31st January 2020
Oil Drilling Activity
Onshore US drilling activity decreased by 4 with a total active count of 768 (Y/Y decrease of 257) rigs; those targeting oil down 1, with the total at 675. Across the three major unconventional oil basins, the oilrig count increased by 2, with Permian up 1, Williston flat and Eagle Ford up 1.
US domestic crude production was unchanged last week; crude production stands at 13 million barrels per day, of which ~2.55 million barrels per day is offshore and Alaska production. Oil prices continue to trend lower after weekly data from the EIA indicated that US crude supplies added 3.5 million barrels for the week; analysts expected a build of 482,000 barrels.
The Federal Reserve left interest rates unchanged Wednesday, a widely expected move as the US economy continues to grow at a slow and steady pace.
Natural Gas – Energy transition: United we succeed, divided we fail
2020 has started as 2019 ended, with increased focus on how the world will meet the dual challenge of supplying an increasing energy demand over the next 30 years, while reducing the carbon intensity of energy production and consumption as we target moves towards a zero carbon economy. Gaffney, Cline & Associates was invited to present at the London law firm CMS’ launch of their new report “Energy Transition: Evolution or Revolution? The role of oil and gas companies in a net-zero future.” The key discussion points and conclusions are summarized in this week’s Monitor.
Change happens slowly, until it happens quickly. Today, we exist in a rapidly changing energy landscape. Advances in technology are continuing to unlock vast fossil fuel resources (e.g., shale) that need to find a route to monetization and co-exist with the rapid growth in renewables demand and their increasing cost competitiveness. Added to this, Artificial Intelligence and digitalization is driving efficiency and lowering costs, with all of these dynamics made more complex given the changing global energy, climate and environmental policies as well as geopolitical negotiations.
There are many scenarios of how the energy transition will play out, and even though they differ in terms of speed and choice of energy, most still demonstrate that there is a continued and essential need for investment in fossil fuels. However, at this point, it is also useful to ensure that the energy industry clearly differentiates between the carbon intensity of fuels so that they are not all tarred with the same “dirty brush.”
Fossil fuels (especially gas) have an essential role alongside renewables but the right investment in low carbon production is essential. To achieve its potential as a dominant transition fuel of choice, gas has to earn its right to be produced via ensuring it is not only cost competitive but also is produced and consumed in an ever reducing carbon intense manner. Furthermore, the flexibility that natural gas brings to an energy system can also make it a good fit for the rise of variable renewables such as wind and solar PV. However, throughout the gas value chain, uncertainty over the level of methane emitted to the atmosphere raises questions about the extent of the climate benefits that gas can bring. Our analysis and evaluation has identified clear scope to appropriately measure, benchmark and reduce methane emissions cost-effectively.
Here at GCA, our Global Gas & LNG practice is working closely alongside our Carbon Management practice, supported by our technical and commercial teams, to help governments, energy companies, and the financial/legal community understand and solve energy transition issues related to energy resources, risks and investments. Industry cultural change is required in terms of engagement (increasing transparency in measurement and reporting while transferring skills to the renewables industry), adaptation (continued switching to natural gas while increasing investments in lower carbon solutions) and evolution (working alongside the renewables sector rather than against it and promotion of technological advances beyond electrification such as CCS and CCUS).
As we enter a new decade, we are very much in a “race to decarbonization” rather than a strict “race to renewables.” To achieve the aims of the Energy Transition, it is very much a case of “United we succeed, divided we fail” for the energy community.
Crude Oil – World has plenty….just needs to find demand!
The number of years of production left in Royal Dutch Shell's oil and gas reserves fell for the sixth year in a row in 2019 to below eight. However, there was little reaction from investors to the steady decline in what was once considered a key metric for gauging the strength of the world's major oil and gas companies.
There is a growing perception that the world holds enough oil to meet demand many times over, especially against the backdrop of a gradual shift away from fossil fuels because of concerns about climate change.
US oil production is driven by the development of tight oil resources, primarily in the Permian basin in the Southwest. EIA expects development to continue in the Southwest; 37% of US crude oil production between 2020 and 2050 will originate from this region in the Reference case. Other tight oil plays, such as the Niobrara in the Rocky Mountain region, the Bakken in the Northern Great Plains region, and the Eagle Ford in Gulf Coast region, continue to develop. Combined production from these regions contributes 36% of total US crude oil production between 2020 and 2050.
In 2018 and 2019, record US crude oil production, led by growth in the Permian basin, prompted the development of several pipeline and export terminal projects to accommodate the higher levels of production. According to EIA's Pipeline Projects database, 15 crude oil pipelines started or were under construction in 2018 and 2019 in Texas, New Mexico, and Louisiana, and 10 of these pipelines have destinations along the Gulf Coast.
At the same time, projects to expand export terminal capacity and to accommodate larger tanker sizes along the Gulf Coast have been announced. Trade press and company announcements indicate that the area near the port of Corpus Christi in southern Texas, which is the destination for 4 of the 15 recent pipelines in EIA's database, is likely to be a significant area for export project development.
Total US rig count (including the Gulf of Mexico) stands at 790, a decrease of 4 from last week. The horizontal rig count stands at 711, up 1. US rig activity continues to show constraint and is 258 rigs below (-25%) last year’s total.
US Crude Oil Supply and Demand
Crude oil inventories increased by 3.5 million barrels from the previous week, compared with expectations for an increase of 482,000 barrels. The crude stored at Cushing (the main price point for WTI) increased 0.7 million barrels; total stored is 35.6 million barrels (~40% utilization). Total US commercial crude stored stands at 431.7 million barrels (~55% utilization).
US crude oil refinery inputs averaged 15.9 million barrels per day, with refineries at 87.2% of their operating capacity last week. This was 933,000 barrels per day less than last week’s average.
US gasoline demand over the past four weeks was at 8.5 million barrels, down 4.4% from a year ago. Total commercial petroleum inventories increased by 1.0 million barrels last week.
US crude net imports averaged 3.2 million barrels per day last week, up by 134,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 3.2 million barrels per day, 40.4% less than the same four-week period last year.
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