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Oil prices surged on Wednesday on news that the Keystone pipeline might not restart for several weeks. The outage at the damaged pipeline ended several years of contango for WTI, pushing the benchmark into a state of backwardation for the first time since 2014.

TransCanada made a lot of headlines in the past week. The Keystone pipeline ruptured and spilled more than 200,000 gallons of crude oil in South Dakota last week, just days before TransCanada was given a greenlight for the Keystone XL in the state of Nebraska. South Dakota regulators now say that they could revoke the permit for the Keystone pipeline if it is found that the company violated the terms of its license. The spill was the third for the Keystone pipeline in less than 10 years.

“If it was knowingly operating in a fashion not allowed under the permit or if construction was done in a fashion that was not acceptable, that should cause the closure of the pipe for at least a period of time until those challenges are rectified,” said Gary Hanson, a member of the South Dakota Public Utilities Commission, told Reuters.

TransCanada said on Wednesday that it could take weeks to clean up the spill and bring the pipeline back online – news that sent shockwaves through the oil market. WTI spot prices surged on the news, pushing the benchmark back up above $58 per barrel.

TransCanada said that November deliveries through the pipeline would be cut by about 85 percent, a major outage for the nearly 600,000-bpd pipeline. Phillips 66, a major refiner that purchases crude from the pipeline, said that it is expecting an outage of about four weeks.

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

Can The Gas Glut Kill The Permian Boom?

November 22, 2017

Can The Gas Glut Kill The Permian Boom?

The Permian basin continues to add new oil production, but shale drillers in West Texas could face an unexpected problem: too much natural gas.

Natural gas is produced as a byproduct when drilling for oil. Oil tends to be more lucrative, so shale companies typically target oil in places like the Permian, and the gas is considered an added benefit. However, the Wall Street Journal reports that shale drillers in the Permian are struggling with too much gas and not enough places to put it.

The gas pipelines from the West Texas shale fields are at capacity. To the north, the market is saturated with gas from the Rockies and Canada, the WSJ says. And while there are several natural gas pipelines under construction that would carry gas from Texas to Mexico, those projects are not yet online. One key pipeline, the Gulf Coast Express, won’t come online until 2019, and several other projects have similar timelines.

While Permian producers really want to continue to ramp up oil production, they are extracting more gas than they know what to do with. The result is plunging spot prices for gas. According to the WSJ, the Waha trading hub in West Texas has gas selling for 57 cents/MMBtu below Henry Hub prices. With Henry Hub at roughly $3/MMBtu, that puts West Texas gas at something like $2.50/MMBtu.

But gas output is expected to continue to climb. With no space left on any pipelines, prices will continue to crater. Analysts, according to the WSJ, see gas prices in the region dropping further, potentially trading for a $1/MMBtu discount relative to Henry Hub.

(Click to enlarge)

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IEA’s Shocking Revelation About U.S. Shale

November 15, 2017

IEA’s Shocking Revelation About U.S. Shale

Shale

The oil market is exhibiting signs of having reached a “new normal,” according to the IEA, with the floor for oil prices jumping from $50 to $60 per barrel. But a few factors could poke holes in that price floor, and market watchers should be careful not to become overly optimistic about the trajectory for oil prices, the agency says.

In its latest Oil Market Report, the Paris-based energy agency says that a confluence of events have pushed up Brent prices. Lower-than-expected oil production figures coming out of Mexico, the U.S. and the North Sea have combined with unexpected outages in Iraq (-170,000 bpd in October), Algeria, Nigeria and Venezuela. Those outages, plus the geopolitical turmoil in Iraq, and especially Saudi Arabia, have heightened tension in the oil market.

Inventories also continue to decline. OECD commercial stocks fell below the symbolic 3-billion-barrel mark in September for the first time in two years.

That seems to have put a floor beneath Brent crude prices at $60 per barrel, creating a “new normal” after prices had bounced around in the $50s for months. But the IEA cautions that the floor is not a solid one, and that a “fresh look at the fundamentals confirms…that the market balance in 2018 does not look as tight as some would like.”

For one, some of those outages are temporary. North Sea and Mexican production recovered from maintenance, Iraq is scrambling to restore output (and raised exports from its southern fields to compensate for outages in the north), and shut-ins related to Hurricane Harvey in the U.S. have largely been restored. Libya and Nigeria saw their output inch up in October.

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

The War That Would Transform Oil Markets

November 14, 2017

The War That Would Transform Oil Markets

A fire erupted at an oil pipeline connecting Bahrain and Saudi Arabia, and the two Arab allies are pointing the finger at Tehran. Iranian officials denied any involvement, but the incident is the latest in a series of events that are intensifying conflict between the Middle Eastern rivals.

The oil pipeline resumed operations in a matter of hours, but the war of words is heating up. Bahrain’s Foreign Minister Khalid Al-Khalifa said on Twitter that the “attempt to bomb the Saudi-Bahraini oil pipeline is a dangerous Iranian escalation that aims to scare citizens and hurt the global oil industry.” A spokesperson for Iran fired back, saying that the Bahrainis “need to know that the era for lies and childish finger-pointing is over.”

The incident comes only days after a missile was fired from Yemen into Saudi Arabia, which the Saudis pinned on Iran.

Meanwhile, a web of intrigue has enveloped Lebanon, the small country in which all the regional powers hope to exert their influence. Earlier this month, Lebanese Prime Minister Saad al-Hariri resigned and decamped to Saudi Arabia, blaming Iran and Hezbollah for putting his life and his family’s safety at risk.

But, Hezbollah said Hariri is actually being held captive by the Saudis. Riyadh, in turn, warned Saudi nationals to leave Lebanon. Israeli leaders have said they would bomb Lebanon back to the Stone Age.

To further confuse matters, Hariri said he could withdraw his resignation and continue on as prime minister, so long as Hezbollah quit interfering in regional conflicts. “I am not against Hezbollah as a party; I have a problem with Hezbollah destroying the country,” he said.

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

Is Peak Permian Only 3 Years Away?

November 13, 2017

Is Peak Permian Only 3 Years Away?

The world’s hottest shale basin, the Permian, is leading the second U.S. wave of tight oil production growth and will continue to do so for years to come, all analysts say.

However, signs have started to emerge that the relentless intensification of drilling leads to diminishing returns, Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie, said in an article this week. Pumping twice as much sand as usual into Permian wells and drilling longer laterals doesn’t deliver commensurate volumes of oil, Flowers notes.

“Drilling costs rise exponentially with depth, and there’s a suspicion that longer wells are hitting a cost efficiency ceiling,” WoodMac’s chief analyst writes.

Moreover, after the early production-exuberance stage, drillers are now much more focused on delivering profits and higher profit margins. They now favor quality over quantity, and value over volumes.

“Might the Permian be reaching the limits of well size and design? Maybe—as Star Trek’s Scotty might observe of an underwhelming high intensity completion ‘you cannae change the laws of physics, Jim’,” Flowers says. But WoodMac suggests that drillers could ‘change the laws of physics’ and that these signs of setbacks may actually be growing pains.

The energy consultancy’s Director of L48 Research, Rob Clarke, argues that there are two basic and very sound reasons that the fading lateral drilling and proppant metrics might be just growing pains. One is much more advanced proppant placement, and the other is the oil majors’ move into the Permian, set to change things.

“Now, pinpoint frac technology can place the proppant exactly where it’s wanted. Science is also being applied to identify the most effective proppant grain size and shape as well as drill bit design and fluid chemistry, all with the aim of boosting EUR,” according to WoodMac.

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

Is The U.S. Solar Boom In Jeopardy?

November 2, 2017

Is The U.S. Solar Boom In Jeopardy?

The U.S. solar industry has surged in recent years, accounting for the largest source of new electric capacity in the past year, with plenty of room to grow. However, the Trump administration is weighing a trade tariff that could seriously curtail the explosive growth figures for U.S. solar.

On Tuesday, the U.S. International Trade Commission (ITC) recommended a 35 percent tariff on imported solar panels in response to a complaint from a U.S.-based solar manufacturer over cheap imported panels. The trade case has been cited by the solar industry as one of the most significant dangers to its otherwise bright future, labeling potential tariffs an “existential threat.” Many solar project developers use cheaper panels imported from places like China, and trade barriers could upend the economics of new solar projects.

But all is not lost. The 35 percent tariff proposed by the ITC is actually less than what Suniva Inc., the company lodging the complaint, had asked for. Suniva filed for bankruptcy earlier this year, blaming a wave of cheap imported panels for its demise. Suniva wanted tariffs on the order of 32 cents per watt, which is roughly equivalent to the full price for a panel on a per-watt basis. The proposed 35 percent tariff would translate into about 10 to 11 cents per watt, about a third of the 32 cents Suniva wanted.

As a result, the solar industry is breathing a sigh of relief, having potentially dodged a massive bullet. “That’s below the price that people have been hoarding panels for,” Jeffrey Osborne, an analyst at Cowen & Co., told Bloomberg. “On the demand side, jobs cuts won’t be as bad as feared, but on the manufacturing side, job creation won’t be as big. This would have a limited effect.”

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Half A Million Bpd At Risk From Geopolitical Firestorm

October 18, 2017

Half A Million Bpd At Risk From Geopolitical Firestorm

It’s been a long time since geopolitical developments caused major movements in the oil price, but the escalating tension between the U.S. and Iran, combined with the sudden military clashes in Iraq, has pushed geopolitical risk back on to the agenda for the oil market.

“Geopolitical risks to the oil market have continued to intensify,” Goldman Sachs wrote in an October 17 research note. In addition to Iraq and Iran, the decline in Venezuela’s oil production “appears to be accelerating,” while the resurgence in output from Libya and Nigeria continues to be fragile. “There remains high uncertainty on the potential impact of these new tensions on the oil market.”

But it’s Iraq and Iran that have really raised fears of outages. As of October 17, preliminary reports suggest that about 350,000 bpd of oil production from the Kirkuk oil fields were disrupted, with conflicting reports about whether or not that output has come back online. Iraqi officials said that the interruptions would be temporary and short-lived, and the Kurdish government insisted that it wouldn’t block exports through its pipeline system.

It’s in the interest of both sides to keep the oil flowing, but there’s still a risk of miscalculation and escalating conflict. The problem for Baghdad is that the oil must continue to flow through Kurdish pipelines, as the Iraqi government’s preferred pipeline system is damaged and needs repair. That means that both sides need to agree to some sort of revenue sharing arrangement, but that’s been an intractable issue in the past.

Unlike Iraq, Iran presents very little near-term risk. Instead, it will take time to see the response from Washington. If the U.S. reimposes sanctions, “several hundred thousand barrels of Iranian exports would be immediately at risk.”

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

Canada’s Pipeline Industry Takes Another Hit

October 14, 2017

Canada’s Pipeline Industry Takes Another Hit

Another oil pipeline in Canada bites the dust. TransCanada announced last week that it would scrap its plans to build a 2,800-mile major pipeline that would traverse nearly the entire country, closing off a crucial potential export route for Canada’s oil sands.

The $15 billion Energy East pipeline would have carried 1.1 million barrels of oil per day from Alberta to Canada’s eastern coast for refining and export. It faced significant opposition from communities affected along the pipeline’s route, but TransCanada had been confident that it could overcome those hurdles.

More recently, however, top Canadian regulators decided that the pipeline would need to face an assessment of the project’s impact on greenhouse gas emissions, a review that TransCanada fiercely opposed. Ultimately, it appears that the Canadian pipeline company shelved the project in light of the heightened environmental scrutiny.

Canada’s pipeline industry cried foul, blaming the government for regulatory uncertainty. “The common thread here is that Canada generally has displayed an unwelcoming policy environment and an uncertain approval process,” Explorers and Producers Association of Canada president Gary Leach, told the Financial Post, citing other billion-dollar projects that have been cancelled in the past year. “For Canada, I think this is a blow. We are deluding ourselves if we think Canada is a place with a stable, predictable investment climate.”

The lack of pipeline capacity is why so much onus has been put on Keystone XL, a pipeline that has been in limbo for the better part of a decade.

But the problem for TransCanada is that Energy East was always going to be a heavier lift than other projects. While some blame regulators for the death of Energy East, others see changing market conditions behind TransCanada’s decision to pull the plug. The project ran into trouble when oil prices cratered in 2014. Also, even with Keystone XL blocked, there are other projects that are more attractive than Energy East.

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

OPEC To Take Drastic Action Despite Shale Slowdown

October 11, 2017

OPEC To Take Drastic Action Despite Shale Slowdown

WTI recently dipped below $50 per barrel for the first time in a month, erasing the strong September rally. It’s no coincidence that after two weeks of price declines, OPEC has tried to talk up the oil market again, hinting that more drastic action could be forthcoming.

Echoing the world’s top central bankers, OPEC’s Secretary General said that the oil cartel might need to take “extraordinary” measures to balance the oil market next year. “There is a growing consensus that, number one, the re-balancing process is underway,” OPEC’s Mohammad Barkindo told reporters on Sunday in New Delhi. “Number two, to sustain this into next year, some extraordinary measures may have to be taken in order to restore this stability on a sustainable basis going forward.”

As always, OPEC is vague on the specifics, but the working assumption is that the group will agree to an extension of the cuts until at least mid-2018, or perhaps even as late as through the end of the year. There’s been some discussion about deeper production cuts, but there aren’t a ton of analysts who see OPEC going that far, despite Barkindo’s cryptic language.

Meanwhile, Saudi Arabia engaged in a bit of its own psy-ops with the oil market on Monday, saying that it was taking “unprecedented” steps to cut its oil exports. Saudi Aramco said it would lower exports by 560,000 bpd next month, “the deepest customer allocation cuts in its history.”

The comments are consistent with the country’s longstanding pattern of trying to jawbone the market when it wants higher prices. Based on Monday’s activity, the effort didn’t work. “The fact that we did not get any significant strength from the Saudi news is rather disheartening for the bulls,” Stephen Schork, an analyst and author of the Schork Report, told the WSJ. “The market is very skeptical of this.”

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U.S. Shale Isn’t As Strong As It Appears

October 3, 2017

U.S. Shale Isn’t As Strong As It Appears

The extraordinary cost reductions achieved by North American oil and gas companies have likely reached their limit, and any boost in profitability for much of the U.S. shale and Canadian oil sands industries will have to come from higher oil prices, according to a new report from Moody’s Investors Service.

Moody’s studied 37 oil and gas companies in Canada and the U.S., concluding that although the oil industry has dramatically slashed its cost of production in the past three years and is currently in the midst of posting much better financials this year, there is little room left for more progress.

“After substantially improving their cost structures through 2015 and 2016, North American exploration and production (E&P) companies will demonstrate meaningful capital efficiency to the extent the West Texas Intermediate (WTI) oil price is above $50 per barrel and the Henry Hub natural gas price is at least $3.00 per MMBtu,” Moody’s said. In other words, WTI will need to rise further if the industry is to improve its financial position.

The report is another piece of evidence that suggests the U.S. shale industry is perhaps struggling a bit more than is commonly thought. U.S. shale has been portrayed as nimble, lean and quick to respond to oil price changes. And while that is largely true, strong profits remain elusive, despite the huge uptick in production.

Shale drillers have substantially lowered their breakeven prices, but further reductions will be difficult to achieve, Moody’s Vice President Sreedhar Kona said in a statement.

“Higher than $50 per barrel WTI essential for a meaningful return on capital,” Moody’s said.

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

IEA: Price Spike Coming In 2020

September 19, 2017

IEA: Price Spike Coming In 2020

The oil market has been awash in crude for more than three years, and OPEC has struggled to accelerate the rebalancing effort, but the world could be heading for a supply crunch in a few years due to the sharp fall in industry spending.

The halving of oil prices from $100 per barrel before 2014 down to just $50 today has led to a corresponding plunge in upstream investment. But even as benchmark prices seem to have stabilized over the past year, with most analysts predicting gradual and modest gains in the year ahead (depending on OPEC’s actions), there’s still no sign of a serious rebound in spending levels.

The problem of a shortage of supply seems very far off today, given the swift turnaround in U.S. shale and persistently high levels of crude storage.

But demand continues to rise—the IEA just upgraded its demand growth estimate for 2017 to 1.6 million barrels per day (mb/d). If that level of demand growth continues for a few years, it will more than devour the excess supply on the market. Even a more tempered growth rate would strain supplies toward the end of the decade, absent a corresponding uptick in production.

“There are still not enough signs of investment beginning to return, and that raises the risk of tightening of the market in the next five years and a risk to the stability of oil prices,” Neil Atkinson, head of the IEA’s oil markets and industry division, said at a conference in Bahrain. “There is at least a possibility of going back to the situation we had 10 years ago where oil prices were very, very high at a time when demand was growing.”

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

Is The Sun Setting On The Solar Boom?

September 14, 2017

Is The Sun Setting On The Solar Boom?

The U.S. solar industry is expected to see its expansion significantly curtailed this year after installing record capacity in 2016, marking the first annual decline in installations for the industry.

A new report from GTM Research and the Solar Energy Industries Association (SEIA) raises some question marks for the trajectory of the solar industry. In the second quarter, the U.S. installed 2.38 gigawatts of new solar PV. A decent performance, but with two quarters in the books, the industry is only on track to install 12.4 GW of new capacity in 2017, a decline of 17 percent from last year.

The report from GTM Research and SEIA laid out a few reasons for concern. Residential PV only expanded by 1 percent quarter-on-quarter, the result of “weakness in the California market and a slowdown in Northeast markets, which are feeling the impact of pull-back from national providers.” Solar’s super-charged growth in recent years can in part be attributed to state policies that mandate renewable energy. Those policies are reaching their limits, meaning that going forward, a lot of new installations will need to be made on a voluntary basis.

But, beyond those wrinkles, there are many reasons why solar providers still feel good about their prospects. Solar provided 22 percent of all new electric capacity in the U.S. in the first half of 2017, second only to natural gas. Also, the decline in installations this year will be in the context of a record-setting year in 2016 in which solar accounted for 39 percent of all new capacity—more than natural gas.

The expected expiration of tax credits at the end of 2016—credits that were ultimately extended through the end of the decade—led to a massive volume of projects last year. As the industry refills the pipeline with new projects, 2017 was always going to be a bit slower than 2016.

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

Hurricane Irma’s Wrath Weighs On Natural Gas

September 13, 2017

Hurricane Irma’s Wrath Weighs On Natural Gas

Hurricane Irma has left millions of people without power in Florida, a critical situation that could take a painfully long period of time to sort out.

Estimates vary, but some 9 million people lost power during Hurricane Irma, according to the CEO of Florida Power & Light, the state’s largest utility. As of Monday, an additional 1 million people lost power in Georgia and South Carolina as the remains of Irma moved north. Florida Power & Light has already begun restoring power, but as of Monday, there were more than 3.6 million customers still offline.

Utilities in other parts of the country are sending legions of workers to Florida in an aggressive effort to rebuild and restore service. The CEO of Southern Company, another crucial utility in the U.S. Southeast, said that the mess will likely require 50,000 to 60,000 additional utility workers from out of state to help in the recovery.

It could have been a lot worse, as the track of the hurricane ended up moving west of Miami but east of Tampa Bay, avoiding a direct hit on any major city. Plus, Florida’s electricity grid has been improved in recent years, which could help get things back to normal more quickly. Florida Power & Light, for example, has spent $3 billion since the nasty storms of 2004 and 2005 to fortify its system and minimize damage from storms.

“The effort is to see how fast we can get back online. That is the definition in the industry now of ‘resilience’. It is to figure how to get things back together as soon as possible,” Christine Tezak, managing director at ClearView Energy Partners, told CNBC. She also argued that Florida’s multi-billion-dollar investments to harden the electricity grid over the past decade—investments made in light of a previous round of destructive hurricanes in the mid-2000s—have paid off.

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

Refiners Boost Output, But Irma Could Dent Demand

September 10, 2017

Refiners Boost Output, But Irma Could Dent Demand

Texas continues to recover from Hurricane Harvey, and many of the disrupted refineries are ramping up production once again. But the ripple effects from the outages are still being felt, and some Midwestern refineries are benefitting from surging margins stemming from the havoc.

Bakken Midwest refining margins more than doubled between August 23 and September 1, according to S&P Global Platts, jumping from $9 per barrel to temporarily over $20 per barrel, although they have since fallen back a bit.

The margins are inflated because of gasoline shortages in certain parts of the country, the unfortunate consequence of the massive refinery outages along the Gulf Coast after Hurricane Harvey. Refining margins were also helped along by the initial downward pressure that WTI exhibited as crude oil backed up without any place to go.

That means that refineries outside of the Gulf Coast could temporarily enjoy super profits. September is typically a time of the year when refineries undergo some maintenance and retool to prepare for winter fuel blends, but few are likely to take their plants offline in this market. “Nearly every refinery outside Louisiana and Texas is operating near full capacity,” Thomas Pugh, commodities economist at Capital Economics, told the Wall Street Journal.

“Refineries outside the affected area may delay maintenance to benefit from high processing margins,” Commerzbank oil analyst Carsten Fritsch said in late August. “Hence, the negative impact on crude oil demand and oil product supply might be less severe than feared.”

Indeed, refineries unaffected by Hurricane Harvey have been called into action, but the ramp up has its own consequences. As Midwestern refineries scramble to produce at max capacity, the demand for crude is pushing up benchmark prices in the region. Bakken crude started trading at a large premium relative to WTI as supplies tightened. From S&P Global Platts:

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The North Sea Oil Recovery Is Dead In The Water

September 8, 2017

The North Sea Oil Recovery Is Dead In The Water

The oil majors issued a vote of confidence for the North Sea in recent days, citing precipitous declines in the cost of production, which they say will revive the region’s oil and gas production.

At an oil industry conference in the North Sea’s oil capital, Aberdeen, the chief executives of BP and Royal Dutch Shell both offered bullish assessments for the turnaround underway off the coast of Scotland. BP’s Bob Dudley said the North Sea is “back to growth,” according to the FT.

The North Sea has long been a costly place to produce oil. And as the aging oilfields in the North Sea suffer from declining output – a decline underway since the late 1990s – investing in a high-cost basin for the oil majors has slipped down on the priority list, especially when shale has emerged as an alternative in an uncertain market.

Even when oil prices were high, production was falling. When prices started to crash in 2014, the North Sea looked like a dead man walking.

But things are looking a little better than they were a few years ago. The oil majors say they have overhauled their cost structures in the region, making production profitable in today’s $50 market, even when the region struggled to be profitable with a $100 oil price a few years back. BP says costs of halved to just $15 per barrel.

Shell’s CEO Ben van Beurden told the FT on the sidelines of the conference that the industry managed to avoid the “death spiral” that they were facing in 2014. At the time, a growing number of key pieces of infrastructure looked like they might have to shut down.

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

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