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The global oil market could slip into deeper oversupply on the back of non-OPEC production growth led by the United States, the International Energy Agency said in its latest Oil Market Report.

“The main factor,” the IEA said, “is US oil production. In just three months to November, crude output increased by a colossal 846 kb/d, and will soon overtake that of Saudi Arabia. By the end of this year, it might also overtake Russia to become the global leader.”

Commenting on the recent reversal in oil prices, the authority attributed it to profit-taking and a market correction spanning all industries, adding that oil’s fundamentals supported a decline in prices.

The situation in the United States suggests that history is repeating itself and what we are seeing now is indeed a second shale revolution that could bring petroleum liquids production on par with global demand growth.

But that’s not all. The IEA noted the recent shipment of the first U.S. condensate cargo to the UAE, which although unique might prove to be the start of a new era in international oil trading patterns.

The news is certainly not good for OPEC and, to a lesser extent, Russia, but there is some light at the end of the tunnel: global economic growth could turn out to be stronger than previously expected and this would help offset the impact of growing U.S. production on prices and keep them where they are now.

The authority hinted that the end of the OPEC deal could be in sight given that the overhang in OECD oil inventories has shrunk to just 52 million barrels from 264 million barrels a year ago, but added that the trend in oil prices could convince the cartel to wait.

Separately, the IEA maintained its 2017 oil demand growth estimate at 1.6 million bpd and said this year demand will grow by 1.4 million bpd, a 100,000-bpd upward revision on the January OMR estimate thanks to IMF’s expectations of stronger economic growth this year.

Oil Production Vital Statistics January 2018

February 5, 2018

Oil Production Vital Statistics January 2018

The oil price has begun 2018 strongly with Brent breaking through $70 / bbl for the first time since December 2014. OPEC+Russia+others’ discipline on production constraint remains high with ~ 1.7 Mbd production withheld from the market. The IEA reports an ~1 Mbpd stock draw in the OECD + China in 4Q 2017. IEA revisions transform the picture in the USA from one of static production to one of strong growth over the last 3 months (this undoes one of the assumptions used in my 2018 oil price forecast).

The inset image (live chart below the fold) shows a slow motion train wreck in Venezuela where production has fallen 810,000 bpd since December 2014.

The dramatic slide in oil production in Venezuela began ~ December 2014. We have to presume that the collapse in the oil price has something to do with this. There is however no sign that rising price, now offset by falling production, is averting that country’s collapse. The oil price was held back in 2017 by rising production in Nigeria and Libya. Production in Libya is now holding steady at ~ 1 Mbpd and production in Nigeria is holding steady at ~ 1.65 Mbpd. According to the IEA, OPEC compliance with the agreed cuts is now running at 129% in part due to the unscheduled collapse in Venezuelan supply.

I have been following bio-fuel production, pointing out that it had been on a cyclical high last autumn and was scheduled to fall by ~ 1 Mbpd over the winter. This fall is duly underway (below). This, combined with the collapse of Venezuela and continued OPEC++ discipline has underpinned the strong oil price rally.

The following totals compare December 2016 with December 2017:

World Total Liquids 97.87/97.59 -280,000 bpd
OPEC 12: 32.87/31.89 -980,000 bpd
Russia + FSU 14.53/14.44 -90,000 bpd
Europe OECD 3.66/3.24 -420,000 bpd
Asia 7.57/7.20 -370,000
North America 19.48/21.04 +1,560,000 bpd

In summary, we see production constraint in OPEC+Russia, production decline in Asia and Europe offset by production growth in N America.

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

What Could Push Oil To $100?

January 25, 2018

What Could Push Oil To $100?

If anyone thought the latest oil market outlooks of the EIA and the IEA are upbeat, here’s an even more upbeat one from Energy Aspects: The consultancy expects crude demand this year to grow by 1.7 million bpd, and says Brent could touch above $100 a barrel in 2019.

According to Energy Aspects, the reason for the further jump in prices will be a drop in new production outside the U.S. shale patch. It’s a little hard to buy that, however, if one remembers that there is 1.8 million bpd in production capacity ready to be tapped again once OEPC and Russia taper their production cuts. That alone should take care of the demand growth that the consultancy predicts for this year. That is, unless it booms by 2 million bpd, which is the top of the range forecast by Energy Aspects. But even then, the U.S. and Russia alone could take care of it: The Russian state majors are itching to expand production in eastern Siberia.

Of course, the likelihood of OPEC and Russia bringing all that production online is highly debatable, as the partners in the cut deal seem still determined to continue with the original plan. Nevertheless, the barrels are there, so there’s no urgent need for actual new production yet. However, if global demand grows so much so quickly, does anyone have any doubts that the new, expanded oil cartel will be flexible enough to make the best of the situation? Hardly.

So how likely is this demand growth? According to Energy Aspects, there is currently “no real drag on demand growth.” The global economy is in growth mode, which lends strong support to the price momentum, and the short-term forecasts for the top consumers of crude oil are all bullish. Yet, there’s one potential drag: prices.

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

WTI Tumbles To $62 Handle After IEA Predicts “Explosive” US Shale Production As Oil Prices Surge

January 19, 2018

WTI Tumbles To $62 Handle After IEA Predicts “Explosive” US Shale Production As Oil Prices Surge

Update: The IEA report has impact prices – as would be expected – sending WTI back below the crucial support level of $63 once again…

With WTI Futures net long positioning at extreme longs, one wonders if $63 can hold.

* * *

Overnight, the International Energy Agency became the latest entity to recognize that 2018 is shaping up to be a pivotal year for energy production in US shale fields, and a showdown between OPEC and non-OPEC producers, namely those in the US.

According to the latest IEA report, US shale output is poised for “explosive” growth in 2018 as WTI trades at its strongest level since the summer of 2015, which in turn will unleash pent up US output, potentially leading to a sharp oversupply of black gold,

As Bloomberg notes, the IEA’s forecast supports OPEC’s own projections: As we pointed out yesterday, the cartel also expects US production to ramp up in 2018 as shale producers – much more lean and efficient and significantly delevered after the 2015/2016 “episode” – unleash output as oil price continue to rise well above the generally accepted shale breakevens in the low $50s.

The IEA boosted its forecasts for non-OPEC supply growth this year by 100,000 barrels to 1.7 million barrels a day compared with last month’s report, modestly higher than OPEC’s projections. It also warned 2018 could be a “volatile” year as Venezuela’s energy industry teeters on the brink of collapse.

Both OPEC and IEA expect Venezuela’s difficulties to continue after Latin America’s socialist paradise brooked the biggest unplanned production decline of 2017.

“The big 2018 supply story is unfolding fast in the Americas,” the IEA said in its monthly report. “Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico.”

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

Bedazzled by Energy Efficiency

January 10, 2018

Bedazzled by Energy Efficiency

To focus on energy efficiency is to make present ways of life non-negotiable. However, transforming present ways of life is key to mitigating climate change and decreasing our dependence on fossil fuels.

Energy efficiency policy

Energy efficiency is a cornerstone of policies to reduce carbon emissions and fossil fuel dependence in the industrialised world. For example, the European Union (EU) has set a target of achieving 20% energy savings through improvements in energy efficiency by 2020, and 30% by 2030. Measures to achieve these EU goals include mandatory energy efficiency certificates for buildings, minimum efficiency standards and labelling for a variety of products such as boilers, household appliances, lighting and televisions, and emissions performance standards for cars. [1]

The EU has the world’s most progressive energy efficiency policy, but similar measures are now applied in many other industrialised countries, including China. On a global scale, the International Energy Agency (IEA) asserts that “energy efficiency is the key to ensuring a safe, reliable, affordable and sustainable energy system for the future”. [2] In 2011, the organisation launched its 450 scenario, which aims to limit the concentration of CO2 in the atmosphere to 450 parts per million. Improved energy efficiency accounts for 71% of projected carbon reductions in the period to 2020, and 48% in the period to 2035. [2] [3]

What are the results?

Do improvements in energy efficiency actually lead to energy savings? At first sight, the advantages of efficiency seem to be impressive. For example, the energy efficiency of a range of domestic appliances covered by the EU directives has improved significantly over the last 15 years. Between 1998 and 2012, fridges and freezers became 75% more energy efficient, washing machines 63%, laundry dryers 72%, and dishwashers 50%. [4]

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

Everyone cutting coal use except for most of the world and most of the banks

December 18, 2017

Everyone cutting coal use except for most of the world and most of the banks

The situation with our most hated energy asset

Australia’s big four banks are fighting over themselves to turn down the chance to profit from coal loans and tell the world. Months ago, Westpac went on a low-coal diet, declaring like a kind of vegan-keto-banker that they won’t consider a loan unless the coal mined has at least 6,300 kilocalories per kilogram. Presumably they will lose weight, or at least lighten up by a few shareholders. Last week our National Australia Bank announced they are waiting for the carbon capture fairy to conquer some laws of chemistry and economics before they finance coal mines again. (Though they limit themselves to spurning only new customers and “thermal coal” in a kind of have-cake-eat-half-the-cake policy.)

But while the small-fish Australian banks advertise their doogooder star status, financial institutions in Canada are putting $2.9 billion towards building new coal plants overseas. And in the last three years, Chinese banks have casually smashed $630 billion dollars into coal. (Notably, even the Chinese don’t want to put money into Adani coal in Australia, the political environment here is that bad.)

The rest of the world is definitely not watching the Australian Banks. Global coal consumption has been flat for a few years, but in a new report, the IEA predicts coal use will grow again ’til 2022, at least in a subdued way. This appears to be singlehandedly due to Narenda Modi, who announced in August that the rest of India should get electricity and by next year, so 40 million households are to be connected at a cost of $2.5 billion USD.

Soak in those IEA Key Energy Statistics 2017:

IEA Key Energy Statistics 2017

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

Is The Oil Glut Set To Return?

December 14, 2017

Is The Oil Glut Set To Return?

For the second month in a row, the IEA has poured cold water onto the oil market, publishing an analysis that suggests 2018 could hold some bearish surprises for crude.

The IEA’s December Oil Market Report dramatically revises up the expected growth of U.S. shale, which goes a long way to torpedoing the excitement around the OPEC extension.

Late last month, when OPEC agreed to extend its production cuts through the end of 2018, the U.S. EIA came out with data – on the same day as the OPEC announcement – that showed an explosive increase in shale output for the month of September, up 290,000 bpd from the month before.

Although there is a time lag on publishing production data, the huge jump in output in September, plus the spike in rig count activity over the past few weeks, points to strength in the U.S. shale sector. Against that backdrop, the IEA predicted that non-OPEC supply would grow by 1.6 million barrels per day (mb/d) in 2018, a rather significant upward revision of 0.2 mb/d compared to last month’s report.

Adding insult to injury for OPEC, the IEA sees oil demand growing by just 1.3 mb/d. In other words, supply will grow at a faster pace than demand next year, opening up a global surplus once again. “So, on our current outlook 2018 may not necessarily be a happy New Year for those who would like to see a tighter market,” the IEA said. The surplus will be front-loaded – the first half of the year will see a glut of about 200,000 bpd.

(Click to enlarge)

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

When boom is bust: the shale oil bonanza as a symptom of economic crisis

December 5, 2017

When boom is bust: the shale oil bonanza as a symptom of economic crisis

The gradual climb in oil prices in recent weeks has revived hopes that US shale oil producers will return to profitability, while also renewing fevered dreams of the US becoming a fossil fuel superpower once again.

Thus a few days ago my daily newspaper ran a Bloomberg article by Grant Smith which lead with this sweeping claim:

“The U.S. shale revolution is on course to be the greatest oil and gas boom in history, turning a nation once at the mercy of foreign imports into a global player. That seismic shift shattered the dominance of Saudi Arabia and the OPEC cartel, forcing them into an alliance with long-time rival Russia to keep a grip on world markets.”

I might have simply chuckled and turned the page, had I not just finished reading Oil and the Western Economic Crisis, by Cambridge University economist Helen Thompson. (Palgrave Macmillan, 2017)

Thompson looks at the same shale oil revolution and draws strikingly different conclusions, both about the future of the oil economy and about the effects on US relations with OPEC, Saudi Arabia, and Russia.

Before diving into Thompson’s analysis, let’s first look at the idea that the shale revolution may be “the greatest oil and gas boom in history”. As backing for this claim, Grant Smith cites a report earlier in November by the International Energy Agency, predicting that US shale oil output will soar to about 8 million barrels/day by 2025.

Accordingly, “ ‘The United States will be the undisputed leader of global oil and gas markets for decades to come,’ IEA Executive Director Fatih Birol said … in an interview with Bloomberg television.”

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

Does the IEA try to hide the conventional crude oil peak in its 2017 World Energy Outlook?

December 4, 2017

Does the IEA try to hide the conventional crude oil peak in its 2017 World Energy Outlook?

In this post we look at crude oil production in the World Energy Outlook released in November 2017

WEO-2017-Table_4-5

Fig 1: WEO 2017 oil supply

Note that the 5 year interval table omits 2005 and 2010. Is this to conceal the 2005 conventional peak (see Fig 6)? The immediately important year 2020 also isn’t there.

Let’s put the crude oil related data of the above table 4.5 into a graph, thereby interpolating between 2016 and 2025 for 2020.

IEA_WEO_2017_crude_oil_table_4-5

Fig 2: WEO 2017 crude oil

Production from existing conventional fields declines by around 4% pa to just 23.5 mb/d in 2040. Enhanced oil discovery, fields yet-to-be-approved and yet-to-be found are calculated in such a way that total conventional production does not decline much. The important message here is that it won’t grow. Only unconventional oil is assumed to bring growth in production.

Traditionally, the IEA calculated the “call on OPEC” as a balancing item between demand and Non-OPEC production. Maybe that call is no longer heard.

In Fig 2, the underlying methodology is more complex:

Show perpetual production growth to match assumed demand growth
Determine decline in existing fields
Add enhanced oil recovery
Add yet-to-be developed
Add yet-to-be found so that conventional production declines only marginally or looks rather flat
Stack on top growing tight oil and heavy oil to show overall growth

Let’s compare WEO 2017 with WEO 2016

IEA_WEO-2016_crude_oil_table_3-11

Fig 3: Crude production forecast in the WEO 2016

We can see that the WEO 2016 was more detailed on existing fields. It showed post peak oil fields (70%), legacy fields (10 %) and ramp-up fields (20 %).

IEA_WEO_2017_existing-field_EOR_comparison_2016

Fig 4: Comparison existing fields WEO 2017 -2016

In the above stacked clustered graph we see that “existing fields” in the WEO 2017 are lower and therefore decline is higher (up to 2025) than the 4 categories of the WEO 2016 report: post peak, legacy, ramp-up and approved-not producing plus enhanced oil recovery (EOR).

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

The IEA Is Grossly Overestimating Shale Growth

November 17, 2017

The IEA Is Grossly Overestimating Shale Growth

This week, the IEA said that U.S. shale would dominate the oil and gas markets over the next decade, rising to “a level 50 percent higher than any other country has ever managed.” With a “remarkable ability to unlock new resources cost-effectively,” U.S. shale will add millions of barrels of new oil supply by 2025.

But some view such heady predictions as fanciful. There are a variety of reasons why U.S. shale could struggle to add several million additional barrels per day over the next few years. But here are just a few.

First, shale suffers from steep decline rates, much steeper than conventional wells. That means drilling is like running on a treadmill—more and more wells need to be drilled just keep production flat. The extraordinary rate of drilling over the past few years means that the industry not only needs to keep going at that frenzied pace, but it needs to expand its rate of drilling to add more barrels.

Just to cite a small example of the challenge the industry faces, the Permian Basin—the most prolific in the U.S.—has a legacy decline rate that has exploded over the past few years.

According to the EIA, the basin will lose 165,000 bpd of production in December, meaning that the industry needs to add that amount in fresh supply to keep output from falling. The agency does see the industry bringing 223,000 bpd of new supply online in December, but that nets out to only an addition of 58,000 bpd after the decline rates are factored in. The Permian hasn’t yet seen its output peak, but it will be very tall task to keep production growing for years to come, especially since the decline rate grows larger and larger.

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

Natural gas has no climate benefit and may make things worse

November 15, 2017

Natural gas has no climate benefit and may make things worse

Methane leaks in New Mexico’s oil and gas industry equal 12 coal-fired power plants.

A gas flare at a gas-processing facility in North Dakota. CREDIT: AP/Matthew Brown — A GAS FLARE AT A GAS-PROCESSING FACILITY IN NORTH DAKOTA. CREDIT: AP/MATTHEW BROWNThe evidence is overwhelming that natural gas has no net climate benefit in any timescale that matters to humanity.

In fact, a shocking new study concludes that just the methane emissions escaping from New Mexico’s gas and oil industry are “equivalent to the climate impact of approximately 12 coal-fired power plants.” If the goal is to avoid catastrophic levels of warming, a recent report by U.K. climate researchers finds “categorically no role” to play for new natural gas production.

Sadly, the International Energy Agency (IEA) has just published a “Commentary” on “the environmental case for natural gas,” that ignores or downplays key reasons that greater use of natural gas is bad for the climate.

In the real world, natural gas is not a “bridge” fuel to a carbon-free economy for two key reasons. First, natural gas is mostly methane (CH4), a super-potent greenhouse gas, which traps 86 times as much heat as CO2 over a 20-year period.

That’s why many, many studies find that even a very small leakage rate of methane from the natural gas supply chain (production to delivery to combustion) can have a large climate impact — enough to gut the entire benefit of switching from coal-fired power to gas for a long, long time.

Second, other studies find — surprise, surprise — natural gas plants don’t replace only high-carbon coal plants. They commonly replace very low carbon power sources like solar, wind, nuclear, and even energy efficiency, which is often overlooked as a major alternative to fossil fuels. That means even a very low leakage rate wipes out the climate benefit of fracking.

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…

IEA Pours Cold Water On OPEC Optimism, Warns Global Oil Demand Shrinking

November 14, 2017

IEA Pours Cold Water On OPEC Optimism, Warns Global Oil Demand Shrinking

Pouring cold water on yesterday’s optimistic demand forecast projected by OPEC, which projected global crude demand growth to rise by 1.5mm b/d in 2018, this morning the International Energy Agency warned that the crude oil price rally could be short-lived because, contrary to OPEC’s expectations, global oil demand will be weaker than expected this year and next. In its closely watched monthly oil report, the IEA cut its crude demand growth outlook by 100,000 barrels a day for 2017 and 2018, as the WSJ reported. The agency now expects demand to grow by 1.5 million barrels a day this year and 1.3 million barrels a day next year.

The IEA predicted that balances will likely show the crude market is oversupplied in Q4 2017 and the first half of 2018, with oil demand in 2017 at 97.7mmb/d, rising to 98.9 million in 2018. Meanwhile, non-OPEC Oil Supply is expected To rise by 700,000b/d In 2017 To 58.1mmb/d, and another 1.4 mmb/d in 2018 to 59.5mm b/d, led by shale output.

The IEA also noted that global oil inventories fell 63mm barrels In Q3, only second quarterly draw since 2014, with the call on OPEC crude seen at 32.6mmb/d in Q4, declining to 32.0mmb/d in Q1 2018.

However, “the highlight of the report was that they lowered their demand forecast,” said Jens Pedersen, senior analyst at Danske Bank. The report also cautioned that “if the geopolitical concerns calm down, then prices could fall down again, so on the margin it’s a tad bearish.”

The IEA noted that oil prices have risen roughly 20% since early September with Brent crude sustaining gains above $60 a barrel in recent weeks, on the back of supply disruptions and geopolitical tensions in the Middle East. But if those problems prove temporary, a “fresh look at the fundamentals” would likely show the “market balance in 2018 does not look as tight as some would like and there is not in fact a ‘new normal.’”

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

Energy and Authoritarianism

September 26, 2017

Energy and Authoritarianism

Could declining world energy result in a turn toward authoritarianism by governments around the world? As we will see, there is no simple answer that applies to all countries. However, pursuing the question leads us on an illuminating journey through the labyrinth of relations between energy, economics, and politics.

The International Energy Agency and the Energy Information Administration (part of the U.S. Department of Energy) anticipate an increase in world energy supplies lasting at least until the end of this century. However, these agencies essentially just match supply forecasts to anticipated demand, which they extrapolate from past economic growth and energy usage trends. Independent analysts have been questioning this approach for years, and warn that a decline in world energy supplies—mostly resulting from depletion of fossil fuels—may be fairly imminent, possibly set to commence within the next decade.

Even before the onset of decline in gross world energy production we are probably already beginning to see a fall in per capita energy, and also net energy—energy that is actually useful to society, after subtracting the energy that is used in energy-producing activities (the building of solar panels, the drilling of oil wells, and so on). The ratio of energy returned on energy invested (EROEI) for fossil energy production has tended to fall as high-quality deposits of oil, coal, and natural gas are depleted, and as society relies more on unconventional oil and gas that require more energy for extraction, and on coal that is more deeply buried or that is of lower energy content. Further, renewable energy sources, especially if paired with needed energy storage technologies, tend to have a lower (some say much lower) EROEI than fossil fuels offered during the glory days of world economic growth after World War II. And renewables require energy up front for their manufacture, producing a net energy benefit only later on.

…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…

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