alaska.All 7 units are drilling onshore, bringing that tally to 881. Also up 7, horizontal rigs now total 766, an increase of 452 since May 27, 2016. At 84.4% of the overall US rig count, horizontal rigs have never represented a larger portion of total units working. Directional drilling rigs edged down a unit to 65.Both offshore rigs and those drilling in inland waters were unchanged during the week at 23 and 4, respectively.Colorado led the major oil- and gas-producing states with a 5-unit jump to 34, up 18 year-over-year. The DJ-Niobrara gained 4 units to 27, up 14 year-over-year. All 27 of the rigs drilling in the DJ-Niobrara are targeting oil.Oklahoma, New Mexico, North Dakota, and Alaska each increased 1 unit to 123, 57, 45, and 7, respectively. Oklahoma is up 69 units since its recent low on June 24, 2016; New Mexico is up 44 units since Mar. 18, 2016; and North Dakota is up 23 units since June 3, 2016.The Cana Woodford gained 3 units to 56, up 32 units since June 24, 2016. The Permian edged up a unit to 362, up 228 since its recent low on May 13, 2016. The Williston increased a unit to 45, up 23 since June 3, 2016. Texas posted its first loss in 19 weeks, edging down 1 unit to 458, still up 285 since its nadir on May 27, 2016. The Eagle Ford, however, rose a unit to 86, up 57 since June 3, 2016.
OPEC net oil revenues in 2016 were the lowest since 2004 - Members of the Organization of the Petroleum Exporting Countries (OPEC) earned about $433 billion in net oil export revenues in 2016, the lowest since 2004. In real dollar terms, the 2016 revenue represents a 15% decline from the $509 billion earned in 2015, mainly because of the fall in average annual crude oil prices and, to a lesser extent, because of decreases in OPEC net oil exports. EIA projects that OPEC net oil export revenues will rise to about $539 billion dollars (nominal) in 2017, based on the forecast of global oil prices and OPEC production levels in EIA's May 2017 Short-Term Energy Outlook (STEO). The expected increase in OPEC's net export earnings is attributed to slightly higher forecast annual crude oil prices in 2017 as well as slightly higher OPEC output during the year. For 2018, OPEC net oil export revenues are forecast to be $595 billion (nominal), with an increase in forecast crude oil prices and higher OPEC production and exports contributing to the rise in overall earnings. Saudi Arabia has consistently earned more oil export revenues than any other member of OPEC, with its share in total OPEC net oil export revenues ranging between 29% and 34% since 1996. Iran's revenue share has fluctuated, with a significant reduction evident over the 2012–15 period mainly as a result of the imposition of nuclear-related sanctions by the United States and the European Union that targeted Iran’s oil exports. These sanctions resulted in roughly 800,000 barrels per day of Iranian production being shut-in between January 2012 and December 2015. Iran was the only OPEC member country whose net oil revenues increased in 2016, when its share of total OPEC net oil export revenues increased to 8%.
Trump Comes To Riyadh Bearing Gifts – Weapons Approved By Obama - As Saudi Arabia rolls out the red carpet for President Donald Trump this weekend, his administration will arrive bearing the same gifts as every visiting president before him: billions in high-tech American weaponry and military support, and pledges for more. The Kingdom’s relationship with the new administration in Washington appears poised to enter a new phase, with the Saudis taking the lead in the fight to contain Iranian-backed Houthi rebels in Yemen, spearheading a region-side counterterrorism effort, and appearing eager to build a deeper defense partnership with Washington that could be good for business for both countries. Those sales will be spread out over a variety of expensive and high-maintenance projects including new ships, tanks, armored vehicles, precision guided bombs, missile defense and radar systems according to people with knowledge of the discussions, and several published reports. The biggest item in the basket looks to be the restart of a deal for four brand-new Littoral Combat Ships by by Lockheed Martin for about $6 billion. The Saudi version of the vessels will come more heavily armed than their American counterparts, and will replace the aging vessels in the Kingdom’s Eastern Fleet, based in the Arabian Gulf facing Iran. The original proposed sale — worth an estimated $11 billion when it was first announced in October 2015 — was rejected by the Saudis three months later due to their concerns over the cost and the redesigns Lockheed Martin engineers made to the original American hulls. Discussions have continued since that time, and many of those concerns appear to have been ironed out. Also included in the total is an August 2016 deal for 153 Abrams tanks worth about $1.1 billion, and the sale of 16,000 guided munitions kits — which upgrade so-called dumb bombs to smart bombs — worth over $350 million. The deal for the kits was suspended by the Obama administration in December, citing concerns over the high civilian casualty toll in the Saudi air campaign in Yemen.
US and Saudi Arabia sign arms deals worth almost $110bn | USA News | Al Jazeera: The US and Saudi Arabia signed arms deals worth almost $110bn on Saturday, the first day of President Donald Trump's visit to the traditional US ally.US Secretary of State Rex Tillerson said that the arms agreements will help Saudi Arabia deal with "malign Iranian influence"."The package of defence equipment and services supports the long-term security of Saudi Arabia and the entire Gulf region," Tillerson told reporters in Riyadh on Saturday.This is "in particular in the face of malign Iranian influence and Iranian-related threats which exist on Saudi Arabia's borders on all sides," Tillerson said.Al Jazeera's James Bays, reporting from Riyadh, said that the arms deal would be seen by both signatories as a "win-win", especially as the deal involved arms that Obama was not prepared to sell to Saudi Arabia, including missile defence systems."I think this is what both sides are trying to project here: a successful meeting and the US relationship with Saudi Arabia returning to the way it was before President Obama," said Bays. "Because certainly the White House says that it feels President Obama 'abandoned' Saudi Arabia and this region, and they want the whole world to know that now they are getting things 'back on track'."
Donald Trump puts US on Sunni Muslim side of bitter sectarian war with Shias | The Independent: It was crude stuff. President Trump called on 55 Muslim leaders assembled in Riyadh to drive out terrorism from their countries. He identified Iran as a despotic state and came near to calling for regime change, though Iran held a presidential election generally regarded as fair only two days previously. He denounced Hezbollah and lined up the US squarely on the side of the Sunni against the Shia in the sectarian proxy war that is tearing apart the Middle East.The most important aspect of Mr Trump’s two-day visit to Saudi Arabia is that it took place at all. He chose to go first to the world’s most thorough-going autocracy where his speech will be lauded by the state-controlled media. But the radicalism of what he said can be exaggerated because so far his policies towards Syria, Iraq, Turkey and other countries in the region are so far little different from what Mr Obama did in practice. Almost all of the 55 Muslim rulers and leaders in the vast hall in Riyadh will have breathed a little easier on hearing Mr Trump’s repeated call “to drive out terrorism”, since they have always described anybody who opposes their authority as “terrorists”. This will be a green-light to people like Egyptian President Abdel-Fattah el-Sissi to go on imprisoning and torturing Muslim Brotherhood members. American pressure on the ruling Sunni minority in Bahrain to stop persecuting the Shia majority was always tame, but Mr Trump’s praise for the island’s rulers may make the situation even worse. Mr Trump’s failure to refer to human rights’ abuses was criticised by some observers, but more serious than his words was his presence in Riyadh before an audience of autocrats. Saudi leaders will be pleased by Mr Trump’s condemnation of Iran as the fountainhead of terrorism. This was the most substantive part of speech and is the one most likely to increase conflict.
“It’s The Economy, Stupid!”: The Iranian Presidential Election -- “It’s the economy, stupid!” quoth Stella Morgana in an informative piece written a few days ago prior to and about the Iranian presidential election as linked to by Juan Cole The Iranian Election: It’s the Economy, Stupid!. For those who have not seen it yet, incumbent President Hassan Rouhani has won decisively with 57% of the vote over his main rival, Ebrahim Raisi, who got 38.5%. Rouhani is viewed as a moderate in the traditon of former president Khatami, who is under house arrest, while Raisi was supported by hard line clerics and the supreme leader, Ali, Khamenei. Many view Raisi as a potential successor to Khamenei. In the Iranian system the Supreme Jurisprudent, Khameinei, has control over the judiciary and security forces and ultimately over foreign policy, while the president has most control over economic policy and other domestic policies, although social policies are controlled partly by both, with a sharp difference over those, even though Rouhani himself is a Shi’i cleric. The Supreme Jurisprudent also has a veto through his Council of Guardians on all laws passed, which are judged on whether or not they are sufficiently Islamic. Also, all candidates must be vetted by them on the same grounds, with Rouhani passing four years ago through their filter, while other more “liberal” candidates were banned. So, Iran is a partial democracy at best, but still a partial democracy, with the same kinds of rules and restrictions applying to the elections for its Majlis, the legislative body. As Morgana notes, the economy was the leading issue, especially from Raisi’s side, although Rouhani also emphasized his relative social liberalism, and it is thought that he got support on this from young, urban, and female voters. In many ways the Iranian economy looks sort of like the US one did a few years ago, say at the time of Obama’s reelection campaign. It is not in all that good shape, with 12% unemployment, 30% for youth, stagnant wages, 7% inflation, and entrenched inequality with substantial amounts of corruption. OTOH, there has been positive growth in the last two years since the partial lifting of international economic sanctions following the 2015 nuclear deal, with inflation down from 40%, and much of the corruption is perceived to be among the clerical elites who supported Raisi, even as Raisi attempted to play the populist and push a program of monetary handouts for the very poor. His line was essentially that things may be getting better, but they are still bad. He also pushed a harder line nationalism and religious extremism, and in this regard looked more like politicians such as Trump and Le Pen, and his defeat can be seen as another rejection of authoritarian nationalism that has been going on since Trump took office.
Rouhani’s victory is good news for Iran, but bad news for Trump and his Sunni allies | The Independent: The Saudis will be appalled that a (comparatively) reasonable Iranian has won a (comparatively) free election that almost none of the 50 dictators gathering to meet Trump in Riyadh would ever dare to hold. So it’s a good win for the Iranian regime – and its enormous population of young people – and a bad win for Trump’s regime, which would far rather have had an ex-judicial killer as Iranian president so that Americans would find it easy to hate him. Maybe Hassan Rouhani’s final-week assault on his grim rival candidate and his supporters – “those whose main decisions have only been executions and imprisonment over the past 38 years” – paid off. Who among Iran’s under 25s, more than 40 per cent of the population, would have wanted to vote for Ebrahim Raisi whose hands had touched the execution certificates of up to 8,000 political prisoners in 1988? So the man who signed Iran’s nuclear agreement with the United States, who struggled (often vainly, it has to be said) to reap the economic rewards of this nuclear bomb “truce” with the West, who believed in a civil society not unlike that of former president Mohamed Khatami – who supported him in the election – won with 57 per cent of the vote, backed by 23½ million of the 41 million who cast their ballot. The corrupt and censorious old men of the Revolutionary Guard Corps and the bazaaris and the rural poor – the cannon fodder of the Iran-Iraq war as they often are in elections – have been told they no longer belong to the future. But what a contrast this election has been to the vast congress of dictators and cut-throat autocrats greeting Donald Trump in Riyadh – just as the Iranian election results were announced. Save for Lebanon and Tunisia and Pakistan, almost every Muslim leader gathered in Saudi Arabia treats democracy as a joke or a farce – hence the 96 per cent victories of their leaders – or an irrelevancy. They are there to encourage Sunni Saudi Arabia’s thirst for war against Shia Iran and its allies. Which is why the Saudis will be appalled that a (comparatively) reasonable Iranian has won a (comparatively) free election that almost none of the 50 dictators gathering to meet Trump in Riyadh would ever dare to hold.
Syria's White Helmets suspend members caught on camera during rebel execution - Syria’s White Helmets have suspended several members of their rescue team after stomach-churning footage emerged showing rebel militants conducting a summary execution of a man in the town of Jasim, with the White Helmets helping get rid of the body. Graphic images released on Wednesday show blood pouring out of the execution victim’s head. After the man is shot dead on camera – in front of a large crowd in the town of Jasim in Daraa, southern Syria – volunteers from the White Helmets move in to dispose of the body, AMN reported. On Thursday, Syria’s White Helmets, also known as the Syrian Civil Defense, issued a statement, acknowledging that their volunteers’ actions “did not fully uphold the strict principles of neutrality and impartiality.”“Two Civil Defense volunteers were seen to act improperly and not in accordance with the voluntary Code of Conduct for Syria Civil Defense members,” the statement said, adding that the members have been suspended for three months.“Syria Civil Defense expects each and every volunteer to perform their duties to the highest professional standard, as the individual actions of one member impact the reputation of all volunteers and the organization as a whole,” the statement noted. Hailed as peace-bearing heroes by the mainstream media, the White Helmets have long been plagued by allegations of having ties with terrorist groups. Russia's Foreign Ministry spokeswoman, Maria Zakharova, said late last month that the White Helmets support terrorists and cover up their crimes.
Yet Another Video Shows U.S.-Funded White Helmets Assisting Public Executions in Rebel-Held Syria - Syria Civil Defense, popularly known as the White Helmets, can be seen in a new video assisting in a public execution in a rebel-held town in Syria. It is at least the second such execution video featuring members of the Nobel Prize-nominated group. The White Helmets have received at least $23 million in funding from the U.S. Agency for International Development (USAID), a wing of the State Department. The British Foreign Office and other European governments have pitched in as well.Frequently cited as an invaluable source of information by major Western media outlets, the group was the subject of an Academy Award-winning 2016 Netflix documentary, The White Helmets.Endorsements from A-list Hollywood celebrities like George Clooney and Justin Timberlake, as well as Hillary Clinton and British Foreign Minister Boris Johnson, have followed. Large corporate media networks have yet to report on the dark side of the White Helmets, however, and films like the widely celebrated Netflix feature function as uncritical commercials for the group, helping to keep the public in a state of ignorance about the domination of the Western-backed Syrian armed opposition byextremist Salafi jihadist groups, and about the civil conflict in general.While CNN and other outlets rely heavily on footage taken by White Helmets members, not one major Western media outlet has reported on the latest execution video starring the group’s uniformed members.The video, which Syrian opposition activists uploaded to Facebook, shows three men from the White Helmets rushing into the center of a crowd, mere seconds after an alleged criminal was shot in the head, and removing the body on a stretcher. A member of the White Helmets can be seen celebrating along with the crowd of onlookers. WARNING: This video features violence that may disturb viewers.
U.S. airstrike set off explosion that killed at least 105 civilians in Mosul, Pentagon finds: A two-month investigation into one of the worst civilian casualty events in decades found that a U.S. military airstrike in Iraq inadvertently set off explosives that ripped through a sprawling apartment block and killed at least 105 civilians. The deadly March 17 incident in Jadidah, a densely populated neighborhood in the war-torn Iraqi city of Mosul, garnered worldwide attention after photos of smoldering rubble mixed with lifeless bodies rippled across social media. The Pentagon said military investigators, led by Air Force Brigadier Gen. Matthew Isler, twice visited the site of the airstrike, spoke to witnesses, and pored through more than 700 videos taken from coalition warplanes over a 10-day period before, during, and after the airstrike. According to the Pentagon account released Thursday, a U.S. military warplane dropped a 500-pound GPS-guided bomb on two Islamic State fighters firing on Iraqi forces from the roof of a building in Jadidah. The investigation said the GBU-38 bomb should have killed the pair and maintained the structural integrity of the two-story building, which was constructed of reinforced concrete and had 30-inch walls at points. Instead, a massive explosion ripped through the neighborhood, reducing the apartment block to flaming wreckage, twisted rebar, and a tomb for innocent victims, including women and children. The investigation said 101 bodies were found in a main building and four others were killed in a nearby building.
U.S. Air Strikes in Syria Kill More than 100 -- Air strikes since Thursday evening have killed more than 100 people including children and other family members of Islamic State fighters in al-Mayadin, a town held by the jihadists near Deir al-Zor in eastern Syria, a war monitor reported. The Britain-based Syrian Observatory for Human Rights said the raids were carried out by U.S.-led coalition warplanes. A spokesman for the U.S.-led coalition fighting Islamic State told Reuters that its forces had conducted strikes near al-Mayadin on May 25 and 26 and were assessing the results. The Observatory said more than 40 children were among those killed in the strikes, which leveled al-Mayadin's municipality building. Many of the families had fled from Raqqa, Islamic State's stronghold to the northwest, which U.S.-backed Syrian Kurdish and Arab fighters are pushing toward in an offensive against the jihadists, the Observatory said. Residents saw reconnaissance aircraft and warplanes circling the city at 7:25 p.m. (1625 GMT) before they fired missiles which struck two buildings, one of which was a four-storey block housing Syrian and Moroccan families of Islamic State fighters. More strikes took place after midnight.
U.S. and Russia boost dialogue about Syria operations to include generals - The U.S. military and Russia have stepped up their communication about operations over Syria to include dialogue between U.S. and Russian generals in the Middle East, said the top Air Force general in the region.Lt. Gen. Jeffrey L. Harrigian, the commander of Air Forces Central Command, told reporters at the Pentagon that “deconfliction” between the two countries has been boosted as the U.S.-led campaign against the Islamic State progresses in preparation for an assault on Raqqa, the de facto capital of the militant group. The talks are designed to prevent aerial accidents or clashes between aircraft.“We have had to increase the amount of deconfliction work we are doing with the Russians given the tighter airspace that we are now working ourselves through,” Harrigian said, speaking from his headquarters in Qatar. “The Russians, while we don’t give them the specifics, we note where we are going to operate so that we can portray that to them in a manner that allows us to continue our attack on the enemy and gives us the freedom of movement we need.”Marine Gen. Joseph F. Dunford, the chairman of the Joint Chiefs of Staff, announced last week in a news conference that a new deconfliction “channel” was added recently between the Russians and the Americans to ensure the safety of aviators and troops on the ground. Marine Lt. Gen. Kenneth F. McKenzie Jr., a member of Dunford’s staff, regularly communicates with Russian officers as part of it, Dunford said. Harrigian added Wednesday that deconfliction talks also were enhanced within the past few months to include his deputy, Air Force Maj. Gen. David S. Nahom, speaking with Russian officers. That has occurred only a few times, Harrigian said, but it has helped both sides make clear what their plans are.
The Lights Are Going Out in the Middle East - Six months ago, I was in the National Museum in Beirut, marvelling at two Phoenician sarcophagi among the treasures from ancient Middle Eastern civilizations, when the lights suddenly went out. A few days later, I was in the Bekaa Valley, whose towns hadn’t had power for half the day, as on many days. More recently, I was in oil-rich Iraq, where electricity was intermittent, at best. “One day we’ll have twelve hours. The next day no power at all,” Aras Maman, a journalist, told me, after the power went off in the restaurant where we were waiting for lunch. In Egypt, the government has appealed to the public to cut back on the use of light bulbs and appliances and to turn off air-conditioning even in sweltering heat to prevent wider outages. Parts of Libya, which has the largest oil reserves in Africa, have gone weeks without power this year. In the Gaza Strip, two million Palestinians get only two to four hours of electricity a day, after yet another cutback in April.The world’s most volatile region faces a challenge that doesn’t involve guns, militias, warlords, or bloodshed, yet is also destroying societies. The Middle East, though energy-rich, no longer has enough electricity. From Beirut to Baghdad, tens of millions of people now suffer daily outages, with a crippling impact on businesses, schools, health care, and other basic services, including running water and sewerage. Little works without electricity. “The social, economic and political consequences of this impending energy crisis should not be underestimated,” Iraq has the world’s fifth-largest oil reserves, but, during the past two years, repeated anti-government demonstrations have erupted over blackouts that are rarely announced in advance and are of indefinite duration. It’s one issue that unites fractious Sunnis in the west, Shiites in the arid south, and Kurds in the mountainous north. In the midst of Yemen’s complex war, hundreds dared to take to the streets of Aden in February to protest prolonged outages. In Syria, supporters of President Bashar al-Assad in Latakia, the dynasty’s main stronghold, who had remained loyal for six years of civil war, drew the line over electricity. They staged a protest in January over a cutback to only one hour of power a day.
"We Will Go To War; We Will Fight You": China's Xi Threatens Duterte If Philippines Drills For Oil -- The Philippines' outspoken president Rodrigo Duterte got a glimpse of the true snarling, belligerent Chinese dragon hiding behind the cheerful, globalist Panda facade earlier this week, when in response to a claim that his country was prepared to drill for oil in a disputed part of the South China Sea, China's president Xi told him matter-of-factly that in that case he should prepare for war. In a meeting on Monday between the two presidents, Duterte asserted his nation's sovereignty over disputed South China Sea territory citing last year's ruling by the Permanent Court of Arbitration. "We intend to drill oil there, if it's yours, well, that's your view, but my view is, I can drill the oil, if there is some inside the bowels of the earth because it is ours," Duterte said in a speech, recalling his conversation with Xi. That prompted a surprisingly abrupt retort from Xi: “Well, if you force this, we’ll be forced to tell you the truth. We will go to war. We will fight you,” Duterte on Friday quoted Xi as saying. The unexpectedly direct response, coming just days after China hoped to set the world at easy with its new globalist ambitions after it officially launched the Silk Road regional infrastructure project last week, caught China watchers by surprise. It stunned Duterte as well. The Philippine president has long expressed his admiration for Xi and said he would raise the arbitration ruling with him eventually, but needed first to strengthen relations between the two countries, which the Philippines is hoping will yield billions of dollars in Chinese loans and infrastructure investments. As a reminder, the Hague award from July 2016 clarified Philippine sovereign rights in its 200-mile Exclusive Economic Zone to access offshore oil and gas fields, including the Reed Bank, 85 nautical miles off its coast. It also invalidated China's nine-dash line claim on its maps denoting sovereignty over most of the South China Sea. China has repeatedly said it would not comply with the Court's ruling, setting the stage for potential conflicts in the future between China and its neighbors.
Gas Guzzlers Rule in China - The Chinese government’s plan to replace gasoline-powered cars with a new generation of electric vehicles has hit an unexpected bump: Chinese consumers’ love affair with gas-guzzling sport-utility vehicles. In a country where 700 people are killed in road accidents every day, according to the World Health Organization, and where most drivers are inexperienced, hefty SUVs have grown wildly popular because they provide a sense of security, says Yale Zhang, managing director of research company Automotive Foresight. A shortage of charging stations also is helping to persuade many Chinese buyers to choose SUVs over electric alternatives. Official targets call for 40% of cars bought in China in 2030 to be pure electric vehicles or plug-in hybrids. The country already is the world’s largest electric-vehicle market. Roughly half the 700,000 electric cars sold world-wide last year were sold in China. China’s newfound taste for outsize cars that gulp gasoline may mark a temporary reprieve for a domestic petroleum industry that has struggled with the decline in crude-oil prices in recent years. Surging SUV demand will help propel oil consumption in China upward for at least the next decade, according to energy experts and estimates from state-owned China National Petroleum Corp., more than offsetting the impact of the rise of electric vehicles and hybrids. “We don’t think [electric cars] will be any risk to the gasoline demand in the next five to 10 years,” says Nelson Wang, a China oil analyst at Hong Kong-based investment firm CLSA. The popularity of inefficient cars helps account for China’s recent growth in oil imports. In March the country imported a record average of 9.2 million barrels of crude a day. Imports for the first quarter were up 15% from a year earlier, and that trend looks set to continue. Transportation in China required 2.5 million barrels of gasoline a day last year, and that will keep rising until it hits 3.6 million in 2024, according to Bernstein.
China's Teapot Refiners Set to Slow Crude Imports as Tanks Overflow - (Reuters) - As OPEC extends production cuts in a bid to tighten the oil market, China's independent refiners - awash with crude and facing disappointing local demand - are poised to slow purchases of oil for at least the next two months.The move by China's so-called "teapots", a key driver of the country's crude appetite, will stir concerns about demand in the world's top oil buyer, which fell from a peak of 9.2 million barrels per day (bpd) in March to 8.4 million bpd in April.Independent refiners, mainly based in Shandong, are under pressure to cut run rates as profit margins have been squeezed by Beijing's tighter scrutiny over taxes and shifting quota policies, while some have begun seasonal maintenance.Plans by state oil majors to bring on new refining capacity later this year will help offset some import losses, but lower appetite from teapots and the potential for falling output indicates that the boom among this group of upstart refiners that has transformed China's oil market may be slowing."There will be more shutdowns in June, July and possibly August. It's seasonal but also because the market is not doing well and stocks are plentiful," said a manager at a Dongying-based independent refiner, who asked not to be named.Independent refiners, which make up some 12 percent of China's crude demand, have enjoyed record profits since winning the right since late 2015 to import oil, selling diesel and gasoline throughout Asia while expanding domestic sales in unprecedented competition with state firms. However, Beijing in January abruptly banned quotas for independents to export fuel, favouring its large state-owned refiners, put in a deadline for new applications for crude oil permits and tightened scrutiny on tax practices, squeezing margins.
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