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Oil Markets Tremble As Chinese Stocks Crash

Oil Markets Tremble As Chinese Stocks Crash

China Yuan

China’s stock market fell sharply on Thursday, dragged down by a range of concerns that should offer a warning to the broader global economy.

The Shanghai Composite Index fell nearly 3 percent on Thursday, falling to its lowest point in nearly four years. The problems in China are dragging down markets across Asia, including in Japan and South Korea.

The Shanghai Composite is now down more than 25 percent since the start of the year, and is down more than 10 percent in the last three weeks alone. Viewed another way, the Chinese stock market has lost more than $3 trillion in the last six months.

(Click to enlarge)

Shanghai Composite Index, last 12 months

The troubling thing about the recent declines is that the factors driving the losses are multiple. The trade war with the United States, mountains of debt held by local governments within China, a broader slowdown in growth, a weakening yuan and high oil prices are all creating headwinds for the Chinese economy.

China’s central bank said that it still has plenty of tools that it could use defend against the trade war. Looser reserve requirements took effect a few days ago, a move the central bank made to inject money into the economy.

The IMF says that China’s GDP growth could slow from 6.6 percent this year to just 6.2 percent in 2019, although the risks are skewed to the downside because of the trade war. The Fund said that a worst-case scenario in which the U.S. slaps stiff tariffs on nearly all imports from China would shave off 1.6 percentage points from Chinese growth.

China won’t see any relief from the U.S. Federal Reserve. Minutes of the Fed’s last meeting in late September were released on Wednesday, and they reveal a determination on the part of the central bank to continue to tighten interest rates.

…click on the above link to read the rest of the article…

U.S-Saudi Clash Could Spell Disaster For OPEC

U.S-Saudi Clash Could Spell Disaster For OPEC

OPEC meeting

The Khashoggi case is far from over, as current harsh statements coming from Washington are showing.

Not only is there a long line of U.S. Senators calling for an in-depth investigation of the matter, some have even openly called for the removal of Saudi Crown Prince Mohammed bin. Senior R-Senator Lindsay Graham, one of the staunchest supporters of US president Trump and Saudi Arabia, has broken ranks as he asked on US Fox-News to remove MBS from his position.

These moves from Washington are not only endangering the very strong ties between Washington and Riyadh, but also endanger the overall Middle East and internal stability of OPEC. The oil cartel, led by Saudi Arabia, is looking at a very stormy ride the next couple of months, while the U.S. is heading for another showdown in the Arab world.

The Khashoggi case has become a possible watershed in international relations. Statements made by US R-Senator Graham, already supported by other high-ranking U.S. officials, show that the position of Saudi Arabia as a strategic ally of Washington in the Middle East, and MBS in particular, is under severe pressure.

The public threat, made by Graham news channel Fox-News, to put strong sanctions on Saudi Arabia, if the Crown Prince is not being removed, is a first. Not even in the case of Iran, Russia’s involvement in the Ukraine or the ongoing disaster in Syria, an open call was made for regime change. If threats were made by U.S. government-linked senators, it always was directly linked to a strong opposition movement in that country, or being directed at an anti-U.S. government or entity.

…click on the above link to read the rest of the article…

Big Oil Cheers Trump’s ‘New NAFTA’ But Mexico Could Complicate Things

Big Oil Cheers Trump’s ‘New NAFTA’ But Mexico Could Complicate Things

While the oil and gas industry has lauded the new trade deal that may soon replace the North American Free Trade Agreement (NAFTA), a provision added by Mexico, along with its new president’s plan to ban fracking, could complicate the industry’s rising ambitions there.

The new agreement, known as the United States–Mexico–Canada Agreement (USMCA), has faced criticism as being tantamount to NAFTA 2.0 — more of a minor reboot that primarily benefits Wall Street investors and large corporations, including oil and gas companies.

Mercilessly critiqued by then-candidate Donald Trump during the 2016 presidential campaign, NAFTA is now the second major trade deal kicked to the curb by now-President Trump. The other, the Trans-Pacific Partnership (TPP), was canceled days intoTrump’s presidency.

After the most recent deal’s announcement, the oil and gas industry offered praise for USMCA. The White House even pointed this out in a press release, highlighting a quote given by the U.S. industry’s major trade group, the American Petroleum Institute (API).

“We urge Congress to approve the USMCA. Having Canada as a trading partner and a party to this agreement is critical for North American energy security and U.S. consumers,” said Mike Sommers, President and CEO of API. “Retaining a trade agreement for North America will help ensure the U.S. energy revolution continues into the future.”

In its own press release declaring its support for USMCA, API further spelled out the parts of the deal it supports.

Those include “continued market access for U.S. natural gas and oil products, and investments in Canada and Mexico; continued zero tariffs on natural gas and oil products; investment protections to which all countries commit and the eligibility for Investor-State Dispute Settlement (ISDS) for U.S. natural gas and oil companies investing in Mexico…

…click on the above link to read the rest of the article…

Brazil Reserves and Production Update, 1H2018

Brazil Reserves and Production Update, 1H2018

brazil c&c production

Brazil and Petrobras show something in common with US LTO: even with a lot of debt and desire, and a strong resource base it is difficult to raise production in the face of high decline rates. It may also be a lesson for the world as oil prices rise and activity picks up; it is by far the most active conventional oil region with many major projects at various stages of completion, but facing delays and schedule crowding so oil production has continued a slow decline, contrary to expectations from last year. In July new production again did not quite match overall decline, mostly because of delays in start-ups of FPSOs planned for this year, and at 2575 kbpd was down 14 kbpd or 0.5% m-o-m and 48 kbpd or 1.8% y-o-y (data from ANP).

chart/

Two FPSOs were started in 2017: Lula Extension Sul (P-66) at 150 kbpd nameplate and Pioneiro de Libra, an extended well test project on the Mero field, at 50 kbpd. Both are now about at design throughput. Two other FPSOs completed ramp up in 2017. In 2018 three FPSOs have started up: Atlanta a small early production system at 20 kbpd, Bezios-1 (P-74) in the Santos basin at 150 kbpd and FPSO Cidade de Campos dos Goytacazes on the Tartaruga Verde field in Campos, also at 150 kbpd. There were three other FPSOs due for the Buzios field (P-75, 76 and 77) but at least one is delayed till next year. There are now four planned FPSOs remaining to be started up this year, all in the fourth quarter: P-75 and P-76 plus P-67 (Lula Norte) and P-69 (Lula Extremo Sul) in the Lula field (each 150 kbpd nameplate).

…click on the above link to read the rest of the article…

Germany Clashes With The U.S. Over Energy Geopolitics

Germany Clashes With The U.S. Over Energy Geopolitics

Nord Stream 2

The United States and the European Union (EU) are at odds over more than just the Iran nuclear deal – tensions surrounding energy policy have also become a flashpoint for the two global powerhouses.

In energy policy, the U.S. has been opposing the Gazprom-led and highly controversial Nord Stream 2 pipeline project, which will follow the existing Nord Stream natural gas pipeline between Russia and Germany via the Baltic Sea. EU institutions and some EU members such as Poland and Lithuania are also against it, but one of the leaders of the EU and the end-point of the planned project—Germany— supports Nord Stream 2 and sees the project as a private commercial venture that will help it to meet rising natural gas demand.

While the U.S. has been hinting this year that it could sanction the project and the companies involved in it—which include not only Gazprom but also major European firms Shell, Engie, OMV, Uniper, and Wintershall—Germany has just said that Washington shouldn’t interfere with Europe’s energy choices and policies.

“I don’t want European energy policy to be defined in Washington,” Germany’s Foreign Ministry State Secretary Andreas Michaelis said at a conference on trans-Atlantic ties in Berlin this week.

Germany has to consult with its European partners regarding the project, Michaelis said, and noted, as quoted by Reuters, that he was “certainly not willing to accept that Washington is deciding at the end of the day that we should not rely on Russian gas and that we should not complete this pipeline project.”

In July this year, U.S. President Donald Trump said at a meeting with NATO Secretary General Jens Stoltenberg that “Germany is a captive of Russia because they supply.”

…click on the above link to read the rest of the article…

An update on the King Island Renewable Energy Integration Project

An update on the King Island Renewable Energy Integration Project

A number of operating small-scale renewables plants provide advance warning of the potential problems involved in transitioning the world to renewable energy, but only two of them – Gorona del Viento in the Canary Islands (GdV) and King Island, Tasmania (KI) – provide grid data that allow their performance to be checked. In this post I summarize the results of another batch of KI data covering the period from July 15 through September 30, 2018. Over this period KI generated about 60% of its electricity from renewables, effectively the same estimate as I made for October and November 2017 in this earlier post. Like GdV, however, KI will always need fossil fuel backup to fill in gaps when the wind does not blow.

There are three problems with the KI grid data. First, they are available only though KI’s live data site, which because it changes the readings once every two or three seconds leads to huge data volumes (a month generates over a million lines). Second, the site has recently been down for almost half the time. But two Energy Matters stalwarts, Rainer Strassburger and Thinks Too Much, continue to download what they can, and T2M has succeeded in condensing some of the data down to manageable 1-minute intervals, no mean feat. So a hat-tip to these gentlemen.

The third problem is that KI, despite strenuous efforts on my part, have once again refused to send me their data. They claim a) that they can’t release the data to just anybody and b) that they don’t have the time anyway.

A quick refresher on KI. First a location map:

Figure 1: King Island location map

Installed capacity at KI amounts to approximately 9MW. It consists of:

  • four diesel generators (6.00 MW)
  • five wind turbines (2.45 MW)
  • a solar array (0.1 MW); and
  • domestic solar (approximately 0.5 MW)

…click on the above link to read the rest of the article…

Saudi Arabia Calls The End Of Russia’s Oil Prowess

Saudi Arabia Calls The End Of Russia’s Oil Prowess

Putin MBS

Saudi Arabia has not only called the end of Russia’s prominence as a global oil behemoth, but anticipates that Russia’s oil exports “will have declined heavily if not disappeared” within the next 19 years, Mohammed bin Salman said in a recent interview with Bloomberg.

When asked whether Russia and Saudi Arabia had made a backroom deal to increase oil production, MbS was more tight-lipped, saying only that Saudi Arabia was “ready to supply any demand and any disappearing from Iran.” With Russia out of the game, Saudi Arabia would have plenty of oil demand to service, according to MbS.

MbS did not comment on his rationale for Russia’s exit as a major oil producer.

Russia’s oil production in August of 11.21 million barrels per day, near the post-Soviet era high reached the month prior to signing the OPEC+ deal that curbed its production. The 11.21 million barrels places the country in second place of the most prolific oil producers in the world, behind the United States, who overtook both Saudi Arabia and Russia earlier this year, according to EIA data as cited by CNN.

While America managed to rise from its third place seating in 2018, it did so unencumbered by the production-curbing agreement that both Saudi Arabia and Russia agreed to. Gazpromneft earlier today said it was no longer restricting its oil output, although it doubtful that either Russia or Saudi Arabia can reclaim their top spots.

Saudi Arabia has been at the forefront of oil news in recent weeks—almost neck and neck with Iran—as traders try to anticipate just how much spare oil production capacity Saudi Arabia has—if any—and if that spare capacity, whether it’s zero or a million barrels per day, will be sufficient to offset any losses sustained from Iran and Venezuela.

The Implications Of A Fractured U.S., Saudi Alliance

The Implications Of A Fractured U.S., Saudi Alliance

oil tanker

After the resurgence of the U.S. oil industry in recent years due to hydraulic fracking and the shale oil revolution, most thought the days of Middle Eastern oil producers, Saudi Arabia in particular, being able to threaten use of the so-called oil weapon as geopolitical leverage or even coercion were over. But that couldn’t be further from the truth.

Even though the U.S. is pumping oil at record levels, hitting 11 million barrels of oil per day, a rate that should have negated such a threat from ever resurfacing, it seems that Washington has also arguably shot global oil markets in the foot by re-imposing economic sanctions against Iran, with more sanctions slated to hit the Islamic Republic’s energy sector in just a matter of weeks.

The loss of Iranian barrels from global oil markets has already pushed prices well past $80 per barrel recently, and prices could break into the $90 plus range after November. Added to the fray are long term production problems in major OPEC producers Venezuela, Nigeria and Libya – in effect offsetting the ramp-up in U.S. production and the ability for shale producers to play the coveted role of oil markets swing producer. Now Saudi Arabia has taken at least marginal control of oil markets back again – not a comforting prospect for many.

Saudi Arabia said on Sunday it would retaliate against any punitive measures from the U.S. linked to the disappearance of Washington Post columnist Jamal Khashoggi with even “stronger ones.”  In what Bloomberg News called an implicit reference to the kingdom’s petroleum wealth, the Saudi statement noted the Saudi economy “has an influential and vital role in the global economy.”

1973 oil embargo remembered

…click on the above link to read the rest of the article…

U.S. Shale’s Glory Days Are Numbered

U.S. Shale’s Glory Days Are Numbered

Fracking

There are some early signs that the U.S. shale industry is starting to show its age, with depletion rates on the rise.

A study from Wood Mackenzie found that some wells in the Permian Wolfcamp were suffering from decline rates at or above 15 percent after five years, much higher than the 5 to 10 percent originally anticipated. “If you were expecting a well to hit the normal 6 or 8 percent after five years, and you start seeing a 12 percent decline, this becomes more of a reserves issue than an economics issue,” said R.T. Dukes, a director at industry consultant Wood Mackenzie Ltd., according to Bloomberg. As a result, “you have to grow activity year over year, or it gets harder and harder to offset declines.”

Moreover, shale wells fizzle out much faster than major offshore oil fields, which is significant because the boom in shale drilling over the past few years means that there is more depletion in absolute terms than ever before. A slowdown in drilling will mean that depletion starts to become a serious problem.

A separate study from Goldman Sachs takes a deep look at whether or not the shale industry is starting to see the effects of age. The investment bank says the average life span for “the most transformative areas of global oil supply” is between 7 and 15 years.

Examples of these rapid growth periods include the USSR in the 1960s-1970s, Mexico and the North Sea in the late 1970s-1980s, Venezuela’s heavy oil production in the 1990s, Brazil in the early 2000s, and U.S. shale and Canada’s oil sands in the 2010s. Each had their period in the limelight, but ultimately many of them plateaued and entered an extended period of decline, though some suffering steeper declines than others. Supply Soars

…click on the above link to read the rest of the article…

 

US Oil Exports Are Exceeding Almost All Predictions—Thanks to Fracking

US Oil Exports Are Exceeding Almost All Predictions—Thanks to Fracking

Oil tanker in the Houston ship channel

And crude oil exports are supposed to double by 2020, according to the San Antonio News-Express. That’s a lot of oil — and almost all of it is fracked.

That should come as no surprise. In August 2015, my story for DeSmog, “Lifting Ban On U.S. Crude Oil Export Would Enable Massive Fracking Expansion,” pretty much sums up what is happening now. However, that’s not what the industry experts at the time were predicting.

Last year I noted how quickly these experts, from energy consultants to academics, were proven wrong in their predictions about the effects of overturning the 40-year-old ban, which occurred in December 2015.

If exports double by 2020, those experts will be that much more wrong. Perhaps the best example of this phenomenon is from a December 2015 newsletter from CME Group — a commodities trading group that stood to profit greatly from trading U.S.exported oil. The newsletter, which takes a question-and-answer format, included the following:

Question #2: Will lifting the crude oil export ban result in greater U.S. production?

The answer: No.

Couldn’t get more wrong that, but CME now lists U.S. WTI crude on its website as one of the top commodities it trades. I guess there’s a lesson here about whether to trust a commodities trader.

…click on the above link to read the rest of the article…

Are Natural Gas Prices Set To Spike?

Are Natural Gas Prices Set To Spike?

gas well

Natural gas storage is at record low levels but prices are falling going into winter heating season. Markets seem to be betting that wellhead supply will be sufficient to cover demand this winter. That may be but at what gas prices? This is a game of natural gas risky business.

Natural gas 6-month calendar spreads moved in backwardation in early September and climbed to +$0.57 on October 9. Henry Hub spot prices reached $3.28/mmBtu but both spreads and price have fallen since then (Figure 1).

(Click to enlarge)

Figure 1. Natural gas 6-month closing spreads & price reached maximum levels of +$0.57 and $3.28/mmBtu during week ending October 12 but have fallen since. Source: Barchart, Quandl and Labyrinth Consulting Services, Inc.

The upward movement of prices and spreads were a long time coming considering the massive storage deficit that began in October 2017 (Figure 2). Current storage is -493 bcf less than the 5-year average and we are only a few weeks away from the beginning of the 2017-2018 winter heating season. Storage is an almost unbelievable -693 bcf less than during the same week in 2017 and yet, markets are seemingly unfazed!

(Click to enlarge)

Figure 2. Natural gas comparative inventory (C.I.) deficit began in October 2017. Current storage is -493 bcf less than the 5-year average. Source: EIA and Labyrinth Consulting Services, Inc.

What, me worry?

This has led to the lowest end-of-storage (EOS) level in history. October working-gas-in-storage (WGIS) is only 3.29 tcf and a projected monthly average C.I. of -400 bcf is also the lowest in history for October (Figure 3).

(Click to enlarge)

Figure 3. October 2018 working gas in storage (WGIS) lowest ever (3.29 tcf). Comparative inventory also forecast to be lowest ever at (-440 bcf). Source: EIA STEO and Labyrinth Consulting Services, Inc.

…click on the above link to read the rest of the article…

The Oil Markets Are At A Confusing Crossroads

The Oil Markets Are At A Confusing Crossroads

Market

The oil market is “adequately supplied for now,” but the supply losses from Venezuela and Iran leave the market suffering from “strain,” according to a new report from the International Energy Agency (IEA).

The IEA noted that global oil production increased by 1.4 million barrels per day (mb/d) on a net basis since May, which helped lead to an inventory build at an average rate of 0.5 mb/d during the second quarter and likely the third quarter as well. As a result of a sizable stockpile of oil in storage, and these higher levels of production, the oil market is not in danger of shortages at the moment.

However, that has come at the expense of spare capacity, which is already down to only 2 percent of global demand, “with further reductions likely to come,” the IEA warned. “This strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy.”

Iran has already lost around 800,000 bpd in exports, and the disruptions are set to continue over the next month at least with U.S. sanctions taking effect in November. Also, the “ever-present threat of supply disruptions” from Libya, combined with the ongoing losses in Venezuela, leave the oil market vulnerable.

Taking a step back, the IEA paused to note the historic nature of today’s oil market. Both supply and demand are closing in on the 100-million-barrel-per-day mark for the first time. The agency used the opportunity to take a swipe at those who warned about peak oil supply. “Fifteen years ago, forecasts of peak supply were all the rage, with production from non-OPEC countries supposed to have started declining by now,” the IEA said.

…click on the above link to read the rest of the article…

India Yet To Figure Out Way To Pay for Iranian Oil Imports

India Yet To Figure Out Way To Pay for Iranian Oil Imports

oil tanker

India hasn’t worked out yet a payment system for continued purchases of crude oil from Iran, Subhash Chandra Garg, economic affairs secretary at India’s finance ministry, said on Friday.

India’s Oil Minister Dharmendra Pradhan has conveyed the message that his country would continue to buy Iranian oil to some extent, Garg told CNBC TV18 news channel, as quoted by Reuters.

Recent reports have it that India has discussed ditching the U.S. dollar in its trading of oil with Russia, Venezuela, and Iran, instead settling the trade either in Indian rupees or under a barter agreement.

India is Iran’s second-largest single oil customer after China and was expected to cut back on Iranian oil purchases, but it is unlikely to cut off completely the cheap Iranian oil that is suitable for its refineries.

India wants to keep importing oil from Iran, because Tehran offers some discounts and incentives for Indian buyers at a time when the Indian government is struggling with higher oil prices and a weakening local currency that additionally weighs on its oil import bill.

But the United States continues to insist that it expects Iranian oil buyers to bring their purchases down to zero.

Earlier this week, Indian officials said that they hoped India could secure a waiver from the United States, because it has significantly reduced purchases of Iranian oil. Late last week, the United States hinted that it was at least considering waivers.

Meanwhile, Special Representative for Iran Brian Hook is currently touring India and Europe to discuss U.S. foreign policy toward Iran, the U.S. Department of State said on Thursday.

Special Representative Hook and Assistant Secretary of State for Energy Resources Francis R. Fannon are will be meeting with Indian government counterparts for consultations.

“During this trip, Special Representative Hook will engage our allies and partners on our shared need to counter the entirety of the Iranian regime’s destructive behavior in the Middle East, and in their own neighborhoods,” the State Department said.

Oil’s $133 Billion Black Market

Oil’s $133 Billion Black Market

rig

Oil is still the world’s leading energy source, with growing demand, a fluctuating pricing system, and much of its production in volatile regions. The oil market’s value is larger than the world’s valuable raw metal markets combined, with an annual production valued at US$1.7 trillion. A flourishing black market is no surprise, with about US$133 billion worth of fuels stolen or adulterated every year. These practices fund dangerous non-state actors such as the Islamic State, Mexican drug cartels, Italian Mafia, Eastern European criminal groups, Libyan militias, Nigerian rebels and more – and are a major global security concern.

The top five countries accused of oil trafficking – Nigeria, Mexico, Iraq, Russia, and Indonesia – are also producers. It is estimated that Nigeria alone loses US$1.5 billion a month due to pipeline tapping, illegal production and other sophisticated schemes. In Southeast Asia, about 3 percent of the fuel consumed is sourced from the black market, estimated to be worth up to US$10 billion a year. In Mexico, drug cartels launder drug revenues through the oil trade

Other countries are not immune. Turkey is not an oil producer yet serves as a major transit route for hydrocarbons flowing to Europe from OPEC countries like Iraq and Iran. As an energy hub, Turkey is strategically situated for the illegal trade and lost an estimated US$5 billion in tax revenue in 2017. An uptick in smuggling oil and other refined products began 2014, when ISIS took control of major Syrian and Iraqi oil fields.

As with most commodities, the volume of oil smuggling is primarily linked to fluctuating prices. With climbing oil prices, illicit trade is expected to increase.

…click on the above link to read the rest of the article…

How A Carbon Tax Would Be Implemented

How A Carbon Tax Would Be Implemented

oil

There are no solutions to complex problems – except when the problem becomes so complex it must have a simple solution.

That is the paradox thrown up by global warming and the shattering report of the U.N. Intergovernmental Panel on Climate Change. The report cries out for dramatic, simple remediation of the amount of carbon pumped into the atmosphere every day by industrial society.

The complex solution is a case-by-case, country-by-country, industry-by-industry, polluter-by-polluter remediation: power plants, automobiles, trucks, trains, ships, aircraft and manufacturers.

The simple solution to this complex problem is to tax carbon emissions: a carbon tax. Make no mistake, it would be tough. Some industries would bear the brunt and their customers would carry the burden — initially a light burden growing to a heavier one.

The obvious place to start is with electric utilities. Those burning coal would get the heaviest penalty. Those burning natural gas – the fuel favored by its low price and abundance in the nation — some penalty, but not as heavy.

Nuclear, which is having a hard time in the marketplace at present, would be the big winner of the central station technologies, and solar and wind would continue to be favored.

When it comes to transportation and farming, the pain of carbon taxation rises. The automobile user has choices like a smaller car, an electric car or simply less driving. But heavy transportation, using diesel or kerosene, is where the pain will be felt: buses, trucks, tractors, trains, aircraft and ships. The burden here is direct and would push up prices to consumers quickly.

Jets are a particularly vexing problem. Although they represent about 3.5 percent of pollution, it is the altitude at which they operate (above 30,000 feet) that makes them particularly lethal greenhouse gas emitters.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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