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Crude oil producers in Alberta appear to be split on a proposed cut in production amid record-low prices, Canadian media report.

One of the large Canadian oil producers, Cenovus Energy, is calling upon the government of Alberta to mandate temporary production cuts at all drillers in a bid to ease Canadian bottlenecks that have resulted in Canada’s heavy oil prices tumbling to a record-low discount of US$50 to WTI.

The province of Alberta, the heart of Canada’s oil sands production, has the necessary legislation to have all producers agree to production cuts and it needs to use it now, Cenovus said in an emailed statement to Bloomberg yesterday.

“We’re probably producing about 200,000 or 300,000 barrels per day of oil in excess of our ability to get that oil out of the province, either by pipelines or by rail,” Cenovus’ CEO Alex Pourbaix told Global News.

However, other big players disagree that the industry needs to produce less. “Our position is that government intervention in the market would send the wrong signals to the investment community regarding doing business in Alberta and Canada. And we really do need to take a long-term view and allow the market to operate as it should,” Global News quoted a spokeswoman for Suncor as saying.

However, Suncor is in a favorable position: according to the company spokeswoman it has no exposure to the suffocating differential between Western Canadian Select and West Texas Intermediate since it processes as much as 70 percent of its crude at home.

Husky Energy is another of the large Canadian producers who oppose a government-led intervention in production rates. According to Husky, “Market intervention comes with an unacceptably high level of economic and trade risk.”

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

Will The ‘Next Permian’ Ever Be Developed?

November 16, 2018

Will The ‘Next Permian’ Ever Be Developed?

The Vaca Muerta Shale Basin in Argentina is the only unconventional play outside of North America where activity has already made the transition from exploration to full-scale development. The potential prize is huge – geographically, the Vaca Muerta Shale is three times the size of the highly prolific Permian Basin in the US, and it could turn out to be the “next Permian” if the right conditions are established. But much remains to be done before that happens.

Rystad Energy’s Shale Intel group, in collaboration with Luxmath Consulting, has released a comprehensive new report covering all aspects of the Vaca Muerta Shale – including development status, production forecasts, drilling and completion projections, and the outlook for the various service segments in the industry. The report integrates Rystad Energy’s well-level research for Argentina, public disclosures from oil & gas companies and service contractors active in the region, and our conversations with on-the-ground field experts.

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“There are several major bottlenecks that are currently affecting Vaca Muerta – proppant, infrastructure, labor, pressure pumping and the macro economic situation in Argentina. In addition, investments need to be made in water transportation infrastructure as drilling and completions increase within the region,” says Ryan Carbrey, Senior Vice President of Shale Research at Rystad Energy.

Vaca Muerta should see the tally of fracked wells reach between 140 and 150 this year. Only three of those wells are vertical, while all other wells are high-density horizontal completions. It is expected that fracking activity will grow at a rate of 20% per year from 2019 through 2021, reaching about 250 wells in 2021. According to Rystad Energy research, this heightened activity will generate a significant boost in Vaca Muerta oil production – from about 60,000 bpd in the third quarter of 2018 to between 160,000 and 200,000 bpd in the fourth quarter of 2021. Most of this growth will come from the liquids-rich Loma Campana portion of the play, operated by YPF.

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

Canada’s Crude Crisis Is Accelerating

November 16, 2018

Canada’s Crude Crisis Is Accelerating

Canadian oil producers are in an increasingly tough predicament. With high and increasing oil demand around the globe over the last year, Canadian oil production has increased accordingly. All of this is simple and predictable economics, but now Canadian oil has hit a massive roadblock. Producers have the supply, and they have more than enough demand, but they don’t have the means to make the connection. Canadian export pipelines simply don’t have the capacity to keep up with either the supply or the demand.

Canadian oil producers have now maxed out their storage capacity, and the Canadian glut continues to grow while they wait for a solution to the pipeline problem to materialize. As pipeline space is at a premium and storage has hit maximum capacity, oil prices have fallen dramatically, and the differentials that had previously been hitting heavy oil hard in Canada (now at below $18 a barrel for the first time since 2016) have now spread to light oil and upgraded synthetic oil sands crude as well, leaving overall Canadian oil prices at record lows.

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Now, adding to the problem, growth in oil demand has begun to slow in the wake of skyrocketing United States production and the weakening of U.S.-imposed sanctions on Iranian oil. Fist, the U.S. granted waivers to eight nations to continue buying Iranian oil despite strong rhetoric, and now the European Union has undermined the sanctions even further.

In an effort to correct the pricing drop, some Canadian drillers have been cutting production levels, turning to more expensive forms of transportation like railways to ship their oil, and in some cases even using trucks to move their product.

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

Natural Gas Markets Remain Ultra Tight

November 16, 2018

Natural Gas Markets Remain Ultra Tight

Natural gas prices skyrocketed this week, shooting above $4.80 per MMBtu on Wednesday, a price last seen during the polar vortex of 2014.

Low gas inventories are leaving the market on edge, and volatility has roared back to the market. In this column only a week ago, I marveled at prices soaring to $3.50/MMBtu, which marked a 15 percent increase over the prior two months. However, in the last seven days, prices are up a further 30 percent.

The factors behind the price increase are the same as they have been for quite a while now. U.S. natural gas inventories are at a 15-year low for this time of year, just as we head into the winter drawdown season. U.S. natural gas inventories stood at 3,247 billion cubic feet (Bcf) for the week ending on November 9, or 528 Bcf less than at this point in 2017, and 601 Bcf below the five-year average. In other words, the U.S. has a thin buffer of storage to fall back on in the event of a sudden bout of cold weather.

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And it is exactly that variable that helped spark the most recent rally in prices. Reports that cold weather has arrived in much of the U.S. already, plus indications that the upcoming winter could be an unusually cold one, helped fuel this week’s rally. Natural gas had traded below $3/MMBtu for much of this year, but climbed roughly 50 percent since mid-September.

Just a few weeks ago, Bank of America Merrill Lynch said that given the backdrop of a 15-year low for inventories, any unexpected cold weather could push prices up as high as $5/MMBtu. That may have looked a little aggressive at the time, but now appears rather prescient.

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

Natural Gas Skyrockets As China Pledges Huge Supply Boost

November 15, 2018

Natural Gas Skyrockets As China Pledges Huge Supply Boost

With an eye on last winter’s natural gas supply debacle, Chinese state-owned energy giant CNOOC has pledged a 20 percent rise in gas supply, the company said on Tuesday. The company, one of three state-run oil majors, said that it will supply 24.6 billion cubic meters (bcm) of natural gas during the heating season that kicks off this week, up 20 percent year-on-year, to meet rising natural gas demand in the country.

China is in the process of replacing over reliance on coal usage for both industrial and residential end users to offset rampant air pollution, particularly in its larger urban centers. By government mandate, at least 10 percent of the country’s energy mix needed for power generation by 2020 must be natural gas, with further earmarks set for 2030.

CNOOC, the country’s largest oil and gas producer, said 6.1 bcm of natural gas will be supplied to seven northern provinces and municipalities, up 63.5 percent from last year. The company added that most of the natural gas it’s supplying this year is from offshore fields, coal bed gas and imported liquefied natural gas (LNG). According to reports, CNOOC has also been negotiating with LNG suppliers to ensure gas supply, including dealers from Australia, Indonesia, Malaysia, Qatar, Nigeria and Russia. However, due to the ongoing trade war between the US and China, CNOOC spot purchases of LNG is coming to a halt amid Beijing’s retaliatory tariff on US-LNG imports.

LNG tariffs will also come full circle, since other LNG producers will likely increase their spot prices in the mid-term to a point just under US LNG prices including a tariff, with Chinese firms being forced to pay the extra price.

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

Is An Oil Supply Crunch Inevitable?

November 14, 2018

Is An Oil Supply Crunch Inevitable?

Global oil demand will peak by 2040, according to a new report, although oil supply shortages could emerge before then.

The International Energy Agency (IEA) published its highly-anticipated World Energy Outlook 2018 on Tuesday, one of the most important energy forecasting reports published each year. In this year’s Outlook, the IEA noted that global oil demand is set to rise by 1 million barrels per day (mb/d) each year through 2025, before slowing dramatically to 0.25 mb/d thereafter.

Electric vehicles are already making inroads in the transportation sector, and that is expected to accelerate in the years ahead. By the mid-2020s, the IEA says that oil demand peaks in the market for passenger vehicles, even as vehicle sales rise by 80 percent through 2040. The agency sees 300 million EVs on the roads by 2040, which should displace about 3.3 million barrels of oil demand.

Still, demand continues to grow and doesn’t peak until 2040, which, at this point, is a pretty conservative estimate in the universe of peak demand forecasts.

The reason for this is that the IEA believes that other sectors start to take on a growing importance in driving oil demand. Everyone thinks of cars and trucks as the main source of oil demand, but over the next two decades, petrochemicals, aviation and heavy trucking account for the lion’s share of demand growth. Here are a few key figures in the IEA’s main forecast:

• Petrochemicals see 5 mb/d of demand growth, the largest of any sector.

• Heavy trucks account for 4 mb/d of demand growth through 2040, even though vehicle and logistical efficiencies avoid nearly 5.5 mb/d of additional demand growth.

• Developing economies see more than 5 mb/d of demand growth for passenger vehicles, but that is just about entirely offset by declining demand (largely due to EVs) in advanced economies.

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

Nord Stream 2 Could Still Be Derailed By U.S. Sanctions

November 14, 2018

Nord Stream 2 Could Still Be Derailed By U.S. Sanctions

The potential for more tensions in relations between the U.S. and Russia continue to mount. Late last week, U.S. Energy Secretary Rick Perry said that Washington could still impose sanctions related to the building of the controversial Nord Stream 2 pipeline, which would bring Russian gas directly to Germany under the Baltic Sea. Perry made his comments in Warsaw as the Trump administration tries to convince EU members to sign LNG deals with U.S. producers to offset over reliance on Russian pipeline gas.

On Thursday, Polish state-run gas firm PGNiG signed a long-term LNG deal with U.S.-based Cheniere Marketing International. Poland has been fervent in its resistance to the Nord Stream 2 pipeline as well as working to reduce its reliance on geopolitically charged Russian gas. Moscow, for its part, has cut gas supply to Europe in the past during cold winter months to exert its influence in the region.

Warsaw and Washington also signed on Thursday a joint declaration on enhanced energy security cooperation. “This is also a clear signal that the U.S. strongly supports a pro-Poland and pro-Europe energy security policy,” Perry said. “Energy security in turn requires energy diversity. That is the reason we oppose the Nord Stream 2 project which would further increase the dangerous energy dependence many European nations have on the Russian federation,” he added.

Poland consumes around 17 billion cubic meters of gas annually, more than half of which comes from Russian energy giant Gazprom under a long-term deal that expires in 2022. However, Poland has said that it would not renew the gas supply deal, making the country race against time to replace the contract with new gas volumes.

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

Saudis Scramble To Stop Oil Price Slide

November 13, 2018

Saudis Scramble To Stop Oil Price Slide

Saudi Arabia is moving quickly to halt the slide in oil prices, telegraphing a production cut intended to erase some of the re-emerging supply surplus.

Saudi oil minister Khalid al-Falih said on Monday that the kingdom would slash oil exports by 500,000 bpd in December, a move that would go a long way to reversing the 1 million-barrel-per-day increase in output agreed to by OPEC+ in June.

It was only a few weeks ago that al-Falih was trying to reassure the market that Saudi Arabia had enough spare capacity in the event of an outage; now he is rushing to try to stop the slide in prices but paring back production.

The production cut would come just after crude oil officially entered bear market territory, falling 20 percent from its October peak.

But it is unclear at this point if the rest of the OPEC+ coalition, including Russia, will join the Saudis. The OPEC-Non-OPEC Joint Ministerial Monitoring Committee (JMMC) met over the weekend in Abu Dhabi to consider options for 2019. The group was rumored to be considering a collective production cut, although the meeting ended on Sunday with no firm commitments.

Still, in an official statement, the group seemed open to the idea. The JMMC “noted that 2019 prospects point to higher supply growth than global requirements,” which is another way of saying that they are nervous about a supply glut. Also, the committee stated that a global economic downturn could depress demand, and “could lead to widening gap between supply and demand.” These conditions “may require new strategies to balance the market.” It would seem that the OPEC+ coalition is laying the groundwork for a production cut. The official ministerial meeting in Vienna in early December will reveal much more about the group’s plans heading into 2019.

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

The Biggest Threat To Dollar Dominance

November 13, 2018

The Biggest Threat To Dollar Dominance

Russian oil exporters are pressuring Western commodity traders to pay for Russian crude in euros and not dollars as Washington prepares more sanctions for the 2014 annexation of Crimea by Moscow, Reuters reported last week, citing as many as seven industry sources.

While it may have come as a surprise to the traders, who, Reuters said, were not too happy about it, the Russian companies’ move was to be expected as the Trump administration pursues a foreign policy where sanctions feature prominently. This approach, however, could undermine the dominance of the U.S. dollar as the global oil trade currency.

Early indications of this undermining became evident this spring, when Russia and Iran launched an oil-for-goods exchange program seeking to eliminate bilateral payments in U.S. dollars and plan to keep it going for five years. The sanction buddies discussed this sort of agreement earlier, back in 2014, when Iran was still under Western sanctions. Even after the notorious nuclear deal was reached, the two countries decided to go ahead with their barter deal, and the preliminary agreement was reached last year. According to it, Russia would receive 100,000 bpd of Iranian crude in exchange for US$45 billion worth of Russian goods.

In March, Iran banned purchase orders denominated in U.S. dollars and said that any merchant using dollars in their orders will not be allowed to conduct the import trade. A month later, Tehran announced that it will publish all its official financial reports in euros instead of dollars in a bid to encourage a switch to euros from dollars among state agencies and businesses.

Now, Russia’s biggest oil producers are renegotiating oil delivery contracts with commodity traders, and three of them, Rosneft, Gazprom Neft and Surgutneftegaz, have raised traders’ hackles by insisting they, the traders, commit to paying penalties beginning next year if U.S. sanctions disrupt sales and as a result the buyers fail to make payments.

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

Oil Prices Hit Multi-Month Lows

November 10, 2018

Oil Prices Hit Multi-Month Lows

Oil prices fell to multi-month lows at the end of the week, as a confluence of factors all point in a bearish direction.

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Venezuela’s Glaring Gasoline Crisis

November 9, 2018

Venezuela’s Glaring Gasoline Crisis

Iran has dominated the headlines over the last few weeks, but Venezuela’s oil sector continues to meltdown.

Venezuela’s oil production fell to just 1.197 million barrels per day in September, down 42,000 bpd from a month earlier. However, because things are moving so quickly, that figure is now woefully out of date. With a few weeks left in 2018, many analysts believe production could fall below 1 mb/d.

Venezuela’s oil exports to the United States declined by 19 percent in October, compared to a month earlier. The decline came as a result of maintenance from the country’s upgraders, which turn heavy oil from the Orinoco Belt into exportable forms of oil. Without the ability to process, exports plunged.

But Venezuela is replete with operational and financial problems that are also contributing to the sharp decline in output and exports. Another issue has been the damaged port of Jose, the main conduit for oil exports. A tanker collision in August disrupted shipments from the port for weeks, and it remains only partly operational.

Nobody is hurting more than the Venezuelan people. At least 2.3 million people have fled Venezuela since 2015, according to a new estimate from the United Nations. The country’s inflation rate topped 833,997 percent in October, according to a report from Venezuela’s opposition-controlled Congress. The number is so astronomical that it is virtually meaningless, just as the currency itself is completely worthless.

Fuel shortages are growing worse. State-owned PDVSA has seen its refineries run into the ground, and many are not operational or operating at very low levels. On paper, the refineries can process about 1.3 million barrels per day, but in reality, many have ceased operations due to a combination of factors, including a breakdown in parts, a lack of oil supply to work with, and no financial resources. According to Bloomberg, refinery utilization is down to around 17 percent, down from 50 percent as recently as 2016.

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

Nat Gas Prices Spike On Cold Weather

November 9, 2018

Nat Gas Prices Spike On Cold Weather

Natural gas prices are sharply up as cold weather is set to sweep much of the country, putting a strain on already low storage levels.

We are heading into the winter season with natural gas inventories at their lowest level in 15 years. Natural gas inventories stood at 3,143 billion cubic feet (Bcf) for the week ending on October 26, or about 623 Bcf lower than at this point last year and 638 Bcf below the five-year average.

(Click to enlarge)

As the chart shows, natural gas inventories ebb and flow with the seasons – drawing down in the winter as American households crank up the heat, and rising again in warmer months as demand slows.

This year has been an interesting one for gas markets. U.S. production continues to break records, with surging output in the Marcellus and Utica shales, as well as skyrocketing gas production in West Texas as Permian drillers pull out gas along with crude oil.

However, higher levels of gas exports in the form of LNG, higher power burn in gas-fired power plants for electricity, and higher demand for gas in petrochemicals and other industrial uses have all led to structural increases in demand. Add to that the seasonal factors – hot temperatures this summer, which stretched into fall, and now, a coming blast of cold weather. In many parts of the country, autumn seemed a little shorter than usual, sandwiched between a long summer and a rapidly approaching winter.

Tight inventories and a bout of cold weather led Henry Hub natural gas prices to jump at the start of November by nearly 8 percent. In fact, prices jumped $0.28/MMBtu on November 5, the largest daily increase in two years. At $3.50 per million Btu (MMBtu), natural gas spot prices are up 15 percent in the past two months, and they are also at their highest level since last January.

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

France Takes The Lead In Protecting Iran Oil Trade From U.S. Sanctions

November 9, 2018

France Takes The Lead In Protecting Iran Oil Trade From U.S. Sanctions

France aims to lead the European Union (EU) efforts in defying U.S. sanctions on Iran, by supporting the creation of a payment mechanism to keep trade with Iran and making the euro more powerful, France’s Economy Minister Bruno Le Maire said in an interview with the Financial Times.

“Europe refuses to allow the US to be the trade policeman of the world,” Le Maire told FT, adding that the EU needs to affirm its independence in the rift between the EU and the United States over the sanctions on Iran.

The EU has been trying to create a special purpose vehicle (SPV) that would allow the bloc to continue buying Iranian oil and keep trade in other products with Iran after the U.S. sanctions on Tehran return.

The idea behind the SPV is to have it act as a clearing house into which buyers of Iranian oil would pay, allowing the EU to trade oil with Iran without having to directly pay the Islamic Republic.

As the U.S. sanctions on Iran snapped back on Monday, the SPV hasn’t been operational and reports have had it that the undertaking is very complicated and politically sensitive. The bloc is also said to be struggling with the set-up, because no EU member is willing to host it for fear of angering the United States, the Financial Times reported recently, citing EU diplomats.

On Monday, the Belgium-based international financial messaging system SWIFT said that it would comply with the U.S. sanctions on Iran and would cut off sanctioned Iranian banks from its network. This was a blow to the EU’s attempts to defy the U.S. sanctions.

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

U.S. Oil Production Is Set To Soar Past 12 Million Bpd

November 8, 2018

U.S. Oil Production Is Set To Soar Past 12 Million Bpd

Rising shale production is putting the United States on track to hit the 12 million bpd oil production mark sooner than previously forecast, the Energy Information Administration (EIA) said in its November Short-Term Energy Outlook (STEO).

Next year’s U.S. crude oil output is now expected to average 12.1 million bpd, up from a forecast of 11.8 million bpd just a month ago in the October STEO.

U.S. crude oil production reached a new monthly record of 11.3 million bpd in August 2018, exceeding 11 million bpd for the first time. Production in August was 290,000 bpd higher than expected in the October STEO, and it was this higher level that raised the baseline for the EIA’s forecast for production in 2019.

Comparing the forecasts in the latest STEO with the October estimates, the EIA now sees U.S. crude oil production hitting the 12-million-bpd mark in the second quarter of 2019 rather than the fourth quarter.

The EIA raised its 2018 production forecast by 1.5 percent compared to the October STEO, to 10.9 million bpd, and the 2019 forecast by 2.6 percent from 11.76 million bpd to 12.06 million bpd.

While the EIA lifted its projections for U.S. oil production, it revised down its forecasts for oil prices in 2019. In the November outlook, it forecasts Brent Crude prices of $72 per barrel in 2019 on average, which is $3 a barrel lower than previously forecast. The EIA sees WTI Crudeprices to average $65/b next year, down by $5/b from the previous estimate.

“The lower crude oil price forecasts are partly the result of higher expected crude oil production in the United States in the second half of 2018 and in 2019, which is expected to contribute to growth in global oil inventory and put downward pressure on crude oil prices,” the EIA said.

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

Is Shale The Future For Big Oil?

November 7, 2018

Is Shale The Future For Big Oil?

If anyone had compared shale oil to Google five years ago, it would have sounded strange. Yet when last week in a report Wood Mackenzie’s chairman and chief analyst Simon Flower did just that, comparing shale oil to the FAANG stocks, he had a good reason to do so. Shale oil is the star of the decade as far as the global energy industry is concerned, and now even Big Oil has woken up to this fact.

In a report detailing the relationship of Big Oil and shale, Wood Mac’s analysts forecast a bright future for both, with the share of shale oil in the supermajors’ total production rising from the current 700,000 bpd to 2.2 million bpd in 2026 before it starts declining. This will represent a tenth of the supermajors’ total production, Wood Mac’s research analyst Roy Martin said in the report.

Meanwhile, it’s not just the supermajors that are expanding their shale oil footprint at a fast pace. Large independents are getting larger, too. As Houston Chronicle commentator Chris Tomlinson noted in a recent story on the same topic, “Seasoned oil executives know that when both prices and production rise, it’s time to cash out and sell to the big boys.”

There’s a consolidation underway in the U.S. shale patch, and it will likely continue for some time until, Tomlinson argues, only the strongest players remain, all in a position to benefit from the marriage of lower costs, higher drilling and production efficiency, and consequently, consistent output growth.

Among the most notable acquisitions in this area so far this year were BHP Billiton’s sale of its shale operations to BP for US$10.5 billion, after it was pressured by Elliott Management to exit shale, as well as Encana’s purchase of Newfield Exploration for US$5.5 billion, and Chesapeake’s acquisition of WildHorse Resource Development for US$4 billion.

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

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