6th December 2019
Oil Drilling Activity
Onshore US drilling activity decreased by 3 with a total active count of 777 (Y/Y decrease of 273) rigs; those targeting oil down 5, with the total at 663. Across the three major unconventional oil basins, the oilrig count was down 4, with Permian down 5, Williston up 1 and Eagle Ford flat.
US domestic crude production was flat last week; crude production stands at a peak of 12.9 million barrels per day, which 2.36 million barrels per day is from offshore and Alaska production.
US Natural Gas production held steady at 97 Bcfd (EIA), with shale gas and that associated with tight oil contributing 75%. Despite weakening gas prices, new all-time peak gas rates in the Marcellus, Utica, Haynesville and Permian plays were reached last month. The US now supplies around 24% of the global marketed natural gas supply.
Just as OPEC watches US tight oil production, those countries planning on major LNG projects are watching growth in US shale gas production (and each other) to optimize timing of massive new capital investments.
Crude inventories declined by 4.9 million barrels, a much larger draw than the expected fall of 700,000 barrels. An increase in refinery input and the ongoing reduced net imports into the US helped yield the first draw to crude inventories in six weeks.
The US economy added 266,000 jobs in November, well above the expected gain of 187,000. The unemployment rate fell to 3.5%, matching its lowest level since 1969.
Carbon Management – Ten-fold increase in CO2 emissions reduction with Carbon Capture Use and Storage deployment
Over the last year, I have had the honor and pleasure to serve as Deputy Chair to the CCUS Study Coordinating Subcommittee of the United States National Petroleum Council. This study was undertaken at the request of the US Secretary of Energy, and is because of a report out next Thursday, December 12, 2019. The study had over 300 participants from more than 110 different organizations representing the oil and gas industry, other industries, consulting/financial companies, academia, NGOs and government.
A differential feature of the study has also been to assess the costs to capture, transport and store CO2 from the largest U.S. stationary sources – reducing emissions from almost 2,000 million, tonnes of CO2 per annum from a range of different industries and power that underpin today’s society. This has underpinned identification of the level of value necessary to enable deployment, build the case for ongoing R&D across the entire CCUS value chain, and enables assessment of the economic benefits. Full deployment would be equivalent to a ten-fold increase in the CO2 reductions achieved from all wind turbines currently installed in the US.
The US already has over 80% of the world’s installed CCUS capacity and has benefited from consistent Congressional support for well over 20 years. This has enabled the Department of Energy to lead and support public-private collaboration on science and technology, the Environmental Protection Agency to establish a comprehensive regulatory framework, and the Internal Revenue Service to establish world leading policy support with the 45Q tax credit. While of course I cannot cover the specifics of this pending report in this blog before its release, we have developed a roadmap to build on this and achieve deployment at scale.
Once approved by the NPC and accepted by the Secretary of Energy, the report will be available from the NPC website (www.npc.org) and GCA will be providing some of the highlights from the study in the Monitor over the next few weeks.
Natural Gas – Canadian LNG, the coolest on the Planet?
Last week, Canada House, with its rich history and imposing position on the west side of Trafalgar Square in London, was the venue for a two-day event, aimed at two of the major energy themes of importance to both Canada, and more globally. The dual focus of the Alberta Government led initiative was on de-carbonization and the energy transition, and the role that the vast natural gas resources in Canada can play in powering the global economy, in a sustainable way.
GCA, with its long involvement in the Canadian push for LNG exports, was invited to start the proceedings, which provided a timely opportunity to present some ideas on the way in which the complex blend of de-carbonization, renewables, and natural gas combine to represent a sustainable and financeable way forward.
It was a good opportunity to take a hard look at the realities of renewables compared to gas or LNG fired power generation. There is no doubt that renewables from a technology and cost progress are making great progress. However, the long payback periods, the need to invest significantly in peaking or storage infrastructure to maintain grid stability, and the other disadvantages of renewables were highlighted. These were discussed against the low cost, flexibility and supply reliability that natural gas provides today and arguably over the next couple of decades, especially in displacing other fuels used in power generation with a higher carbon footprint.
Of course, the financial and operational advantages need to be balanced with the carbon intensity of the gas extraction, liquefaction and shipping involved in the gas supply chain to the customer, and the ultimate combustion in the power station, but in that respect Canada is forging ahead in the race. With the relatively cool ambient temperatures, and low emissions design of the plant, projects like LNG Canada, sanctioned just over a year ago, are among the lowest GHG emitting plants in the world. Looked at individually, such projects may well increase emissions in Canada; however, they have a huge multiplied (of the order 15-20 times) emissions reduction globally, for example, if displacing coal-fired power generation in China. Further, with initiatives in place in some parts of the industry to secure offsets to negate the carbon impact of the LNG carrier ocean crossing, the industry is gradually responding to the new clarion call, which is no longer a “race to renewables” but a “race to decarburization” in which the natural gas sector can secure its well-earned spot.
Until we have a globally consistent price and mechanism for carbon reduction, capture and offsets, a fully robust strategy for decarbonizing the gas value chain will continue to be work in progress. Securing a key role for natural gas as part of the energy transition does however appear a very realistic and sensible step, especially if some of the lessons applied in Canada gather momentum elsewhere.
Crude Oil – OPEC+ agree to shrink market share again
OPEC+ oil committee recommends that the group deepen their current oil production cuts by 500,000 barrels a day. Additionally, they are pushing for improved compliance from countries such as Nigeria and Iraq, which have not fully met their quota commitments.
The OPEC+ group has been curtailing output since 2017 to counter surging production from the US. Next year, rising production in other non-OPEC countries such as Guyana, Brazil and Norway could add to the global supply glut, even though US crude output growth has slowed in recent months.
Expect a constructive outcome to OPEC+ meeting in terms of a continuation of the deal, but not yet a strong bullish surprise with a sizeable adjustment to the current target OPEC+ production level.
OPEC's effort to deepen cuts is being been driven by the group's de facto leader Saudi Arabia, which would like higher oil prices to support its budget revenue and provide a favorable backdrop to the pending initial public offering of state-owned oil giant Saudi Aramco.
Total US rig count (including the Gulf of Mexico) stands at 799, down 3. The horizontal rig count stands at 695, down 6. US rig activity continues to trend lower and is 273 rigs below (-26%) last year’s total.
US Crude Oil Supply and Demand
Crude oil inventories decreased by 4.9 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 0.3 million barrels; total stored is 43.8 million barrels (~49% utilization). Total US commercial crude stored stands at 447.1 million barrels (~57% utilization).
US crude oil refinery inputs averaged 16.8 million barrels per day, with refineries at 91.9% of their operating capacity last week. This was 464,000 barrels per day more than last week’s average.
US gasoline demand over the past four weeks was at 9.2 million barrels, up 0.8% from a year ago. Total commercial petroleum inventories decreased by 4.9 million barrels last week.
US crude net imports averaged 2.85 million barrels per day last week, up by 144,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 2.9 million barrels per day, 43.9% less than the same four-week period last year.
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