25th October 2019
Oil Drilling Activity
Onshore US drilling activity decreased by 20 with a total active count of 807 (Y/Y decrease of 239) rigs; those targeting oil down 17, with the total at 696. Across the three major unconventional oil basins, the oil-rig count was down 4, with Permian down 5, Williston down 2 and Eagle Ford up 3.
US domestic crude output was flat; crude production remained at 12.6 million barrels per day.
Crude stockpiles decreased for the first time in six weeks; inventories lost 1.7 million barrels compared with expectations for a 2.2 million-barrel gain.
At the meeting set for December, OPEC may consider deeper cuts than the 1.2-million-barrels-per-day cut agreed by the cartel and its key ally Russia almost a year back.
Carbon Management – New sources of capital
To ensure the sustainability of oil and gas in the energy transition, Carbon Management must be deployed massively to cut GHG emissions from its operations and products. To achieve this means substantial sums of capital, in the hundreds of billions of dollars, needs to be deployed in addition to the capital required to satisfy the world’s growing demand for oil and gas.
Financial markets play a critical role in delivering the energy transition. An additional source of financing is the ever-growing area of Green finance.
Organizations with investments of $85 trillion have signed up to the UN Principles for Responsible Investments. They have allocated greater proportions of capital to investments that are regarded as Green, Sustainable, and that in effect deliver the Energy Transition. This Green capital pool now amounts to more than $31 trillion, and has grown by over 200% in the last five years.
Examples include the UN’s Green Climate Fund, which has committed half of its pledge of $10 billion for projects that deliver low emissions and climate resiliency. The six largest multi-lateral development banks financed $43.1 billion in 2018 for projects that address the climate challenge. Green financing will account for 40% of the investments made by the European Bank of Reconstruction and Development (EBRD). Citi has an environmental finance goal of $100 billion over 10 years for projects that reduce the impacts of climate change. The list of examples goes on and on.
Carbon Management projects in oil and gas, including energy efficiency, flaring reduction, methane emissions, integration of renewables and CCUS, can qualify for Green finance providing they provide a net reduction in GHG emissions. This provides developers access to new capital markets that can be blended with traditional sources of debt and equity to achieve the best financing possible for projects.
The rapid growth of green financing means it is no longer a niche activity. Coupled with ESG credit ratings and investor attitudes, Green finance is taking over financial markets. Contact us to find out how you can be at the table.
Natural Gas – Just another Shale Gas Conference...or not
This week saw the usual Shale Gas Conference activity at the convention center in Pittsburgh. A scene that has played out routinely over the last seven or eight years, as the industry has risen from nowhere to become one of the major economic drivers for the region. The usual leaders of the shale gas companies were on the agenda: President of EQT Corporation, President of Columbia Gas of Pennsylvania, and President of the United States. Wait, ... who was that last one again?!
Yes, this week the US President paid a call to Pittsburgh to share his views on the shale gas industry and its role as an economic driver for rural Pennsylvania and West Virginia, in the heart of the Marcellus shale, and also Eastern Ohio, home of the Utica shale.
As is the case in many other parts of the world, the debate over the future of energy is surfacing in the US elections. With some of the presidential hopefuls embracing anti-fracking policies, and setting out a future for hydrocarbon-free energy ecosystems, there is a very European feel about the energy debate in the US. With many European countries now contemplating or having already implemented a “fracking ban,” it is surprising to some to see those same debates now being had in the heartland of the fracking world. Even in the Marcellus, with its sharp dividing line on the state border with New York, where no gas development is allowed, there is evidence of the deep divisions that apply to gas policy in some parts of the US.
To put things in context, US shale gas production increased by 8.4 Bcfd in the last 12 months, broadly the same as total (declining) gas production in all of northern European, excluding Norway and the FSU. Easy to guess where EU domestic gas prices would head in the event there was to be even a partial US frac ban.
Of course, commercial drivers, as well as environmental ones are more tangible drivers of activity. Even as President Trump spoke about the success of gas development activities in Pennsylvania, the UK’s National Audit Office published findings that the UK shale gas industry is making slower progress than initially planned. A permit to allow Nitrogen lift on one of the nascent shale gas wells in Northwest Britain also re-ignited the public debate, and triggered another public backlash from those intent on preventing shale gas production.
As sustainability, environmental consequences and carbon intensity all play a greater role in determining the right energy mix, customer preferences are also going to play a role. More and more gas and power customers are beginning to select tariffs that suit their own set of values around the environment and climate. Whatever the politicians say, we may see voters making their views known not at the ballot box, but at the smart meter.
Crude Oil – US petroleum export growth slows
US residual fuel exports declined the most between the first half of 2018 and the first half of 2019, falling by 74,000 barrels per day to average 258,000. In the first half of 2018, Singapore was the top destination for US residual fuel exports, most likely to supply Singapore’s marine bunkering market. However, in the first half of 2019, trade press reported that Singapore’s bunker market was preparing for new international regulations that limit the sulfur content of marine fuels by drawing down higher sulfur residual inventories to make room for inventories that are lower in sulfur. As a result, average US exports of residual fuel oil to Singapore decreased 68,000 barrels per day in the first half of 2019 compared with the first half of 2018.
In the first half of 2019, the US exported an average of 5.47 million barrels per day of petroleum products, an increase of 19,000 (0.3%) from the first half of 2018 and the slowest year-over-year growth rate for any half year in 13 years. Two factors that likely contributed to lower exports were lower US refinery runs in the first half of 2019 compared with the first half of 2018 and slowing global economic growth, which is limiting demand for petroleum products.
EIA forecasts that continued growth in petroleum product exports, albeit slower than in previous years, combined with increasing US crude oil exports, will result in the US becoming a total petroleum net exporter. This change to occur in the fourth quarter of 2019.
Total US rig count (including the Gulf of Mexico) stands at 830, down 21 (2% drop). The horizontal rig count stands at 728, down 17. US rig activity continues to decline and is 239 rigs below (-22%) last year’s total.
US Crude Oil Supply and Demand
Crude oil inventories decreased for the first time in six weeks, down by 1.7 million barrels from the previous week. The crude stored at Cushing (the main price point for WTI) increased 1.5 million barrels; total stored is 44.5 million barrels (~49% utilization). Total US commercial crude stored stands at 433.2 million barrels (~55% utilization).
US crude oil refinery inputs averaged 15.9 million barrels per day, with refineries at 85.2% of their operating capacity last week. This was 429,000 barrels per day more than the previous week’s average.
US gasoline demand over the past four weeks was at 9.4 million barrels, up 2.3% from a year ago. Total commercial petroleum inventories decreased by 9.0 million barrels last week.
US crude net imports averaged 2.2 million barrels per day last week, down by 873,000 barrels per day from the previous week. Over the past four weeks, crude oil net imports averaged 2.9 million barrels per day, 48.8% less than the same four-week period last year.
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