Sunday, July 1, 2018

record highs for oil refining, crude and distillate exports; largest US crude supply drop since Sept 2016, distillate supplies at a 13 year low, et al

oil prices rose another 8% this week, on top of last Friday's near 5% jump, and are now pushing $75 a barrel, as oil production disruptions in Canada and Libya along with a bellicose US policy on Iran portended that tighter oil supplies were in the offing, despite OPEC pledges to pump more crude....after closing last week 5.8% higher at $68.58 a barrel, mostly on the Friday news of an OPEC agreement to modestly increase output, contracts for US light sweet crude for August delivery fell 50 cents to $68.08 a barrel on Monday, as oil traders digested the possible outcomes of the OPEC deal and worried about deepening US trade wars...however, US crude prices surged $2.45, or 3.6%, to $70.53 a barrel on Tuesday, after the State Department threatened to slap sanctions on any country, friend or foe, that didn’t cut their oil imports from Iran to “zero” by November...oil prices then continued rising from that level the rest of the week, hitting new 3-and-a-half year highs on each day, as an outage in Canada disrupted oil flow to the US and oil traders bet that the Saudis would not be able to make up the production lost from US sanctions on Iran and Venezuela...the largest move in that rally came on Wednesday, when oil prices rose $2.23, or 3%, to 72.76 a barrel, after the EIA reported the largest weekly drop in US crude supplies since September 2016...U.S. crude then hit another a three-and-a-half year high on Thursday, rising 69 cents to $73.45 a barrel, on continued concerns that Trump's threats against oil importers could cause a large drop in crude exports from Iran...Friday fretting was much of the same, with concerns linked to Venezuela, Libya and Canada, as well as Iranian exports, as oil rose another 70 cents to $74.15 a barrel to finish the week with a gain of just over 8%, a gain of almost 11% for the month, an increase of over 14% for the second quarter, and an increase of almost 23% for the first half of 2018....

natural gas prices, on the other hand, ended both the week and the month lower, as higher production offset the impacts of a looming heat wave and an addition to storage that fell short of expectations...US natural gas prices for August rose a penny on Tuesday and 5 cents on Wednesday, and then pushed above $3 per mmBTU on Thursday morning before the natural gas storage report cut prices back to $2.94 per mmBTU at the close...August gas futures then settled 1.6 cents lower on Friday to close the week at $2.924 per mmBTU, down 2.1 cents from the previous Friday's close...the natural gas storage report for week ending June 22nd from the EIA indicated that natural gas in storage in the US rose by 66 billion cubic feet to 2,074 billion cubic feet over the week, which left our gas supplies 735 billion cubic feet, or 26.2% below the 2,809 billion cubic feet that were in storage on June 23rd of last year, and 501 billion cubic feet, or 19.5% below the five-year average of 2,503 billion cubic feet of natural gas that are typically in storage after the third week of June...the consensus forecast was for an addition of 71 billion cubic feet to gas in underground storage, but this report also revised the prior week's addition of gas to storage 4 billion cubic feet higher, so the net at the end of the week was fairly close to consensus, and also close to the average 72 billion cubic foot weekly surplus of natural gas that is typically added to storage at this time of year...however, since current natural gas supplies are still 1,724 billion cubic feet below the 3,790 billion cubic feet we had stored after the first week of November last year, this week's 66 billion cubic foot addition to supplies is well short of the 90 billion cubic feet per week we'll need to see weekly over the next 19 weeks to get our supplies back to a normal level before the next heating season's withdrawals begin...

The Latest US Oil Data from the EIA

this week's US oil data from the US Energy Information Administration, covering the week ending June 22nd, showed that due to a record level of domestic oil refining and record oil exports, we had to pull oil out of our commercial crude supplies for the eleventh time in the past twenty-two weeks....our imports of crude oil rose by an average of 114,000 barrels per day to an average of 8,356,000 barrels per day during the week, after rising by 143,000 barrels per day over the prior week, while our exports of crude oil rose by an average of 626,000 barrels per day to a record average of 3,000,000 barrels per day during the week, which meant that our effective trade in oil worked out to a net import average of 5,356,000 barrels of per day during the week ending June 22nd, 512,000 barrels per day less than the net of our imports minus exports during the prior week...at the same time, field production of crude oil from US wells was reported as unchanged at 10,900,000 barrels per day, which means that our daily supply of oil from our net imports and from wells totaled an average of 16,256,000 barrels per day during the reporting week... 

at the same time, US oil refineries were using a record 17,816,000 barrels of crude per day during the week ending June 22nd, 115,000 barrels per day more than they used during the prior week, while at the same time 1,413,000 barrels of oil per day were reportedly being pulled out of oil storage in the US....hence, this week's crude oil figures from the EIA appear to indicate that our total working supply of oil from net imports, from oilfield production, and from storage was 147,000 fewer barrels per day than what refineries reported they used during the week...to account for that disparity, the EIA needed to insert a (-147,000) 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, essentially a fudge factor that is labeled in their footnotes as "unaccounted for crude oil"... (for more on how this weekly oil data is gathered, and the possible reasons for that "unaccounted for" oil, see this EIA explainer)...

further details from the weekly Petroleum Status Report (pdf) show that the 4 week average of our oil imports rose to an average of 8,261,000 barrels per day, which was 2.4% more than the 8,057,000 barrel per day average we imported over the same four-week period last year....the 1,413,000 barrel per day decrease in our total crude inventories came entirely out of our commercially available stocks of crude oil, as the amount of oil in our Strategic Petroleum Reserve was unchanged....this week's crude oil production was reported as unchanged despite the report of a 100,000 barrel per day increase in oil output from all the wells in the lower 48 states and a 38,000 barrel per day decrease in output from Alaska, because the EIA has recently decided to round the weekly oil production estimates to the nearest 100,000 barrels per day, to more closely reflect their inability to accurately model oil output from all the wells in the lower 48 states, and there was no change in the rounded total...the unrounded US crude oil production for the week ending June 23 2017 was reported at 9,250,000 barrels per day, so this week's figure is roughly 17.8% above that of a year ago, and 29.3% more than the interim low of 8,428,000 barrels per day that US oil production fell to during the last week of June of 2016...

meanwhile, US oil refineries were operating at 97.5% of their capacity in using 17,816,000 barrels of crude per day during the week ending June 22nd, the highest refinery utilization rate since our refineries operated at 97.6% of capacity during the week ending June 1st 2001...the 17,816,000 barrels of oil that were refined this week were the most barrels refined on record, topping the 17,725,000 barrels per day that were being refined during the last full week of August 2017....this week's refinery throughput was also 5.5% higher than the 16,890,000 barrels of crude per day that were being processed during the week ending June 23rd a year ago, when US refineries were operating at 92.5% of capacity....  

with the amount of oil that we're refining now at a new record high, we'll take a look at a graph of the recent history of that metric for some perspective...

June 27 2018 refinery throughput thru June 23rd

the above graph of US refinery throughput came from the package of oil graphs that John Kemp, senior energy analyst and columnist with Reuters, emailed out on Wednesday, which is also available as a pdf here; it shows US refinery throughput in thousands of barrels per day by "day of the year" for the past ten years, with the past ten year range of our refinery throughput for any given date shown as a light blue shaded area, and the median of our refinery throughput, or the middle of the 10 year daily range, traced by the blue dashes over each day of the year....the graph also shows the number of barrels of oil refined for each week in 2017 traced by a yellow line, with our year to date oil refining for each week of 2018 represented by the red graph...you can clearly see that except for the disruptions to refining caused by last year's hurricanes, 2017's refining in yellow had been at the top of the historical range almost all year, and that the pace of refining in 2018 in red has generally been topping that, except for in late April and May...you can also see that the summer is usually when refiners see their seasonal highs, so although this peak in June was earlier than we might have expected, the trend for US refining has been higher, and new records sometime this summer were probably to be expected..  

with the record amount of oil being refined this week, gasoline output from our refineries was a bit higher, rising by 43,000 barrels per day to 10,142,000 barrels per day during the week ending June 22nd, after our refineries' gasoline output had decreased by 352,000 barrels per day during the week ending June 15th....hence, even with this week's increase, our gasoline production during the week was 1.9% below the 10,334,000 barrels of gasoline that were being produced daily during the week ending June 23rd of last year...at the same time, our refineries' production of distillate fuels (diesel fuel and heat oil) fell by 72,000  barrels per day to 5,396,000 barrels per day, after rising by 357,000 barrels per day to a near record high the prior week...as a result, this week's distillates production was still 2.9% higher than the 5,244,000 barrels of distillates per day than were being produced during the week ending June 23rd, 2017...

with the increase in our gasoline production, our supply of gasoline in storage at the end of the week rose by 1,156,000 barrels to 241,196,000 barrels by June 22nd, the seventh increase in 16 weeks, but the 23rd increase in 33 weeks, as gasoline inventories, as usual, were being built up over the winter months....that increase was less than last week's increase of 3,277,000 barrels because the amount of gasoline supplied to US markets rose by 405,000 barrels per day to 9,731,000 barrels per day, while our imports of gasoline rose by 138,000 barrels per day to 988,000 barrels per day, and our exports of gasoline rose by 10,000 barrels per day to 613,000 barrels per day....after this week's increase, our gasoline inventories finished the week at a seasonal high for this time of year, but just fractionally higher than last June 23rd's level of 240,972,000 barrels, even as they are now almost 11.6% above the 10 year average of our gasoline supplies for this time of the year...    

meanwhile, with this week's decrease in distillates production, our supplies of distillate fuels ended the week little changed, increasing by just 15,000 barrels to 117,423,000 barrels during the week ending June 22nd...that was as our exports of distillates rose by 532,000 barrels per day to a record high of 1,836,000 barrels per day, while our imports of distillates rose by 5,000 barrels per day to 54,000 barrels per day and while the amount of distillates supplied to US markets, a proxy for our domestic consumption, fell by 213,000 barrels per day to 3,612,000 barrels per day, after decreasing by 579,000 barrels per day the prior week...since this week's small inventory increase comes after our distillate supplies had shrunk by 14,452,000 barrels over the six weeks to May 18th, our distillate supplies for the week ending June 22nd are still 22.9% below the 152,272,000 barrels that we had stored on June 23rd, 2017, and roughly 16% lower than the 10 year average of distillates stocks for this time of the year...  

since our distillate supplies have now slipped to a 13 year low for this time of year, we'll include a graph showing how they got here

June 27 2018 distillate supplies as of June 23rd

again, this graph also comes from that weekly emailed package of oil graphs from John Kemp of Reuters, which is available as a pdf here...it shows US distillate fuels inventories in thousands of barrels by "day of the year" for the past ten years, with the past ten year range of our distillates supplies on any given day of the year shown in the light blue shaded area, and the running median of our distillates inventory, or the midpoint of the 10 year daily range, traced by the blue dashes over each day of the year...the graph also shows the number of thousands of barrels of distillates we had stored at the end of each week in 2017 traced weekly by a yellow line, with our year to date distillates supplies for each week of 2018 traced in red...notice within the light blue shaded area that there is normally a seasonality to distillates supplies, as they're normally built up during the summer when refineries are running flat out, and then drawn down and consumed during the winter months, when demand for heat oil is greatest...however, this year, when supplies of distillates should have been increasing during April and May as they typically do, they were falling instead, mostly because we have been exporting our distillates at a record pace...thus we come to June 22nd with our distillate supplies now at a 13 year low for this time of year, after falling almost continuously since hitting an all time high of 170,746,000 barrels on February 3rd, 2017, as you can see above in the yellow graph line for 2017... 

finally, with our oil exports at a record high at the same time our refineries were using oil at a record pace, our commercial supplies of crude oil decreased for the 13th time in 2018 and for the 34th time in the past year, as our commercial crude supplies fell by 9,891,000 barrels during the week, from 426,527,000 barrels on June 15th to 416,636,000 barrels on June 22nd, the largest drop in our crude supplies since September 2nd 2016...thus, after falling most of the past year, our oil inventories as of June 22nd were 18.2% below the 509,213,000 barrels of oil we had stored on June 23rd of 2017, 16.0% below the 495,941,000 barrels of oil that we had in storage on June 24th of 2016, and 3.8% below the 433,223,000 barrels of oil we had in storage on June 26th of 2015, during a period when the US glut of oil had already begun to build from the nearly stable supply levels of the  prior years...       

since our record level of crude oil exports have the major reason for our falling crude supplies, and since this week saw the previous record for oil exports beat by nearly 17%, we'll include here a graph of those oil exports over the past 22 months..  

June 27 2018 crude exports week ending June 23rd

the above graph also came from the weekly package of oil graphs that John Kemp of Reuters emailed out on Wednesday, which is also accessible online as a pdf here, and it shows weekly US crude oil exports in thousands of barrels per day from September 2016 to the current week, and also highlights the exact amount of our crude exports in thousands of barrels per day over a few select dates going back to September 1st 2017, the week when our exports had been choked off because Gulf Coast ports were shut down by Hurricane Harvey and fell to 153,000 barrels per day...as you can see, our oil exports had only topped a million barrels per day a few times prior to that date...however, after the price of US crude fell to a 10% discount to the comparable international grade in the wake of the hurricanes, US crude suppliers began to sell as much oil overseas as they could, and as a result our oil exports have stayed above a million barrels per day since, and with those elevated exports, our crude oil supplies have also been falling since...as we've noted several times over the past couple of months, the spread between the price of North Sea Brent, the international benchmark, and that of the similar US grade, has widened to as much as $10 or $11 a barrel, so we expected that US oil traders would sell as much US crude into international markets this summer as our port capacity would allow, all the while pulling down large windfall profits even after paying the roughly $2 a barrel trans oceanic transportation costs...while that spread has narrowed to below $6 this week on the Canadian problems, oil being exported in June and through July was more than likely contracted for during that period of the wider price spreads...

to compare this year's drop in our oil supplies with what has happened in previous years, we'll include one more graph from that Kemp package..

June 27 2018 year to date crude supplies as of June 23rd

again, this graph also came from John Kemp's weekly package of oil graphs, which is accessible online as a pdf here...as the legend tells us, the bars on the graph show the change in US crude inventories between December 31st and June 22 for each of the last 11 years, with bars for increases above the 0 level, and the lone bar for this year's decrease showing up as a bar below the 0 level...typically, oil inventories are built up during the first five months of the year, then are drawn down as refineries run flat out to supply additional gasoline during the summer driving season...that normal early year build up of our oil supplies is what the first ten bars on that graph show us, which John identifies in his header as an average 37 million barrels of oil added during this period over the past ten years...this year, however, our oil supplies have fallen by 6.4 million barrels during these first six months, as instead of adding oil to storage, we have been pulleing oil out of our supplies and exporting it...since we built up our oil supplies to abnormal levels during the periods of low prices in 2015 and 2016 as you can see on the graph, our crude supplies are not becoming critically low at this point, but they are now below the 5 year average of our supplies for this time of year...

This Week's Rig Count

US drilling activity decreased for the third week in a row, after 11 consecutive increases, and was hence down for the 4th time in the last 19 weeks during the week ending June 29th, as both drilling for natural gas and drilling for oil slowed simultaneously for the 2nd week in a row...Baker Hughes reported that the total count of active rotary rigs running in the US decreased by 5 rigs to 1047 rigs over the week ending on Friday, which still left us with 107 more rigs than the 940 rigs that were in use as of the June 30th report of 2017, while that count was down from the recent high of 1929 drilling rigs that were deployed on November 21st of 2014, the week before OPEC began their attempt to flood the global oil market... 

the count of rigs drilling for oil was down by 4 rigs to 858 rigs this week, which was still 102 more oil rigs than were running a year ago, while it was still well below the recent high of 1609 rigs that were drilling for oil on October 10, 2014...at the same time, the number of drilling rigs targeting natural gas formations was down by 1 rig to 187 rigs this week, which was only 3 more gas rigs than the 184 natural gas rigs that were drilling a year ago, and way down from the modern high of 1,606 natural gas rigs that were deployed on August 29th, 2008...in addition, there continues to be two rigs operating that are considered to be "miscellaneous", in contrast to no such "miscellaneous" rigs in use a year ago....

drilling activity in the Gulf of Mexico was unchanged at 18 rigs this week, which was 3 fewer than the 21 platforms that were deployed in the Gulf of Mexico a year ago...however, the platform that had been idled offshore from Alaska last week was started back up this week, so the total US offshore count of 19 rigs is now down by 2 rigs from the total 21 offshore rigs that were drilling a year ago, when there was no rig drilling off of the Alaskan coast...in addition, the two platforms on inland lakes in southern Louisiana that had been shut down last week were restarted this week, so now there are four 'inland waters" rigs operating again, the same number of 'inland waters' rigs that were operating going into the same weekend a year ago...

the count of active horizontal drilling rigs was down again, for the 3rd week running, decreasing by 4 rigs to 926 horizontal rigs this week, which was still 134 more horizontal rigs than the 792 horizontal rigs that were in use in the US on June 30th of last year, but down from the record of 1372 horizontal rigs that were deployed on November 21st of 2014...in addition, the vertical rig count decreased by 4 rigs to 56 vertical rigs this week, which was also down from the 77 vertical rigs that were in use during the same week of last year...on the other hand, the directional rig count increased by 3 rigs to 65 directional rigs this week, which was still down from the 71 directional rigs that were operating on June 30th of 2017...

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 the 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 June 29th, the second column shows the change in the number of working rigs between last week's count (June 22nd) and this week's (June 29th) count, the third column shows last week's June 22nd active rig count, the 4th column shows the change between the number of rigs running on Friday and those of the equivalent weekend report of 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 on Friday the 30th of June, 2017...      

June 29 2018 rig count summary

oil drilling decreased by 2 rigs in both the Eagle Ford of south Texas and the Williston aka Bakken of North Dakota, and while it increased by 2 rigs in Oklahoma's Cana Woodford, it was also down by two rigs in basins not itemized separately by Baker Hughes...the pace of natural gas drilling, meanwhile, was unchanged in the Utica and the Marcellus, while it was down by 3 rigs in the Haynesville, and up by 2 rigs in those unnamed basins not tracked separately by Baker Hughes...of the states not listed above, Alabama saw both of the rigs that had been operating in the state shut down this week, and now they have none, down from the 3 rigs running in Alabama a year ago, while Mississippi also saw two rigs shut down, and now have just 2 rigs operating in the state, also down from the 3 rigs running in Mississippi a year ago...

while we've been expecting that natural gas well drilling would slow with gas prices below $3 per mmBTU, we certainly didn't anticipate that oil drilling would also be curtailed, especially in light of the price rally we've seen over the past year...yet here we are at the end of June with oil prices above $70 a barrel for the second time this year, and the oil rig count is now at the lowest it's been in six weeks...when we looked at the Dallas Fed survey of oil executives at the end of March this year, we saw that 88% of the oil executives polled said they could be profitable at prices under $66 a barrel, which is roughly the average price we've seen throughout the 2nd quarter of this year....even allowing for 3 to 4 months lead time before drilling starts, we'd be talking oil prices that were consistently over $60 a barrel when today's rigs were contracted for, certainly more profitable than the $44 to $54 barrel oil we saw last year, when oil drillers were increasing their rig deployment by roughly 20%...so why this pullback has arrived at this time is anyone's guess, especially since the backlog of incomplete wells has nearly stabilized in all areas except the Permian..

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Ohio bill would relax wind setbacks — and clean energy standards - The bill drew criticism in latest hearings to change Ohio’s clean energy standards after they resumed last year. Ohio lawmakers are considering a bill that would relax the state’s strict wind turbine setbacks rules but again weaken renewable and energy efficiency standards. The Ohio Senate Energy and Natural Resources Committee is scheduled Wednesday to discuss House Bill 114, which threatens to roll back the state’s on-again, off-again clean energy standards, which resumed 18 months ago after a 2014 law suspended them for two years. The bill has drawn criticism from both wind energy opponents and clean energy advocates. It stops short of making renewable energy standards purely voluntary, as in the Ohio House version passed last year. Instead, it would set the top renewable energy standard target at 8.5 percent in 2022, down from the current law’s requirement of 12.5 percent in 2026. The top energy efficiency target would fall from 22.2 percent to 17.2 percent, with more opt-outs and profits for utilities. An attempted trade-off in the bill would also loosen the state’s strict restrictions on wind turbine placement similar to reforms proposed in a stand-alone bill introduced several months ago by Ohio Sen. Matt Dolan (R-Chagrin Falls). HB 114 is the latest in an ongoing, six-year saga of efforts to weaken Ohio’s clean energy standards, all of which “make it difficult to plan for long-term markets and investments,” said Becky Campbell, manager of regulatory and public affairs for First Solar. In her view, “HB 114 represents a step backward,” compared to other states.

Ohio approves 1050 MW, gas-fired power plant in Cadiz - The Ohio Power Siting Board has approved a $900 million natural gas-fired power plant in Harrison County in the heart of the state's Utica Shale play, Kallanish Energy reports. Texas-based EmberClear Corp and its subsidiary, Harrison Power LLC, plan to construct a 1,050-megawatt, combined-cycle electric generation facility in Cadiz. Construction would begin in October and commercial service would begin by June 2021. The plant would be located on 90 acres in the Harrison County Industrial Park. The plant would be connected by pipeline to MarkWest’s Cadiz natural gas processing plant and to Energy Transfer’s Ohio River pipeline system. The electricity generated would be moved to American Electric Power’s transmission system. The plant would produce enough electricity to power 1 million homes. The project would create 500 construction jobs for about three years and 30 permanent jobs. It is among a dozen gas-fired power plants being developed in Ohio. 

Hess unloads Utica shale to fund work in Guyana, Bakken (UPI) -- U.S. energy company Hess Corp. said it would use the $400 million from the sale of assets in the Utica shale basin to fund work in Guyana and North Dakota.Hess said Friday it reached an agreement with Ascent Resources to sell off its joint venture interests in the Utica shale basin in eastern Ohio. The divestment of 39,000 net acres is expected to produce an average of 14,000 barrels of oil equivalent per day this year, of which 70 percent is natural gas. CEO John Hess said the funds would support growth across other segments of the company's portfolio."Proceeds from this transaction will be used to invest in our higher return growth opportunities in Guyana and the Bakken and to fund the company's previously announced share repurchase program," he said in a statement.Exxon Mobil Corp. and partner Hess announced their eighth oil discovery off the coast of Guyana earlier last week. Analysis sent from consultant group Wood Mackenzie to UPI in response to questions found reservoirs offshore Guyana are transformative, even for big companies like Exxon and Hess.   Dubbed Longtail, the latest discovery was made near the giant Liza field, which could be producing about 500,000 barrels per day by late 2023. Hess estimated it would cost at least $3.2 billion to fully develop the broader offshore Liza field. North Dakota reported an average crude oil production rate for April, the last full month for which data are available, at 1.22 million barrels per day, just shy of the all-time high from December 2014 of 1.23 million barrels per day. More than 90 percent of that came from the Bakken shale formation, which set a record in April for gas production.  Hess reported a net loss of $106 million in the first quarter, compared with a loss of $324 million in the same period in 2017. The company attributed the improvement to higher crude oil prices and lower operating costs.

​Methane-producing microbial communities found in fracking wells   - The Ohio State University News – Deep in the rocky earth, in the liquid-filled cracks created by fracking, lives a community of highly interactive microbes – one that could at once have serious implications for energy companies, human health and scientists investigating the potential for life on Mars.New research has uncovered the genetic details of microbes found in fracking wells. Not only do a wide array of bacteria and viruses thrive in these crevices created by hydraulic fracturing – they also have the power to produce methane, according to a study led by scientists at The Ohio State University and published in the journal Proceedings of the National Academy of Sciences. That means it’s possible that the tiny life forms could create more energy – and from a different source – than the fracking companies are going after in the first place.On the other hand, the microbes found in samples from wells in Ohio, West Virginia and Pennsylvania could point to potential problems from an industry standpoint – they could prove corrosive, toxic or otherwise problematic, said the study’s lead author, Kelly Wrighton, an assistant professor of microbiology at Ohio State.“Energy companies spend a lot of money and resources trying to get rid of life in these systems,” she said.  . Chemicals, stabilizers and water injected into the wells are undoubtedly contributing to the microbial diversity within them, the researchers said. This was the first study to look at microbes from multiple sites in a controlled environment, and presented a rare scientific opportunity, said study co-author Michael Wilkins, an assistant professor of earth sciences at Ohio State.

Marcellus, Utica Shale Plays Account for 41 Percent of US Natural Gas Output - – The law firm of Babst Calland released its annual energy industry report: The 2018 Babst Calland Report – Appalachian Basin Oil & Gas Industry: Forging Ahead Despite Obstacles; Legal and Regulatory Perspective for Producers and Midstream Operators.  This annual review of shale gas development activity in the Appalachian Basin acknowledges an ongoing rebound despite obstacles presented by regulatory agencies, the courts, activists, and the market.  According to the U.S. Energy Information Administration’s May 2018 report, the Appalachian Marcellus and Utica shale plays account for more than 40 percent of U.S. natural gas output, compared to only three percent a decade ago. Since then, the Appalachian Basin has become recognized in the U.S. and around the world as a major source of natural gas and natural gas liquids. The industry has been forging ahead amidst relatively low natural gas prices, infrastructure building, acreage rationalization and drilling plans that align with business expectations. The policy landscape continues to evolve with ever-changing federal and state environmental and safety regulations and tax structures along with a patchwork of local government requirements across the multi-state region. Joseph K. Reinhart, shareholder and co-chair of Babst Calland’s Energy and Natural Resources Group, said, “This Report provides perspective on the challenges and opportunities of a shale gas industry in the Appalachian Basin that continues to enjoy a modest rebound. While more business-friendly policies and procedures are emanating from Washington, D.C., threats of trade wars are raising concerns about the U.S. energy industry’s ability to fully capitalize on planned exports to foreign markets.”  The 84-page Report contains five sections, highlighted below, each addressing key challenges for oil and gas producers and midstream operators.

CNX Sees Stacked Pay Well Pads as Appalachia's Next 'Basin Disruptor' - The super-sized well pads targeting multiple horizons that CNX Resources Corp. plans to increasingly develop in the coming years will “disrupt” the Appalachian Basin, a company executive said this month at an industry conference in Pittsburgh.  In recent years, the company has been focused on building its Utica Shale program in Ohio and Pennsylvania, while the Marcellus Shale has anchored sales volumes. But lately, CNX management has been talking about the “stacked pay factory” it envisions for the future. In particular, CNX has discussed how well pads that target both the Marcellus and Utica, or even the Upper Devonian shales and the Point Pleasant formation in places like southwest Pennsylvania, may redefine field economics and its priorities.   While many operators have been promoting Appalachia’s stacked pay potential for years, few have ramped into full development and consistently drilled pads with multiple wells targeting the basin’s various unconventional resource plays.  Calling it “key to the southwest Pennsylvania strategy and economics,” COO Tim Dugan told a crowd at Hart Energy’s Dug East Conference and Exhibition that among the benefits of stacked pay development is the ability to blend wet and dry gas to reduce processing costs and enhance returns.  “The dry volumes from the Utica, blended with the damp Marcellus, allows us to avoid uneconomic processing of the damp Marcellus gas,” Dugan said. “One Utica well will blend down three to four Marcellus wells, and it’s all within the same gathering system, much more economic than separate wet and dry systems.”  The company is applying completion design and spacing lessons from its Utica program in Monroe County, OH, and other results from newer wells in Pennsylvania as it continues to delineate the deep, dry Utica core in the southwest part of the state.

Appalachian producers finally fulfilled: Pipelines a comin' -- It finally happens by 2022: The Appalachian Basin, whose Marcellus and Utica Shale producers have been begging for more pipeline capacity to get their product to market for years, will get their wish.However, as is the case when trying to match production with takeaway capacity, pipeline owners will offer more capacity than producers are producing – at least for a period of time.“By the end of 2022, the Northeast will have experienced 71% growth in takeaway capacity – 17.3 billion cubic feet per day (Bcf/d) increase,” according to Glenn Koch, vice president, Engineering and Construction, for pipeline giant Williams.Speaking as part of a pipeline development panel during Day Two of the Northeast U.S. Petrochemical Construction conference last week in Pittsburgh, Koch said despite the mind-boggling production leap in the Northeast, new capacity and regional demand for natural gas and natural gas liquids will increase over the same timeframe by 18.2 Bcf/d.The conference was presented for the third consecutive year by Petrochemical Update. Kallanish Energy was in attendance.Production of natural gas liquids, NGLs, will jump by 57% by 2022, to 840,000 barrels per day, from 535,000 BPD, Koch projects.Another pipeline panelist, Doug Scott, projects manager for Shell Pipeline, said the Falcon Pipeline, a 97-mile, primarily 12-inch line that will connect three major ethane source points: Houston, Pa., Scio, Ohio and Cadiz, Ohio, in the rich gas portions of the Marcellus and Utica shale plays, to Shell Polymers under-construction ethane cracker in Monaca, Beaver County, Pa.Scott said the ethane provider line in on time and, provided all needed regulatory permits are secured,  right-of-way preparation will start in the winter of 2018-19, with mainline construction next spring.

Still Searching for New York Water Permit, Constitution Pipeline Delays Completion Until 2020 -- New York state's denial of a Clean Water Act (CWA) permit for the proposed Constitution Pipeline has killed any chance of the project meeting it's scheduled Dec. 2, 2018 construction deadline, the company said in a filing at FERC Monday.Constitution Pipeline Co. LLC asked for an extension until Dec. 2, 2020 for construction of the project.Constitution filed at the Federal Energy Regulatory Commission for its project five years ago, and received a FERC certificate authorizing the project in 2014. The 125-mile pipeline would carry Marcellus Shale gas from Susquehanna County, PA, interconnecting with the Iroquois Gas Transmission and Tennessee Gas Pipeline (TGP) systems in Schoharie County, NY. Besides Williams, the project is backed by Cabot Oil & Gas Corp., Piedmont Natural Gas Co. Inc. and WGL Holdings Inc. The project’s sponsors have battled the New York State Department of Environmental Conservation (DEC) since 2016, when after nearly three years of regulatory review the agency denied the pipeline's application for a section 401 water quality certificate (WQC) required under the CWA. Eight weeks ago, the U.S. Supreme Court denied a petition filed by Constitution to challenge New York's regulatory authority and let stand an appeals court ruling that upheld the state's decision to deny the project a WQC.

ETP investigating pipelines for possible leak in Philadelphia area (Reuters) - Energy Transfer Partners LP is investigating one of its Philadelphia-area product pipelines after gasoline was discovered last week in a nearby creek, ETP said on Tuesday. ETP on Friday shut the 12-inch pipeline, in addition to an eight-inch pipeline in the area, as a precaution. The lines help carry refined products from the region’s refineries to New York Harbor and Western Pennsylvania. The company reopened the eight-inch line on Monday, but the larger line remained shut. “We have determined that the source of the petroleum products identified in the area is not our 8-inch line,” Lisa Dillinger, an ETP spokeswoman, said in an email to Reuters. “The integrity of that line was verified and has been returned to service.” The investigation has shifted to the 12-inch line, she added. Deliveries from Point Breeze in Philadelphia to Montello, Pennsylvania, may be affected, the company said in a customer notice seen by Reuters. The Pennsylvania Department of Environmental Protection issued an emergency permit to ETP to excavate ground around the lines in the area, a DEP spokesman said on Monday. The Pennsylvania Public Utility Commission is investigating the source of the leak, said Nils Hagen-Frederiksen, a spokesman for the Pennsylvania Public Utility Commission. 

As Trump Doubles Down on Coal, West Virginia Lawmakers Are Eyeing Natural Gas; Massive storage and trading hub could be on state’s horizon if Manchin and Capito get their way -- As President Donald Trump readies a strategy to bail out coal and nuclear power plants in part to help reinvigorate Appalachia’s struggling coal industry, West Virginia lawmakers are working to up the state’s participation in the natural gas business.Their effort to clear a path for the federal government’s financial participation in a massive storage and trading hub for liquids extracted from natural gas could bring more than 100,000 jobs to the state, advocates say. Those liquids are used as feedstock for plastic manufacturing, so it could also turn the state into a major chemical and industrial center as manufacturers look for a steady supply of low-cost raw materials.To achieve that, the lawmakers have launched a series of bills and administration lobbying to protect a Department of Energy loan guarantee program primed for the chopping block by conservatives who want to get the federal government out of the energy financing game.  But there’s no small irony in the approach: Such a hub is likely to bolster an industry that has been a source of woe for West Virginia coal miners. But jobs are jobs, and for West Virginia, natural gas would represent a new chapter in its storied energy resource production history. “When natural gas development started, there was a lot of competition [with] coal. But you know they are both energy resources,” said Republican Sen. Shelley Moore Capito. “We know how to do energy in our state. And natural gas is more versatile than coal obviously, so all those rivalries have gone by the wayside.”The proposed $3.3 billion Appalachian Storage and Trading Hub would centralize the burgeoning natural gas liquid extraction industry in the Utica and Marcellus shale formations. A network of pipelines extending into southeastern Ohio and Pennsylvania would lead to a central storage center at a to-be-determined location in the four-state area.

$83 Billion West Virginia Petrochemical Deal with China on Skids Due to Trade War, Corruption Probe – Steve Horn - Last November, China and West Virginia signed an $83.7 billion dollar, 20-year agreement to build a massive petrochemical hub in the state but that deal may be on hiatus in the midst of a de facto trade war spurred by President Donald Trump and a corruption investigation unfolding in the Mountain State.  The deal would be worth more than the total gross domestic product of West Virginia, which was $76.8 billion in 2017. China's sizable investment would create a sprawling petrochemical center in West Virginia, focused on storing and refining natural gas obtained via hydraulic fracturing (“fracking”) in the Marcellus Shale. Full details are sealed in a yet-to-be-released Memorandum of Understanding (MOU), which was inked during a trade mission attended by Trump and Chinese President Xi Jinping last fall in Beijing, China. While the Chinese side has cited the billions in trade tariffs imposed by Trump as the impetus for at least temporarily stepping away from the deal, in West Virginia an ongoing state- and federal-level official corruption investigation involving individuals who were part of the MOU signing has also slowed progress. Some of those individuals were named in a February investigation DeSmog published on the petrochemical hub. In total, China had pledged to invest $250 billion in the U.S. market at the November summit. Several fossil fuel industry executives attended the Chinese trade mission, including the CEOs of liquefied natural gas (LNG) exporting companies Cheniere, Delfin, and Texas LNG. The first domino to fall in the investigation surrounding the MOU was Woody Thrasher, West Virginia's Secretary of Commerce. As the main regulator and promoter of business in the state, Thrasher was tasked by Governor Jim Justice with oversight of the China-West Virginia deal. (Thrasher is a former Democrat with a business background who converted to a Republican at an August 2017 Trump rally.) However, Thrasher was forced to resign on June 14 at the governor's request for reported mishandling and misreporting of money for a state flood recovery program.  But these incriminating details only came to light as a result of a broader investigation by Justice's office, when it discovered what it considered ethically dubious activities, centering around self-dealing, related to the MOU, according to the publication MetroNews.

Department of Energy Publishes Natural Gas Liquids Primer - Today, the U.S. Department of Energy (DOE) published the 2018 Natural Gas Liquids (NGLs) primer that highlights the resource potential of NGLs, with a focus on the Appalachian region.  This publication provides an important update of a previous version from 2017, reporting even larger projections for ethane production from the Marcellus and Utica shale plays than previously estimated.  The 2018 primer includes new data from the reference case for the U.S. Energy Information Administration’s (EIA) 2018 Annual Energy Outlook as well as forecasts from a recent EIA Short-term Energy Outlook. The new data includes updated information regarding infrastructure developments in the Appalachian region, and a new section identifying research and development opportunities related to natural gas and NGLs production, conversion, and storage. This primer shows that the Appalachian region has experienced near-exponential growth in natural gas production, and that production is expected to increase for decades to come.  EIA now projects that natural gas production in the East region, where the Appalachian Basin is the principal contributor, will quadruple from 2013 to 2050. Natural gas produced in Appalachia contains valuable resources in the form of NGLs, including ethane and propane.  The region is endowed with significant NGL resources projected to be economically recoverable over the next three decades.  Specifically, Appalachian NGLs production is projected to increase over 700 percent from 2013 to 2023.  To access the primer in full click here.

America's "Shale Crescent" Is Enjoying A Permian-Like Energy Boom Of Its Own --The energy segment of the U.S. news media has dedicated a lot of time in recent months to discussing the current boom in oil and natural gas production, exports and consumption, and the benefits the country derives from these crucial natural energy resources.  All too often, though, we completely miss the third leg of this petroleum-based stool, which is our equally amazing abundance of natural gas liquids (NGLs) and the similar boom taking place in that segment of the industry.A new report published yesterday by the U.S. Department of Energy (DOE) puts the scale of this boom in somewhat amazing detail.  But before we get into those details, let's review what NGLs - the component petroleum liquids that are separated out of most natural gas production streams - actually are. Put simply, there are five such liquid components contained in any typical "wet" natural gas stream: Ethane,  Propane, Normal Butane, Iso-Butane and Natural GasolineThese NGLs are separated out at natural gas processing plants and then moved to various markets centers where they are applied to a broad variety of energy and manufacturing uses, including:

  • Plastics
  • Synthetic Rubber
  • Home heating
  • Cooking
  • Fertilizers

This list could go on and on.  Once the liquids are removed from a gas stream, what remains is a pure Methane stream, and that is the "natural gas" that is commonly used for power generation and home heating in communities that have local pipeline distribution infrastructure.As the DOE report unsurprisingly details, the major driver behind the current boom in natural gas and NGLs is the mammoth Marcellus Shale resource located across much of Pennsylvania, West Virginia and Ohio. (The Marcellus also lies underneath a broad swath of Southwestern New York, but the Cuomo Administration continues to prevent its citizens from sharing the massive economic wealth and lower utility bills this resource is bringing to these other states.)

Court Orders Controversial Pipeline to Halt Construction Over West Virginia Streams and Wetlands  - In a reprieve for the waterways of West Virginia and the communities that depend on them, the U.S. Federal Energy Regulatory Commission (FERC) said in a document on Monday that EQT Midstream Partners would halt work on the parts of its controversial Mountain Valley Pipeline (MVP) that cross 591 streams and wetlands in the state, Reuters reported.In December, the Army Corps of Engineers had issued the 303 mile pipeline, which would carry frackednatural gas through West Virginia and Virginia, a Nationwide Permit 12, a general permit for waterway disruption by utility line construction that does not require environmental review.But on Thursday, the 4th U.S. Court of Appeals sided with environmental groups including the Sierra Clubwho had argued for a halt in construction, saying that the construction timelines proposed by the pipeline's makers went beyond the time allowed by the general permit, West Virginia Public Broadcasting reported."Putting the breaks on in-stream construction activity for the Mountain Valley Pipeline while the court performs its full review not only makes sense, it is also the only just outcome for communities directly impacted by this destructive project," Appalachian Voices Virginia Program Manager Peter Anderson said in a statement published by the Sierra Club Thursday.Environmentalists also challenged the legitimacy of issuing sweeping permits like Nationwide Permit 12 to projects like the MVP. "Today's decision shows once again that the Nationwide Permit 12 cannot be used as a one size fits all approach for dirty and dangerous pipelines that pose serious threats to our communities and clean water," Sierra Club Beyond Dirty Fuels Campaign Director Kelly Martin said Thursday. Under section 404 of the Clean Air Act, general permits like Nationwide permit 12 can be granted, but states can also add additional regulations to those permits. The West Virginia Department of Environmental Protection requires that pipelines finishing building across streams within 72 hours. However, environmental groups argued that MVP's documents showed that construction over the Elk, Gauley, Greenbrier and Meadow rivers would take 4-6 weeks.

U.S. court order stops some work on Mountain Valley natural gas pipeline in West Virginia (Reuters) - EQT Midstream Partners will stop construction in West Virginia of parts of its $3.5 billion Mountain Valley natural gas pipeline after a U.S. federal appeals court issued an order last week against a permit, a U.S. regulator and the company said. The pipeline company will not proceed with construction in waters affected by the stay order in West Virginia, the U.S. Federal Energy Regulatory Commission said in a document on Monday. Mountain Valley Pipeline (MVP) told FERC it was consulting on the implications of the stay by the U.S. Court of Appeals for the Fourth Circuit with the U.S. Army Corps, which issued the permit in December 2017, FERC said in the notice. In May, the U.S. Army Corp of Engineers pulled a permit for the Mountain Valley natural gas pipeline from West Virginia to Virginia. In a statement on Friday EQT Midstream said it looking at options to have the permit reinstated. The Sierra Club and four other environmental groups had challenged permits the Army Corps of Engineers had issued for construction of the pipeline across streams in West Virginia. The order stops construction in 591 streams and wetlands in the state and “it may affect construction along the entire route of the pipeline,” the Sierra Club said in a statement. Katie Bays, energy analyst at Height Capital Markets in Washington, said in a commentary on Friday that if court rulings go against MVP, its in-service date could be pushed back to mid-2019 or require re-routing around three rivers. The 303-mile (488-kilometer) pipeline had been expected to be in service by late 2018. It was designed to deliver up to 2 billion cubic feet per day of gas from the Marcellus and Utica shale formations in Pennsylvania, West Virginia and Ohio to meet growing demand for power generation and other uses in the U.S. Southeast and Mid-Atlantic. 

Environmental advocates ask FERC to revoke mountain valley pipeline approval - Appalachian Mountain Advocates, on behalf of a coalition of environmental and citizen groups, sent a letter Tuesday to the Federal Energy Regulatory Commission (FERC) requesting the federal agency revoke its approval of the MVP.The 303-mile pipeline’s route crosses state lines as it travels from northern West Virginia down to Virginia, which gives FERC partial jurisdiction over construction activities.The request comes just days after the 4th U.S. Circuit Court of Appeals halted some construction of the natural gas pipeline in West Virginia, siding with conservation groups who challenged the pipeline’s water-crossings permit issued by the U.S. Army Corps of Engineers.Specifically, the court stayed the pipeline's federal Clean Water Act Section 404 permit that was issued by the Army Corps. The Corps granted the MVP a Nationwide Permit 12, a broader permit under the law.  It covers nearly 600 stream and wetland disruptions planned by the pipeline in the agency’s Huntington district, which covers all planned construction activity in West Virginia.  Environmental groups argued the MVP’s own planning documents showed river crossing for the Elk, Gauley, Greenbrier and Meadow rivers would take 4-6 weeks to complete and could not comply with the permit’s 72-hour deadline. The federal appeals court agreed.  In the letter to FERC, Appalachian Mountain Advocates stated that because of the federal appeals court decision last week, the pipeline no longer has all of the federal authorizations it needs and thus FERC’s approval, known as a Certificate Order, should be suspended.

Appeals Court Stays Crucial MVP Permit in West Virginia, Putting 2018 Startup in Jeopardy -- The U.S. Court of Appeals for the Fourth Circuit granted a motion to stay the Nationwide Permit (NWP) 12 issued by the Army Corps pending a ruling on a legal challenge brought by a coalition of environmental groups including the Sierra Club. The NWP 12 is issued under Section 404 of the U.S. Clean Water Act (CWA) and allows contractors to trench through the bottom of streams and rivers. The Sierra Club earlier this year challenged the validity of MVP’s NWP 12 permit, arguing that the project could not meet a special condition in West Virginia requiring all stream crossings be constructed within 72 hours.In response to the groups’ challenge, the Army Corps voluntarily issued a limited suspension of the NWP 12 for four river crossings in the state. But the Sierra Club and others successfully argued to the court that under Army Corps regulations, all portions of the NWP 12 permit must be stayed, putting nearly 600 MVP waterbody crossings in regulatory limbo.As part of its rationale for waiving a state-issued CWA Section 401 water quality certification, the West Virginia Department of Environmental Protection (WVDEP) had cited special state-specific conditions that had been added to the NWP 12 permit. WVDEP had earlier withdrawn the CWA 401 it issued to MVP after facing a court challenge.MVP spokeswoman Natalie Cox told NGI Friday that both the developers and WVDEP interpreted the 72-hour requirement included in the West Virginia-specific conditions of the NWP 12 permit as only applying to “wet-cut” crossings. “The Sierra Club argues that MVP cannot comply with the permit condition to complete four waterbody crossings (Elk, Gauley, Greenbrier, and Meadow Rivers) within 72 hours; however, this provision is intended to apply to water crossings that are constructed in an open trench while the river is flowing (wet-cut),” Cox said. “MVP plans to utilize a ‘dry-ditch’ coffer dam method to cross these four rivers as this technique is more protective of the environment because construction activity is not performed in a flowing river.“This crossing technique has been approved by both the FERC and the WVDEP,” Cox said. “While significantly more environmentally protective, the ‘dry-ditch’ technique also requires a longer completion time as compared to traditional ‘wet’ crossing methods to which the time limitation provision applies,”

Mountain Valley Pipeline foes file new legal challenge following last week's win - One week after an appeals court slowed down construction of a natural gas pipeline in West Virginia, it is being asked to do the same for the project’s path through Virginia.The request was made Tuesday in a petition filed with the 4th U.S. Circuit Court of Appeals by the Sierra Club and three other conservation groups.Last week, the appeals court issued a stay that prohibits developers of the Mountain Valley Pipeline from moving forward with plans to run the massive pipeline across rivers and streams in West Virginia. The stay put such work on hold pending a challenge of a key stream-crossing permit issued by the U.S. Army Corps of Engineers for the pipeline’s route through southern West Virginia.A similar permit — granted by the Army Corps for a section of the 303-mile pipeline that runs through the New River and Roanoke valleys — is now being questioned by a petition for review filed Tuesday. Joining the Sierra Club in the case are the New River Conservancy, Appalachian Voices and the Chesapeake Climate Action Network. In what was the first major court victory for pipeline opponents, a similar coalition persuaded a three-judge panel of the 4th Circuit last week to issue a stay that lawyers for Mountain Valley had strongly opposed, saying it would delay completion of the pipeline by up to eight months. The conservation groups are arguing that the Army Corps permit is deficient because it allowed the crossings of four rivers in West Virginia even though the work cannot be completed within the 72 hours required by that state’s environmental regulators.

TransCanada urges US to help gas pipelines beat green critics (Reuters) - The United States should help the natural gas industry overcome environmental challenges to new pipeline projects by adjusting regulations or adopting new laws favoring infrastructure, an executive at TransCanada Corp said at a conference this week. Suppliers in the United States, the world’s biggest natural gas producer, have had a harder time getting shipments to market as more environmental lawsuits by U.S. states, green groups and property owners have tied up pipeline construction. “It’s definitely not getting easier to build a new pipeline,” Stanley Chapman, executive vice president and president of U.S. natural gas pipelines at TransCanada Corp, told Reuters on the sidelines at the World Gas Conference in Washington. “I’m seeing more already-approved pipeline projects that are under construction get held up by a judge in lawsuits and this has to be addressed either by FERC or with legislation,” he said. FERC, or the U.S. Federal Energy Regulatory Commission, oversees construction of new pipelines. TransCanada owns about 30,000 miles of gas pipeline in the United States, making it one of the country’s biggest operators. It has been trying for more than a decade to build its Keystone XL oil pipeline project linking Canada’s oil sands to U.S. refineries amid ongoing environmental delays.

TransCanada, Whose Pipeline Just Exploded, Wants Feds' Help to Beat Green Groups -- Facing mounting protests and lawsuits from environmental groups and property owners, backers of the natural gas pipeline industry are seeking help from the U.S. government to help push their projects through,Reuters reported.  "It's definitely not getting easier to build a new pipeline," Stanley Chapman, executive vice president and president of U.S. natural gas pipelines at TransCanada Corp, told the news service at the World Gas Conference in Washington.  "I'm seeing more already-approved pipeline projects that are under construction get held up by a judge in lawsuits and this has to be addressed either by FERC or with legislation," he added, referring to the U.S. Federal Energy Regulatory Commission, which oversees construction of new pipelines. Followers of the Keep It In The Ground movement would say that the best means of fossil fuel transportation is none. Environmentalists oppose oil and natural gas pipelines over fears of air and water pollution, as well as its impact on climate-warming emissions.   Reuters further reported:In recent weeks, environmental groups like the Sierra Club have won court orders delaying construction on EQT Midstream Partners LP's Mountain Valley pipeline at several locations in West Virginia, and are now seeking a court order to also stop construction in Virginia. "We don't need these pipelines to meet our energy needs, so it makes no sense to lock us into generations of dependence on dirty fossil fuels," said Joan Walker, who helps lead the Sierra Club's Beyond Dirty Fuels Campaign.

Old growth forest in Bath to become encampment in pipeline fight -  Opponents of the Atlantic Coast Pipeline are setting up camp in the shadow of an old-growth forest in Bath County that could become a major battleground in the path of the pending $5.5 billion natural gas pipeline. Bill and Lynn Limpert, owners of a 120-acre property in Bath’s Little Valley, have invited the public to visit and camp on their land this summer to put a public spotlight on what they call “Miracle Ridge,” a 3,000-foot-long Allegheny Mountain ridge lined with trees up to 300 years old. “The pipeline would turn Miracle Ridge into a pile of rubble,” Bill Limpert said in a telephone news conference on Monday with the Chesapeake Climate Action Network, an environmental group that opposes the pipeline and the transportation of natural gas produced through fracking in the West Virginia shale fields. However, the Limperts and their allies stopped short of promising a stand in the treetops to stop the project, as Theresa “Red” Terry and other opponents did earlier this year in Roanoke and Franklin counties in a long standoff with construction crews for the Mountain Valley Pipeline that ended with their eventual surrender. “We’re peaceful folks,” said Limpert, a retired environmental regulator from Maryland. “We believe in the rule of law. We’ll cross that bridge when we come to it.” Bath County is west of Staunton along the state line with West Virginia. The earliest potential confrontation with tree-cutting crews would be mid-September, when the regulatory window reopens for the felling of trees in the 125-foot-wide corridor that Dominion Energy and its partners plan to create for the pipeline from West Virginia to the North Carolina border more than 300 miles away.

Blockade by Pipeline Opponents Disrupts Work Day at FERC -- Security at the Federal Energy Regulatory Commission seemed caught unawares Monday morning when anti-pipeline activists blockaded the staff parking garage at the agency headquarters. In the middle of First Street, two people climbed up and perched high on bamboo structures made to resemble hydraulic fracking well derricks. FERC is responsible for approving or denying proposed interstate gas pipelines, most of them supplied by fracking wells. “FERC greenlights all energy projects, paying no mind to how dirty or unsafe they are to the climate or community,” said derrick-sitter Jessica Sunflower Rechtschaffer of New York City. “We erected these towers in front of FERC to show how these towers are being placed all over the USA, disrupting people, their homes livelihoods and environment.”The FERC critics from Beyond Extreme Energy (BXE) and other groups, numbering about two dozen, also unfurled a long banner in front of the main entrance, blocking it as well. They say FERC should no longer be “a rubber stamping agency” and instead dedicate itself to facilitating “a just transition off fossil fuels.”FERC has long been accused of having a “cozy relationship” with industry with commissioners and staff enjoying a revolving door to and from gas industry jobs. Critics also say that it assists gas companies in breaking up projects into smaller ones which will more easily obtain approval, a practice known as segmentation. Meanwhile, communities must grapple with a complex and time-consuming permit process directed toward what seems like a predetermined outcome. FERC has also been accused of “cherry-picking” data to force pipelines through low-income areas and communities of color. There has been a sustained initiative to draw attention to the broad impact of the agency’s work, as gas companies seize private property and dig up forests, streams and mountaintops with a massive expansion of pipeline networks. For more than four years, BXE has held similar protests at FERC headquarters and disrupted the Commission’s monthly public meetings. Their efforts may be paying off.

Company plans to finish Louisiana oil pipeline by October -  A company building a crude oil pipeline in Louisiana expects to complete the construction project by October if a federal appeals court doesn’t order another halt to the work. Bayou Bridge Pipeline LLC’s attorneys said in a court filing Wednesday that construction of the entire 163-mile (260-kilometer) pipeline was nearly 76 percent complete as of Sunday. A three-judge panel of the 5th U.S. Circuit Court of Appeals is considering whether the company can continue building the pipeline through the environmentally fragile Atchafalaya Basin swamp. Last Friday, the panel asked for an update on the work. In February, U.S. District Judge Shelly Dick issued a preliminary injunction stopping pipeline construction in the basin until environmental groups’ lawsuit over the project is resolved. In March, however, a different 5th Circuit panel agreed to suspend Dick’s order pending a final decision by the appeals court. That ruling allowed the company to resume construction. During a hearing in April, company lawyers urged the New Orleans-based appeals court to throw out Dick’s order. The panel hasn’t ruled yet. In the meantime, workers are still cutting down trees in the basin to clear a path for the pipeline. As of Sunday, the company had cleared approximately 164 acres of trees (out of a total of 262 acres) and estimated it will finish that work by Aug. 8, according to Wednesday’s court filing. 

Big Oil eyes U.S. minority groups to build offshore drilling support (Reuters) - The largest U.S. oil and gas lobby group is seeking to convince Hispanic and black communities to support the Trump administration’s proposed expansion of offshore drilling, arguing it would create high paying jobs, including for storm-displaced Puerto Ricans. The American Petroleum Institute (API) launched its “Explore Offshore” campaign earlier this month to counter offshore drilling foes in coastal southeast states from Virginia to Florida, where lawmakers and governors on both sides of the aisle have expressed fear an oil spill could ruin tourism. “We want to build support in minority communities because the message that increasing the supply of affordable energy and good paying jobs will resonate,” said Erik Milito, API’s director of Upstream and Industry Operations. As part of the campaign, API has partnered with a number of black and Hispanic business groups, including the Virginia, Florida and North Carolina Hispanic Chambers of Commerce and the Florida Black Chamber of Commerce and South Carolina African American Chamber of Commerce. A Pew Research poll published in January showed that 56 percent of Hispanics and 54 percent of blacks opposed offshore drilling, compared to 48 percent of white people. The Interior Department in January announced a proposal to open up nearly all U.S. offshore waters to drilling, triggering a backlash from coastal states that rely on tourism. Interior Secretary Ryan Zinke told a Senate panel in April that he is likely to scale back the proposal following meetings with coastal governors. Shortly after he unveiled his offshore drilling proposal, Zinke offered an exemption for Florida after he held a private meeting with Republican Governor Rick Scott. The oil and gas industry is keen to pursue seismic testing in areas they believe hold the largest reserves along the southern Atlantic coast and to Florida’s eastern Gulf shorelines. The API campaign published op-eds in local newspapers this week, including one by Stephen Gilchrist, chair of South Carolina’s African American Chamber of Commerce. In it he touts API’s major talking point that oil and gas exploration jobs offer locals an average salary of $116,000 without requiring a college degree.

Gulf Of Mexico Production Expected To Hit Record High -- While the U.S. shale production in the Permian has been grabbing most of the market and media attention over the past two years, the Gulf of Mexico has been quietly staging a comeback. Big Oil firms, the main operators in the Gulf of Mexico, have been cutting costs and simplifying designs to make offshore projects viable in the lower-for-longer oil price world. Chevron, Shell, and BP continue with their deepwater developments offshore Louisiana and Texas and have brought down breakeven costs to $40 a barrel or less—comparable with the breakevens at some shale formations onshore. Now operators are vying for new exploration acreage close to existing production platforms that would bring development and production costs down even further. While the market and media have focused on the record Permian production, the Gulf of Mexico’s production is also expected to hit a record high this year. But there’s one huge difference between onshore and offshore in terms of resource development—for shale wells, production peaks in several months, while vast deepwater resources can pump oil for decades. Big Oil continues to bet on resources and projects that will last for decades, but companies have drastically changed their approach to development. Gone are the days in which the race was to have ‘the biggest, the most complex and most expensive’ bespoke project the industry has seen. It may have worked at oil prices at $100, but at half that price of oil, the focus is on leaner projects and more collaborative work to bring costs down. 

Environmentalists sue for report on how Gulf drilling affects endangered species -- Three conservation groups said in a lawsuit filed Thursday that federal wildlife agencies have failed for years to complete required consultations and reporting on the effects that oil drilling in the Gulf of Mexico could have on endangered species. The suit comes more than a decade since the last such report was done, and more than eight years since the huge 2010 BP oil spill, the groups said. The Gulf Restoration Network, the Sierra Club and the Center for Biological Diversity released a copy of their lawsuit as it was being filed in U.S. District Court in Florida. Defendants named are the National Marine Fisheries Service and the U.S. Fish and Wildlife Service. The suit says the Endangered Species Act requires those agencies since 2007 to consult with the agencies overseeing Gulf drilling and to publish an opinion on the possible effects of such drilling on endangered species, including various species of whales and sea turtles. Such consultations and reporting haven't been conducted since well before the 2010 explosion of the BP-operated Deepwater Horizon drilling rig, a disaster that spilled millions of gallons into the Gulf, the lawsuit says. It added that the result is that hundreds of offshore oil and gas projects have been approved based on outdated information.  . "It is now nearly eight years later, and the Fisheries Service and FWS have not completed consultation," the lawsuit says. "This despite the Fisheries Service's earlier assurance to a federal court that consultation would be completed by Oct. 31, 2014."

U.S. hydrocarbon gas liquids consumption increases as prices, expenditures decrease -- Consumption of hydrocarbon gas liquids (HGL) in the United States totaled 928 million barrels in 2016, up about 12% since 2010. During the same time, total U.S. HGL prices fell by 47% and, consequently, expenditures decreased by about 41%. In 2016, total U.S. HGL expenditures were $32 billion, the lowest since 2003.  The Texas and Louisiana industrial sectors dominate HGL consumption, expenditures, and price formation in the United States. The two states combined to account for about 75% of total U.S. HGL consumption and 58% of total U.S. HGL expenditures in 2016, almost all of which was in the industrial sector. The HGL pricing hub in Mont Belvieu, Texas, heavily influences the prices of HGL products across the nation.  EIA’s State Energy Data System (SEDS) recently published a new categorization of petroleum products with annual state-level estimates of HGL consumption, prices, and expenditures by end-use sector for 1960 through 2016. HGLs include natural gas liquids (ethane, propane, normal butane, isobutane, and natural gasoline) and refinery olefins (ethylene, propylene, normal butylene, and isobutylene). Almost all HGLs not used as refinery and blender inputs are consumed exclusively in the industrial sector, with the exception of propane, which is consumed in all sectors.

Analysis: Power burn set to break monthly gas-fired power generation demand record in Midwest -- Gas-fired power generation demand across the Midwest is on track to set a new high this month as warm weather and two coal retirements have offset an uptick in cash prices in the region. Strong power burn is likely to continue through the end of June with hot weather in the forecast. The higher demand is also causing storage fields in the region to refill at a sluggish rate. However, the futures market is predicting Chicago prices will fall throughout the summer. Midwest power burn demand has averaged 2.6 Bcf/d over the past 30 days, up 60% from the five-year average of 1.5 Bcf/d for this time, and 0.6 Bcf/d higher than this time last year, according to data from S&P Global Platts Analytics. The primary driver is warm weather. Population-weighted temperatures in the Midwest have been approximately 6 degrees above normal over the past 30 days, including eight days more than 10 degrees above normal and several days reaching almost 20 degrees above normal. Temperatures are expected to fall more in line with seasonal averages through the end of June but remain about even with the past 30 days. Platts Analytics is expecting strong demand to continue through the end of the month. If the forecast holds, total June power demand will average 2.4 Bcf/d, which would be a new record, topping both June 2016's record high of 2.36 Bcf/d and the June five-year average of 1.6 Bcf/d.

Factbox: Key natural gas supply/demand projections from IEA's Gas 2018 report - The International Energy Agency on Tuesday published its latest medium-term gas outlook containing forecasts for gas supply and demand to 2023.

  • Global gas demand to reach 4.1 Tcm by 2023
  • US gas production to soar to 922 Bcm
  • Chinese gas production set for big increase

Below are some of the key projections. (see tables) 

What a summer scorcher means for natural-gas prices - Low supplies of natural gas could lead to higher prices this summer, as Americans begin to flip on their air-conditioning units, boosting demand for the energy source. Stockpiles of natural gas—made plentiful by the U.S. shale boom—have become depleted after an extended winter this year increased demand for heating homes. Booming U.S. exports of gas also have absorbed excess inventories, and analysts say cheap prices have made it more popular for power generation, compared with more expensive sources like coal. Natural gas consumption generally rises in the summer months as cooling needs drive energy demand. But this year, the amount of natural gas in storage started June at the lowest level since 2014 for that time of year, and the second lowest level in a decade. .Now, with weather forecasts into July showing hotter-than-average temperatures across the U.S., consumers could see a pop in prices. Already, a significantly hot month of June has pushed natural gas futures near the closely watched level of $3 a million British thermal units, recently hitting the highest price since January. Extreme cold in January led to record natural gas consumption and withdrawals from storage extended into April due to unseasonably cool weather. Now the amount of energy required to cool buildings in June is on track for its second highest level since 1981, according to Bespoke Weather Services. It’s a far cry from two years ago when the relentless growth of U.S. shale and mild weather produced a glut that sent gas prices tumbling to a 17-year low. Traders are betting that the summer will end with significantly less natural gas in stock. On London’s Intercontinental Exchange, EIA end-of-storage index futures indicate bets that October will end with about 3.525 trillion cubic feet of natural gas, which would be the lowest for that time since 2008, before shale flooded the U.S. with cheap energy. 

Natgas CEOs say product can help curb climate change (Reuters) - Natural gas can be a permanent solution to reducing greenhouse gas emissions and curbing climate change, and not just a step toward full utilization of renewable energy technologies, industry executives said on Tuesday. Once thought of as a clean alternative to crude oil, natural gas has come under attack by environmentalists who want to curb the use of all fossil fuels in a bid to hasten the adoption of solar, wind and other green energies. “This idea of natural gas as a transition fuel to renewables is strange,” Total SA Chief Executive Patrick Pouyanne said Tuesday at the World Gas Conference in Washington. “Natural gas is a solution (to climate change). It’s been scientifically proven.” Pouyanne’s views were echoed by others who joined him on industry panel, including executives from ConocoPhillips, BP Plc, Equinor Asa and Qatar Petroleum. “We don’t believe the existential threat to our business is right around the corner,” Conoco CEO Ryan Lance said. “We see rising usage of natural gas.” Qatar Petroleum, which is undertaking a major project to expand its natural gas output by a third over the next decade, said it sees demand only growing for its product. “Human beings need energy. Gas should be seen as a destination fuel not just as a transport fuel or bridge fuel,” QP Chief Executive Saad Sherida Al-Kaabi said at the conference. Bob Dudley, the CEO of BP Plc, which is rapidly expanding its U.S. shale gas production, said the fuel is the best alternative to coal-fired power generation in many locations, with improving technologies helping to curb methane emissions. A study released last week from the Environmental Defense Fund found that oil and gas drilling gives off far more of the powerful greenhouse gas methane than the U.S. government estimates as leaky wells go unnoticed by federal regulators. Dudley acknowledged the industry should and is doing more to use better technologies to bolster methane collection. 

The argument for fracking as a climate solution just went down in flames -- A new, comprehensive study of methane leaks in the oil and gas industry is the final piece of evidence that natural gas is not part of the climate solution.  “Natural gas could warm the planet as much as coal in the short term,” as the  journal Science itself summed up the 24-author study it just published.   But that headline — and virtually all of the media coverage of the study — tells only a piece of the story: The findings confirm if a coal-fired plant is replaced with a gas-fired plant there is no net climate benefit for at least two decades.  The missing piece in both the study and the coverage, though, is that countless studies have made clear that natural gas does not just displace dirty coal in the power system —  it displaces many carbon-free sources of power, including nuclear and renewables.  Let’s briefly step back from this study to look the three essential reasons natural gas is not a “bridge” fuel to a carbon-free future. First, natural gas is mostly methane (CH4), a super-potent greenhouse gas, which traps 86 times as much heat as CO2 over a 20-year period.  That’s why many studies find that even a very small leakage rate of methane from the natural gas supply chain (production to delivery to combustion) can have a large climate impact — enough to gut the entire benefit of switching from coal-fired power to gas for a long, long time. Second, a great many studies have found that leakage rates are not small at all, especially as fracking has become more popular. “A review of more than 200 earlier studies confirms that U.S. emissions of methane are considerably higher than official estimates,” as one 2014 Stanford review research on methane leaks explained.  The study found methane emissions are so large, they “produce radiative forcing over a 20-year time horizon comparable to the CO2 from natural gas combustion.” That means the total warming from natural gas plants (leaks plus burning the gas) over a 20-year period is comparable to the total warming from coal plants over 20 year period.  And that brings us to the third crucial point about why natural gas isn’t a bridge fuel. Many other studies find that natural gas plants don’t replace only high-carbon coal plants. Gas plants commonly replace very low carbon power sources like solar, wind, nuclear, and even energy efficiency, which is often overlooked as a major alternative to fossil fuels.

A New Report Tying U.S. Natural Gas And Global LNG Markets -- As U.S. LNG exports play an increasing role in the global market, the U.S. will not only be exporting its vast natural gas supplies but also to a degree its market realities — namely, the risks, opportunities and, at times, volatility of a highly liquid, fungible and economically-driven spot market. The global LNG market also has shifted toward more flexible and spot-oriented trade, opening the window for some ad lib wheeling and dealing based on the prevailing economic conditions at any given time. These two factors together will come with significant implications across the supply chain — from the producing basins to the pipeline transport routes and from the export terminals to the destination markets they are serving. This month, with feedgas receipts at Sabine Pass LNG down and an explosion on a key supply route from Appalachia to Louisiana, we are starting to see how this integration of the U.S. and global markets is likely to play out. To help you keep up with this complicated dynamic and extrapolate the big-picture impacts, today we introduce RBN’s new LNG Voyager Report,featuring a comprehensive, pipe-to-port-to-destination approach to understanding how U.S. LNG fits into the global market. In the past three years, U.S. LNG exports have gone from being non-existent to an average of 3.0 Bcf/d. In that time, the new demand source — currently from just five liquefaction trains, four at Cheniere Energy’s Sabine Pass LNG (SPL) in Cameron Parish, LA, and one at Dominion’s Cove Point LNG in Maryland — already has reconfigured pipeline flows all the way from the Northeast and Midwest to the Gulf Coast, as Appalachian and other gas suppliers look for ways to get their gas south, where the lion’s share of the export demand is happening (see Toe Bone Connected to the Foot Bone, and our latest Drill Down report, Down Louisiana Way). In fact, gas flows along entire corridors of pipeline routes that used to flow south-to-north have flipped direction and are flowing gas north-to-south.

Derailed Train Spills 230,000 Gallons of Crude Into Flooded Iowa River - A train derailment spilled 230,000 gallons of crude oil into an already-flooded Iowa river Friday, endangering downstream drinking water, the Des Moines Register reported Sunday.Thirty-two cars of a Burlington Northern Santa Fe (BNSF) train derailed, 14 of which leaked crude oil into the Rock River in Doon, Iowa. The cause of the derailment is unknown, but officials including Iowa Governor Kim Reynolds attributed it to heavy rain Wednesday and Thursday which led to flooding.To aid recovery from extreme weather and its consequences, including the derailment, Reynolds issued aproclamation of disaster emergency Saturday for Lyon County, where the train derailed, as well as Plymouth, Sioux and Woodbury counties.Workers so far have contained nearly half the spill—around 100,000 gallons—using booms, BNSF told Reuters.The oil spill hit the town of Rock Valley, Iowa, which was coping with its second flood in four years, especially hard."Our city administrator said to me, 'The only thing we need now is a plane crash,'" Rock Valley mayor Van Otterloo told the Des Moines Register. "Everything came at once."Rock Valley acted quickly to shut off water wells following the spill and plans to drain the wells and use rural water until the well water tests safe.There are also concerns that oil could contaminate drinking water in Omaha, Nebraska, 150 miles downstream, since the Rock River merges with the Big Sioux River, which then feeds into the Missouri. Omaha's Metropolitan Utilities District said they were monitoring water pulled from the Missouri, the Des Moines Register reported. The Metropolitan Utilities District said they could source water from unconnected rivers if needed, according to Reuters.  Reynolds told the Des Moines Register it was still unknown how many communities were affected by the oil spill and how it would impact the surrounding environment.

Derailed tank cars in Iowa were shipping Canadian crude to US Midwest - The 32 tank cars that derailed Friday in Iowa were shipping Canadian crude to the US Midwest, with the total spilled volumes estimated to be 230,000 gallons, or roughly 5,475 barrels, officials said over the weekend. A total of 14 tanks cars were "compromised" and a BNSF investigation is now underway, railroad spokeswoman Amy Casas said Sunday. Early Friday, 32 rail cars went off the track near Doon in Lyon County, Iowa, spilling crude into the nearby swollen Little Rock River, BNSF said then without giving any reason for the derailment. The train was carrying Canadian crude produced by ConocoPhillips and the cargo was destined for Stroud, Oklahoma, company spokesman Daren Beaudo said in an email Saturday. There were no reported injuries to the train crew and nearby residents, he said. BNSF has responsibility for clean-up and mitigation of the incident and ConocoPhillips is working with the railroad, local emergency officials and regulators, Beaudo said.  Hazardous materials and environmental experts are containing spilled oil with booms and recovering it with skimmers and vacuum trucks and at this point, an estimated 100,000 gallons (2,380 barrels) or 44% of the total volume was contained, BNSF said in its latest update Saturday at 4:30 pm CT (0930 GMT).  Additional booms have been placed five miles downstream the river and nearby water bodies and crude oil will be removed from the immediate derailment area with oil-water separators, the railroad said Saturday.

Cleanup Underway After Train Derailment Causes Oil Spill --  Floodwater has receded in northwest Iowa, where a train carrying crude oil derailed on Friday.The oil has now been contained, but removing all the oil from the water could take months. At least 200 people are now helping with cleanup efforts. BNSF Railroad is asking anyone with damage as a result of that derailment to contact them to get everything cleaned up and repaired."We have representatives from the EPA, state, local, regional, regulators are on site overseeing what we're doing and working with them to make sure that we clean up in the appropriate way as it relates to federal law and state law," said BSNF spokesperson Andy Williams. "Every plan that we come up with we're having approved by them before we move forward. The long-term cleanup will take a while, a matter of months, probably, and we will be working hand in hand with the EPA and other agencies."The sheriff's office is asking everyone to stay away from the area because of the heavy machinery being used.

Nearly half of Iowa crude oil spill contained, BNSF says -  (Reuters) - Workers have contained nearly half of the crude oil spilled near Rock River in northwest Iowa over the weekend following a freight train derailment on Friday, BNSF Railway Co said.  About 100,000 gallons had been hemmed off using booms out of the estimated 230,000 gallons spilled, BNSF said in a statement on Saturday. The spill has raised concerns about drinking water downstream. The company did not respond to questions on Sunday about the progress of the cleanup.  No one was hurt in the derailment, in which 32 cars came off the rails, 14 of which leaked at least some of their contents, BNSF said. The derailment happened south of Doon, a city of a few hundred people. The cause has not been confirmed, although Iowa Governor Kim Reynolds attributed it to an intense storm and flash flooding in an emergency proclamation issued by her office on Saturday. The spill threatened to contaminate drinking water for residents about 150 miles (240 km) downstream in Omaha, Nebraska.  Metropolitan Utilities District, which provides the Omaha metro area’s drinking water, said it was monitoring the spill. If needed, it would shift water pumping to two other water treatment plants, which are supplied by another river not connected to the spill, the utility said in a statement on Friday. The utility did not respond to a request on Sunday for an update on its monitoring.  BNSF, a unit of Berkshire Hathaway Inc, said it was using skimmers and vacuum trucks to clean up the spill and minimize damage to the environment. The spill posed no risk to workers or nearby residents, BNSF said.

Work continues in U.S. Iowa to contain oil spill after train derailment (Xinhua) -- A U.S. railway company and Iowa State are continuing their joint efforts on Monday to contain the oil spill following a tanker train derailment. Fourteen cars of the derailed train have leaked some 230,000 gallons (about 870,000 liters) of crude oil into the flooded fields in Lyon County, northwestern Iowa since Friday, according to Burlington Northern Sante Fe (BNSF) officials. The train company has built a temporary road to the site along a flooded stretch of tracks, reported Iowa Radio, adding clean-up operations have been underway around the clock. BNSF spokesman Andy Williams said that at least ten of the 32 derailed cars have already been drained of oil, with another seven being moved to nearby field to be disassembled. Skimmers and booms have been placed near the derailment site to capture the spilled oil. Williams said the whole clean-up process will possibly take several weeks, if not months. The cause of the derailment is unknown but both the train company and local officials believe that flooding was a major factor leading to the accident early Friday. 

Minnesota regulators to decide this week on Enbridge Line 3  (AP) — State regulators reconvene this week to decide whether to approve or reject Enbridge Energy's proposal for replacing its Line 3 oil pipeline across northern Minnesota.The Public Utilities Commission meets Tuesday so its members can resume questioning Enbridge officials as well other supporters and opponents of the project. The panel could then deliberate as long as until Friday before making its decision.Line 3 was built in the 1960s. It runs from Alberta across North Dakota and Minnesota to Superior, Wisconsin. Enbridge says it needs replacing to ensure safety and restore capacity because the existing pipeline is increasingly subject to corrosion and cracking.  But climate change and tribal activists object because it would carry Canadian tar sands crude and risks spills in pristine waters where Native Americans harvest wild rice.

Possibility of civil unrest hangs over regulatory hearings on controversial Enbridge pipeline proposal (Minneapolis  The specter of civil unrest — like the protests that erupted over building the Dakota Access pipeline in 2016 — hung over the fourth day of regulatory hearings on a $2.6 billion proposal by Enbridge to build a new pipeline across northern Minnesota. Utility regulators spent the day talking about what the least-objectionable route for a replacement for Enbridge's 1960s-vintage Line 3 would be — or whether it should be built at all. The Minnesota Public Utilities Commission (PUC) is expected to decide Thursday or Friday at the latest whether to grant Enbridge a permit for the project and which route to endorse. It is one of the mostly highly charged issues before the PUC in many years. PUC Chairwoman Nancy Lange noted the possibility of unrest if Enbridge's proposal is approved. "One of the things that concern me is permitting something that could cause civic disruption," she said. Lange acknowledged the weaknesses in the route alternatives. But she also asked Enbridge about construction delays if the PUC chose an alternative route of some sort — one with less opposition. Christy Brusven, an attorney for Enbridge, said the delay would be more than two years. She also noted that alternative routes also would likely meet opposition. "There are a number of groups that are a 'hard no' on the project, whatever it is," she said. 

Minnesota regulator approves rebuild of Enbridge pipeline - (Reuters) - A Minnesota regulator on Thursday approved a certificate of need for Enbridge Inc to rebuild its Line 3 oil pipeline, angering environmentalists but offering hope to Western Canadian oil producers that have struggled to move crude oil to refiners. The Minnesota Public Utilities Commission’s decision clears the final major hurdle, pending possible appeals, in Enbridge’s three-year effort to rebuild its aging, corroded 1,031-mile (1,660-km) pipeline that runs from Alberta in western Canada to Wisconsin. Shares of Calgary, Alberta-based Enbridge closed up 3.7 percent in Toronto. The commission also approved a route that closely follows Enbridge’s preference and will take Line 3 over a new corridor for part of its path. The certificate of need has conditions, including that Enbridge make a financial guarantee to clean up any environmental damage and that it remove at landowners’ request pipeline that is no longer in use. Pipeline bottlenecks have steepened a price discount for Western Canadian heavy crude this year. Refiners in Minnesota and surrounding states say Line 3 is necessary to increase crude supplies. Shouts from Native Americans and environmental activists interrupted the meeting. “Shame on you, you cowards!” one woman shouted before breaking into tears. Environmental groups and some indigenous communities oppose the project over concerns about spills and impact on tribal wild rice harvesting areas. “What they have done to us today is egregious,” said Winona LaDuke, executive director of Honor the Earth activist group. “They have gotten their Standing Rock. We will do everything that is needed to stop this pipeline.”

Minnesota approves Enbridge Line 3 with route modifications -- Canada's Enbridge won approval Thursday to build its Line 3 replacement through the state of Minnesota, clearing a major hurdle for the 1,031-mile crude transportation project to run from Canadian province Alberta to Wisconsin. The Minnesota Public Utilities Commission voted 5-0 to issue a "certificate of need" for the project, according to a webcast of the hearing. The commission then voted 3-2 to approve a route for the pipeline mostly along a path Enbridge preferred, with some modifications, according to the webcast and local media reports. Indigenous and environmental groups had objected in the hearing to the route Enbridge preferred. An Enbridge spokesman said Thursday the company would issue a statement after the PUC finished its proceedings. The current pipeline ships some 380,000 b/d of light, medium and heavy crude barrels from Western Canada to refineries in the Midwest. The replacement, with new line pipes of larger diameter, would increase throughout on the line to 760,000 b/d. "It's a big deal," one Canadian market participant said ahead of the decision. It will add "400,000 b/d of new capacity across the border." While crude is not expected to move on the Line 3 replacement until 2020, the project will be the first of the three new pipelines that could give Western Canadian producers greater ability to export crude. The two other projects are Kinder Morgan's expansion of its Trans Mountain pipeline, which would provide 590,000 b/d of new capacity and the 830,000 b/d Keystone XL pipeline of TransCanada.

Minnesota Approves Enbridge Pipeline Rebuild, 'An Accident Waiting to Happen' - The Minnesota Public Utilities Commission (PUC) approved a controversial rebuild of Line 3 of the Enbridge Energy oil pipeline Thursday, as environmental activists and Native American groups vowed to keep fighting, The Associated Press reported.Opponents are concerned about the need for new fossil fuel infrastructure and the danger of an oil spill near vulnerable ecosystems in Minnesota, including areas where Native Americans harvest wild rice, which is sacred to the Ojibwe."You have just declared war on the Ojibwe!" Tania Aubid of the Mille Lacs Band of Ojibwe stood and said when the PUC's decision became apparent. "What they have done to us today is egregious," Honor the Earth executive director Winona LaDuke told Reuters. "They have gotten their Standing Rock. We will do everything that is needed to stop this pipeline." Enbridge Energy argued they needed to replace the existing Line 3, which was built in the 1960s and is subject to corrosion and cracking. They currently operate it at half-capacity due to safety reasons. The company said they would continue running the existing unsafe pipeline if a replacement was not approved, The Associated Press reported. Opponents, including the Minnesota Department of Commerce, said the Midwest didn't need the additional oil from a pipeline replacement since demand will likely fall with the rise of electric vehicles and renewable energy.The commissioners seemed to have a hard time making the decision―chairwoman Nancy Langue wiped away tears as she explained her reasoning―and emphasized concerns about the safety of the existing, older pipeline "It's irrefutable that that pipeline is an accident waiting to happen," Commissioner Dan Lipschultz said before the vote. "It feels like a gun to our head … All I can say is the gun is real and it's loaded."

Analysis: US natural gas production hits record high, propelled by Texas - US natural gas production edged up to a fresh record high this week, largely due to gains in Texas, the Southeast, and the Appalachia region. Modeled US production surpassed 79.8 Bcf/d on Sunday, setting the new record high, S&P Global Platts Analytics data shows. Over the past week, US production has been exceptionally strong, averaging 79.4 Bcf/d, with six of the highest output days on record. Texas has led that growth. Month-to-date, production in the state has averaged nearly 18.8 Bcf/d, outpacing May's average by roughly 340 MMcf/d on increases in the Permian Basin and East Texas Haynesville. Gains in the Southeast are playing a role, too. In June, production across the region has averaged 11.5 Bcf/d and is up about 150 MMcf/d compared to the prior-month average, with gains in the Haynesville and the Louisiana/Mississippi offshore being partially offset by declines from the Alabama offshore. In the dry basins of Appalachia, gas production has averaged 27.5 Bcf/d in June, a month-on-month increase of 300 MMcf/d and the highest monthly average there on record. After briefly touching modeled levels close to 28 Bcf/d earlier this month, Northeast production has since pulled back modestly, averaging just over 27.6 Bcf/d. Looking ahead, it's possible that Northeast production growth could flounder this summer, thanks to continued in-service /delays on Rover Pipeline's upstream supply laterals. While the Majorsville, Burgettstown and Sherwood laterals await an authorization from the US Federal Energy Regulatory Commission, flows on Rover's mainline have averaged just over 2.2 Bcf/d in June, or about 68% of the pipeline's designed 3.25 Bcf/d nameplate capacity.

Kinder Morgan Plans $2B Permian Gas Pipeline -- Kinder Morgan's Texas subsidiary has announced a $2 billion pipeline to transport natural gas from the oil-rich Permian Basin.  As the Houston Chronicle noted, this is Kinder Morgan's first major project announcement since the Canadian government's controversial $4.5 billion (U.S. $3.5 billion) buyout of the company's existing Trans Mountain pipeline and its expansion project. The Trans Mountain expansion is expected to triple the amount of tar sands transported from Alberta to the coast of British Columbia and has been at the center of widespread protests by environmentalists and some Indigenous groups.The proposed "Permian Highway Pipeline" is designed to transport up to 2 billion cubic feet of natural gas per day through approximately 430 miles of 42-inch pipeline from the Waha, Texas, area to the U.S. Gulf Coast and Mexico markets, a press release states. Partners include Blackstone Group-backed EagleClaw Midstream Ventures and the Apache Corporation. The pipeline is expected to be in service in late 2020 and is "subject to the execution of definitive agreements and the receipt of construction permits," the release says.

Report on Oil and Gas Fracking Impact on Local Aquifers - With a technical report in hand on anticipated impacts of oil and gas fracking, Sandoval County commissioners will hold a work-study session open to the public. County Commissioner Jay Block said June 13 that no date had been set. “I have the final report,” Block said in an e-mail. “The plan is to have a work session that is public to go over the report.”A draft ordinance based on the study by geologists at New Mexico Tech and other factors will be produced by the County Planning and Zoning Commission, which will submit its recommendation to the County Commission.“We are not being rushed. We’ve been working this for well over two years, and have had numerous citizens provide their input, the commission voted on a citizens’ working group [draft] as well, and we have also worked with the Oil Conservation Division of  the N.M. Natural Resources Department and New Mexico Tech for scientific data,” Block said.“So, as you can see, we have been extremely transparent, and we will not be rushed. I will make my decision based on a balanced approach based on data, needs of our county, safety, sciences and pater protection.” He noted that “our schools receive over $47 million a year from the [oil and gas] industry alone, not including  the other programs and sectors that receive tax dollars from that industry which is almost 40 percent of our state budget. That plays a part in this as well,” he added.

Zinke's Halliburton mess deepens – - Interior Secretary Ryan Zinke met at department headquarters in August with Halliburton Chairman David Lesar and other developers involved in a Montana real estate deal that relied on help from a foundation Zinke established, according to a participant in the meeting and records cited by House Democrats late Thursday.Zinke, Lesar and the others later discussed the development project over dinner that night, the participant in the meeting confirmed to POLITICO. The new details raise further questions about Zinke's involvement in the project, and whether his conversations with the developers — especially in Interior's office — violated federal conflict of interest laws given Halliburton’s extensive business before this department. POLITICO reported Tuesday that a foundation Zinke established a decade ago agreed to let the Lesar-backed development build a parking lot on foundation land.  Zinke has told POLITICO that he was no longer involved in the foundation’s operations since becoming secretary in March 2017, and that has he “resigned as president and board member” of the foundation when he joined President Donald Trump's Cabinet. But he has not said whether he continued holding discussions with the developers, who are pursuing a multi-use project in his hometown of Whitefish. Zinke was scheduled to meet at the Interior Department with Lesar and his son and lead project developer Casey Malmquist on Aug. 3, according to an email from his scheduler cited by the House Democrats. About six weeks later, he received an email from Malmquist with plans for the development, which is expected to include shops and a microbrewery — a project initially proposed by Zinke more than five years ago. A week after Zinke received Malmquist’s email, Zinke's wife, Lola, signed a letter of intent in her role as president of the foundation agreeing to let the developers use its land. “Ryan — our development plan and your park project are an absolute grand slam,” Malmquist wrote in one email to Zinke released via the Freedom of Information Act. “I have never been more excited about a development as I am about this one.”

An Update On Natural Gas Flaring Challenges In North Dakota - Crude oil and natural gas production in the Bakken are at record highs, and with the surge in production has come infrastructure constraints and higher rates of flared gas, renewing concerns about possible production shut-ins. As gas production volumes exceeded gas processing capacity, the flaring rate in April 2018 rose to 15% of total monthly volumes –– precisely the current limit set by North Dakota’s gas capture plan and three percentage points above the 12% cap due to kick in this November. Rig counts, producers’ drilling plans and $70/bbl crude oil prices all point to further production growth, which means that without additional processing capacity — or a change in the gas-capture policy — it will be increasingly difficult for producers and processors to comply. Today, we look at the latest developments in Bakken gas production, gas-related infrastructure and the gas capture policy. As we discussed last fall in There’s a Fire in the Night, the Bakken oil and gas industry has been struggling with gas capture and flaring issues for the better part of the last decade. There was a time, going back to 2011, when as much as 37% of produced gas was being flared as oil and associated gas production was on a tear and gas gathering and processing were struggling to keep up. That prompted the North Dakota Industrial Commission (NDIC) to require exploration and production companies (E&Ps) to file a “gas capture plan” (GCP) with their drilling permits and put in place flaring limits.The new rules limit flaring to one year after first production from a well, after which time producers have to do one of the following:  connect the well to a gas gathering pipeline, cap it, or link it to an electrical generator or a compression or liquefaction system that consumes at least 75% of the gas onsite.

Fracking, Proppant, And Water - This is my 30-second "elevator talk" regarding completion strategies in the Bakken right now.

  • Length of laterals: the standard is a "long lateral"; some call it an "extended reach";  two sections "long", about 9,000 feet horizontally
  • Number of stages: 50; less than 40 catches my attention; suggests something out of the ordinary; I check the sundry forms to see if there might be an explanation; below 20, "definitely" a failed frack . over 60, catches my attention
  • Water (gallons, data from FracFocus):  8 million to 12 million gallons; generally 10 million gallons; up to 12 million gallons doesn't necessarily surprise me;  up to 20 million gallons definitely gets my attention
  • Sand/ceramic (by percent, weight, data from FracFocus): 14%; for all practical purposes, the difference between 100% and water volume by weight
    • a very small percent of overall mix is the proprietary "cocktail" to help "lubricate" the movement of oil to the well bore
    • above 16% gets my attention
    • below 10% really gets may attention
  • Sand/ceramic per stage: 10 million lbs / 50 stages = 200,000 lbs/stage
  • Sand/ceramic per foot (which most folks like to use): 10 million lbs / 9,000 feet = 1,100 lbs / foot (about half what they are using in the Permian, based on what Mike Filloon posts)
  • To determine amount of sand, until the official report comes out, using data from FracFocus: a gallon of water = 8.35 pounds  calculate amount of water in pounds (e.g., 10 million gallons x 8.35 pounds = 83.5 million lbs)  if weight of water in percentage is 86%, then 14% (by weight) is sand/ceramic
  • Checking my work:
    • in my example, total frack mix (water + sand/ceramic) = 97 million lbs
    • 86% of that was water, or 83 million lbs
    • 83 million lbs of water / 8.35 pounds (per gallon of water) = 10 million gallons, and that's where we started

State one step closer to gas pipeline, but not the one the Walker administration wants -  Alaska is one step closer to getting an in-state natural gas pipeline; though it’s not clear if the project will ever be built. The U.S. Army Corps of Engineers announced Friday that it had released the final supplement for its environmental review of the Alaska Stand Alone Pipeline project. The final permit in that process should be released sometime in the next three months. The in-state pipeline project has taken a backseat to the massive Alaska LNG export project. Both projects would pipe gas several hundred miles from the North Slope to market, but the standalone pipeline is designed for in-state use, while the Alaska LNG project is designed to sell that gas to Asian markets. Staff at the Alaska Gasline Development Corporation have repeatedly said that they are focused on building the larger project. Frank Richards is the senior vice president for both projects at the state’s gasline corporation. He said the in-state pipeline project is basically on hold, now that it has the permits it needs. “It’s truly the backup plan,” Richards said. “It means we will have the permits and authorization to construct, should the need arise.” Even though the in-state pipeline project is on hold, Richards said it can still help the state develop the Alaska LNG project. The pipeline projects are similar enough that federal regulators could use work done on one to guide permitting for the other. Also, Richards said there is about $11 million left over from developing the in-state project that can now be used to fund the export project. 

Alaska Native corporations wildcatting in big unexplored interior basins - Alaska Native-owned oil service contractors are exploring the state's large, mostly untested interior sedimentary basins, areas long thought to be natural gas-prone but now known to also have crude oil potential. The Trans Alaska Pipeline System runs through several of the basins being tested, which includes state-owned as well as lands owned by the Native corporations. Doyon, which has large landholdings in Interior Alaska, has now started drilling its fourth well in the Nenana Basin west of Fairbanks with another Native American company, Cook Inlet Region, of Anchorage, as a partner. The primary target is oil, says Jim Mery, Doyon's senior vice president for lands and natural resources. But the basin has gas potential and could supply Fairbanks, the state's second largest community about 50 miles east of the drilling location, he added. Further south, Ahtna, which owns lands in the Copper River Basin in eastern Interior, completed a third exploration well in late spring in that area and is planning a fourth prospect, according to Ahtna's COO, Tom Maloney. Success has been elusive so far, but this is rank wildcat country where persistence and patient capital is needed, the Native corporations say. Both Doyon and Ahtna own oil support companies active on the North Slope. Doyon Drilling, a Doyon subsidiary, is one of the state's major drilling contractors. 

Sleepy U.S.-Canada Border Post Reveals Diverging Oil Fortunes -  In a rural patch of prairie along the U.S.-Canadian border, the towns of Portal, North Dakota, and North Portal, Saskatchewan, couldn’t be closer. They share a fire department, and the first eight holes of the local golf course are in Canada, while the ninth and the club house are in the U.S.  But here in the Bakken shale patch, one of North America’s most-prolific oil fields, the U.S.-Canada border represents a drillers’ divide. Spurred by a surge in crude prices, North Dakota’s production is rising more than three times faster than its counterpart in the Bakken region of Saskatchewan. The output difference between the two countries runs deeper than the shared field.  While U.S. drillers deploy more rigs than any time since 2015 amid a fracking surge in the Permian Basin, companies including ConocoPhillips, Royal Dutch Shell Plc and Equinor ASA have sold operations or pulled out of Canada’s oil sands, the world’s third largest source of crude reserves. A shortage of pipelines and a regulatory environment that’s often slower and less certain than in the U.S. has helped spark the flight of capital southward, said Tom Whalen, chief executive officer of the Petroleum Services Association of Canada, a trade association representing oil servicing companies.  “We [Canadians] are kind of dying by our own sword,” Whalen said in a phone interview. “We are making it very difficult to do business.” A new tax law in the U.S. has helped oil companies by reducing the corporate rate and allowing companies to write off some assets sooner than in the past.  Routine licensing for a well in Alberta takes 79 to 119 days versus 30 to 60 days in Texas, according to a report last year by the Canadian Association of Petroleum Producers.  Enerplus Corp. Chief Executive Officer Ian Dundas estimates that 10 years ago, his company allocated 90 percent of its capital spending to properties in Canada and 10 percent to its U.S. holdings. Those percentages have been reversed, he said in an interview.

Oil Investment In Canada To Drop Despite Rallying Prices - Canada has the world’s third-largest crude oil reserves, but the country seems determined to pretty literally keep these in the ground. This determination becomes strikingly obvious when Canada is compared with its southern neighbor, which is just what Bloomberg’s Robert Tuttle and Kevin Orland did in a recent story.In the United States, they write, the number of oil and gas rigs are increasing—currently at its highest level since 2015, the height of the oil price crisis. In Canada, on the other hand, there has been an exodus of oil majors including Shell, ConocoPhillips, and Equinor, among others.In the United States, capex in the oil industry is forecast by an Oil and Gas Journal poll to rise by 9.1 percent to US$132.5 billion this year alone. In Canada, total oil investment is seen falling by 2 percent to US$30.11 billion (C$40.1 billion).Of course, there is a clear difference between the energy policies that the two neighbors’ governments are pursuing. Washington is all about energy independence, even energy dominance. Trump’s administration has been working consistently towards ensuring the best possible investment climate for oil and gas producers, much to the chagrin of environmentalists and the renewable energy industry.Ottawa, conversely, has been clearly in favor of what might very loosely be called the green lobby. This has proven a challenge recently, as the federal government had to step in and buy the Trans Mountain pipeline expansion project from Kinder Morgan after the company refused to move forward with it in the face of strong provincial government opposition from British Columbia. Despite this move, caused as much by desperation as by any desire to have the pipeline built, Ottawa has on the whole been playing against oil. Industry insiders interviewed by Bloomberg’s Tuttle and Orland note the regulatory regime that is slowing down investments, dampening the willingness of companies to do business in Canada. The average well-licensing procedure in Canada takes between 79 and 119 days. This compares with just 30 to 60 days for a well in Texas.

Western Canadian Crude takeaway constraints to ease, but only temporarily. -  The weeks-long shutdown at Syncrude Canada’s oil sands production facility in northeastern Alberta will alleviate pipeline takeaway constraints that have significantly widened the price spread between Western Canadian Select (WCS) and West Texas Intermediate (WTI) crude oil. But when Syncrude returns later this summer, there’s every reason to believe that the constraints will too, as will the need for significantly more crude-by-rail shipments. Railed volumes out of Western Canada have been increasing in recent months, but not by enough to avert WCS-WTI differential blowouts to $25 and even $30/bbl. The catch is that most of the rail-terminal capacity built a few years ago is mothballed, and that railroads are reluctant to dedicate more locomotives and personnel unless shippers make one-, two- or even three-year commitments to take-or-pay for that logistical support. Today, we consider the ongoing challenges Western Canadian producers face in moving their crude to market. The biggest news in the crude oil business the past few days was OPEC’s June 23 announcement that its members will be increasing their output by as much as 1 MMb/d. But the runner-up was likely the news that Syncrude’s 360-Mb/d operation may be offline through the end of July — a shutdown triggered by a power outage. Syncrude accounts for nearly 10% of Western Canadian production, and the suspension of flows from its production facility north of Fort McMurray, AB, opens up a lot of space on the region’s takeaway pipelines — pipelines that have been running at or very near capacity for months. Syncrude’s troubles and their effects on Western Canada’s takeaway constraints are very likely to be only temporary, though. The underlying problem — insufficient pipeline capacity and profit-sapping differentials — isn’t going away.

Oil company additions to proved reserves in 2017 were the highest since 2013 -- In 2017, a group of the world’s largest publicly traded oil and natural gas producers added more hydrocarbons to their resource base than in any year since 2013, according to the annual reports of 83 exploration and production companies. Collectively, these companies added a net 8.2 billion barrels of oil equivalent (BOE) to their proved reserves during 2017, which totaled 277 billion BOE at the end of the year. Exploration and development (E&D) spending in 2017 increased 11% from 2016 levels but remained 47% lower than 2013 levels.Of the 83 companies, 18 held more than 80% of the 277 billion BOE in proved reserves at the end of 2017. Although many of these companies have global operations, some are national oil companies with reserves concentrated in their home countries, including Russia, China, and Brazil. Proved reserves change from year to year because of revisions to existing reserves, extensions and discoveries of new resources, purchases and sales of proved reserves, and production.Organic additions to proved reserves, or reserves added through improved recovery and extensions and discoveries, are linked directly with capital expenditures in E&D. Proved reserves acquired through purchases do not represent E&D capital investment but rather reflect transfers of assets between companies. Revisions to proved reserves are usually more significantly influenced by changes in crude oil and natural gas prices than by E&D investment.  Of the 17.7 billion BOE in organic proved reserves added in 2017, slightly less than half (8.5 billion BOE) were in the United States, while Russia, Central Asia, and the Asia-Pacific region accounted for 24% (4.3 billion BOE). Canada (which includes oil sands and synthetic crude oil), Latin America, and the Middle East and Africa regions each added more than 1.1 billion BOE. Regionally, Europe accounted for the fewest organically added proved reserves for the sixth consecutive year, adding 0.3 billion BOE (2% of world total) of proved reserves in 2017.

Top GOP lawmaker not persuaded by green groups’ promises that they aren’t foreign agents | TheHill: A top House Republican says he isn’t convinced that two leading green groups aren’t in cahoots with China and Japan to influence United States environmental policy, despite their ardent denial. Rep. Rob Bishop (R-Utah) said Thursday he still suspects that two groups — Natural Resources Defense Council (NRDC) and the Center for Biological Diversity (CBD) — could be acting as foreign agents, based on lawsuits they’ve filed against U.S. military actions in Asia and the Pacific Ocean. “Based on the committee's investigation to date, we are concerned that environmental groups that bring such lawsuits may be knowingly or vulnerable to unwittingly serving as proxies for our foreign adversaries,” Bishop said in a statement Thursday, referring to the House Committee on Natural Resources, which he chairs.“The Foreign Agents Registration Act is an important mechanism for ensuring that the American people and U.S. government know the source of information and the identity of foreign entities attempting to influence U.S. public opinion, policy, and laws.” Both the NRDC and CBD sent initial responses to the panel this month, following letters from Bishop and Rep. Bruce Westerman (R-Ark.) asking for documents related to potential foreign influence or control of the groups. In their responses, both groups denied that they are acting as foreign agents or that they must register with the federal government under the Foreign Agents Registration Act. 

Court rules fracking is not banned, despite SNP rhetoric -- FRACKING has not been banned in Scotland, despite numerous “mistaken” statements by SNP ministers to the contrary, the country’s highest court has ruled.   Rejecting a bid to overturn the ‘ban’, the Court of Session ruled there was no prohibition against the controversial gas extraction technique, merely an evolving planning policy.  Lord Pentland said statements by ministers, including Nicola Sturgeon, that there was a ban “did not accurately express the legal effect of the decisions” involved.   Indeed, “the Lord Advocate, on behalf of the Scottish Ministers, made it clear to the court that such statements were mistaken and did not accurately reflect the legal position”.  Lord Pentland concluded that “as a matter of law, there is no prohibition against fracking in Scotland”.  The ruling followed the SNP government telling parliament in October that fracking had effectively been banned through the use of planning powers.

As North Sea oil wanes, removing abandoned rigs stirs controversy - One of the world’s largest areas of offshore oil and gas exploitation, in Europe’s North Sea, is closing down. Over the next few years, thousands of wells will be plugged and hundreds of giant production platforms removed from the storm-tossed sea, in one of the world’s largest and most expensive exercises in industrial decommissioning.  Good riddance? Not so fast. Some ecologists are pleading for the rigs to be left behind, at least in part, to support the marine life that has grown up around them. And they fear the dismantling could disturb toxic drilling waste on the seabed that nobody plans to remove.  How this plays out could yield important lessons for the decommissioning of other offshore oilfields from the coasts of California and Brazil to the South China Sea and, potentially, the Arctic.  Two decades ago, the North Sea was one of the world’s largest sources of oil, pumping up 6 million barrels a day. That figure is now down to 1.5 million barrels, and the industry is turning to the task of decommissioning the estimated 600 production platforms in the North Sea. The British sector alone contains 470 of them, along with roughly as many other offshore installations, plus 10,000 kilometers of pipelines and 5,000 wells. The British industry expects to carry out more than 200 decommissions between now and 2025.   Many steel rigs will be cut off just below the seabed, and either dragged ashore in one piece or dismantled offshore. A handful of early giant concrete structures, which can weigh as much as 400,000 tons, may have to stay put because there is no way of moving them. The British industry estimates the final bill at $51 billion, though some analysts say it will be double that. Whatever the price, since decommissioning is tax deductible, the cost will be largely born by taxpayers.

Major Oil Spill Contaminates 1,000 Birds in Rotterdam Harbor - Environmental groups and volunteers are working to save about 1,000 oil-covered birds after a freighter spilled heavy fuel oil into a Rotterdam harbor on Saturday, the Netherlands' Sea Creatures Rescue Team estimated to Reuters.Odfjell, the owner of the freighter Bow Jubail, said the vessel crashed into a jetty while mooring and accidentally ruptured its hull, releasing 217 tons of heavy fuel oil into the water.Swans, gulls, geese and cormorants were contaminated by the oil, according to BBC News. Emergency workers trying to rescue the animals were said to be overwhelmed by the numbers.The slick has covered a six-mile radius in the harbor, BBC News reported, citing local media. Hundreds of birds are still thought to be in the water."I haven't yet seen a swan untouched by the oil. It's a real catastrophe," adviser Claude Velter told Dutch TV.About 250 oil-stained swans were taken to the animal shelter Vogelklas Karel Schot in Rotterdam on Sunday."The birds are now stabilized," the rescue center said in a Facebook post. "In addition to food and water, they need rest. It is e xpected that the first birds in the next few days will be stable enough to be washed."

Dutch regulator estimates Groningen natural gas output at 19-20 Bcm in Gas Year 17 - The Dutch gas regulator has estimated that gas production from the giant Groningen field onshore the Netherlands will be in the range of 19-20 Bcm in the current Gas Year (October 2017-September 2018), below the official quota of 21.6 Bcm/year. In its latest report on Groningen safety published Wednesday, the regulator (Staatstoezicht op de Mijnen -- SodM), also said it expected the quota for Gas Year 18 starting in October to be 19.4 Bcm. An official decision on the quota for the year has yet to be taken. A spokesman for Groningen operator NAM -- a joint venture between Shell and ExxonMobil ?- said that it was "for the minister of economic affairs to comment on the regulator's estimates." The gas market failed to react to the news. "In my view the upward move is not really linked to Groningen, it is purely oil, and small movement in the FX," one European gas trader said.

Italy Threatens to Throw Spanner in European Alternative to Russian Gas -- No fewer than Turkish President Recep Tayyip Erdogan, Azerbaijani President Ilham Aliyev, Serbian President Aleksandar Vucic, Ukrainian President Petro Poroshenko and Turkish Cypriot President Mustafa Akinci attended a gathering in Central Turkey on 12 June. The amount and variety of attendees of this meeting reveal a common interest in one field of geopolitical developments: energy and more specifically natural gas. The opening ceremony of the 1.850 kilometers long Trans Anatolian Pipeline, TANAP, starting at the Shah Deniz gas field in Azerbaijan and ending in Turkey, is the last step before connecting to the European grid in Greece and Italy. TANAP is part of the Southern Gas Corridor, which was the dream of many European leaders and officials to create an alternative to Russian gas. The attendance of several high-level dignitaries shows the interest in the pipeline and the geopolitical developments of the region. More specifically, Russia’s dominant position in the natural gas market of southeast Europe has set leaders scrambling to find alternatives or at least competition of producers. The fraught relations between Russia and Ukraine brought these countries on a collision course. However, due to historical reasons the energy industries of Moscow and Kiev have been closely intertwined. Russia has set itself an ambitious goal of circumventing Ukraine as its main transit country for gas exports. The Turk Stream and Nord Stream 2 pipelines, which are either planned or under construction, will carry much of the needed gas to Europe starting in 2019 when a new transit contract has to be signed with Kiev. Ukraine intends to diversify away from and ultimately stop buying gas from Russia. The Southern Gas Corridor, therefore, is a highly anticipated alternative. The attending of Petro Poroshenko at the opening ceremony is a testament to this goal. Already Ukraine importing gas from neighbouring European countries with plans to increase domestic production of natural gas. The election of a new government in Italy has brought change to the strategic energy map, which for a decade seemed to be fixed. The €40 billion Southern Gas Corridor pipeline bringing Azeri gas to Europe was intended to be linked to Italy’s by a yet-to-be-built Trans Adriatic Pipeline, TAP. However, the coalition government of the Five Star Movement and the League has created much uncertainty. Environment Minister Sergio Costa has dubbed TAP as “pointless” and has ordered the launch of a formal review. The coalition partners have made fighting corruption one of their election promises. Furthermore, decreasing gas consumption is used as another argument not to construct an additional pipeline. Although demand has risen over the years, it is nowhere near the peak of a decade ago. Italy imports 90 percent of its needs from Russia, Libya, Algeria, and Holland while there is spare capacity.

Meanwhile, In The Arctic... In a development that could further advantage OPEC members as they step up production to compensate for falling exports out of Venezuela and (potentially) Iran, the Barents Observer is reporting that two of Russia's largest Arctic out-shipment points for oil and LNG have become "packed with ice" leaving tankers and carriers stranded in the "paralyzed" area, which hasn't been this packed with ice at midsummer in four years. Experts had expected that ice clogging up the Gulf of Ob would melt with the summer months, allowing Rosatomflots, the state-owned energy company responsible for the region, to avoid relying on their nuclear-powered icebreakers to clear the area. According to Rosatomflot, its icebreakers will be working at least through the first week of July to free stranded ships from the ice. Two icebreakers, the Taymyr and the Vaygach, are working overtime. There are also several smaller tugs and icebreakers working in the waters around the Sabetta port.One Rosatomflot representative pointed out that the climate change fears which had analysts worried about rapid melting of ice caps in the Arctic have apparently receded. The global warming, which there has been so much talk about for such a long time, seems to have receded a little and we are returning to the standards of the 1980s and 1990s, says company representative Andrey Smirnov. Companies shipping from the area have in recent years invested in building more powerful tankers capable of breaking up the ice on their own. The projects are expected to ratchet up exports from the region by the equivalent of millions of barrels of oil per year. The Yamal LNG plant is fully dependent on smooth shipping to and from the port of Sabetta. A fleet of 15 powerful top ice-class carriers are being built for the project. The ships are capable of independently breaking through more than two meter thick ice. Commercial shipments from Sabetta started in early December 2017.

Radioactive water reignites concerns over fracking for gas - High levels of a radioactive material and other contaminants have been found in water from a West Australian fracking site but operators say it could be diluted and fed to beef cattle. The findings were contained in a report by oil and gas company Buru Energy that has not been made public. It shows the company also plans to reinject wastewater underground – a practice that has brought on seismic events when used in the United States. Buru Energy has been exploring the potentially vast “tight gas” resources of the Kimberly region’s Canning Basin. The work was suspended when the WA government last year introduced a fracking moratorium, subject to the findings of a scientific inquiry.In a submission to the inquiry obtained by the Lock the Gate Alliance, Buru Energy said a “relatively high concentration” of Radium-228, a radioactive element, was found in two water samples from a well in 2015 and 2016. The so-called “flowback water” contains fracking fluids, and water released from rock in which naturally-occurring radioactive materials can be concentrated.The samples exceeded drinking water guidelines for radionuclides. However Buru Energy said samples collected from retention ponds were below guideline levels and the water posed “no risk to humans or animals”. Buru Energy said while the water was not suitable for human consumption, the “reuse of flowback water for beef cattle may also be considered”. The water did not meet stockwater guidelines but this could be addressed “through dilution with bore water”.

Gazprom resumes talks on natural gas pipeline to South Korea via North Korea - Gazprom has renewed talks with South Korea on a potential natural gas pipeline from Russia’s Far East via North Korea in light of the improved political situation in the region, while it also expects talks with China on gas supplies to be completed by the end of the year, company officials said Friday. Following the talks between US President Donald Trump and North Korean leader Kim Jong-un and improving relations between North and South Korea, the discussions about a potential pipeline through both Koreas are back on the table after years of being suspended. South Korea is the second-largest buyer after Japan of LNG from the Gazprom-led Sakhalin-2 LNG plant on the Pacific coast.

US wants allies to cease oil imports from Iran by Nov. 4 | TheHill: The U.S. is pressing its allies to cut all oil imports from Iran by Nov. 4, a senior State Department official said Tuesday. Teams of State and Treasury Department officials have been dispatched to Europe and Asia in recent weeks to garner support for the Trump administration's Iran strategy, telling allies that they are expected to cease oil imports from the country, the official said.The diplomatic efforts will affect several key U.S. allies that import significant amounts of Iranian oil, including Japan, South Korea and Turkey. The Trump administration is not planning to issue waivers that would allow allies to continue importing oil from Iran, according to the State Department official. "I think the predisposition would be no, we’re not granting waivers," the official said during a background briefing with reporters. U.S. crude prices shot up Tuesday to more than $70 per barrel – their highest point since May – after it was revealed that the Trump administration is urging allies to end oil imports from Iran. The State Department official said the U.S. plans to engage with other countries in the Middle Easter to "ensure that the global supply of oil is not adversely affected by these sanctions." 

US presses Iran's oil customers to cut imports to zero by November 4: State Department - Iran's oil buyers should not expect any waivers to US sanctions that snap back in November, after the State Department confirmed Tuesday it was taking a hard line on sanctions enforcement and working with Mideast allies to prevent an oil supply shock. "We will certainly be requesting that their [Iranian] oil imports go to zero, without question," a senior State Department official told reporters during a background briefing. Oil prices climbed after the statement, and analysts raised their projections for how much Iranian crude would leave the market this fall. Iran exported an estimated 2.45 million b/d of crude in April, a surge from recent levels of about 2 million b/d as the country and its customers prepared for US President Donald Trump's expected decision to exit the Iran nuclear deal, which he announced May 8. "If the US succeeds at zeroing out Iran's exports, it will have a big price problem at the pump around election time that Saudi Arabia cannot fix," said Bob McNally, president of Rapidan Energy Group and former energy adviser to President George W. Bush. McNally was referring to US midterm elections in November that will determine which party controls Congress. Joe McMonigle, an analyst for Hedgeye Risk Management, said he now expects the November resumption of Iran sanctions to disrupt 1 million b/d, up from a range of 500,000-800,000 b/d he predicted last month. "The administration's message today is that the oil market should get ready for a larger amount of Iranian crude getting removed from the market," said McMonigle, a former Department of Energy chief of staff.

U.S. Toughens Stance on Future Iran Oil Exports – WSJ —The U.S. threatened to slap sanctions on countries that don’t cut oil imports from Iran to “zero” by Nov. 4, part of the Trump administration’s push to further isolate Tehran both politically and economically, a senior U.S. State Department official said. Buyers of Iranian crude had expected the U.S. would allow them time to reduce their oil imports over a much longer period, by issuing sanctions waivers for nations that made significant efforts to cut their purchases. That expectation was partly based on previous comments from top Trump officials, as well as the Obama administration’s earlier effort to wean the world off Iranian oil over several years. But the senior State Department official said on Tuesday that President Donald Trump’s administration doesn’t plan to issue any waivers and would instead be asking other Middle Eastern crude exporters over the coming days to ensure oil supply to global markets. The tactic is likely to further escalate geopolitical tensions between the U.S. and other nations as the Trump administration pits itself against its allies and other major economies over its nearly unilateral policy toward Iran and a host of challenges on trade. Oil prices immediately jumped on the news, with West Texas Intermediate crude for August delivery ending 3.6% higher at $70.53 a barrel on the New York Mercantile Exchange. That marked the highest level since May, when the White House said it would pull out of the 2015 Iran nuclear accord—which the U.S. and other major countries reached with Tehran to curb its nuclear development—and would reimpose crushing sanctions on one of the world’s largest oil suppliers. “We will certainly be requesting that their oil imports go to zero without question by Nov. 4th,” the official said of other countries’ purchases of Iranian oil. While the administration won’t rule out issuing sanctions waivers in the future, the official said, its predisposition is: “No, we’re not going to do waivers.” “We view this as one of our top national-security priorities,” the official said. The move is likely designed to spur greater global compliance with U.S. sanctions. Most major importers of Iranian crude have balked at Washington’s new economic offensive against Tehran. 

US Wants India To Stop Importing Oil From Iran By November - The US has asked all countries, including India, to stop all oil imports from Iran by November as it ruled out any exemption to India and Indian companies from its reimposed Iranian sanctions regime for them carrying out any transaction with Iran."On China and India, yes, certainly," a state department official told reporters when asked if the US has told all countries, including India and China, to stop all their imports of Iranian oil by November 4.He said Indian and Chinese companies would be subject to the same sanctions as those in other countries. Given the huge energy needs, India and China are major importers of Iranian oil."Their (India and China) companies will be subject to the same sanctions that everybody else's are if they engage in those sectors of the economy that are sanctionable, where there were sanctions imposed prior to 2015. And yes, we will certainly be requesting that their oil imports go to zero. Without question," the state department official said on condition of anonymity.Responding to questions, the official said these countries should start reducing the import of oil from Iran now and bring it to zero by November 4. "Without question, they should be reduced. That's what we've been telling them in our bilateral meetings. They should be preparing, now, to go to zero (by November 4)," the official said. The official said this is part of the Trump administration's effort to isolate streams of Iranian funding and are looking to highlight the totality of Iran's malign behaviour across the region.

Iran: India may ignore US demands to halt oil imports: India said Wednesday it did not recognize sanctions the United States has threatened to impose on countries that continue to buy Iranian oil after November 4. "India does not recognize unilateral sanctions, but only sanctions by the United Nations," Sunjay Sudhir, joint secretary for international cooperation at India's petroleum ministry, told CNNMoney when asked whether India would reduce oil imports from Iran. The US demand was made by a senior State Department official on Tuesday. It reflects the hard line President Donald Trump is holding after he decided to withdraw from an international nuclear agreement and reimpose sanctions on Iran. Iran is India's third-largest oil supplier after Iraq and Saudi Arabia, according to Indian government data. And India buys more Iranian oil than any country except China. Analysts say the Indian government is unlikely to heed the US call. "More than China, India is unlikely to capitulate to the US demand," analysts at the Eurasia Group wrote in a note on Tuesday. They estimate that India is currently buying about 700,000 barrels per day from Iran, a critical and strategic source of supply to meet India's growing demand for energy. "India's state-owned refiners will likely continue to import Iranian crude," they said. India's top state-owned oil companies — Hindustan Petroleum, Bharat Petroleum and Indian Oil — did not immediately respond to requests for comment.

Iranian President Reopens Nuclear Plant: "We Will Bring The US To Its Knees" - Iranian president Hassan Rouhani said on Wednesday: “We will bring the US to its knees in this battle of wills.” The Iranian government is continuing to warn of harsh retaliation against the United States after the Trump administration pulled out of the 2015 nuclear agreement.  According to PressTV, the threat comes as Washington continues to attempt to bully its allies into halting imports of Iranian oil after Donald Trump unilaterally quit the cornerstone international nuclear agreement instituted by his predecessor, Barack Obama.  Iran has previously said there would be consequences should the US decide to withdraw from the agreement. The United States, meanwhile, has continued to push Iran. After withdrawing from the 2015 Iran nuclear agreement, known as the Joint Comprehensive Plan of Action (JCPOA), in May the US vowed to reinforce economic pressure and sanctions against Tehran, reported RT.  While the European capitals have so far refused to leave the cornerstone security accord, on Tuesday the State Department threatened private companies with sanctions unless they completely cut Iranian crude oil imports by November. Rouhani also seeks to unify all Iranians. “We will take problems. We will take pressure. But we will not sacrifice our independence,” Rouhani vowed. “Even in the worst case, I promise that the basic needs of Iranians will be provided,” the Jerusalem Post quoted Rouhani saying live on national television. Rouhani additionally noted that his administration will continue to defend Iran’s interests and focus on strengthening the economy.  “We have enough foreign currency to inject into the market.”

Kazakhstan to maintain oil output at current level of 1.8 mil b/d throughout 2018: report - Kazakhstan is planning to maintain oil output at the current level of 1.8 million b/d until the end of the year, energy minister Kanat Bozumbayev said Tuesday, according to the Prime news agency. "Our daily production is 1.8 million barrels, we are not planning to reduce it, the average rate of production will remain around this level until the end of the year," Bozumbayev said according to the report. Kazakhstan is participating in the OPEC/non-OPEC agreement to cut oil production that came into force at the beginning of 2017. It committed to cut its liquids production by 20,000 b/d from November 2016 volumes of 1.7 million b/d under this deal, but has met its target just once, in August 2017, due to planned maintenance at one of the country's major projects, Tengiz. The latest statistics released in mid-June showed that Kazakhstan's oil and gas condensate output was 7.825 million mt, or around 1.85 million b/d in May. Bozumbayev attended a meeting on Saturday during which changes to the deal to allow additional barrels to come to market were agreed. Bozumbayev also said Tuesday that Kazakhstan hopes that output at its major Kashagan project will increase by the end of this year. "Currently we have reached production of 300,000-320,000 b/d. By the end of the year I hope it will be a bit higher," he said. 

A Storm Is Brewing In The Southern Gas Corridor - No less than Turkish President Recep Tayyip Erdogan, Azerbaijani President Ilham Aliyev, Serbian President Aleksandar Vucic, Ukrainian President Petro Poroshenko and Turkish Cypriot President Mustafa Akinci attended a gathering in Central Turkey on 12 June. The amount and variety of attendees of this meeting reveal a common interest in one field of geopolitical developments: energy and more specifically natural gas.    The opening ceremony of the 1.850 kilometers long Trans Anatolian Pipeline, TANAP, starting at the Shah Deniz gas field in Azerbaijan and ending in Turkey, is the last step before connecting to the European grid in Greece and Italy. TANAP is part of the Southern Gas Corridor, which was the dream of many European leaders and officials to create an alternative to Russian gas.The attendance of several high-level dignitaries shows the interest in the pipeline and the geopolitical developments of the region. More specifically, Russia’s dominant position in the natural gas market of southeast Europe has set leaders scrambling to find alternatives or at least competition of producers.The fraught relations between Russia and Ukraine brought these countries on a collision course. However, due to historical reasons the energy industries of Moscow and Kiev have been closely intertwined. Russia has set itself an ambitious goal of circumventing Ukraine as its main transit country for gas exports. The Turk Stream and Nord Stream 2 pipelines, which are either planned or under construction, will carry much of the needed gas to Europe starting in 2019 when a new transit contract has to be signed with Kiev.Ukraine intends to diversify away from and ultimately stop buying gas from Russia. The Southern Gas Corridor, therefore, is a highly anticipated alternative. The attending of Petro Poroshenko at the opening ceremony is a testament to this goal. Already Ukraine importing gas from neighbouring European countries with plans to increase domestic production of natural gas.   The election of a new government in Italy has brought change to the strategic energy map, which for a decade seemed to be fixed. The €40 billion Southern Gas Corridor pipeline bringing Azeri gas to Europe was intended to be linked to Italy’s by a yet-to-be-built Trans Adriatic Pipeline, TAP. Environment Minister Sergio Costa has dubbed TAP as “pointless” and has ordered the launch of a formal review. The TAP consortium, which includes British oil group BP, Italy's Snam and Spain’s Enagas, has said re-routing the pipeline away from Italy is not an option.

U.S., allies express concern over transfer of Libyan oil facilities (Reuters) - The United States, France, Britain and Italy said on Wednesday they were deeply concerned by an announcement that east Libyan oil fields and ports would be handed over to a parallel National Oil Corporation (NOC) based in Libya’s east. “These vital Libyan resources must remain under the exclusive control of the legitimate National Oil Corporation and the sole oversight of the Government of National Accord,” the countries said in a joint statement, referring to the NOC and U.N.-backed government in the capital, Tripoli. “We call for all armed actors to cease hostilities and withdraw immediately from oil installations without conditions before further damage occurs.” The statement responded to an announcement on Monday by forces loyal to Khalifa Haftar’s Libyan National Army (LNA) that they would hand eastern ports to a parallel NOC based in the eastern city of Benghazi. The announcement followed a week of fighting over the ports of Ras Lanuf and Es Sider, which have been controlled along with other ports in Libya’s oil crescent by the LNA since September 2016. The LNA had previously let the internationally recognized Tripoli NOC operate the ports, boosting Libya’s oil production. But after Ras Lanuf and Es Sider were attacked this month, it said oil revenues paid into the central bank in Tripoli were being used to fund its rivals. Past attempts by eastern-based factions to sell oil independently of Tripoli have been thwarted by U.N. Security Council resolutions. “Any attempts to circumvent the...Security Council’s Libya sanctions regime will cause deep harm to Libya’s economy, exacerbate its humanitarian crisis, and undermine its broader stability,” Wednesday’s joint statement said.  

Shell Exits Majnoon Oil Field In Iraq | OilPrice.com - Shell has handed over the operations of the Majnoon oilfield in Iraq to Iraqi state-run Basra Oil Company, exiting the field as it said last year it would do, Reuters reported on Wednesday, citing two Iraqi oil officials close to the deal.Last year, Shell said that it would sell its interest in the Majnoon oilfield after the oil major and Iraq failed to agree on future production plans and investment budgets. After months of negotiations, Shell agreed at the end of 2017 to exit the venture and hand over its operation to Basra Oil Company (BOC) by the end of June 2018. Shell was the operator and holder of 45 percent at Majnoon, with Malaysia’s Petronas owning 30 percent, and Iraq’s Missan Oil Company holding the remaining 25 percent.At the end of December, Iraq said that it had formed a management team to take overoperations from Shell after the oil major exits the field by the end of June. Iraq wants to raise production at Majnoon from the current 235,000 bpd to around 400,000 bpd in the “coming years”.Today, officials from Shell and Basra Oil Company met to mark the handing over of the operations of the field.“The handing over process was smooth and without any issues,” one Iraqi oil official told Reuters after the meeting.In April, Anton Oilfield Services and Petrofac signed a two-year deal with Iraq’s oil ministry to operate the Majnoon field on behalf of Basra Oil Company. “Shell’s exit will not have any effect on production operations and we can increase output without any hurdles,” another Iraqi official told Reuters, commenting on the handover. Shell, for its part, is focusing on its gas operations and joint ventures in Iraq, and sold in March its 19.6-percent stake in the West Qurna 1 oil field to a subsidiary of Japan’s Itochu Corporation for US$406 million.

Kuwait says Neutral Zone oil production halted until deal reached with Saudi - Oil production at the Neutral Zone between Saudi Arabia and Kuwait will resume when the two sides reach a deal, Kuwait’s oil minister said on Tuesday.Bhakeet Al-Rashidi told parliament production was stalled “due to technical reasons”, according to Kuwait news agency KUNA.He said the two sides were “tackling the matter” and production would resume “as soon” as they reached an agreement.Kuwait said in late 2016 it was preparing to restart production at oilfields in the zone after production was previously halted. At the time the closure of the fields, mainly Khafji and Wafra, had become a political sticking point.Khafji was shut in October 2014 for environmental reasons and Wafra has been shut since May 2015 due to operating difficulties.Before its closure Khafji, operated by Kuwait Gulf Oil Company and a Saudi Aramco subsidiary, was producing between 280,000 and 300,000 barrels per day, according toReuters. The Wafra field has an output capacity of about 220,000bpd of Arabian Heavy crude. US oil major Chevron operates the field on behalf of the Saudi government.

OPEC’s Agreement Sends Oil Prices Soaring - OPEC issued a communique on Friday that called on a return to 100 percent compliance for the group, down from 152 percent in May. The announcement deferred country-specific allocations, likely because they could not agree on the details. The decision likely means that any country with spare capacity will be able to boost production. In practice, Saudi Arabia and Russia will carry the lion’s share. How individual countries make decisions about how much to produce, while still trying to stay below a collective cap, opens up a lot of uncertainty.  Oil prices moved up on Friday morning, on expectations that the result from the OPEC+ meeting won’t lead to a supply glut. In recent days, there seemed to be a bit of convergence on a plan to boost production, perhaps by around 600,000 bpd. That amount would merely offset the declines from Venezuela over the past year, and would not plug the entire supply deficit facing the market. “The market caught up a little in terms of realizing that the rumored increase was less than what is necessary to balance the market,” Emily Ashford, director of energy research at Standard Chartered, told the WSJ. “Any increase in production will come at the expense of spare capacity so that leaves the market much more vulnerable to future supply shocks,” she added.  OPEC’s technical committee recommended a supply increase of about 1 million barrels per day, although press reports widely noted that such an increase would likely only be nominal, and actual barrels put onto the market would reach only about 600,000 bpd because several countries have no ability to boost output. The recommendation came even as Iranian oil minister Bijan Zanganeh walked out of a meeting on Thursday night, although he met with his Saudi counterpart Friday morning. The discord likely led to the vague decision on 100 percent compliance, rather than on country-specific increases.

U.S. Shale Companies Motor Ahead Despite OPEC - WSJ - OPEC’s decision last week to increase production modestly is seen as an attempt to keep prices elevated without creating a spike. The move eased concerns among the member countries about tightening supply and the potential for a price spike, but it also lifted the stock prices of U.S. oil producers, which have learned to survive at whichever price OPEC pursues.“We’re not running our business based on what OPEC does regarding supply,” said Doug Lawler, chief executive of Chesapeake Energy Corp. , a pioneer of shale drilling. “We just have to respond accordingly and focus on the technology and the innovation that helps us be efficient regardless of the price.”U.S. production has grown at a record-setting pace this year, hitting 10.9 million barrels a day this month after oil prices exceeded $70 a barrel for the first time since 2014. That makes the U.S. the world’s No. 2 oil producer behind Russia, but ahead of Saudi Arabia.  OPEC members, plus Russia, came to an agreement two years ago to cut production to shrink excess supply and prop up prices. At the meeting last week in Vienna, OPEC ministers cobbled together a deal to reverse course and boost oil output by an effective 600,000 barrels a day to head off a possible run to $100-a-barrel oil. Russia said over the weekend that it would support OPEC’s efforts.  Now U.S. shale companies are again in position to benefit from OPEC’s market-balancing actions.  Speaking at the meeting in Vienna, Scott Sheffield, chairman of Pioneer Natural Resources Co. , said the company has a shared interest with OPEC in preventing overheated prices. High prices generate a short burst of profits but can undermine economic growth and tamp down demand.   Mr. Sheffield said: “$100 is not going to help OPEC. It’s not going to help us in the Permian.” His company is one of the top drillers in the Permian Basin of West Texas and New Mexico. OPEC’s new barrels also come at an opportune time for shale companies, which are facing production-threatening infrastructure constraints in the Permian, the country’s most active drilling region. Analysts say Permian producers might have to scale back drilling until new pipelines come online in 2019.

5 things investors need to know about OPEC's decision to lift oil output  The Organization of the Petroleum Exporting Countries agreed on Friday to rein in member production cuts, essentially lifting output to help make up for an expected shortfall in global supplies. The expected output increase, however, appears likely to be smaller than market participants had expected.  In a statement, OPEC said it has “decided that countries will strive to adhere to the overall conformity level of OPEC-12, down to 100%, as of 1 July 2018 for the remaining duration of the above mentioned resolution and for the JMMC to monitor and report back to the President of the Conference.” OPEC also granted membership to Congo and set its next regular meeting for Dec. 3. Doing the math from the figures offered in the official OPEC statement from the conference, OPEC members agreed to add back 624,000 barrels a day into the global market, according to one analyst’s estimates.In a meeting on Friday, the Joint Ministerial Monitoring Committee pegged member compliance with production-cut agreement reached in late 2016 and implemented in 2017 at 152% in May of this year. The original deal called for output reductions of 1.2 million barrels a day from late 2016 levels from 12 of the 14 OPEC members at that time. With compliance at 52% above the agreed upon reductions, OPEC was essentially over complying—cutting roughly 1.8 million barrels a day. To get back to 100% compliance, OPEC members would have to add 624,000 barrels a day in output.As Khalid al-Falih, Saudi Arabia’s energy minister, left Friday’s meeting, he said the agreement was to increase oil production by 1 million barrels a day, according to various news reports.That 1 million-barrel figure was not mentioned in the official statement. That suggests a possible concession to Iran, according to the Financial Times, which faces renewed U.S. sanctions after President Donald Trump abandoned the 2015 nuclear deal with Tehran. The sanctions threaten oil supplies from Iran. Iran had opposed the calls for an output increase, but appeared to smooth over differences with Saudi Arabia just ahead of the Friday meeting. Nigerian oil minister Ibe Kachikwu said the 1 million-barrel agreement would see OPEC members raise output by at least 700,000 barrels a day, with non-OPEC countries, led by Russia, adding the rest, according to the Financial Times report.

OPEC "Deal" Ends With Output Confusion, Sets Stage For "Deal Unraveling" -- Just 24 hours after OPEC appeared on the edge of splintering, Iran seemed to cave and in a deal that was described as a victory for everyone, OPEC member states and Russia provided a vague assurance they would boost output by striving to return to full compliance of the original production quotas as set in the 2016 Vienna production cut agreement.  As Goldman summarized in its post-mortem, "no further details were provided, including no country level allocation, no guidance for non-OPEC participants or timeline for the increase." Furthermore, during the press conference following Friday's deal, the one question which never got an explicit answer is how much output would be boosted by, with little clarity shed beyond “targeting full compliance at the group level”. This suggests that there is room for countries with spare capacity to increase production above the individual quotas but also that such adjustments could not be resolved. As a result, Goldman's energy analyst Damien Courvalin said that he views today’s agreement "as masking disagreements within the group and a potential start to the unraveling of the deal, with core-OPEC and Russia looking to increase production but Iran opposing such an increase." Bloomberg's Javier Blas confirmed as much, noting that Friday’s agreement was a "fudge in the time-honored tradition of OPEC, committing to boost output without saying which countries would increase or by how much" a fudge which gave every member - especially Iran which by endorsing a production boost would have been seen as effectively approving of Trump's sanctions and allowing other states to take its market share - an "out" to save face, by sufficiently masking up the details so no explicit accusations of backtracking can be made. Importantly, "it gives Saudi Arabia the flexibility to respond to disruptions at a time when U.S. sanctions on Iran and Venezuela threaten to throw the oil market into turmoil."  So what is the actual production boost? This is where the confusion really sets in. First, here is Goldman's take: Several ministers suggested that this would correspond to a 0.7 mb/d increase in production, which would represent OPEC returning to its aggregate production quota. Such an increase in production would likely only be gradual, leaving it on a path close to our base case 550 kb/d increase in 3Q18. While production could exceed our 550 kb/d expectation for 4Q18, we see risks that Iran production may be even lower than we assume. Bloomberg referenced a similar number, noting that the deal could add about 700,000 barrels of daily supply from OPEC and non-OPEC producers. On Saturday morning, however, the discrepancy grew, with various soundbites estimating the boost based more on political tensions than actual production dynamics, and ranging from under 500kb/d to over 1 million:

What Saudi Arabia does now is key for global crude oil markets (Reuters) - If it were possible to boil the crude oil market down to just one determining factor for the coming months, it would be this: What will Saudi Arabia actually do? The Saudis appear to have emerged as the winners from last week’s meeting of the Organization of the Petroleum Exporting Countries (OPEC), and the subsequent talks between OPEC and its allies in the deal to restrict output. The outcome of the meetings would seem to indicate that crude oil supply should rise by as much as 1 million barrels per day (bpd). That’s based on the assumption that OPEC and allies will return to 100 percent compliance with the November 2016 cut of 1.8 million bpd from a current situation of over-compliance. However, the reality on the ground is that many OPEC countries lack the ability to pump their full quotas. Saudi Arabia is the only producer that can ramp out output significantly within a short period of time. The market consensus after the OPEC meeting in Vienna on June 22, and the talks with non-OPEC allies the following day, was that the agreements reached wouldn’t actually result in an extra 1 million bpd reaching global markets. While there is some debate on the likely increase in supply, the upper end of the range is around 600,000 bpd. The question is whether this would be enough to prevent prices from rallying again. Given that the Saudi Arabia, the world’s largest crude exporter, is going to have to provide the lion’s share of any increase in output, watching its export numbers and price signals in the coming months will be key. In fact, the Saudis already are supplying more crude, according to vessel-tracking and port data compiled by Thomson Reuters Oil Research and Forecasts. Saudi seaborne crude exports were 7.06 million bpd in May, the most in a year, the data shows.

Saudi pledges 'measurable' oil supply boost as OPEC, Russia agree deal (Reuters) - OPEC agreed with Russia and other oil-producing allies on Saturday to raise output from July, with Saudi Arabia pledging a “measurable” supply boost but giving no specific numbers. The Organization of the Petroleum Exporting Countries had announced an OPEC-only production agreement on Friday, also without clear output targets. Benchmark Brent oil rose by $2.5 or 3.4 percent on the day to $75.55 a barrel. On Saturday, non-OPEC oil producers agreed to participate in the pact but a communique issued after their talks with the Vienna-based group provided no concrete numbers amid deep disagreements between OPEC arch-rivals Saudi Arabia and Iran. U.S. President Donald Trump was among those wondering how much more oil OPEC would deliver. “Hope OPEC will increase output substantially. Need to keep prices down!” Trump wrote on Twitter after OPEC announced its Friday decision. The United States, China and India had urged oil producers to release more supply to prevent an oil deficit that could undermine global economic growth. OPEC and non-OPEC said in their statement that they would raise supply by returning to 100 percent compliance with previously agreed output cuts, after months of underproduction. Saudi Energy Minister Khalid al-Falih said OPEC and non-OPEC combined would pump roughly an extra 1 million barrels per day (bpd) in coming months, equal to 1 percent of global supply. Top global exporter Saudi Arabia will increase output by hundreds of thousands of barrels, he said, with exact figures to be decided later. “We already mobilized the Aramco machinery, before coming to Vienna, pre-empting this meeting,” Falih said, referring to the Saudi state oil company. Russian Energy Minister Alexander Novak said his country would add 200,000 bpd in the second half of this year. Asked to what extent the decision to increase supply had been driven by pressure from Trump, Novak said: “It is obvious that we are not being driven by tweets but base our actions on deep market analysis.” 

Oil prices settle lower, with Brent leading the drop, in the wake of OPEC’s gathering - Oil prices settled lower on Monday, with global benchmark Brent crude leading the decline, amid some uncertainty in the wake of an agreement by the Organization of the Petroleum Exporting Countries to ramp up production that was backed by nonmember Russia.August West Texas Intermediate crude on the New York Mercantile Exchangegave up an earlier climb to lose 50 cents, or 0.7%, to settle at $68.08 a barrel, returning a small portion of Friday’s 4.6% climb. August Brent crude fell 82 cents, or 1.1%, to $74.73 a barrel on the ICE Futures Europe exchange.The spread between the two benchmarks has narrowed in recent days, with analysts attributed at least part of the better performance in WTI prices on a crude production outage in Canada that is expected to tighten the U.S. market.   The “OPEC meeting ended with the existing deal being left unchanged but the group aiming to reduce over-compliance and to get output back to the originally-intended levels,” said analysts at JBC Energy Research Centre, in a note dated Monday. “But members clearly differ in their interpretation of the deal as the actual wording of the communiqué is not exactly clear enough.” “Saudi Arabia has essentially argued that those who have spare capacity can now produce more to make up for producers who cannot meet their quota,” they said. “On the other hand, Iran sees such a quota reallocation as a breach of the deal and thus expects the real supply response to be rather small.”

WTI Extends Gains After Biggest Crude Draw Since Sept 2016 - WTI/RBOB prices soared today on the heels of Iran oil sanction threats from Washington. With expectations of further draws (after last week's big surprise draw), API reported a massive 9.22mm barrel draw - the biggest since Sept 2016. API:

  • Crude -9.22mm (-3mm exp) - biggest draw since Sept 2016
  • Cushing -1.741mm (-1.3mm exp)
  • Gasoline +1.152mm
  • Distillates +1.75mm

Following last week's surprising large crude draw (but product builds) API reported a 9.22mm crude draw - which if it holds for EIA, will be the biggest draw since Sept 2016... WTI topped $70 - highest in a month - after US sanction threats against Iran trumped Saudi output increase headlines. Heading into the API print, WTI was flatlined at around $70.50, before kneejerking higher on the API print

Oil Prices Rise After API Reports Major Crude Draw -- As oil prices continues to fall, the American Petroleum Institute (API) reported a major draw of 9.228 million barrels of United States crude oil inventories for the week ending June 22 compared to analyst expectations that this week would see a much smaller draw in crude oil inventories of 2.572 million barrels. Last week, the American Petroleum Institute (API) reported a draw of 3.016 million barrels of crude oil. The API reported another buildup in gasoline inventories for week ending June 22, this week in the amount of 1.152 million barrels. This was close to analyst expectations of a build of 1.313 million barrels. Crude oil prices spiked today on the back of anticipated oil export disruptions in Libya after the Libyan National Army said it had passed control of the country’s oil ports to a non-officially recognized National Oil Corporation affiliated with the eastern government of the country based in Benghazi. Further support to oil prices come as the United States continues to pressure countries to cease buying oil from Iran. By 3:40pm EDT, WTI was trading at $70.43, up $2.35 (+3.45%). Brent crude was trading at $76.15, up $1.60 (+2.15%). US crude oil production stagnated for the first week in many months, reaching 10.9 million bpd in the week ending June 08, holding fast for the week ending June 15, according to the EIA. Distillate inventories saw a build this week of 1.785 million barrels, compared to an expected build of 774,000 barrels, while inventories at the Cushing, Oklahoma, site fell again this week, by 1.741 million barrels. The U.S. Energy Information Administration report on crude oil inventories is due to be released on Wednesday at 10:30am EDT. By 4:36pm EST, oil prices held steady, with the WTI benchmark trading up 3.61% on the day to $70.54 and Brent trading up 2.31% at $76.27.

WTI-Brent Spread Narrows On Canada Oil Crisis -- The difference between WTI and Brent narrowed significantly over the past few days, as the forces driving the two benchmarks apart seemed to have reversed course.For the past few weeks and months, WTI suffered a steep discount relative to Brent, a reflection of a series of factors that made North America well supplied with oil, while the rest of the world saw supplies tighten significantly. U.S. shale production has soared over the past few years, but really accelerated at a blistering pace in 2018. North America has been overflowing with oil, and much of the additional supply has been routed through Gulf Coast export terminals, if producers can get their oil out of West Texas.  The result was a sort of two-speed oil market – ample supplies in the U.S., and an increasingly tight market everywhere else.The discount widened to nearly $10 per barrel in June, a staggering differential.But in a surprising turn of events, the two benchmarks converged significantly in the past few days. A week ago, the price differential topped $9 per barrel, but the gap narrowed to $6 per barrel as of Monday. The reasons for this are multiple, but they largely come down to the fact that the fortunes of both benchmarks suddenly flipped. OPEC+ decided to add more oil onto the market last week – nominally 1 million barrels per day, but in reality something more akin to 600,000 bpd. That has eased fears about a supply crunch. Meanwhile, the supply/demand balance in North America suddenly looks a bit tighter than it did earlier this month. The pipeline constraints in the Permian are starting to bite, and there are growing expectations that shale drillers will have to curb output growth because available takeaway capacity has all but vanished. More importantly, at least in the near run, was the unexpected outage from an oil sands project in Canada. Syncrude Canada saw an equipment malfunction that could reduce flows from Canada by 360,000 bpd for the month of July, “putting Cushing potentially on a path to an inventory stockout,” according to a note from Goldman Sachs. “With the global market pricing to pull crude out of the U.S., this loss of U.S. supplies will exacerbate the current global de?cit, making the increase in OPEC production all the more required.” The expected loss could translate into a reduction in inventories by around 14 million barrels. The outage in Canada led to a “sharp repricing of North American crudes with sharply stronger WTI timespreads and tighter differentials,” Goldman wrote. The cash vs. front-month WTI differential went from essentially nothing to nearly $3 per barrel immediately after Syncrude Canada’s announcement. In other words, investors became worried about the immediate availability of supply.

Analysis: US exports in focus as Brent/WTI spread converges -- With stocks at Cushing, Oklahoma, falling steadily of late, the ICE Brent/WTI spread has closed sharply, lessening the incentive for US producers to ship crude overseas in pursuit of higher prices. Market observers will be watching US export figures in the coming weeks to gauge whether the price signals have had an impact. While ICE Brent's premium to WTI has nearly halved since late May, it remains within the $3/b-$7/b range seen from August until mid-May, when US crude exports hit record highs on several occasions. Greater exports have helped tighten US crude inventories, offsetting the fact that domestic production has climbed to 10.9 million b/d. US crude stocks were 1.2% below the five-year average at 426.527 million barrels the week ending June 15. Analysts surveyed Monday by S&P Global Platts expect crude stocks fell 2.3 million barrels last week. If confirmed, that would further grow the size of the deficit to the five-year average. Stocks actually saw a slight build of around 40,000 barrels on average for the same period from 2013-17, according to Energy Information Administration weekly inventory data. US crude exports have averaged 2.074 million b/d over the last four weeks, versus 775,000 b/d over the same period a year ago. That is not surprising in light of the ICE Brent/WTI spread blowing open from less than $6/b in early May to more than $11/b a month later. S&P Global Platts Analytics estimated US crude exports averaged 1.959 million b/d last week. That forecast is derived using cFlow ship tracking data. EIA pegged exports at 2.374 million b/d the week ending June 15. 

Oil Bulls Are Back On Outages -- Oil prices moved up on Tuesday after reports of outages in Canada and ongoing uncertainty in Libya. The market seems to have digested the news of higher OPEC+ production, and is now moving on. The increase from OPEC+ may only reach 600,000 bpd or so, while the outages in a series of countries are accumulating. The fears of another downturn in prices in the lead up to the OPEC meeting are now in the rearview mirror. Syncrude Canada suffered an equipment malfunction at one of its oil sands facilities, which could disrupt as much as 360,000 bpd for the month of July. The outage significantly narrowed the WTI-Brent discount, pushing up WTI on expectations of much tighter supplies in North America. Lower flows from Canada could drain inventories at the Cushing hub in Oklahoma, a closely-watched metric that helps determine WTI prices. “With the global market pricing to pull crude out of the U.S., this loss of U.S. supplies will exacerbate the current global deficit, making the increase in OPEC production all the more required,” Goldman Sachs analysts wrote. . Royal Dutch Shell gave the greenlight to a project in the North Sea, the second for Shell in the region in the past six months. The natural gas project was deemed uneconomical six years ago, but Shell has dramatically reduced costs. Shell will produce from two wells in the Fram field in the central North Sea by 2020. The project is not a massive one, but it illustrates how Shell and other companies have boosted the viability of the North Sea. . A group of companies including Kinder Morgan Texas Pipeline LLC, a subsidiary of Kinder Morgan, EagleClaw Midstream Ventures LLC and Apache Corp. announced they have signed a letter of intent to develop the Permian Highway Pipeline Project, which would carry natural gas from the Permian to the Gulf Coast. The $2 billion PHP project would move 2 billion cubic feet of natural gas per day (bcf/d) from Waha, Texas to the Texas Coast and to Mexico, and the companies aim to bring it online in late 2020.

Oil Surges Above $70 On Concerns Of Iran Output Cut -  So much for the Saudi "record production" intervention in pushing the price of oil lower: while the news did briefly send crude down, it immediately spiked following news that the US would also press allies to cut Iran oil imports to zero, effectively removing up to a million barrels from the market, and the result has been a sharp spike higher in the price of WTI, which has jumped above $70 for the first time since May 25. The Iran announcement was expected, and followed President Trump’s warnings that European nations should scale back their trade with the Islamic Republic or face sanctions after the US withdrawal in May from the Iran nuclear deal and administration.  In the Tuesday briefing, the State Department official said that while the administration wouldn’t rule out waivers or extensions to the November deadline, which was previously announced, it isn’t discussing them either. The official, who spoke on condition of anonymity, said the U.S. was planning conversations with the governments of Turkey, India and China, all of which import Iranian oil, about finding other supplies. The official said an important part of those discussions was making sure countries aren’t “adversely affected” by cutting Iranian oil imports.According to Bloomberg, in 2017 Iran shipped 755,000 barrels a day to European customers on average, and 1.37 million barrels a day to Asia-Pacific buyers, according to data from the Organization of Petroleum Exporting Countries.As Bloomberg's Javier Blas shows, here is a list of Iran's top energy clients.CHART OF THE DAY: With U.S. asking allies to cut imports of Iranian oil to ZERO by November, here who's who among Tehran energy clients -- via @EIAgov  Full story here: https://t.co/pNWFJXxXxq #OOTT pic.twitter.com/dZEinH6cuC — Javier Blas (@JavierBlas2) June 26, 2018

    Saudis Plan Record Oil Production As US Tells Allies To Cut Iran Oil Imports To Zero -- Just hours after the US Energy Secretary Rick Perry told reporters that deal between OPEC and Non-OPEC countries may "not be enough" to relieve supply constraint stress in global oil markets, Saudi Arabia has reportedly decided to take matters into its own hands, and according to Bloomberg the kingdom is planning to pump a "record amount of crude in July, embarking on one of its biggest-ever export surges to cool down oil prices."Effectively Saudi Arabia is doing unilaterally what last week's OPEC meeting failed to collectively by assuring the world of a major production boost, thereby pushing the price of oil lower, as Trump had been demanding.According to Bloomberg reports, Saudi state oil giant Aramco plans to boost production next month to about 10.8 million barrels a day, the people said, in the process surpassing the previous record high of 10.72 million barrels a day in November 2016.The move, as Bloomberg adds illustrates the "unprecedented response to the pressure U.S. President Donald Trump has put on OPEC to supply more oil."  The monthly increase would mark an unprecedented monthly surge in output from a nation which in May told OPEC it pumped 10.03 million barrels a day. The actual production level in July will depend on demand for exports and domestic consumption, so could end up ranging between 10.6 million and 11 million barrels a day, the people said. Domestic oil use surges during summer months as the kingdom burns crude to generate electricity for air conditioning. The Saudis have been under growing pressure from Trump to pump more oil ahead of the U.S. midterm elections in November, and to lower prices which have threatened to undo the economic boost from Trump's tax cuts Coincidentally, as Bloomberg broke the news about the imminent Saudi boost, a State Department official said that the U.S. is pushing allies to cut oil imports from Iran to zero by Nov. 4, adding that the U.S. isn’t granting waivers on Iranian oil imports ban.If fully complied, the actions may remove as much as 1 million barrels of oil from the market.The irony, however, is that the confluence of these two reports, first sent the price of oil sliding on the Saudi report, followed by a modest boost on the Iran news, thereby perhaps assuring more angry tweets from the president.

    Oil rises as outages balance trade dispute, OPEC (Reuters) - Oil prices rose on Tuesday, supported by Canadian production losses and uncertainty over Libyan exports, but under pressure from climbing OPEC supply and intensifying trade conflicts between the United States and other major economies. Benchmark Brent crude (LCOc1) was up 35 cents at $75.08 a barrel by 0720 GMT. U.S. light crude (CLc1) was 35 cents higher at $68.43 a barrel. Brent, which tends to reflect global supply and demand, was driven up by uncertainty around oil exports by Libya, a member of the Organization of the Petroleum Exporting Countries. Eastern Libyan commander Khalifa Haftar's forces have given control of oil ports to a separate National Oil Corporation (NOC) based in the country’s east. The official state-owned oil company from the capital Tripoli, also called NOC, will no longer be allowed to handle that oil, he said. "The move increases the risk that Libyan oil output will be shut in as the NOC in Tripoli is the only legal entity with the right to sell oil,"  Production problems at one of Canada’s largest oil sands facilities drove front-month U.S. crude to its highest premium above second-month futures since 2014. Higher feedstock crude oil prices, as well as surging fuel exports from China, have pulled down Asian refinery product margins to two-year lows.Uncertainty over Libya's exports follows a move by OPEC and other oil producers to increase supply by around 1 million barrels per day (bpd). Oil markets have tightened significantly since 2017, when OPEC and its partners started withholding supply to prop up slumping prices at the time. But some analysts think oil markets will stay tight. "Despite the OPEC agreement (last week) we believe that tight supply is likely to drive oil prices higher during 2018,"

    After OPEC, oil market enters a new era: Kemp (Reuters) - OPEC is changing fundamentally as power in the oil market shifts towards Saudi Arabia, acting in concert with Russia, while the other members of the organisation are increasingly marginalised. In theory, all members of the Organization of the Petroleum Countries are equal, and the group has always taken decisions by consensus ("Statute of the Organization of the Petroleum Exporting Countries", 1961 and 2012). OPEC's founding statute stipulates that it “shall be guided by the principle of sovereign equality of its member countries" (Article 3). In practice, some members of OPEC have always been more powerful than others, but that imbalance has been widening, with Saudi Arabia becoming the dominant decision-maker. Saudi Arabia's oil production overtook Iran's in the 1970s, and the gap has grown steadily wider as a result of the Iranian revolution, the Iran-Iraq war and multiple rounds of sanctions. Saudi Arabia is the only member of the organisation with a large enough share of output to have a measurable influence prices and the budgetary flexibility to adjust its production significantly. In reality, Saudi Arabia decides how much to produce given market conditions, playing the role of swing producer, while the other members of the organisation essentially produce as much as they are technically able. 

    Oil rallies to fresh high as US crude inventories see biggest drop since 2016 – Oil rallied more than 3% on Wednesday to its highest level this year as data showed US crude inventories last week saw the largest drawdown since 2016. West Texas Intermediate climbed as much as 3.3% to $73.04 a barrel. Brent, the international benchmark, was up 1.9% to $78.16 a barrel around 12:45 p.m. ET. A report by the Energy Information Administration showed US crude inventories dropped by 9.9 million barrels in the week ending June 22, the largest decline since September 2016. Analysts had expected a drawdown of less than half that. Prices had already been rallying this week after the US said all countries must stop buying oil from the Islamic Republic by November or face sanctions, as part of Trump's withdrawal from the Iran nuclear deal. The international community had expected sanctions waivers for some countries, a tactic used in the Obama era to avoid supply shocks.Supply disruptions in Canada have also offered support to crude. An outage at Syncrude has threatened to withdraw about 350,000 barrels per day from the market through at least July, adding to a mounting list of major producers where output is at risk, including in Venezuela and in Libya. "With renewed geopolitical risk factors likely to stimulate concerns of supply disruptions, oil prices have scope to extend gains in the near term," . The rally comes days after OPEC and other supply-cutting countries led by Russia reached a deal officials said was partly designed to prevent market overheating. As part of a 2015 agreement to coordinate production levels, the cartel said it would increase output beginning in July.  WTI is up nearly 60% over the year.

    Oil stocks drop by nearly 10 million barrels: EIA (Reuters) - U.S. crude stocks fell by nearly 10 million barrels last week as refineries hiked output, while gasoline and distillate inventories rose, the Energy Information Administration said on Wednesday.  Crude inventories fell by 9.9 million barrels in the last week, compared with analysts’ expectations for a decrease of 2.6 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 2.7 million barrels, EIA said. Refinery crude runs rose by 115,000 barrels per day, EIA data showed. Refinery utilization rates rose by 0.8 percentage points. Gasoline stocks rose by 1.2 million barrels, compared with analyst expectations in a Reuters poll for a 1.3 million-barrel gain. Distillate stockpiles, which include diesel and heating oil, were up by 15,000 barrels, versus expectations for a 774,000-barrel increase, the EIA data showed.  Net U.S. crude imports fell last week by 512,000 barrels per day.

    Hefty Inventory Draw Boosts Oil Prices -- A day after the American Petroleum Institute helped push crude prices even higher by estimating a 9.228-million-barrel draw in U.S. crude oil inventories, the EIA confirmed the draw, at 9.9 million barrels for the week to June 22.This compares with a draw of 5.9 million barrels reported for the prior week and analyst expectations for a draw of 5.1 million barrels. Amid stubbornly rising oil prices despite the OPEC+ decision to add close to 1 million bpd to global supply, the EIA also reported an increase in gasoline inventories of 1.2 million barrels. That compares with a 3.3-million-barrel increase in gasoline inventories reported for the previous week. Refineries processed 17.8 million barrels daily last week, with gasoline production at an average 10.1 million bpd, slightly higher than a week earlier. Distillate inventories remained unchanged, compared with a 2.7-million-barrel increase a week earlier. Production averaged 5.4 million barrels daily, down slightly from 5.5 million barrels daily a week earlier.  Oil prices have remained highly volatile after OPEC’s meeting in Vienna, not least because traders expected a bigger cut but also because the U.S. State Department has increased the pressure on its international allies to stop importing crude oil from Iran.  Despite President Trump’s tweet campaign against OPEC, in which he accused the cartel of “artificially” keeping prices high, it is now Washington’s determination to cut Iran’s access to international oil markets that is adding fuel to the price rally. Analysts are already revising their estimates of the supply outage that will result from the entry into force of U.S. sanctions in November, and refiners from Asia are starting to reduce their shipments from Iran. Additionally, a power outage at a Syncrude oil sands mine in Canada and a spike in oil export uncertainty in Libya have contributed to the higher prices, basically erasing the knee-jerk price decline from last week as the market anticipated OPEC’s decision.

    Saudi Arabia plans to pump up to 11 mln bpd in July, all-time record high – source (Reuters) - Saudi Arabia plans to pump up to 11 million barrels of oil in July, the highest in its history, up from about 10.8 million bpd in June, an industry source familiar with Saudi oil production plans told Reuters on Tuesday.  OPEC agreed with Russia and other oil-producing allies on Saturday to raise output from July by about 1 million bpd, with Saudi Arabia pledging a “measurable” supply boost but giving no specific numbers.

    WTI Spikes Above $72 After Biggest Crude Draw Since Sept 2016 -- WTI continues to soar this morning, near $72, after API reported a huge crude draw, and DOE confirmed it with a 9.891mm draw - the biggest since Sept 2016. WTI spiked above $72, helped by the second week in a row of no production increase. Bloomberg Intelligence Senior Energy Analyst Vince Piazza explains that unplanned downtime at a Canadian syncrude upgrading facility may be contributing to an uplift in domestic crude demand. Refining utilization is expected to remain elevated after hitting 96.7% in the previous reporting period, while crude oil exports are well-entrenched above 2 million barrels a day.  DOE:

    • Crude -9.891mm (-3mm exp) - biggest draw since Sept 2016
    • Cushing -2.713mm (-1.3mm exp)
    • Gasoline +1.156mm
    • Distillates +15k

    DOE confirmed the massive crude draw this week - even bigger than API's - the biggest since Sept 2016  Crude exports soared to a record 3mm barrels last week... Crude oil production is just 100,000 barrels a day shy of the 11 million bpd mark, as drillers have been running at full speed ahead. With U.S. prices back above $70 a barrel, we expected continued growth in production, but instead it flatlined at 10.90mm bpd as perhaps the Permian bottleneck is starting to impact production explicitly.

    U.S. oil prices settle at highest since 2014 as crude supplies notch biggest weekly drop of the year - Oil prices rallied Wednesday, with the U.S. benchmark settling at its highest since 2014 as domestic crude supplies notched their biggest weekly drop of the year so far.Traders also showed concerns over U.S. threats to sanction countries that don’t stop importing oil from Iran by Nov. 4. On the New York Mercantile Exchange, August West Texas Intermediate crude  tacked on $2.23, or 3.2%, to settle at $72.76 a barrel. That was the highest finish since Nov. 26, 2014. August Brent crude, the global benchmark, settled $1.31, or 1.7%, at $77.62 a barrel on ICE Futures Europe, for the highest finish since May.The U.S. Energy Information Administration reported Wednesday that crude supplies declined by 9.9 million barrels for the week ended June 22—the largest weekly decline so far this year. Analysts surveyed by S&P Global Platts had forecast a fall of 2.3 million barrels, while the American Petroleum Institute on Tuesday reported a drop of 9.2 million barrels.“Record crude exports and record refinery runs have combined to yield the biggest draw to crude stocks so far this year,” said Matt Smith, director of commodity research at ClipperData. “Even crude production holding at a record level has been unable to offset strong domestic and international demand.” The EIA pegged last week’s total domestic crude output at 10.9 million barrels a day, unchanged from the previous week.Gasoline stockpiles rose by 1.2 million barrels for the week, while distillate stockpiles were unchanged for the week, according to the EIA. The S&P Global Platts survey forecast supply increases of 160,000 barrels for gasoline, and 500,000 barrels for distillate stocks.On Nymex Wednesday, July gasoline RBN8, +0.65%  rose 2.8% at $2.134 a gallon and July heating oil RBN8, +0.65%  ended at $2.177 a gallon, up 2.3%.  July natural gas rose 1.9% to $2.996 per million British thermal units. The contract expired at the end of the trading session. “We would have seen gasoline prices go up much further today if it were not for gasoline imports that approached 1 million barrels per day,” The oil-price gains came after Brent and WTI closed up Tuesday by more than 2% and nearly 4%, respectively, following threats by the U.S. to sanction countries that don’t cut their imports of Iranian crude to “zero” by Nov. 4. Tuesday’s announcement by the U.S. State Department “may well have been designed to ramp up the pressure on the Iranian regime, but it is also likely to exert further upward pressure on U.S. prices,”

    Analysis: US crude differentials swing sharply on undulating Brent-WTI spread - Spot price differentials for US crude grades soared in recent weeks to multiyear highs amid widening Brent-WTI spreads, with June on track to be the strongest month in four years for many grades. But market reaction to Friday's OPEC/non-OPEC coalition agreement to increase production put a quick and steep reversal to this upward trend, along with tightening supply at the Cushing, Oklahoma, hub. The Brent-WTI spread had risen sharply in May through much of June as oil production outpaced takeaway capacity from the prolific Permian Basin in West Texas, creating a localized glut that put downward pressure on WTI in the key Cushing hub, the delivery point for NYMEX light sweet crude. The front-month Brent premium over WTI averaged at nearly $7.05/b during the trading days in May, more than $2.16 higher month on month, and more than $4.30 wider compared with May last year. The discrepancy between the two benchmark crude contracts further widened in June, peaking at $11.15/b on June 7, the highest since February 2015, and was averaging at nearly $9.54/b through Friday, June 22. The widened Brent-WTI spread made WTI-linked US crude grades more attractive to domestic and international buyers compared with their counterparts that are priced off of Brent, pushing price differentials up to multiyear highs. June was on its way to reach the highest Brent-WTI spread monthly average since early 2014, but the recent OPEC/non-OPEC meeting in Vienna held Friday, where the 24 cooperating countries agreed to increase production by 1 million b/d through 2018, has changed Brent and WTI's course to a converging path. S&P Global Platts assessed the July Brent-WTI swap spread Monday at $6.78/b, nearly $2.76 lower than the average during the prior trading days in June.

    Analysis: US crude exports, refinery runs set records - Inventories dropped 9.891 million barrels to 416.636 million barrels for the week ended June 22, representing the biggest week-on-week draw since September 2016, EIA data showed. Analysts surveyed Monday by S&P Global Platts were looking for a decline of 2.3 million barrels. Crude exports rose 626,000 b/d last week to 3 million b/d, breaking the previous record of 2.566 million b/d set the week ending May 11. The amount of crude processed by refineries increased 115,000 b/d to 17.816 million b/d, the highest level on record, according to EIA data going back to 1982. Crude stocks now sit 3.57% below the five-year average for the same period; that figure equaled a 26.73% surplus a year ago. The EIA weekly data helped lift oil futures. As of Wednesday afternoon, NYMEX August crude was $2.24 higher at $72.77/b. ICE August Brent was $1.69 higher at $78/b. NYMEX crude's strength relative to ICE Brent on Wednesday extended a trend that began last week. As a result, the gap between the two crude benchmarks has narrowed sharply. The ICE Brent/WTI spread has been less than $6/b since Tuesday, in from more than $10/b early last week. A trigger behind the narrowing spread has been the shutdown of Canada's Syncrude following a power outage last week. Syncrude production could be lost through July or even later. The subsequent market reaction suggests some concern over supply around the NYMEX crude delivery point in Cushing, Oklahoma. Prompt NYMEX crude has outperformed the rest of the oil complex, which explains the narrower Brent/WTI spread along with the steeper backwardation.

    US oil exports boom to record level - U.S. oil exports reached a record 3 million barrels a day last week— a greater amount than is pumped each day by all but three OPEC countries.  When combined with fuel products, like diesel and gasoline, U.S. oil and related products exports totaled 8.5 million barrels a day last week, the most ever, according to U.S. Energy Information Administration weekly data.U.S. oil production also continued at a record pace of 10.9 million barrels a day, a level first reached this month. That is more oil than produced by every other country in the world, except for Russia, which does not belong to OPEC and pumps just over 11 million barrels a day. U.S. refineries also took in a record 18 million barrels of oil.To put U.S. exports in context, the U.S. was able to export more oil per day last week than most OPEC countries drilled. But of the largest producing OPEC countries, only Saudi Arabia and Iraq are exporting more oil than the U.S. did last week, according to John Kilduff, partner with Again Capital. In June, he said Saudi Arabia exported about 7.5 million barrels a day and southern Iraq exported 3.6 million. Iran exports about 2.4 million barrels a day, and the U.S. is seeking to remove those barrels from the market through sanctions. "The fact is we're loading crude oil for export across the Texas Gulf Coast. The biggest issue that exporters are facing is getting oil from the Permian basin to the Gulf Coast because of the lack of pipeline capacity," said Andrew Lipow, president of Lipow Oil Associates.The U.S. weekly exports fluctuate dramatically, but if they stay at this level, the U.S. would be just behind Canada, which sends about 3.5 million barrels to the U.S. each day, the bulk of of its exports. As U.S. production has grown, U.S. imports have decreased. The U.S. imported a relatively high 8.4 million barrels per day last week.The 3 million barrel level may not be sustainable just yet. Analysts said some of the oil appears to have been pulled from inventories, which fell an unusually large amount last week. “We’ve gone from zero to 3 million barrels a day in terms of crude oil exports in just over a year. It’s been a steady climb. This puts tremendous pressure on U.S. crude oil supplies despite the shale boom if this is going to persist,” said Kilduff. “The exports and the record refinery run combined created a massive draw down of nearly 10 million barrels.”

    Oil futures dip on continued record-high US production - Crude oil futures were lower in mid-afternoon trade Asia Thursday as the US continues to produce record-high crude amid higher expected output from OPEC and its allies. Despite this, market sentiments remained positive on supply disruptions from Syncrude in Canada, possible sanctions on Venezuela, staggering drawdown in US crude inventory and record-high exports. At 1:55 pm Singapore time (0555 GMT), the August ICE Brent crude futures dipped 21 cents/b (0.27%) from Wednesday's settle to $77.41/b, while the NYMEX August light sweet crude contract fell 31 cents/b (0.43%) to $72.45/b. Market participants said that production from OPEC, led by Saudi Arabia, and non-OPEC allies, led by Russia, is expected to rise after the OPEC meeting that took place in Vienna on June 22, leading to lower crude futures. Meanwhile, US domestic crude oil production remained flat week on week, albeit at a record pace of 10.9 million b/d. "Supply of crude oil in the US remains high and we expect it to increase further,"

    Oil prices diverge but U.S. benchmark holds near highest since 2014 - Oil prices climbed Thursday, with the U.S. benchmark again marking its highest level since 2014 in the wake of the biggest weekly decline of the year for domestic crude supplies and ongoing global output risks.  Traders also showed concerns that U.S. sanctions on Iranian oil and production issues at a Canadian oil sands facility will contribute to tighter global supplies.  Natural-gas prices, meanwhile, finished lower after a U.S. government report revealed an upward revision to previously reported weekly stockpiles of the fuel. On the New York Mercantile Exchange, August West Texas Intermediate crude  added 69 cents, or nearly 1%, to settle at $73.45 a barrel, for its highest finish since Nov. 26, 2014.August Brent crude the global benchmark, rose 23 cents, or 0.3%, to $77.85 a barrel, with prices settling at the highest since May. The August contract expires at the end of Friday’s session.Brent and WTI crude prices finished well off the session’s best levels. The market had been digesting threats by the Trump administration this week to sanction countries that don’t reduce their imports of Iranian crude to “zero” by Nov. 4.But CNBC reported Thursday that the U.S. State Department has clarified those comments, with an official saying that the Trump administration is “willing to work with countries that are reducing their imports on a case-by-case basis”—suggesting that imports of Iranian oil may not reach zero.President Trump last month pulled the U.S. out of a 2015 international agreement to curb Iran’s nuclear program, setting the stage for the reimposition of economic sanctions on the Islamic Republic that were already expected to hinder its oil exports. Iran currently exports around 2.4 million barrels a day of crude. Analysts had estimated that anywhere between 400,000 to one million barrels could be at risk once sanctions are fully reinstated in six months.

    Oil prices spike 13% in a week. What the heck is going on?  - The oil market is on fire once again. On Thursday, crude spiked above $74 a barrel for the first time since late 2014.The 13% surge over the past week has been driven by a confluence of bullish factors that will make American drivers cringe when they fill up their gas tanks.

    • Saudi Arabia agreed last week to go all in with production. Investors are betting the OPEC leader has little room to respond to a future crisis.
    • A major oil producer in Canada suffered a power outage, disrupting the flow of crude to the United States.
    • And President Trump stepped up his crackdown on Iran, the world's fifth biggest oil producer. The State Department is now insisting that other countries stop importing Iranian oil -- or face sanctions from Washington.

    The end result: US crude jumped another 1.5% on Thursday and topped $74 a barrel.   "You can't tweet about high oil prices and then apply sanctions on Iran and not expect prices to go higher," said Ben Cook, portfolio manager at BP Capital Fund Advisors. "The oil has to come from somewhere." It's been a wild stretch for crude. Oil prices rose sharply through the spring, as production collapsed in crisis-riddled Venezuela and traders anticipated Trump's withdrawal of the United States from the Iran nuclear deal. But crude hit a wall in late May after Saudi Arabia vowed to pump more.

    US sanctions against Iran aimed at regime change -- The Trump administration further spelled out this week the draconian sanctions it intends to enforce on Iran. A senior State Department official told the media the US would take measures against any country that failed to reduce its oil imports from Iran to “zero” by November 4. Companies that fail to meet the deadline face the prospect of being excluded from the US financial system. While not completely ruling out waivers, the US official said there were unlikely to be any exemptions for corporations buying oil from Iran. The predisposition of the Trump administration, the official said, is: “No, we’re not going to do waivers.”The announcement follows Trump’s decision on May 8 to unilaterally pull out of the 2015 nuclear deal with Iran. Known as the Joint Comprehensive Plan of Action (JCPOA), it was signed with the US, Britain, France, Germany, China and Russia. Under the JCPOA, Tehran agreed to drastic curbs on its nuclear programs in return for a step-by-step easing of international sanctions.  Despite the International Atomic Energy Agency (IAEA) repeatedly verifying that Iran kept its side of the bargain, the Trump administration tore up the deal. Washington wants to force Iran to fall into line with US policy throughout the Middle East, and end its nuclear and missile programs.  US Secretary of State Mike Pompeo warned last month that Iran would face “the strongest sanctions in history” if it did not bow to Washington’s demands. He also strongly hinted at regime change, suggesting that the Iranian public could take matters into its own hands.

    Perry: Iran sanctions will stress oil markets - Energy Secretary Rick Perry predicted Thursday that the restoration of sanctions on Iran will stress worldwide oil markets, but called on other oil-producing nations to increase their output. “The market is going to be stressed,” Perry said at a news conference at the World Gas Conference. “We look at this as an opportunity for the [Organization of Petroleum Exporting Countries] members to fill this gap."He predicted some short-term spikes in oil prices, due both to Iran sanctions and other factors. “I think there will be some spikes in prices from time to time. But ... I think that the markets are going to become calmer and calmer as we go forward, realizing that the supply is going to be there to meet the demand.” President Trump last month withdrew the United States from the Iran nuclear deal, in which Tehran agreed to restrict its nuclear weapons program in exchange for a loosening of economic sanctions by the United States and other countries. The State Department said this week that it is asking Western countries to completely stop importing Iranian oil by Nov. 4. Analysts have predicted that oil prices will spike when that deadline hits, since Iran is a significant exporter worldwide. Perry said that is likely, but didn't express much worry. “I’m quite comfortable that the world’s producers of crude are going to meet the demands that’s out there,” he said. Perry also ruled out ordering releases from the United States’ Strategic Petroleum Reserve if such price spikes occur. “From my perspective, the Strategic Petroleum Reserve is in place for an emergency, natural disasters,” he said. 

    Oil Rallies Towards $80 - Brent rose more than 1 percent in early trading on Friday, and is not far off of $80 per barrel. This week saw prices gain about 10 percent compared to last week after a combination of fears of Iran production outages, disruptions in Libya and a bullish stock draw in the U.S. It was only a week ago that OPEC+ promised to add 1 million barrels per day (mb/d) to the market, but it already feels like a distant memory with the oil bulls back on the march.  Earlier this week, a State Department official laid out what sounded like a “zero tolerance” policy for nations cutting oil imports from Iran. The official said that countries need to “zero” out their imports by November, and that it would be unlikely anyone would receive a waiver. The statement led to a spike in oil prices because the market had to dramatically revise up the assumed outage from Iran. On Thursday, a State Department official appeared to soften the line. “Our focus is to work with those countries importing Iranian crude oil to get as many of them as possible down to zero by Nov. 4,” the official said Thursday. “We are prepared to work with countries that are reducing their imports on a case-by-case basis. We are serious about our efforts to pressure Iran to change its threatening behavior.” The walking back of the “zero” imports mantra suggests the U.S. fears the fallout of pushing oil prices too high.  India’s oil minister advised its refiners to prepare for a “drastic reduction or zero” oil imports from Iran by November, due to the threat of U.S. sanctions. India, as a close neighbor and significant purchaser of oil from Iran, appears willing to wind down oil imports from Iran even as it does not recognize the sanctions as legitimate. India’s actions are an indication that Washington could wield far-reaching influence over Iran’s oil exports, even though much of the world is not lined up with the U.S. position.  Saudi Arabia reportedly will ramp up oil production to 10.8 mb/d in July, perhaps as high as 11.0 mb/d. The plans come as a series of outages around the world have pushed oil prices and left the market in a deficit. The increase in production, however, could eliminate as much as 40 percent of Saudi Arabia’s spare capacity, taking available capacity down to around 1.5 mb/d, a rather small buffer. “It basically leaves us with no spare capacity, at a time when Iran isn’t the only issue,”

    Oil Rig Count Falls Amid Stagnating Production - Baker Hughes reported another dip in the number of active oil and gas rigs in the United States today. Oil and gas rigs decreased by 5 rigs, according to the report, with the number of oil rigs decreasing by 4, and the number of gas rigs decreasing by 1.The oil and gas rig count now stands at 1,047—up 107 from this time last year.Canada, for its part, gained 12 oil rigs for the week—after last week’s gain of 21 oil and gas rigs. Despite weeks of significant gains, Canada’s oil and gas rig count is still down by 17 year over year. Oil benchmarks were up again on Friday afternoon as the market braced for the impact of multiple supply disruptions—or possible supply disruptions, rather—in Libya, Iran, Venezuela, and Canada. While oil supply disruptions in Libya, Canada, and Venezuela are already underway and expected to be either moderately long-term (Libya) in some cases, or infinite in others (Venezuela), Iran’s supply disruptions, or export disruptions, have not yet materialized, although the general consensus is that approximately 1 million barrels per day will be taken out of the market as the US squeezes Iran.At 10:57am EDT, the WTI benchmark was trading up 1.05% (+$0.77) to $74.22, with Brent up1.61% (+$1.25) to $78.86. Both benchmarks are up by multiple dollars per barrel week over week, as traders disregard Saudi Arabia’s promise to increase production to meet demand.Even US oil production is unable to keep oil prices in check, and for the third week in a row, US production stagnated at 10.9 million bpd—close to the 11 million bpd production that many had forecast for the year. At 6 minutes after the hour, WTI was trading up 1.06% at $74.23, with Brent trading up1.92% at $79.10.

    WTI rallies to fresh multi-year highs above $74 - Following a consolidation phase during the first half of the day, crude oil extended its rally in the NA session with the barrel of West Texas Intermediate rising above $74 for the first time since November 2014. As of writing, the barrel of WTI was trading at $74.30, adding 85 cents, or 1.15% on the day. Earlier today, Reuters published the results of a recent survey that it conducted with 35 economists and analysts. According to Reuters, Brent is expected to average $72.58 a barrel in 2018, 90 cents higher than the $71.68 forecast in last month's poll while the WTI is now seen averaging $66.79 a barrel in 2018, compared with $66.47 forecast last month. “A number of other geopolitical risks weigh on the global outlook, and these are likely to have a larger impact on prices than in previous years, when oil stocks were comfortable," Cailin Birch, an analyst at the Economist Intelligence Unit, told Reuters. In the meantime, supply disruptions in Libya, Venezuela, and Canada, in addition to the larger-than-expected decrease in crude stocks in the U.S., provided extra fuel to crude oil throughout the week. Furthermore, investors continue to price the expectations of Iran's supply getting cut from the markets on the U.S. & its allies sanctions.

    Weekly Natural Gas Storage Report: Surplus Should Be Obvious -- EIA reported a storage build of 66 Bcf for the week ending June 22. This compares to the +71 Bcf we projected and consensus average of +71 Bcf. The +66 Bcf also was 6 Bcf lower than the five-year average of +72 Bcf, and 20 Bcf higher than last year's. One thing to note in this report is that EIA revised higher the storage build last week, from 91 to 95 Bcf. We have made changes to our prior tracking error as a result. The natural gas bulls and bears both have ample ammunition to fire at each other.On one end, natural gas bulls contend that with natural gas storage expected to enter withdrawal season 350-plus Bcf below the five-year average, natural gas prices over the winter could really surprise to the upside. Natural gas storage levels also are low today so even if injections come in higher than the five-year average, storage will still be in deficit.On the other end, natural gas bulls contend that with Lower 48 production rising, storage becomes a more meaningless measurement of the surplus or deficit in the market. If supply is 4+ Bcf/d over demand today, then the relevance of the five-year average is meaningless. And if production keeps increasing, then natural gas prices will remain under pressure. As our readers will know, our view is toward the bearish side. We have documented in the past that even if this summer turns out to be bullish (warmer than normal), we will still have enough natural gas storage by April 2019 because Lower 48 production continues to increase. Take for example that Lower 48 production reached another all-time high yesterday at ~81.2 Bcf/d: This is on pace to reach the ~83 Bcf/d we had projected for year-end, and this will calm the market even if storage levels move lower.

    NYMEX August gas settles at $2.94/MMBtu, down 4.1 cents on weak build - NYMEX August natural gas futures slid on its debut as the front-month contract Thursday, settling at $2.94/MMBtu, down 4.1 cents, despite a low 66-Bcf build to storage stocks that the Energy Information Administration posted earlier Thursday. The front-month contract was trading in the range of $2.93/MMBtu-$3.021/MMBtu so far in the session. The same pattern was seen for several other contracts. September was down 3.2 cents, closing at $2.919/MMBtu, while the October contract was down 2.8 cents to settle at $2.927/MMBtu. The 66-Bcf build for the week ending June 22 trailed the five-year average injection of 72 Bcf for the same period and was below the 74-Bcf build forecast by a consensus of analysts surveyed by S&P Global Platts Analytics. The net increase in storage put current national stocks at 2.074 Tcf, nearly 26% below the 2.809 Tcf level during the same time last year and at a deficit of 19.5% to the five-year average of 2.575 Tcf. The market moved south and shed value due to "competing factors," said Phil Flynn, senior market analyst Price Futures Group. "Record production and upward revision of last week's [storage] number" kept the market from reacting to the bullishness of the report, he said. The EIA revised the storage report for the week ended June 15 from 91 Bcf to 95 Bcf, which offset the bullishness of Thursday's report. The reported revision Thursday caused inventory for the same week to change from 2.004 Tcf to 2.008 Tcf.

    Surging Production Trips Up Natural Gas Futures Despite Heat - Natural gas futures lost ground during an uneventful session Friday as strong production limited the impact of sizzling temperatures forecast for key demand markets into the first week of July. In the spot market, prices for weekend and Monday delivery slipped throughout the Gulf Coast, Midwest and East as traders in those regions apparently felt prepared to beat the heat; the NGI National Spot Gas Average fell 6 cents to $2.69/MMBtu. Nymex August Henry Hub futures settled at $2.924 Friday, down 1.6 cents on the day after trading as high as $2.954 and as low as $2.910. The September contract dropped 1.8 cents to settle at $2.901. “Natural gas prices traded within a narrow range as expected” Friday, “sitting lower through the day as dry production continued to hit record levels,” Bespoke Weather Services told clients. “Prices sit near the bottom of a long-term rising channel, yet the winter strip lagged into the settle and prices struggled to show many signs of firming up. “Weather through the short-term will be very hot, and we expect forecasts for next week to stay about equally as hot over the weekend, yet even so cash prices struggled to rally significantly on the day,” the firm said. Potentially weighing on prices, forecasts Friday showed heat in the short- and medium-term easing off by mid-July, Bespoke said. Even with strong cooling demand, record-level production has kept natural gas on the wrong side of $3 from the bulls’ perspective. Government data released Friday corroborates the growth trends observed by traders and analysts. The Energy Information Administration (EIA), in its monthly natural gas update Friday, said April 2018 dry gas production totaled 2.39 Tcf, or 79.7 Bcf/d, 8.0 Bcf/d (11%) higher year/year (y/y). That marks the eleventh straight month that production has surpassed the corresponding year-ago period, according to EIA.

    China Becomes World's Biggest Natural Gas Importer - China has outpaced Japan to become the world's largest importer of natural gas, a welcome sign for the developers of liquefaction plants in the Pacific Basin and beyond. Chinese buyers purchased 34.9 million tons of imported gas for the year through May, edging past the 34.5 million tons purchased by Japan. For now, China gets just over half of its gas import volume from LNG shipments, and its demand for liquefied gas has been accelerating rapidly. It imported about 38 mtpa in LNG last year, up from about 10 mtpa in 2010. Half of that increase came in the last two years alone, and China achieved second-largest-importer status just last year. A portion of the new volume is shipped from recently-built liquefaction plants in the United States. The U.S. supplied four percent of China's LNG demand last year, making it the nation's fifth-largest supplier. Despite growing signs of a potential trade war with the U.S., China has excluded LNG from a list of proposed retaliatory tariffs that it seeks to impose on American goods - a reflection of the priority that Beijing places on maintaining acccess to LNG. Under Chinese President Xi Jinping, China has begun a large-scale push to shift from coal-fired power to gas, a measure that will significantly reduce smog-creating emissions of particulate matter and SOx. Beijing hopes to power 15 percent of the Chinese economy by 2030, according to its National Development and Reform Commission, an amount that outstrips the domestic supply. The changeover policy led to widespread gas shortages last December as temperatures dropped and heating demand outpaced the supply, and China is eager to avoid a recurrence next winter. Hebei, the province surrounding Beijing, has decided to forego further work on its coal-to-gas conversion projects until Gazprom's massive "Power of Siberia" pipeline is completed. Once operational, the line will deliver up to 60 billion cubic meters per year from Russia to China, an amount equal to about 45 mtpa of LNG - more than the total that China imported in 2017 - and the parties are already in negotiations over a second, parallel pipeline with equivalent capacity. 

    Analysis: China's fuel oil imports may feel the pinch from US trade war - China's fuel oil imports may ease in the coming months amid fears that bunker fuel demand might fall after US tariffs come into effect next month, curbing shipment of some commodities from China to the United States. As markets keep a close watch on how trade flows might be affected after July 6 when some duties come into effect, traders in China said fuel oil importers are adopting a cautious approach, and are not rushing to finalize import deals. "Until now, we have not seen demand for container cargoes and dry bulk cargoes shrinking," a source with Chimbusco in Beijing said. "But once the tariffs are effective, it is likely that demand for container cargoes will drop, leading to less demand for bunker fuel." A drop in bunker fuel demand could further slow China's imports of fuel oil, which fell 3.4% month on month to 1.46 million mt in May, the General Administration of Customs' latest data showed. This is despite higher demand from independent refineries, which account for a relatively small portion of the fuel oil demand. The bulk of the imported cargoes are resold in the domestic market as bonded bunker fuel to ships plying international waters. "Demand for bunker fuel has been relatively stable recently, but supplies have been tight," a source with Chinaoil Shanghai said. Chinaoil imports fuel oil to sell to bunker fuel distributors. As the latest custom data did not show imports by destination, it was not clear imports from which regions had fallen.

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