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US Shale Production Just Hit A New All Time High

US Shale Production Just Hit A New All Time High

One month ago, we reported that based on recent data, June oil output from shale producers would post the first double-digit production growth since July of 2015, when oil prices tumbled and a substantial portion of US production was briefly taken offline. While the final data has yet to be tabulated, it is safe to say that this is now the case.

Indicatively, while over the past year total U.S. production was up roughly 525kb/d, virtually all of it, or 98.5%, was the result of horizontal rig production in the Permian Basin, where output rose by just over half a million barrels per day.

The Permian basin has been leading the increase in horizontal oil rig count (+184%)

Also of note is that while US rig shows not signs of slowing yet, in its latest Weekly Oil Rig Monitor, Goldman predicted that $45/bbl is the price below which shale output would finally slow, although that price may also prove a substantial hurdle for many gulf budgets, whose all in cost of production – including mandatory and discretionary government outlays – is roughly the same if not higher.

Rig count (lhs), WTI spot prices (rhs, $/bbl, 3-mo lag)

But what is more notable, is that according to the June EIA Drilling Prodctivity Report forecast, in July total shale (note: not total) basin output would rise by 127kb/d from May’s 5.348mmb/d, and hit 5.475 mmb/d, surpassing the previous record of 5.46 mmb/d reached in March 2015. Today the EIA released its latest Drilling Productivity Report, and while the number is not official just yet, it is safe to say that as of July, the total US shale basin is producing a record amount of crude oil, which the EIA pegged at 5.472mmb/d, up almost exactly as predicted, and is expected to rise by a further 113kb/d in August to a new all time high of 5.585mmb/d.

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

The Technical Failure That Could Clear The Oil Glut In A Matter Of Weeks

The Technical Failure That Could Clear The Oil Glut In A Matter Of Weeks

Oil

OPEC exports have come under pressure this week from technical threats to oil fields, with Saudi Arabia’s Manifa problems grabbing the headlines.

Saudi Aramco CEO Amin Nasser, while addressing the World Petroleum Congress in Istanbul, stated that the outlook for oil supplies is “increasingly worrying”, due to a loss of $1 trillion ($1000 billion) in investments last year. The skepticism shown by a majority of financial analysts and oil commentators about the real threat to global oil (and gas) production volumes was countered by the news that the production at Saudi Aramco’s main offshore oil field, Manifa, has been hit by technical problems. News sources reported that the output from Saudi Aramco’s massive Manifa oilfield has been hit by a technical problem. The impact of this possible technical mishap is not to be underestimated. Aramco’s Manifa is one of its biggest oilfields, with a targeted production capacity of around 900,000 bpd, to be brought onstream in two phases. At present, the main issue being reported on is that there has been corrosion of the water injection system, which is used to keep pressure in the reservoir. No facts have emerged about the total impact on the Manifa production capacity, but unnamed sources are already quoting ‘millions of dollars’ of losses. The current reports are not really worrying, as corrosion control in a water injection system is only a technical challenge. Maintenance of the field is expected, resulting in a shut-down of production – something that has been confirmed by Sadad Al Husseini, former VP Aramco. If the all production needs to be shut-down, Saudi Aramco’s overall production capacity will be cut by 900,000bpd.

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

Rig Count Rises To April 2015 Highs As Analysts Warn “Oil Market Rebalancing Hasn’t Even Started Yet”

Rig Count Rises To April 2015 Highs As Analysts Warn “Oil Market Rebalancing Hasn’t Even Started Yet”

After falling for the first time this year two weeks ago, Baker Hughes reports US oil rig count rose once again (up 2 to 765) for the 24th week in the last 25, to the highest since April 2015.

“The so-called re-balancing is likely to happen later than earlier,” Michael Poulsen, an analyst at Global Risk Management Ltd, said on Friday.

It does appear we have reached an inflection point in the rig count numbers (if the historical relationship with crude holds)…

While EIA cut its 2018 production outlook, this week saw the effect of field maintenance in Alaska and Tropical Storm Cindy in the Gulf of Mexico fall away and production surged once again this week – to new cycle highs…

 

And the lagged rig count trend suggests crude production has further to rise yet…

Crude prices have been active today with macro headlines hurting and machines helping ramp any dip… the rig count create iunstant selling which was instantly bid back upo,,,

And while US crude production just jumped to cycle highs (and shale production we believe reached a record high), OilPrice.com’s Nick Cunningham notes the oil market rebalancing hasn’t even started yet

Global oil production surged in June “as producers opened the taps,” according to a new report from the International Energy Agency (IEA). OPEC was a major culprit, with Libya and Nigeria doing their best to scuttle the production cuts made by other members.

But it wasn’t just those two countries, who are exempted from the agreed upon reductions. OPEC’s de facto leader, Saudi Arabia, also boosted output by an estimated 120,000 bpd in June, from a month earlier. That put Saudi production above 10 million barrels per day (mb/d) for the first time in 2017.

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

OPEC Admits It Has A Problem: It Is Still Producing Too Much Oil

OPEC Admits It Has A Problem: It Is Still Producing Too Much Oil

In its just released lastest market report for the month of July, OPEC admitted it has a problem: more than six months after the Vienna deal that was supposed to bring supply and demand in balance, the oil cartel confirmed it is pumping too much, not only in 2017, but also in 2018, blaming shale production as the primary reason behind the oversupply.

First, looking at historical data, according to secondary sources, production among the 14 OPEC member states rose by a whopping +394k b/d in June to 32.611mb/d.  The biggest monthly increases took place in those nations that had previously been supply constrained and which are exempt from the output cut accord: Libya +127k b/d, and Nigeria +97k, although even Saudi Arabia saw a substantial pick up in production, which rose by +51k b/d m/m to 9.95m b/d, the highest since the start of the year. More ominously, in direct communications to OPEC, Saudi reported a monthly increase of +190k b/d m/m, up to 10.07m b/d, suggesting that as discussed yesterday, Saudi commitment to production cuts may be “waning.”

In total, OPEC admitted that output exceeded demand in 1H this year and was set for overproduction in 2018: the total output of 32.6m b/d in June was more than the 32.2m b/d it expects will be needed in 2018.

Just as striking was the report’s suggestion that OPEC and non-OPEC’s accord to cut production was not deep enough according to Bloomberg calculations: despite reducing production, the organization’s data show it oversupplied markets by ~700k b/d in 1H this yr.  Still, surplus oil stockpiles in developed nations fell in May to 234m bbl; if OPEC maintains June output levels, it will reduce global surplus by ~70m bbl in 2H, although as we reported previously much of this is due to US oil exports which artificially depressed US commercial inventory stocks.

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

Australia’s oil stock coverage on record low

Australia’s oil stock coverage on record low

In prime time evening news of the Australian public broadcaster ABC TV, on 21 June 2017, the business presenter Alan Kohler tried to explain a fall in oil prices by “record oil inventories around the world”

http://www.abc.net.au/news/business/kohler-report/

Well, let’s go around the world on a map and stay where we are, in Australia. In google, type in the search word “Australian Petroleum Statistics” and you get this website:

http://www.environment.gov.au/energy/petroleum-statistics

Click on the latest issue and then on the download PDF file, in this case April 2017

http://www.environment.gov.au/system/files/resources/8b150335-1e38-48a3-9f66-daed7ddbe4bf/files/australian-petroleum-statistics-april2017.pdf

Search for the word “stocks” and that brings you to tables 6 and 7

Table 7 End of month stocks of petroleum, consumption cover

In the last column “IEA days of net imports coverage it is 89.5 days for 2010/11 and 55.2 days for 2015/17. Go to the bottom of the column and it’s 50.5 days. The year-on-year decline is 3.1%. That doesn’t look like a record now. If anything, it’s a record low. Let’s put that into a graph:

Australia_IEA_days_coverage_2010-Apr2017Fig 1: Australia’s net imports coverage in days as defined by IEA

Australia is a member of the IEA (International Energy Agency)

Turnbull_Birol_Feb2017Fig 2: Australian Prime Minster shaking hands with IEA’s Fatih Birol, Feb 2017

We check the coverage on the IEA website and find 48 days for March

IEA_oil_stock_in_days_of_net_imports_Mar2017
Fig 3: Australia in comparison with other countries
https://www.iea.org/netimports/

But this number of 50 days is just a calculated average of all oils and fuels. In terms of consumption cover for crude oil and the most important fuels the numbers are much lower as shown in the following graphs.

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

MEXICO Oil Reserves and Production

MEXICO Oil Reserves and Production

In dollar terms, since mid 2015 Mexico has been a net importer of hydrocarbons (oil, natural gas, petroleum products and petrochemicals combined). To date it has been a relatively small and fairly constant amount, but with their oil production declining, and oil prices apparently continuing to fall while natural gas prices may be on the rise, the net cost could now start to increase.

chart/

2017 reserve numbers were issued in early June. These used to come from PEMEX, but now look like they come from the government through the National Hydrocarbon Commission (probably as a result of the initiative for oil industry deregulation). Overall all categories of reserves have been falling for some years. The chart below shows oil and total (i.e. including condensate, NGL and natural gas) for proved, probable and possible. The production, discoveries and revisions for total petroleum (no figures for crude alone) are also shown – a bit fiddly but the trends can be seen – falling production, small and declining discoveries and some big recent revisions.

Note that the usual confusion holds here in that reserves are for crude only (condensate is included in the total numbers), but total flow rates (discussed further below) have crude and condensate numbers included (but clearly specified). To add to the confusion the datasets below are labeled P1, P2 and P3, but because the charts are stacked they should be read on the axis as 1P, 2P and 3Ps (the bar chart increments don’t really work out very well like this because the revisions can be positive or negative).

chart/

Mexico has four oil producing regions, Northeast Marine, which includes KMZ and Cantarell – the biggest fields, Southwest Marines, Northern Region onshore and Southern Region Onshore. The changes from 2016 to 2017 for these are shown below.

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

The Looming Energy Shock

Carlos E. Santa Maria/Shutterstock

The Looming Energy Shock

The next oil crisis will arrive in 3 years or less
There will be an extremely painful oil supply shortfall sometime between 2018 and 2020. It will be highly disruptive to our over-leveraged global financial system, given how saddled it is with record debts and unfunded IOUs.

Due to a massive reduction in capital spending in the global oil business over 2014-2016 and continuing into 2017, the world will soon find less oil coming out of the ground beginning somewhere between 2018-2020.

Because oil is the lifeblood of today’s economy, if there’s less oil to go around, price shocks are inevitable. It’s very likely we’ll see prices climb back over $100 per barrel. Possibly well over.

The only way to avoid such a supply driven price-shock is if the world economy collapses first, dragging demand downwards.

Not exactly a great “solution” to hope for.

Pick Your Poison

This is why our view is that either

  1. the world economy outgrows available oil somewhere in the 2018 – 2020 timeframe, or
  2. the world economy collapses first, thus pushing off an oil price shock by a few years (or longer, given the severity of the collapse)

If (1) happens, the resulting oil price spike will kneecap a world economy already weighted down by the highest levels of debt ever recorded, currently totaling some 327% of GDP:

(Source)

Remember, in 2008, oil spiked to $147 a barrel. The rest is history — a massive credit crisis ensued.  While there was a mountain of dodgy debt centered around subprime loans in the US, what brought Greece to its knees wasn’t US housing debt, but its own unsustainable pile of debt coupled to a 100% dependence on imported oil —  which, figuratively and literally, broke the bank.

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

Will Central Banks Derail The Shale Boom?

Will Central Banks Derail The Shale Boom?

Permian

The U.S. Federal Reserve has already increased interest rates several times, most recently in June, with promises to do much more. Rate hikes pose a problem for the oil industry, which has used debt to underpin a drilling boom across the U.S. shale patch. Higher rates could raise the cost of drilling.

But low oil prices, and few prospects for a strong rebound in the near-term – and possibly even the medium- and long-term – undercut the rationale for higher rates. After all, inflation is soft, and low commodity prices have a lot to do with that.

In fact, the decline of oil prices this year has led to even lower inflation than expected, not just in the U.S., but also in Europe. The Fed has insisted that weak inflation is “transitory,” but more people are starting to wonder if that is true. “There is now a much bigger chance that there will be an important disinflationary impact from lower oil prices,” Thierry Wizman, global interest rates and currencies strategist for Macquarie, told MarketWatch. With oil prices and broader inflation low, why raise rates?

Still, the Fed seems intent on moving forward. And the Bank for International Settlements (BIS), a group of central banks from around the world, urged central banks a few days ago to continue the “great unwinding.” That is, the extraordinary monetary stimulus stemming from the 2008-2009 financial crisis needs to be reined in. Fed chair Janet Yellen has warned about overpriced asset classes, a side effect of loose monetary policy. The hawkish Fed thinks that monetary policy needs to tighten in order to prevent overheating. Related: The Downturn Is Over, But U.S. Oil Companies Face A Huge Problem

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

Oil Industry To Waste Trillions As Peak Demand Looms

Oil Industry To Waste Trillions As Peak Demand Looms

Fracking

ExxonMobil and its peers risk blowing $2.3 trillion on oil projects that will not be needed if the world hits peak demand in the next decade.

A new report from The Carbon Tracker Initiative analyzed what would happen if the oil market saw demand peak by 2025, a scenario that would be compatible with limiting global warming to just 2 degrees Celsius. The headline conclusion is that about one-third of the global oil industry’s potential spending – or about $2.3 trillion – would not be needed. In other words, the oil industry is on track to waste a massive pile of money if demand peaks in less than ten years.

Which projects are subject to redundancy largely comes down to economics. U.S. shale drilling has seen dramatic costs declines, pushing some higher-cost projects out of the range of viability in this scenario.

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

European Gas Security 2017

European Gas Security 2017

On 22nd June, The Telegraph published an interesting article called Germany’s gas pact with Putin’s Russia endangers Atlantic alliance where Ambrose Evans-Pritchard made many of the correct observations but also managed to make some odd comments too. The article focussed on proposals to build Nord Stream II that would pipe more Russian gas directly into Germany, bypassing Belarus and Ukraine. This will clearly enhance German and European gas security, and yet Evans-Prichard manages to say:

The Nord Stream 2 venture creates a sweetheart arrangement with Germany while undermining the security and economic interests of Eastern and Central Europe, and leaves Ukraine at the mercy of Kremlin blackmail.

“It does nothing whatsoever to supply the EU with gas. It deprives the East Europeans of political leverage and rewards an aggressor state,” said Professor Alan Riley from the Institute for Statecraft.

I find these comments to be totally bizarre. Evans-Prichard seems to have forgotten that it was Ukraine stealing gas that crossed its territory that led Russia to periodically cut supplies to the whole of Europe. And I seem to recall that it was Western meddling in the Ukrainian elections that led directly to the civil war. Bypassing land pipeline routes that cross either Ukraine or Belarus of course improves European gas security. Evans-Prichard goes on to say:

What the project does is to erode Ukraine’s $2bn revenue from pipeline fees and to leave the country vulnerable to a Gazprom squeeze. It stops Ukraine transporting gas to Slovakia and then buying it back at EU prices to escape punitive tariffs.

It enables Russia to play a divide-and-rule game that splits the EU, and that sweetens Germany with preferential pricing. It really is a bizarre 1939-style pact.

The Changing Face of the European Gas Market

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

Australia’s oil stock coverage on record low

Australia’s oil stock coverage on record low

In prime time evening news of the Australian public broadcaster ABC TV, on 21 June 2017, the business presenter Alan Kohler tried to explain a fall in oil prices by “record oil inventories around the world”

http://www.abc.net.au/news/business/kohler-report/

Well, let’s go around the world on a map and stay where we are, in Australia. In google, type in the search word “Australian Petroleum Statistics” and you get this website:

http://www.environment.gov.au/energy/petroleum-statistics

Click on the latest issue and then on the download PDF file, in this case April 2017

http://www.environment.gov.au/system/files/resources/8b150335-1e38-48a3-9f66-daed7ddbe4bf/files/australian-petroleum-statistics-april2017.pdf

Search for the word “stocks” and that brings you to tables 6 and 7

Table 7 End of month stocks of petroleum, consumption cover

In the last column “IEA days of net imports coverage it is 89.5 days for 2010/11 and 55.2 days for 2015/17. Go to the bottom of the column and it’s 50.5 days. The year-on-year decline is 3.1%. That doesn’t look like a record now. If anything, it’s a record low. Let’s put that into a graph:

Australia_IEA_days_coverage_2010-Apr2017Fig 1: Australia’s net imports coverage in days as defined by IEA

Australia is a member of the IEA (International Energy Agency)

Turnbull_Birol_Feb2017Fig 2: Australian Prime Minster shaking hands with IEA’s Fatih Birol, Feb 2017

We check the coverage on the IEA website and find 48 days for March

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

The Dynamics of Depletion

Paul Klee Ghost of a Genius 1922
The Automatic Earth has written many articles on the topic of EROEI (Energy Return on Energy Invested) through the years, there’s a whole chapter on it in the Automatic Earth Primer Guide 2017 that Nicole assembled recently, which contains 17 different articles.

Still, since EROEI is the most important energy issue there is at present, and not the price of oil or some new gas find or a set of windmills or solar panels or thorium, it can’t hurt to repeat it once again, in someone else’s words and from someone else’s angle. This one comes from Brian Davey on his site CredoEconomics, part of his book “Credo”.

It can’t hurt to repeat it because not nearly enough people understand that in the end everything, the survival of our world, our way of life, is all about the ‘quality’ of energy, about what we get in return when we drill and pump and build infrastructure, what remains when we subtract all the energy used to ‘generate’ energy, from (or at) the bottom line.

Anno 2017, our overall ‘net energy’ is nowhere near where it was for the first 100 years or so after we started using oil. And there’s no energy source that comes close to -conventional- oil (and gas) when it comes to what we are left with once our efforts are discounted, in calories or Joules.

The upshot of this is that even if we can ‘gain’ 10 times more than we put in, in energy terms, that won’t save our complex societies. To achieve that, we would need at least a 15:1 ratio, a number straight from our friend Charlie Hall, which is probably still quite optimistic. And we simply don’t have it. Not anymore.

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

 

Trump’s ANWR move could spawn epic oil, natural gas battle: Fuel for Thought

Trump’s ANWR move could spawn epic oil, natural gas battle: Fuel for Thought

Oil majors thirsty for reserves likely to line up for any lease sale

President Trump has uncorked yet another controversy over energy vs the environment and it promises to be a heavyweight battle.

The White House budget proposal includes a revenue line of almost $2 billion from selling oil and gas leases in the richly oil-prospective northeastern coastal plain of the Arctic National Wildlife Refuge (ANWR) in Alaska.

Until the climate change debate came along, leasing and drilling in the ANWR (pronounced an-war) Coastal Plain was arguably the most ferociously contested item on the oil and gas industry’s wish list at the national level.

First, a little background: In 1960, less than one year after Alaska became a state, Congress created the Arctic National Wildlife Range.

Twenty years later, the Alaska National Interest Lands Conservation Act (ANILCA) expanded the Arctic Range to 18 million acres, renamed it the Arctic National Wildlife Refuge, designated 8 million acres as National Wilderness, designated three rivers as National Wild Rivers, and called for wildlife studies and an oil and gas assessment of 1.5 million acres of the ANWR Coastal Plain (the 1002 area).

There is not enough space here to track the tortuous history of legal and regulatory battles and failed legislation that has marked efforts to either develop oil and gas in the ANWR Coastal Plain or to lock it up against development permanently.

Suffice to say that ANILCA granted surface and subsurface rights to the Inupiat Native Americans living near the North Slope village of Kaktovik on the ANWR Coastal Plain, seismic studies were conducted on Inupiat land, and what has been called the “the tightest hole of all time” (KIC-1) was drilled and plugged on that acreage by a group led by Chevron.

Only a handful of people have ever known the well results—and no one has spilled the beans yet.

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

US Oil Rig Count Rises For 23rd Straight Week But High Costs Drive Investors Out Of The Permian

US Oil Rig Count Rises For 23rd Straight Week But High Costs Drive Investors Out Of The Permian

The number of oil rigs in America has now risen for 23 straight weeks (and 50 of the last 52 weeks), up 11 to 758 in the last week – the highest since April 2015. “It’s becoming bearish mania,” said Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago. “If we keep going down, we’re not going to be adding rigs in a few months, we’re not going to be adding production”

And we suspect, given the lagged reaction to prices, that inflection point in rig counts is close…

And the last chance for the week for the bulls just left…

US crude production (in the Lower 48) has been on a tear (with one brief interruption) tracking the lagged rise in rig counts almost perfectly…

And the rising rig count has been driven mainly by The Permian…

But as Oil & Gas 360 notes, high acreage costs beginning to affect economics in the Delaware, driving investors away from The Permian.

The Permian has enjoyed a rush of capital since oil prices began to recover from a low of $26.21 in February of last year.

The play is home to some of the best economics in the country, making it a prime target for E&P companies looking to maximize profit in a lower price environment. But the surge in land costs is leaving little room for new investors to profit.

The Delaware basin, the Permian’s hottest zone, is beginning to become a victim of its own success. EnerCom Analytics’ well economic models indicate that the internal rates of return (IRRs) in the Delaware are now lower than those seen in the Midland due to the high cost of land.

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

Largest East Coast Pipeline Reveals Demand For Gasoline Is Crashing

Largest East Coast Pipeline Reveals Demand For Gasoline Is Crashing

There’s a reason this week’s EIA survey showing gasoline and oil supplies declining has failed to stop RBOB prices from collapsing to 7-month lows: The start of the summer has done nothing to revive sluggish demand. That’s because despite what the EIA survey said, little has been done to reduce record fuel inventories.

The squeeze has gotten so bad, Northeast Colonial Pipeline Co., the operator of the biggest US fuel pipeline system, said that demand to transport gasoline to the country’s populous northeast is the weakest in six years, the latest symptom of a global oil market grappling with oversupply. It’s notable that this peak has arrived despite the advent of the summer driving season, which has seen gasoline demand pull back from last year’s record highs, according to Reuters.

Because of the oversupply in the northeast, “line space”… the cost of renting “space” on the pipeline to assure one’s ability to get supplies of gasoline when necessary… has gone negative, according to Reuters. What can be more exemplary of excess inventories and of reduced demand for gasoline than this?

Refiners are in part to blame for the problem – they have continued to pump motor fuel at record levels for the second year in a row, worsening the oversupply problem, for fear of losing access to pipeline capacity.

More broadly, attempts by large producers to reduce global supplies have failed to meaningfully raise the price of oil.  And with good reason: Traders have been skeptical of an agreement between OPEC and non-OPEC producers, including Russia, to extend last year’s supply cut, and already they’re concerns are being validated: Iraq has said it plans to increase production later this year despite the agreement.

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

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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