17th January 2020
Oil Drilling Activity
Onshore US drilling activity increased by 16 with a total active count of 775 (Y/Y decrease of 254) rigs; those targeting oil up 14, with the total at 673. Across the three major unconventional oil basins, the oilrig count increased by 10, with Permian up 6, Williston and Eagle Ford each up 2.
US domestic crude production increased by 100,000 barrels per day last week; crude production stands at 13 million barrels per day, a new peak, of which ~2.55 million barrels per day is offshore and Alaska production. US crude oil production averaged 12.2 million barrels per day in 2019, up 1.3 million from 2018. EIA forecasts US crude oil production will average 13.3 million barrels per day in 2020 and 13.7 million barrels per day in 2021. Most of the production growth in the forecast occurs in the Permian region of Texas and New Mexico.
Carbon Management – CCUS; do not let the ultimate solution be your last resort
Last week’s Monitor covered our analysis that the deployment of CCUS can sustain 200 billion barrels of oil and 1,300 trillion cubic feet of natural gas while also allowing the world to limit temperature rise to within 2°C of pre-industrial levels and avoid the worst impacts of climate change. So what is the status today for the ultimate solution for oil and gas sustainability?
At the end of last year, the Global CCS Institute added 10 large-scale CCUS facilities to its database. Eight of the new facilities are in the US and cover applications such as ammonia production, ethanol production, power, direct air capture, and integrated commercial storage hubs. This brings the total projects in operation, construction and development to 51: 19 in operation, 4 under construction and 28 in development phase, representing a capture capacity of 96 million tonnes of CO2 per annum.
In the US, the new wave of projects is the result of a combination of sustained government support for CCUS deployment and progressive incentive mechanisms triggering private sector action. These include the 45Q tax credit, eligibility of CCUS under California’s Low Carbon Fuel Standard (LCFS), and continued support from the US Department of Energy, which has been found to be the most productive organization in the world for CCS according to a new research paper.
Two of the projects added were announced by Oxy Low Carbon Ventures, including capturing the CO2 from two ethanol facilities, as well as the largest Direct Air Capture project to date, aimed at capturing 1 Mtpa of CO2. In addition to the projects it is leading, the company also announced a letter of intent for a CO2 offtake agreement with a carbon-negative fuel production facility.
In the UK, the Clean Gas Project located in the North East of England aims to capture CO2 emissions from gas-fired power generation and local industrial emitters. The project could be operational by 2023 and is expected to become the UK’s first commercial full-scale CCUS project. The project is supported by OGCI Climate Investments and backed by six global oil and gas global companies.
In the Middle East, Abu Dhabi National Oil Company (ADNOC) is adding a second CCUS project to its portfolio, as part of its efforts to accelerate CCUS deployment within its business by six-fold over the next ten years. The company has also been operating the world’s first commercial CCUS project on a steel plant since 2016.
This new wave of CCUS facilities under development shows the growing momentum around the technology and its role in supporting the energy transition. This is great progress and it is heartening to see so much more real engagement in CCUS emerging. However, the reality is that much, much more is needed, with at least 2,400 million tonnes of CCUS capacity needed to be in operation over the next 20 years according to the IEA sustainable development scenario. So how do we get there?
The announcement on Thursday this week by Microsoft could be a game changer. They unveiled plans to invest $1 billion over four years to back companies and organizations working on technologies to remove or reduce carbon from the earth’s atmosphere, so the company can be become carbon negative by 2030. Putting this in context, this level of support goes beyond the commitment by the Oil and Gas Climate Initiative, and shows that other industries are now engaging in the technology. The flip side is that the experience and expertise of the oil and gas industry in delivery of CCUS at scale is critical, so let us not let CCUS be the last resort. The clock is ticking and the countdown has begun.
Natural Gas - All eyes on the Eastern Med
This week was a historic one for the countries of the Eastern Mediterranean, which has become something of a global hot spot for natural gas in the last few years.
Two landmark events underlined the major opportunity for the region that stems from a string of successful gas discoveries that are finding their way to market in record time. The first of these events was the start of gas deliveries to Egypt from the Leviathan gas field in Israel. This gas will also find its way to other markets including Jordan, and even potentially Europe, via the LNG facilitates in Northern Egypt.
The second, and perhaps more fundamental event, was the signing of formal agreements to transition the East Med Gas Forum (EMGF), from a co-funded collaborative undertaking, to a fully qualifying international body, enshrined in a formal statute and with a constitution governing activities and funding. The current members of the EMGF include Egypt, Jordan, Palestine, Israel, Cyprus, Greece and Italy (the latter three being members of the EU). At the same ministerial meeting held in Cairo, France also indicated that it would like to join, and the US expressed a wish to be permanently represented as an observer.
Gaffney Cline was privileged to play a part in delivering this outcome, which comes on the back of many years of experience in the region across the whole value chain, from upstream resource evaluation, through to LNG and pipeline infrastructure, commercial structuring, and gas/LNG-to-power considerations.
The growing geopolitical role of natural gas, coupled with the increasing interconnection of global markets, means that international cooperation of this sort is becoming interwoven with many facets of foreign policy. In addition, with such intense competition emerging between different sources of gas globally, regional cooperation of this sort can play a key role in enabling economies of scale and other synergies that can make the difference between gas that is economic to produce, and gas that will remain in the ground.
Two other major global trends that regional collaboration can help to address include the growing reliance on wholesale markets to address volume and price risk, and the increasing focus on carbon intensity. Egypt is already going down a path of deregulation, aimed at the creation of a wholesale market for gas; but there is a long way to go before this can begin to match the sophistication of the more established hubs in Northern Europe. However, continuing integration of the regions gas transmission and LNG infrastructure means that an EMGF trading hub, complete with a financial market and futures contracts, could one day become a reality on a par with NBP and TTF.
On carbon intensity, many of the East Med developments have the benefit of high quality gas and minimal processing. This offers the region an opportunity to become a leader in low carbon intensity gas production, with which to leverage potential advantages in growing retail markets where consumers will pay a premium to keep the carbon consequences of their fuel requirements at a minimum.
As with all things gas, sometimes it is necessary to take the “long view” and plant seeds that might take decades to come to fruition. As we look at this week’s events in the Eastern Mediterranean, with the start of gas flowing across the region, and its new international body, one is reminded of the old English proverb, “Large streams from little fountains flow, Tall oaks from little acorns grow.”
Crude Oil – US Production to reach new records in 2020 and 2021
Growth in oil production from the US and other countries outside of OPEC will outpace global demand, the IEA forecasted this week. The IEA indicated that non-OPEC supply growth would pick up from 2 million barrels a day in 2019 to 2.1 million barrels per day in 2020. OPEC countries and their allies including Russia agreed last month to enact bigger supply cuts from the start of this year to keep the market in balance.
Oil supplies from Iraq, the Middle East’s second-biggest producer, are potentially vulnerable amid rising political risks in the country and the broader region, the IEA warned.
Iraq’s oil exports have doubled during the last decade to reach 4 million barrels a day, with half these volumes flowing to China and India, the two major centers of global demand growth. The country relies heavily on shipping crude through the Strait of Hormuz, which Iran has periodically threatened to close.
Iraq’s fragile security situation may limit its plans to expand oil-production capacity in the medium-term, making it difficult for the global industry to meet rising demand in the second half of the decade.
Saudi Arabia, the biggest member of the OPEC, already delivered all of the additional curbs promised before they formally took effect, pumping 9.68 million barrels a day in December. Even if OPEC and its allies fully implement the deeper cutbacks announced last month, world markets will still face a surplus of about 800,000 barrels a day in the first half of the year.
EIA forecasts Brent crude spot prices will average $65 per barrel in 2020 and $68 per barrel in 2021, compared with an average of $64 per barrel in 2019. EIA expects West Texas Intermediate (WTI) crude prices will average about $5.50 per barrel lower than Brent prices through 2020 and 2021, compared with an average WTI discount of about $7.35 barrel in 2019.
Total US rig count (including the Gulf of Mexico) stands at 796, a decrease of 16 from last week. The horizontal rig count stands at 709, up 11. US rig activity continues to show constraint and is 257 rigs below (-24%) last year’s total.
US Crude Oil Supply and Demand
Crude oil inventories decreased by 2.5 million barrels from the previous week, compared with expectations for a drop of 500,000 barrels. The crude stored at Cushing (the main price point for WTI) increased 0.3 million barrels; total stored is 35.8 million barrels (~39% utilization). Total US commercial crude stored stands at 428.5 million barrels (~55% utilization).
US crude oil refinery inputs averaged 17 million barrels per day, with refineries at 92.2% of their operating capacity last week. This was 76,000 barrels per day more than last week’s average.
US gasoline demand over the past four weeks was at 8.7 million barrels, down 0.9% from a year ago. Total commercial petroleum inventories increased by 14.5 million barrels last week.
US crude net imports averaged 3.1 million barrels per day last week, down by 596,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 3 million barrels per day, 40.4% less than the same four-week period last year.
- GCA Oil & Gas Monitor
- Latin America
- North America
- Asia-Pacific & China
- Middle East
- Russia & Caspian
- Business of Energy
- Midstream & Downstream
- Gas & LNG
- Meet our Experts
- Project Experience Brochures
- Training Business
- GCA Oil & Gas Monitor: 2019 archive
- GCA Oil & Gas Monitor: 2018 archive
- US Oil & Gas Monitor: 2017 archive
- US Oil & Gas Monitor: 2016 archive
- US Oil & Gas Monitor: 2015 archive
We're here to help
Europe / Africa / Middle East / Russia & Caspian
gaffney-cline & associates