March 22, 2019

March 22, 2019

22nd March 2019

Oil Drilling Activity

Onshore US drilling activity decreased 8 with a total active count of 993 rigs; those targeting oil down 9, with the total at 824. Across the three major unconventional oil basins, the oil rig count decreased by 4, with Permian down 5, Williston up 1 and Eagle Ford flat. 

Sources: EIA Weekly Update and GCA Analysis

EIA reported last week’s total US domestic crude output at 12.1 million barrels per day, an increase of 100,000 barrels per day. Data also showed that crude oil inventories decreased by 6.9 million barrels last week, compared to forecasts for a stockpile build of 1.0 million barrels, after a drop of 3.9 million barrels in the previous week. With refiners coming out of maintenance, OPEC+ cuts starting to kick in, and Venezuelan crude imports dropping, stock draws in the coming weeks are to be expected.

Federal Reserve officials indicated they are unlikely to raise interest rates this year and may be nearly finished with the series of increases they began more than three years ago now that US economic growth is slowing.

Carbon Management – Carbon intensity of global oil and gas production

As the oil and gas industry faces an impending world of peak demand, not supply as was the prevailing consensus just a decade ago, it must be ready to compete within the energy transition that is driven by carbon and climate policies and regulations, competition with alternative energy sources, and societal choices. The carbon intensity of oil and gas will be a key metric (the amount of CO2 equivalent emissions per unit of energy produced), which can be used proactively to make informed choices now. As implementation of carbon solutions and the reductions they achieve will take many years, a lack of timely action could result in higher compliance costs, price discounts for carbon intensive oil and gas, cancellation of supply contracts and even stranded reserves.

A study published in Science in 2018, performed jointly by Gaffney, Cline & Associates, academia, oil and gas companies, automotive manufacturers, non-governmental organizations and governments, looked at the global carbon intensity of crude oil production. This systematic analysis looked at nearly 9,000 oil fields in 90 countries that represented 98% of global crude oil and condensate production.  It was shown that a large variation can exist in the supply chain carbon intensity associated with energy use and emissions during the production, transportation and refining of oil prior to end-use combustion of the fuel for transport. The variation from a country-level, volume-weighted average suggests that some upstream crude oil has over 6 times the carbon emissions of others, meaning that the total life-cycle greenhouse gas emissions of transport fuels can vary considerably.

You may be wondering what are the reasons for these differences?  Is the variation mainly because of the type of crude oil produced (heavier crude oils needing more energy to produce, transport and refine)? The interesting answer is no, not entirely. A range of other factors cause the differences, including level of regulation, technology availability and adoption, capability and know-how, the maturity of the oil field, the recovery methods used, and the presence of markets for associated gas. In other words, not all fields are created, developed and operated equally. Light oil does not necessarily correlate to low carbon intensity.

The insights gained from this analysis are of course incredibly valuable to inform decision makers. The choices the industry makes on portfolio strategy, asset design and operational practices can significantly control emissions and ensure future competitiveness during the energy transition. So what is next? We are now working on expanding the analysis to include oil refining and petrochemicals, and adding gas production, pipeline/LNG transportation, and use for heat and power.

Do you know how your oil and gas value chain emissions compare to others? Assessment can be done efficiently and effectively at a country, corporation, business unit, or asset level.

Natural Gas – Lower for longer?

It has only been a few months since global gas traders and shippers were celebrating a significant recovery in both gas prices, well up into double digits, especially in Asia, and also ship charter rates that crossed the $100,000/day threshold.  It seems the laws of supply and demand have finally caught up, and over the last few days’ spot prices in Asia and Europe have fallen below the $5/MMBtu mark seen last in 2016.  With the increasing quantities of LNG leaving both the US and Australia, and summer AC demand not quite developing yet, deliveries for May are in the $4.75/MMBtu range, though trade seems to be thin.

The misery is not just at the delivery end of the equation.  Natural gas prices in both Western Canada, and in the Permian basin in the US are at record low levels too.  A pipeline failure in Texas has helped to depress Waha hub prices to just 12c/MMBtu, another record, while the lack of takeaway capacity to bring Canadian gas down to the Western US is hurting prices there too.

It will be another 5 years or so before LNG Canada comes on stream, though in the meantime, there are plans to build out methanol facilities, which will be ready in 2022, a little ahead of LNG exports, and a polypropylene plant is expected to startup in 2021, and another polypropylene upgrading facility was given the go-ahead last month.

It seems gas producers worldwide continue to be bullish about longer-term demand, especially based on growing demand from the power sector in developing economies but for the time being that does not appear to offer much comfort for those with LNG to deliver, and gas to produce today.

Lower for longer seems to be the outlook right now, for both gas producers, and LNG sellers.

Crude Oil – Global market flipping into deficit

Oil prices gained after US crude inventories unexpectedly plummeted and as Saudi Arabia brushed aside comments from US President Donald Trump seeking to keep oil prices from climbing. The global crude market is forecasted to flip into a modest deficit in the second quarter of this year, but with OPEC having a supply cushion to offset supply disruptions, any significant price rally would be short lived.

The increase in US crude oil exports is the result of increasing US crude oil production and infrastructure changes. US crude oil production increased 1.6 million barrels per day from 2017 to 10.9 million barrels per day in 2018, with the US Gulf Coast—where more than 90% of US crude oil exports depart from—producing 7.1 million barrels per day. The increased production is mostly of light, sweet crude oils, but US Gulf Coast refineries are configured mostly to process heavy, sour crude. This increasing production and mismatch between crude type and refinery configuration causes US crude production to be exported.

In early 2018, modifications were made at the Louisiana Offshore Oil Port (LOOP) in the Gulf of Mexico to enable the loading of vessels for crude exports. LOOP is currently the only US facility capable of accommodating fully loaded Very Large Crude Carriers (VLCC), vessels capable of carrying approximately 2 million barrels of crude oil. After LOOP was modified to also allow exports, the increase in cargo scale led US crude exports to surpass 2 million barrels per day for 25 weeks in 2018 compared with just 1 week in 2017. Other US Gulf Coast export facilities in and around Houston and Corpus Christi, Texas, have been investing in increasing the scale of US crude export cargos.

Weekly Recap

Crude Oil Price

Brent, the global benchmark for oil, increased $0.63 to $66.86 a barrel, reflecting a gain of 0.95% on the week.

WTI crude rose $1.34 to $59.16 a barrel, up 2.32% on the week.

Drilling Activity

Source: BHGE Rotary Rig Count

Total US rig count (including the Gulf of Mexico) stands at 1016, down 10 this week. The horizontal rig count stands at 900, a decrease of 7 this week. US rig activity continue to show constrained growth for 38 of the last 40 weeks and stands 2% above last year’s total. Crude prices direct US shale operators to focus 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 16.2 million barrels per day, with refineries at 88.9% of their operating capacity last week. This is 178,000 barrels per day more than the previous week’s average.

US gasoline demand over the past four weeks was at 9.1 million barrels, down 1.4% from a year ago. Total commercial petroleum inventories decreased by 12.6 million barrels last week.

US crude net imports averaged 3.54 million barrels per day last week, down by 660,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 3.624 million barrels per day, 39.5% less than the same four-week period last year.

US crude imports averaged 6.9 million barrels per day last week, up by 186,000 barrels per day from the previous week. Over the past four weeks, crude oil imports averaged 6.6 million barrels per day, 11.2% less than the same four-week period last year.

Crude oil inventories decreased 9.6 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) decreased 0.5 million barrels; total stored is 46.4 million barrels (~51% utilization).



March 22, 2019

P. Kevin Galvin

Facilities/Cost Engineer -
March 22, 2019

Nick Fulford

Global Head of Gas/LNG -
March 22, 2019

Nigel Jenvey

Global Head of Carbon Management -

Signup to receive our latest articles

We're here to help