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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.

“This is an extraordinary situation brought on by extraordinary circumstances,” Cenovus says.

“The government needs to take this immediate temporary action — which is completely within the law — to protect the interests of Albertans,” the company’s email to Bloomberg reads.

Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—has dropped to a record low discount of US$50 to WTI in recent weeks, due to rising oil production and not enough pipeline capacity to ship the crude out of Alberta.

Due to the record low heavy oil prices, Cenovus Energy is currently operating its Foster Creek and Christina Lake projects at reduced volumes, it said in its Q3 earnings release. On the earnings call, Cenovus Energy’s President and CEO Alex Pourbaix urged the whole Canadian industry to slow down production to ease bottlenecks.

“And I want to be clear on this, the industry right now has a production problem. We’re going to do our part but we are not going to carry the industry on our back. I think this is something that has to be dealt with on an industry wide basis,” Pourbaix said.

Alberta’s Energy Department spokesman Mike McKinnon told Bloomberg in an email, responding to Cenovus’s call for province-wide production cuts:

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Permian Drillers Prepare To Go Into Overdrive In 2019

November 12, 2018

Permian Drillers Prepare To Go Into Overdrive In 2019

In recent months, pipeline capacity shortage in the Permian has been the center of shale drillers and oil analysts’ attention as much as the surging production from this fastest-growing U.S. oil region that has helped total American crude oil production to exceed 11 million bpd for the first time ever.

Many of the big U.S. companies—including supermajors Exxon and Chevron—boosted their Permian oil production in the third quarter as they have firm capacity commitments and integrate Permian production with downstream operations.

Many smaller drillers, however, are going on a ‘frac holiday’—as Carrizo Oil & Gas said in its Q3 earnings release this week—in some of their Permian acreage by the end of this year, to sit out the worst of the pipeline constraints, and to be ready to return to completions next year.

The majority of company executives and industry analysts expect that the Permian bottlenecks and the wide WTI Midland to Cushing price differential are transitory issues that will go away by the end of 2019, when many of the new pipelines out of the Permian will have started operations.

Until then, some smaller drillers like Carrizo are on a ‘frac holiday’ this month and next. Commenting on the Q3 performance, Carrizo’s President and CEO S.P. “Chip” Johnson said that the company had been drilling more in the Eagle Ford than in the Permian in order to capture higher pricing from the Eagle Ford oil.

“We expect our activity to remain weighted to the Eagle Ford Shale until the second half of 2019, when we plan to begin moving rigs back to the Delaware Basin,” Johnson said. In the earnings call, he noted that the shift to the Eagle Ford “shielded us from the dramatic widening of differentials in the Permian Basin during the quarter.”

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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.

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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.

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Iran’s Top Oil Customers Resist U.S. Calls For Zero Imports

November 2, 2018

Iran’s Top Oil Customers Resist U.S. Calls For Zero Imports

Just a few days before U.S. sanctions on Iranian oil exports return on November 5, the keywords about how much of Iran’s oil will come off the market are ‘lack of clarity’.

On the one hand, it’s unclear how much Iranian oil will really be removed from the market, considering that Iran has already started to switch off transponders on board of some of its cargoes, although ship-tracking data on the tankers that can be tracked shows that Iranian oil exports are falling, but not as steeply as the market and analysts were expecting just a month or two ago.

On the other hand, it’s unclear whether the United States would grant any waivers, with U.S. Administration officials giving mixed signals.

Yet, one thing is clear, and here analysts were right—Iran’s top two single largest oil customers, China and India, will continue to import Iranian crude. Although China and India’s Iranian oil intake in recent months has fluctuated, and although some of their companies most exposed to the U.S. financial system have drastically reduced or outright stopped imports from Iran (like India’s Reliance Industries), the countries saw their imports in the first three weeks of October increase or hold steady around the volumes from recent months.

According to S&P Global Platts trade flow data, Iran’s oil shipments to China between October 1 and 21 averaged 800,000 bpd, up from around 600,000 bpd average for September. Last year, average Chinese imports of Iranian oil were 602,500 bpd, Platts has estimated.

About half of China’s crude oil and condensate imports from Iran in October, around 400,000 bpd, were bound for a storage hub in Dalian in northeastern China, according to Platts sources and shipping data. The National Iranian Oil Company (NIOC) has reportedly leased some storage capacity at Dalian.

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Canada Lacks A Successful Energy Strategy

November 1, 2018

Canada Lacks A Successful Energy Strategy

“Canada has no energy plan beyond pedal-to-the-metal export of its non-renewable energy assets.”

That’s the bottom line of a recent opinion piece in Calgary Herald by David Hughes, an earth scientist and research associate with the Canadian Centre for Policy Alternatives.

Canada needs a long-term energy plan to wean itself from fossil fuels and move to renewable energy, Hughes writes.

While Canada will continue to rely on oil and gas in the foreseeable future, the country is currently exporting its oil at rock bottom prices, and continues to push for a pipeline—the Trans Mountain Pipeline Expansion—to export it to Asian markets. However, Canadian oil won’t fetch much higher prices in the world’s fastest-growing oil market Asia, as the federal government and Alberta province hope, Hughes argues.

The costs for sending Alberta’s heavy oil to the U.S. Gulf Coast are lower than the transportation costs to sell said oil to Asia via an expanded Trans Mountain pipeline and then oil tankers. Alberta’s oil can sell in the United States for $2-$5 per barrel more than it would sell in Asia, according to Hughes.

Two pipelines to the United States with double the capacity of Trans Mountain are currently under development. These two new pipelines would ease pipeline takeaway constraints before 2022, the earliest possible completion date for the Trans Mountain expansion, if it goes ahead, Hughes says.

Therefore, the current push to save the Trans Mountain Expansion Project and sell off the Alberta oil as fast as possible “makes little sense,” he wrote. e

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UK Fracking Pauses, Again

October 31, 2018

UK Fracking Pauses, Again

For the second time in two weeks since Cuadrilla started fracking at an exploration site in northwest England—resuming hydraulic fracturing in the UK for the first time in seven years—the company had to stop operations on Monday due to a micro seismic event measuring above the threshold requiring a halt.

Cuadrilla confirmed that a micro seismic event measuring 1.1 on the Richter scale was detected at about 11.30 a.m. local time on Monday, while the team were hydraulically fracturing at the Preston New Road shale gas exploration site in Lancashire, the company said in a statement today.

According to regulations, in case of micro seismic events of 0.50 on the Richter scale or higher, fracking must temporarily be halted and pressure in the well reduced.

“This is the latest micro seismic event to be detected by the organisation’s highly sophisticated monitoring systems and verified by the British Geological Survey (BGS). This will be classed as a ‘red’ event as part of the traffic light system operated by the Oil and Gas Authority but as we have said many times this level is way below anything that can be felt at surface and a very long way from anything that would cause damage or harm,” Cuadrilla said.

“Well integrity has been checked and verified,” the company said, noting that in line with regulations, fracking has paused for 18 hours.

Cuadrilla had paused fracking at the site on Friday morning after a 0.76 on the Richter scale micro seismic event was recorded, the latest of some dozen seismic events since fracking started, but the first that was above the 0.5 threshold.

The seismic event on Monday was the strongest yet to be recorded since Cuadrilla started fracking at the exploration site two weeks ago, on October 15.

Anti-fracking activists say that there have been now 27 seismic events since October 15, Blackpool Gazzette reports.

Is A Diesel Crunch Coming?

October 29, 2018

Is A Diesel Crunch Coming?

The new ship fuel regulations coming into force at the start of 2020 are set to create an initial confusion on the refining market and crude oil and oil product trade flows, analysts and industry experts say.

We are now just 14 months away from January 1, 2020—the start date which the International Maritime Organization (IMO) has set for the new rules on using only 0.5-percent or lower sulfur fuel oil on ships, unless said ships have installed the so-called scrubbers—systems that remove sulfur from exhaust gas emitted by bunkers.

Analysts, experts, and industry representatives are divided as to how great of an impact those new rules will be and whether there will be enough middle distillates—which include diesel and the lower sulfur marine gasoil—to meet demand for both land use, in road transportation, agricultural machinery and industry, and for use on ships at sea.

One way to comply with the IMO rules is to have scrubbers installed, which requires upfront costs, but later these would pay off with the expected much lower price of high-sulfur fuel oil.

The other way is using fuel that contains 0.5 percent sulfur. These fuels are basically in the same middle distillate product category like road diesel or jet fuel.

Some analysts have started to warn that the competition for those middle distillates could lead to shortages of diesel, resulting in price spikes. The other camp says that with diesel demand slowing in Europe and possibly reaching plateau in demand in China, there will be enough middle distillates around.

Amid expectations of fuel prices spikes in a presidential election year, the Trump Administration is seeking to slow down the 2020 introduction of the new ship fuel rules.

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BP CEO: $80 Oil Is Unhealthy For The World

October 21, 2018

BP CEO: $80 Oil Is Unhealthy For The World

Oil prices at $80 a barrel are too high and unhealthy for the world today, Bob Dudley, the chief executive of UK supermajor BP, said on the sidelines of an event on Friday.

“There’s a healthy price for oil and energy and I believe that balances producing countries and consuming countries,” Quartz quoted Dudley as saying on the sidelines of the conference One Young World in The Hague.

“In my mind, it’s somewhere between $50 and $65 a barrel. The world can live with this,” Dudley noted.

Emerging and developing economies like India, South Africa, or Turkey are seeing their highest-ever prices of gasoline because their currencies have rapidly depreciated against the U.S. dollar and because oil prices in dollars are high, BP’s chief executive said.

Currently, oil prices are “artificially high” due to Venezuela “defying gravity” and to the U.S. sanctions on Iran, according to Dudley, who said that once those geopolitical events subside, fundamentals will return to rule the market and prices should return back to $60-$65 a barrel.

BP won’t be joining any EU special purpose vehicle designed to keep trade with Iran flowing, Dudley stressed, noting that “I think it’s full of risk.”

The concerns of BP’s chief executive that $80 oil is unhealthy for the world are shared by major international organizations such as the International Energy Agency (IEA) and the International Monetary Fund (IMF).

Expensive energy is back and it is threatening global economic growth, the IEA said in its Oil Market Report last week.

Also last week, the IMF slightly downgraded its projection for global growth for this year and next—at 3.7 percent, growth is now expected 0.2 percentage point lower than IMF’s forecast from April this year.

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Leaked Document: OPEC+ Struggling To Lift Oil Production

October 20, 2018

Leaked Document: OPEC+ Struggling To Lift Oil Production

OPEC and its Russia-led non-OPEC allies are struggling to fully deliver on the oil production increase of 1 million bpd promised in June, Reuters reported on Friday, quoting an internal OPEC document that it has seen.

OPEC and allies agreed in June to relax compliance rates with the cuts to 100 percent from the previous over-compliance. The respective leaders of the OPEC and non-OPEC nations part of the deal—Saudi Arabia and Russia—have been interpreting the eased compliance as adding a total of 1 million bpd to the market.

The document that Reuters has seen, however, showed that the significant production increases in Saudi Arabia and Russia were offset by declines in Iran, Venezuela and Angola within OPEC, and by production drops in Mexico, Kazakhstan, and Malaysia from non-OPEC.

Increasing production “is a work in progress,” OPEC Secretary General Mohammad Barkindo said this week. At an event in India he also reiterated OPEC’s position that “our current view is that the market is at the moment adequately supplied and well-balanced, though in a fragile state.”

According to the internal OPEC document prepared for a technical panel meeting scheduled for Friday, OPEC—excluding Nigeria, Libya, and Congo—increased its combined production by 428,000 bpd in September compared to May. Saudi Arabia put the most extra barrels on the market and boosted its production by 524,000 bpd in September compared to May. Iraq, Kuwait, and the United Arab (UAE) also increased their production, according to the document seen by Reuters.

However, Iran’s production slumped by 376,000 bpd in September from May, Venezuela’s output plunged by 189,000 bpd, and Angola saw its production drop by 17,000 bpd between May and September.

The non-OPEC partners in the deal have increased their combined production by 296,000 bpd since May. Russia boosted production by 389,000 bpd, but part of that increase was offset by declines in Kazakhstan, Mexico, and Malaysia.

Germany Clashes With The U.S. Over Energy Geopolitics

October 18, 2018

Germany Clashes With The U.S. Over Energy Geopolitics

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

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

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

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

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

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

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

October 15, 2018

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

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

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

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

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

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

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

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

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

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

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

IEA: Expensive Energy Is Threatening Economic Growth

October 12, 2018

IEA: Expensive Energy Is Threatening Economic Growth

Expensive energy is back and it is threatening global economic growth, the International Energy Agency (IEA) said in its Oil Market Report on Friday, joining other organizations like the International Monetary (IMF) and OPEC that also expressed this week concerns about mounting challenges to economic and oil demand growth.

Brent Crude prices have been holding above $80 a barrel, while pipeline constraints have caused WTI Crude prices to lag somewhat, the IEA said in its report, but noted that “Nonetheless, our position is that expensive energy is back, with oil, gas and coal trading at multi-year highs, and it poses a threat to economic growth.”

Emerging economies are grappling not only with higher energy prices, but they are also seeing their currencies depreciate against the U.S. dollar, which increases the threat of economic growth slowing down, the IEA said.

Earlier this week, the IMF slightly downgraded its projection for global growth for this year and next—at 3.7 percent, growth is now expected 0.2 percentage point lower than IMF’s forecast from April this year. The key reasons for the downgrade included trade disputes, geopolitical tensions, and a weaker outlook for emerging economies due to higher oil import bills, among other factors, according to the IMF.

On Thursday, OPEC revised down its oil demand growth estimates for this year and next—a third downward revision in three months—citing potential headwinds to global economic growth ranging from trade disputes to weakening finances in emerging markets and geopolitical challenges. OPEC revised down its global oil demand growth to 1.54 million bpd this year, down by 80,000 bpd from the estimate in the September report. The cartel now sees global oil demand growth next year at 1.36 million bpd, down by around 50,000 bpd from last month’s assessment, to reflect expectations for lower economic growth for Turkey, Brazil, and Argentina.

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IEA Asks Majors Oil Producers To Boost Production

October 5, 2018

IEA Asks Majors Oil Producers To Boost Production

Rising oil prices are hurting consumers, Fatih Birol, the Executive Director of the International Energy Agency (IEA), says, calling on major all producers to do the best they can to further boost production and ease persistent supply concerns that pushed Brent Crude to above $86 a barrel on Wednesday.

“Some countries have been making efforts to increase production but this is far from comforting the markets right now,” Birol told the Financial Times on Thursday, adding that his “hope is that all the producers are aware of the sensitive situation and make their best efforts.”

Although higher energy prices may look like a boon for oil exporting countries today, tomorrow the economies of oil exporters will also suffer because of the lower demand growth stemming from high oil prices, Birol told FT.

In an interview with Reuters, also today, Birol said that:

“It is now high time for all the players, especially those key producers and oil exporters, to consider the situation and take the right steps to comfort the market, otherwise I don’t see anybody benefiting.”

Earlier this week, the IEA chief also took to Twitter to comment on the oil price rally in recent weeks and its implications on global economy.

“Rising oil prices are hurting consumers & economic growth prospects today – globally but particularly in the emerging economies – but in a rapidly changing energy world could also have implications for producers tomorrow,” Birol tweeted on Tuesday. Related: A New Era Of LNG Megaprojects

U.S. President Donald Trump has also used Twitter several times this year to slam OPEC for keeping oil prices too high.

Birol’s comments on oil prices and what oil producers should do come just after Saudi Energy Minister Khalid al-Falih said earlier this week that Saudi Arabia would be pumping 10.7 million bpd in October—just below the Kingdom’s highest-ever production level—and would slightly raise production volumes in November.

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The Oil Industry Needs Large New Discoveries, Very Soon

October 2, 2018

The Oil Industry Needs Large New Discoveries, Very Soon

Market participants and analysts are all focused on the imminent oil supply gap that is opening with the U.S. sanctions on Iran just five weeks away.

But beyond the shortest term, a larger and more alarming gap in global oil supply is looming—experts forecast that unless large oil discoveries are made soon, the world could be short of oil as early as in the mid-2020s.

The latest such prediction comes from energy consultancy Wood Mackenzie, which sees a supply gap opening up in the middle of the next decade. At the current level of low oil discoveries and barring technology breakthrough beyond WoodMac’s assumptions, that supply gap could soar to 3 million bpd by 2030, to 7 million bpd by 2035, and to as much as 12 million bpd by 2040.

It’s not that discoveries aren’t being made, they just aren’t enough to offset the natural decline at mature fields while global oil demand is still expected to continue to rise.

The main reason for lower discoveries is that spending on exploration has drastically plunged since the 2014 oil price crash. The good news is, according to Wood Mackenzie, that the volume of new discoveries is correlated with spending on exploration. So if spend were to increase, the chance of more and major oil discoveries gets higher.

As early as the beginning of this year, WoodMac said that the share of exploration of upstream investment has slipped to below 10 percent since 2016 and is not about to recover. “This could be the new normal, with the days of one dollar in six or seven going to exploration forever in the past,” the consultancy said in its ‘5 Things to look for in 2018.’

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