March 1, 2019

March 1, 2019

1st March 2019

Oil Drilling Activity

Onshore US drilling activity decreased 11 with a total active count of 1015 rigs; those targeting oil down 10 (a decrease of 1.17%), with the total at 843. Across the three major unconventional oil basins, the oil rig count decreased by 8, with Permian down 7, Williston down 1 and Eagle Ford flat. 

The larger independent oil companies are forecasting lower capital spending in 2019 verses 2018; however, their aim is high grade investments and to deliver production growth.  Achieving production growth during 2019 remains to be seen, as EIA Productivity Reports for oil basins do not show improved productivity per rig.

Sources: EIA Weekly Update and GCA Analysis

EIA reported last week’s total US domestic crude output at 12.1 million, an increase of 100,000 barrels per day. The EIA data also showed that crude oil inventories decreased by 8.6 million barrels last week, compared to forecasts for a stockpile build of 2.84 million barrels, after a gain of 3.67 million barrels in the previous week.  A possible factor affecting crude inventories is the reduction in Venezuelan heavy crude imports by Gulf Coast refineries and their replacement by Canadian (WCS) crudes delivered by pipeline and rail.

The US economy slowed in the last quarter of 2018 but still grew at the fastest rate in three years. It expanded at a 2.6% annualized rate in the fourth quarter, a slowdown from the 3.4% growth in the third quarter.

Carbon Management - The energy transition is here

GCA has recently launched an industry-leading practice in providing Carbon Management advice and consultancy; helping governments, companies and the financial community understand and solve energy transition issues related to oil and gas resources, assets and investments.

Whilst carbon-pricing mechanisms now cover 20% of global greenhouse gas emissions, a US$7/teCO2e (tonne of CO2 equivalent) average price is yet to have a significant impact on the global oil and gas industry. However, historical implementation of less transparent carbon and climate policies and regulations for adoption of renewable energy have had much higher embedded carbon prices that run into US$100s/teCO2e. As such, it has been estimated that a total of US$3 trillion has been afforded by society in these technologies over the last decade, resulting in 80% cost reduction.

The impact of this policy-technology chain reaction is that renewable energy has now achieved price competitiveness with fossil fuels in some situations, and globally more capital is now being spent on electricity generation and networks than oil and gas supply. Mainstream private investment funds such as Blackrock and Vanguard are requesting oil and gas companies evaluate and disclose carbon and climate risks to their portfolios. Some oil and gas companies are adjusting with portfolio changes towards gas and reducing exposure to oil sands, along with investment in low carbon technologies. However, a wide variety of solutions are already available to the oil and gas industry that avoid, reduce, replace, offset, or sequester emissions to cost effectively lower the carbon intensity of our products.

Some have suggested the increasing focus on carbon and climate, and the advances in renewable energy represent the beginning of the end for the hydrocarbon sector. However, over the years the industry has shown itself capable of the most innovative thinking, creative solutions, and different business models. Carbon Management is just one more evolution to embrace in over a century of almost continuous change, ensuring delivery of more energy with less emissions to meet global demand growth.

Natural Gas – Russian LNG dominates Europe

As often highlighted in this bulletin, although LNG is probably one of the industrial sectors that still requires long-term commitment and vision, these days’ things can change very quickly indeed, and so it continues to be.

With the Pacific basin now largely self-sufficient in LNG, with Europe/Asia price arbitrage down from over US$2 a year ago to a paltry 30c, the destination of the Yamal LNG cargoes now appears to be predominantly Europe, where Russia has been the biggest supplier, at 19 cargoes.  Some of these were cargoes sold by PetroChina, with ample opportunity to substitute other sources of gas to their home market, and a very profitable series of sales.  This week, seemingly Novatek confirmed at a conference in London, that their cost of deliveries to Europe could be as low as US$3.15, and with NBP sitting just below US$6, even a hefty re-gas charge would still leave some good returns for the seller.

With fog and delays creating some constraints on US LNG, European destination gas from the US has fallen to nine cargoes for February, not seen since November last year.

With European and Asian prices being lower this spring, US LNG is starting to look a little pricey as we start to get back into the same pattern of two years ago.  At that time, recovering the full cycle cost of procuring gas at Henry Hub, liquefying on the gulf coast and shipping to European or Asian destinations was starting to look like a challenge, at least in the short to medium term, and so it is now.

However, none of this seems to be holding up progress and investment, with Tellurian, Next Decade, and LNG Limited all still vying to supply the next tranche of demand over coming years.

Crude Oil – Saudi stays the course

Oil prices are off to their best-ever start for a year as fears of a supply glut vanish, mostly due to a supply cut enacted by major producers.

US crude-oil futures have rebounded 25% in the first two months of the year, the best January-February performance going back to 1984. Oil is also heading for its best two-month stretch since 2016—when prices recovered in April and May of that year after dipping below US$27 a barrel.

The US imported the least amount of crude oil on a weekly basis in 23 years, as Saudi Arabia and Venezuela cut their shipments to unusually low levels. The fall in imports comes as Venezuelan oil shipments drop because of US sanctions and as Saudi Arabia curtails exports to the US in an effort to reduce an oil glut in America.

US imports of Saudi crude dropped to the lowest since May 1987. Saudi production collapsed between 1985 and 1986, at one-point flirting with the 2 million barrel-a-day mark, as the kingdom lowered its production to defend higher oil prices.

Weekly Recap

Crude Oil Price

Brent, the global benchmark for oil, decreased US$1.26 to US$66.16 a barrel, reflecting a loss of 1.87% on the week.

WTI crude fell US$0.39 to US$57.13 a barrel, down 0.68% on the week.

Drilling Activity

Source: BHGE Rotary Rig Count

Total US rig count (including the Gulf of Mexico) stands at 1038, down 9 this week. The horizontal rig count stands at 911, a decrease of 5 this week. US rig activity continue to show constrained growth for 35 of the last 37 weeks and stands 6% above last year’s total. Crude prices continue to keep US shale operators focused on well productivity (i.e., well completion) and operational efficiency over rig growth.

US Crude Oil Supply and Demand

Sources: EIA Weekly Update and GCA Analysis

US crude oil refinery inputs averaged 15.9 million barrels per day, with refineries at 87.1% of their operating capacity last week. This is 179,000 barrels per day more than the previous week’s average.

US gasoline demand over the past four weeks was at 8.9 million barrels, down 1.5% from a year ago. Total commercial petroleum inventories decreased by 17.9 million barrels last week.

US crude net imports averaged 2.558 million barrels per day last week, down by 1.4 million barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 3.649 million barrels per day, 39.1% less than the same four-week period last year.

US crude imports averaged 5.9 million barrels per day last week, down by 1,605,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged 6.7 million barrels per day, 10.9% less than the same four-week period last year.

Crude oil inventories decreased 8.6 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 1.7 million barrels; total stored is 46.7 million barrels (~52% utilization).



March 1, 2019

P. Kevin Galvin

Facilities/Cost Engineer -
March 1, 2019

Nick Fulford

Global Head of Gas/LNG -
March 1, 2019

Nigel Jenvey

Global Head of Carbon Management -

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