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BP and the International Energy Agency (IEA) measure the contribution of renewables to the global energy mix in terms of primary energy consumed while the World Bank estimates it in terms of final energy consumed. All three give different results, with BP estimating a total renewables contribution of 9.5% in 2015 compared to IEA’s 13.7% and the World Bank’s 18.1%. The BP/IEA differences become larger when contributions are segregated by source (BP estimates almost three times as much energy from hydro as as IEA and IEA estimates four times as much energy from “other renewables” as BP). This post documents these discrepancies while making no attempt to say who is right and who is wrong – that would have to be the subject of another post. But it does raise the question of whether we really know how large a contribution renewables are making to the world’s energy mix.

The BP and IEA “primary energy” estimates

It’s important to establish exactly what primary energy is before proceeding. Fortunately there is general agreement on how to define it:

OECD: Primary energy consumption refers to the direct use at the source, or supply to users without transformation, of crude energy, that is, energy that has not been subjected to any conversion or transformation process.

United Nations: Primary energy should be used to designate energy from sources that involve only extraction or capture

Wikipedia: Primary energy is an energy form found in nature that has not been subjected to any human engineered conversion or transformation process. It is energy contained in raw fuels, and other forms of energy received as input to a system.

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

IEA: Oil Prices Could Rise Further As Shale Can’t Fill The Gap

June 14, 2018

IEA: Oil Prices Could Rise Further As Shale Can’t Fill The Gap

U.S. shale will continue its breakneck growth rate into 2019, despite bottlenecks, but the oil market still faces serious supply risks from the potential losses from Venezuela and Iran, the International Energy Agency (IEA) said in a new report.

The IEA said that the run up in oil prices in the last few months dampened oil demand growth, although the agency left its forecast for oil demand growth unchanged at 1.4 million barrels per day, after downgrading that estimate last month. Subsidies and price regulation in a growing number of countries, intended to blunt the impact of rising fuel prices, could keep demand growth on track, despite oil prices trading significantly higher than, say, a year ago.

Looking ahead to 2019, the IEA thinks that oil demand growth will expand by yet another 1.4 mb/d, this time with the help of the petrochemical sector. A number of projects are coming online earlier than expected, adding more consumption to the mix. The demand estimate is a rather strong one, given substantial expansion in demand over the past few years.

There are risks to that forecast, including “a weakening of economic confidence, trade protectionism and a potential further strengthening of the US dollar,” the IEA said. Those factors should not be overlooked. Indeed, strong demand does not stand independent of the price variable, for instance. How this plays out is unclear, but with the oil market now much tighter than at any point in the last few years, strong demand going forward will start to drive up prices much more than it did in the past.

The supply side of the equation is much more interesting. On the positive side of the ledger, the IEA sees non-OPEC supply growing by 2 mb/d in 2018, followed by another jump of 1.7 mb/d in 2019. The U.S. makes up three quarters of both of those figures.

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

IEA Cuts 2018 Oil Demand Forecast On Soaring Oil Prices

May 16, 2018

IEA Cuts 2018 Oil Demand Forecast On Soaring Oil Prices

Yesterday, we observed that in logical consequence to sharply higher interest rates, US consumer loan demand had slumped in recent weeks, despite increasingly easy credit conditions: an outcome which for many economists is a harbinger to an upcoming recession, as households hunker down and begin to deleverage.

Now, following a similar causal chain, this morning the International Energy Agency also cut forecasts for global oil demand growth in 2018 due to oil’s recent price surge, as the highest prices in three years put a brake on consumption. As a result, the agency trimmed its 2018 world demand growth projection by 40,000 barrels a day to 1.4 million a day, projecting total consumption at 99.2 million barrels a day, down from 99.3mmb/d, still higher than the 97.8mmbpd global oil demand in 2017.

“The recent jump in oil prices will take its toll,” said the Paris-based agency, which serves as an advisor to most major economies on energy policy. Crude has jumped 17% this year, trading near $78 a barrel in London on Wednesday, and approaching the stated Saudi target of $80/barrel at which point the Aramco IPO once again becomes feasible.

As one would expect, the demand forecast by the IEA – which is not a cartel of oil producers and is therefore less biased – differs greatly from the forecast by OPEC – which is a cartel of oil producers and therefore is programmed to see only the best possible outcome no matter how high the price. As shown in the chart below, whereas the IEA demand forecast topped out, that of OPEC sees nothing but blue skies ahead.

The IEA commented on the 16-month campaign by OPEC and its allies to slash a global oil glut, which the agency said had been finally successful, with inventories falling below their five-year average for the first time since 2014. Markets are set to tighten further as output sinks in the economic disaster that is Venezuela and the U.S. re-imposes sanctions on Iran.

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

IEA: U.S.-China Trade Row Could Dampen Oil Demand Growth

April 15, 2018

IEA: U.S.-China Trade Row Could Dampen Oil Demand Growth

OPEC is very close to achieving its mission to draw oil inventories down to their five-year average, but the ongoing U.S.-China trade spat is a risk to oil demand growth expectations this year, the International Energy Agency (IEA) said in its Oil Market Report on Friday.

The Paris-based agency kept its global oil demand growth estimate unchanged from last month’s report—at 1.5 million bpd for this year.

“However, there is an element of risk to this outlook from the current tension on trade tariffs between China and the US,” the IEA noted.

The trade dispute is “introducing a downward risk to the forecast,” said the agency which sees oil demand growth possibly dropping by around 690,000 bpd if global economic growth were reduced by 1 percent on the back of widespread increase in trade tariffs.

“Oil demand would suffer the direct impact of lower bunker consumption and lower inland transportation of traded goods, reducing fuel oil and diesel use,” said the IEA.

On the supply side, the agency continues to expect non-OPEC growth unchanged at 1.8 million bpd, with the U.S. production growth also unchanged from the previous report, at 1.3 million bpd year on year. Yet, there is concern about takeaway bottlenecks in Midland, Texas and in Canada, and those could widen the discounts of local grades to the international benchmarks, according to the IEA.

OECD commercial stocks—OPEC’s current measure of the success of its production cut deal—dropped by 26 million barrels in February and were just 30 million barrels above the five-year average at end-February.

“The average could be reached by May, on the assumption of tight balances in 2Q18. Product stocks are already in deficit,” the IEA said.

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

Are We Sleepwalking Into The Next Oil Crisis?

April 3, 2018

Are We Sleepwalking Into The Next Oil Crisis?

One school of thought is that future oil demand is set to decline because consumers will have better options. Many in this “peak demand” camp believe that the growth of electric vehicles will soon make oil obsolete.

That’s a relatively painless view of the future and is consistent with much of our past experience. Old technologies are frequently replaced by newer, better, and cheaper technologies.

I have written previously on why I don’t believe this version of future oil demand will unfold anytime soon. In a nutshell, if you “do the math,” it becomes clear that it will be years before EVs can take a meaningful bite out of oil demand.

Meanwhile, some organizations are sounding the alarm that rather than a peak demand scenario, we may soon face a peak supply scenario. Or at the least, the loss of global excess spare capacity. The last time this happened, oil prices rose above $100 a barrel.

Words of Warning

In January 2017, Saudi Arabia’s energy minister Khalid A. Al-Falih warned CNBC that he foresaw a risk of oil shortages by 2020:

“I believe if the investment flows that we have seen the last two or three years continue in the next two or three years, we will have a shortage of oil supply by 2020. We know, from what we have seen in the last couple of years, that prices around the current level and below are not attracting enough investment. We know the level of natural decline that existing production is undergoing, and we know that demand is picking up at 1.2 to 1.5 million barrels a year. So between increase in demand and natural decline, we need millions of barrels every year to be brought to the market, which requires massive investment.”

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

Canada’s Pipeline Challenges Will Force More Tar Sands Oil to Move by Rail

March 19, 2018

Canada’s Pipeline Challenges Will Force More Tar Sands Oil to Move by Rail

The Motley Fool has been advising investors on “How to Profit From the Re-Emergence of Canada’s Crude-by-Rail Strategy.” But what makes transporting Canadian crude oil by rail attractive to investors?

According to the Motley Fool, the reason is “… right now, there is so much excess oil being pumped out of Canada’s oil sands that the pipelines simply don’t have the capacity to handle it all.”

The International Energy Agency recently reached the same conclusion in its Oil 2018 market report.

“Crude by rail exports are likely to enjoy a renaissance, growing from their current 150,000 bpd [barrels per day] to an implied 250,000 bpd on average in 2018 and to 390,000 bpd in 2019. At their peak in 2019, rail exports of crude oil could be as high as 590,000 bpd — though this calculation assumes producers do not resort to crude storage in peak months,” the International Energy Agency said, as reported by the Financial Post.

To put that in perspective, however, the industry was moving 1.3 million barrels per day at the peak of the U.S. oil-by-rail boom in 2014.

Graph of American crude-by-rail volumes. Credit: U.S Energy Information Administration

And Canada has plenty of capacity to load oil on more trains, which means if a producer is willing to pay the premium to move oil by rail, it can find a customer to do it. The infrastructure is in place to load approximately 1.2 million barrels per day.

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

The Single Largest Supply Risk In Oil Markets

March 16, 2018

The Single Largest Supply Risk In Oil Markets

Venezuela could be the reason that “tips the market decisively into deficit,” the International Energy Agency said in a new report.

Venezuela lost another 60,000 barrels per day (bpd) in February, according to the Paris-based energy agency, and continues to present the largest supply risk to the global oil market. The IEA noted that even if Venezuela’s production levels hadn’t cratered over the past year, and it produced at the agreed upon level as part of the OPEC deal, the group would still be posting close to a 100 percent compliance level. As it stands, however, Venezuela’s plummeting output put the cartel’s compliance rate closer to 150 percent, the highest figure to date.

Aside from that, the IEA said that not much has materially changed over the past month, but expressed a more bullish outlook towards the market for 2018. Oil inventories happened to climb in January for the first time since July 2017, but only increased by 18 million barrels, or about half of the usual rate for that time of year. In fact, the oil surplus only stood at 50 million barrels, while refined product supplies are actually in a deficit.

The agency slightly revised up its forecast for oil demand for 2018 by 90,000 bpd to 1.5 million barrels per day (mb/d). Demand is particularly strong in China and India. Supply is still expected to grow by 1.3 mb/d in the U.S., a huge figure, but unchanged from previous forecasts. Non-OPEC supply is expected to grow by 1.8 mb/d.

The IEA says that “market re-balancing is clearly moving ahead with key indicators – supply and demand becoming more closely aligned, OECD stocks falling close to average levels, the forward price curve in backwardation at prices that increasingly appear to be sustainable – pointing in that direction.” Inventories are expected to see a “very small stock build” in the first quarter, but then decline for the rest of the year.

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

Is The Sky The Limit For U.S. Shale?

March 7, 2018

Is The Sky The Limit For U.S. Shale?

The IEA’s forecast that U.S. shale will dominate the oil market over the next three years because of skyrocketing shale production made global headlines on Monday, but the conclusions should not be taken as gospel. The industry could run into a series of headwinds that could slow production growth, starting with demands from investors to see higher returns.

“Last year, it was drill, baby, drill,” John Hess, CEO Hess Corp., told the audience at the CERAWeek Conference in Houston on Monday. “This year, it’s show me the money.” He argued that shale drillers are feeling pressure from investors to post profits, which could slow the pace of development.

Yet, so far, while the newfound and highly-touted capital discipline mantra is being talked about quite a lot, it has not translated into a slower pace of drilling. The U.S. is breaking production records every week, and output is growing at a blistering rate.

However, that doesn’t mean that the growth rate will continue, or that U.S. shale will add nearly 4 million barrels per day over the next five years, as the IEA predicts.

There are a variety of bottlenecks that could constrain output and slow growth. For instance, with so much drilling concentrated in a relatively small area in West Texas, there are shortages of oilfield services, fracking crews, labor, and frac sand.

Last year, the backlog of drilled but uncompleted wells (DUCs) mushroomed as shale E&Ps drilled more wells than they could complete. The completion rate is now on the upswing, up 79 percent from a year ago, according to Reuters. But the number of DUCs is also rising, illustrating a persistent bottleneck in completion services. There are other holdups, including takeaway capacity for natural gas and limits on gas flaring, which could hamper oil production.

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

Shale Pioneer Issues Warning To US Drillers

March 7, 2018

Shale Pioneer Issues Warning To US Drillers

U.S. shale has effectively upended the oil industry, with predictions that total U.S. oil production will surpass Saudi Arabia’s output this year, in turn rivalling Russia’s to become the preeminent global producer. From its position of being dependent on, and subordinate to OPEC, the U.S. has seemingly become the big bad wolf. Through a catalogue of tactical errors and misplaced belief in its own muscle, the mighty brick edifice of OPEC has begun to look more like a bundle of sticks.

The International Energy Agency (IEA) forecasts that the U.S. will become a net energy exporter by the late 2020s, but how accurate is that forecast, and to what extent is it mere hyperbole? In October last year there were already caveats about the nature of U.S. shale, with some warning that aggressive expansion was leading to rapid initial growth that would ultimately peak too soon. Mark Papa, former head of EOG Resources (NYSE: EOG) raised the question of flatlining output in the face of the doubling of the oil rig count, “(h)ow can a rig count be double and yet production be stagnant?”

Figures have also been influenced by the rapid pace of technological development, a pace which has itself plateaued. Robert Clarke, WoodMac research director for Lower 48 upstream, said that “(i)f future wells … are not offset by continued technology evolution, the Permian may peak in 2021”. IEA forecasts then, may be based on rapid growth and technological development that simply isn’t sustainable.

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

EIA’s Shocking U.S. Oil Production Predictions

March 1, 2018

EIA’s Shocking U.S. Oil Production Predictions

Between 2010 and 2015, annual oil production in the U.S. grew by four million barrels per day (BPD). Production dipped in 2016, but then U.S. crude oil production again rose by 1.2 million BPD between January and December 2017, to levels that haven’t been seen since the early 1970s.

The surge in production is a result of growth in tight oil (more commonly known as shale oil). Many, including myself, never imagined that oil production could grow enough to threaten the U.S. oil production peak from 1970. But that looks inevitable at this point.

This production increase raises the question: Just how much will U.S. tight oil production increase before it peaks and begins to decline? Another million BPD? Three million BPD?

The Energy Information Administration’s latest Annual Energy Outlook (with projections to 2050) attempts to answer this question, modeling several scenarios for future oil production.

The Reference case projection assumes that known technologies continue to improve along recent trend lines. The economic and demographic trends that were used reflect the current views of leading forecasters.

In the High Oil and Gas Resource and Technology case, lower costs and a higher resource availability than in the Reference case are assumed. In the Low Oil and Gas Resource and Technology case, the assumption is of lower resources and higher costs.

Here are the EIA’s projections:

(Click to enlarge)

U.S. oil production projections.

Every case assumes at least a few more years of tight oil supply growth. The Reference case shows shale/tight oil production growth of two to three million BPD over the next three years, before leveling off and remaining at approximately that level until 2050.

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

Geopolitical Risk Is On The Rise In Oil Markets

February 27, 2018

Geopolitical Risk Is On The Rise In Oil Markets

In the long-term, many oil analysts expect the world to become increasingly dependent on oil production from the Middle East, as U.S. shale fades in importance. However, geopolitical turmoil is already causing disruptions in major oil-producing countries in the Middle East, raising questions about the region’s ability to supply the global market in the long run.

The IEA has repeatedly warned that while U.S. shale has led to oversupply in the short run, shale output cannot meet future demand by itself. By the mid-2020s, especially because there are questions about the longevity of U.S. shale, there could be a much greater reliance on the Middle East, just as there was in the past.

However, according to the Oxford Institute for Energy Studies (OIES), the deteriorating geopolitical landscape in the Middle East could leave longstanding scars on the region’s energy sector.

Geopolitical threats are cropping up in various ways in the Middle East and North Africa. Formal institutions have been weakened, and in places like Libya, Yemen and Syria there is an absolute lack of legitimacy in government. Non-state actors have stepped into the void, such as Hezbollah, the Houthis, Libya Dawn, and others, according to OIES. These rivaling power centers make it tricky for oil companies and oilfield services to make investments.

As far as the oil market goes, these geopolitical problems are not obvious just yet. The glut of U.S. shale has inoculated the oil market from instability and unrest for the time being. Also, while there are plenty of sources of conflict and no shortage of potential threats, actual oil production outages have remained minimal. In fact, Iran ramped up production after the removal of international sanctions, while Libya, and Nigeria restored quite a bit of output after serious outages.

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

Will Australia have a strategic oil reserve before it is too late? (part 2)

February 23, 2018

Will Australia have a strategic oil reserve before it is too late? (part 2)

In part 1 we talked about what action the government is taking to bring Australia back to the IEA 90 days oil stock requirement.

What was done so far

This website contains the relevant reports:

IEA International Energy Program Treaty
https://www.energy.gov.au/iea-international-energy-program-treaty

In July 2012 (under the Rudd government), just months after Australia permanently dropped below the 90 days mark, a report prepared by Hale & Twomey Limited (from New Zealand) was published titled:

National Energy Security Assessment (NESA) Identified Issues –
Australia’s International Energy Oil Obligation
30/7/2012
https://www.energy.gov.au/sites/g/files/net3411/f/nesa-identifed-issues-aust-energy-oil-obligation-2012.pdf

The report proposed 4 models with varying degrees of responsibilities, funding , stock type, location and split

Model 1: Government responsible for the IEA stockholdings and uses ticket contracts to secure emergency stock above existing commercial stock levels.
Model 2: Government responsible for the IEA stockholdings and uses both physical stock and tickets to secure emergency stock above existing commercial stock levels.
Model 3: Combining government responsibility with an industry obligation and using both physical stock and ticket contracts for emergency stock.
Model 4: There is an industry obligation which will ensure the target can be met with the option to use both physical stock and tickets to meet the obligation.

Tickets are option contracts in which a country or organization purchases an option to buy stock from a stock owner. The stock can only be released in an emergency (declared by the IEA), with the option holder able to buy the stock at market prices. The purchaser of the ticket is able to count the stock as part of its obligation to hold emergency stock and the seller of the ticket is obliged to subtract these ticket sales from their stocks. This is physically monitored by the IEA. When stock owners and purchasers are in different countries these transactions are called bilateral tickets and require government-to-government agreements between both countries that guarantee the purchaser can exercise its options when needed.

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

Will Australia have a strategic oil reserve before it is too late? (part 2)

February 22, 2018

Will Australia have a strategic oil reserve before it is too late? (part 2)

In part 1 we talked about what action the government is taking to bring Australia back to the IEA 90 days oil stock requirement.

What was done so far

This website contains the relevant reports:

IEA International Energy Program Treaty
https://www.energy.gov.au/iea-international-energy-program-treaty

In July 2012 (under the Rudd government), just months after Australia permanently dropped below the 90 days mark, a report prepared by Hale & Twomey Limited (from New Zealand) was published titled:

The report proposed 4 models with varying degrees of responsibilities, funding , stock type, location and split

Model 1: Government responsible for the IEA stockholdings and uses ticket contracts to secure emergency stock above existing commercial stock levels.
Model 2: Government responsible for the IEA stockholdings and uses both physical stock and tickets to secure emergency stock above existing commercial stock levels.
Model 3: Combining government responsibility with an industry obligation and using both physical stock and ticket contracts for emergency stock.
Model 4: There is an industry obligation which will ensure the target can be met with the option to use both physical stock and tickets to meet the obligation.

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

Inconvenient energy fact of the day

February 22, 2018

Inconvenient energy fact of the day

In 2016, solar and wind provided just 0.8% of the total world’s energy (Total Primary Energy Demand (TPED)), even after trillions of dollars in taxpayer-extracted subsidies, and will reach only a 3.6% share of energy in 2040, according to the International Energy Agency World Energy Outlook 2017 forecast (see graphic above). The world’s energy future of tomorrow, even almost a quarter century from now in 2040, will look very much like it does today, with fossil fuels supplying the large majority of our energy (81% today vs. 75% in 2040) and solar and wind playing a relatively minor role as energy sources.

Sources: Bjorn Lomborg and Matt Ridley (“Shale is the Real Energy Revolution”).

Is History Repeating Itself In Oil Markets?

February 14, 2018

Is History Repeating Itself In Oil Markets?

Back in 2014, U.S. shale production was growing so fast that it ended up crashing the market. Now, history could be repeating itself.

That was the warning from the International Energy Agency, which said in its latest Oil Market Report that a “second wave” of shale supply threatens another downturn.

Total global oil supply is expected to grow faster than demand this year, which could lead to another downturn. It’s a conclusion that the IEA tried to emphasize in previous reports, but the message finally seems to be sinking in.

The extraordinary run up in benchmark prices in December and January came to a startling end two weeks ago. Part of the reason was because of the broader market turmoil in equities, and part of it was because hedge funds and other money managers had overbought oil futures, exposing the market to a price correction.

But as the IEA notes, the real worry is rising oil supply, which means that “the underlying oil market fundamentals in the early part of 2018 look less supportive for prices.”

It isn’t all bad news for benchmark prices. The IEA noted that due to the OPEC production cuts and strong demand, inventories fell at a remarkable rate last year. The oil inventory surplus currently stands at about 52 million barrels above the five-year average, down sharply from 264 million barrels a year ago. Importantly, while crude oil inventories are closing in on the five-year average, total stocks of gasoline and other refined products have already fallen well below that threshold. “With the surplus having shrunk so dramatically, the success of the output agreement might be close to hand,” the IEA wrote.

(Click to enlarge)

But even as the elusive “balance” in the oil market is within reach, the IEA says things might quickly reverse.

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

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