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Germany approved on Tuesday the construction and operation of the Russia-led Nord Stream 2 gas pipeline in its territorial waters, thus issuing all necessary permits for the German section of the project that has torn Europe and EU member states over the implications of Russia’s gas giant Gazprom gaining even more foothold on the European gas market.

Hailing the project as necessary to cover Europe’s future supply gap and contributing to the “security of supply and competition in the EU gas market,” the pipeline company Nord Stream 2 AG said on Tuesday that the permitting procedures in the other four countries along the route – Russia, Finland, Sweden and Denmark – were proceeding as planned.

“Further permits are expected to be issued in the coming months. Accordingly, scheduled construction works are to be implemented in 2018 as planned,” the company said.

Germany is the key beneficiary of Nord Stream 2 and supports the project on the grounds that it is an economic issue.

Other EU states, however–including Poland and the Baltic states, as well as the European Union institutions–argue that the project further solidifies Russia’s grip on Europe’s gas market and undermines efforts to diversify supplies.

For Russia, Nord Stream 2 – a project to twin the existing Nord Stream pipeline between Russia and Germany via the Baltic Sea — not only boosts its gas supplies to the EU, but also bypasses the Ukrainian transit route.

With the spy poisoning scandal in the UK and the West-Russia tension high, Nord Stream 2 has taken center stage in energy policies again in recent weeks. Earlier this month, U.S. Senators urged the U.S. Administration “to utilize all of the tools at its disposal to prevent its construction.”

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Russia-Ukraine Gas Spat Highlights Geopolitical Divide

March 26, 2018

Russia-Ukraine Gas Spat Highlights Geopolitical Divide

The latest gas dispute between Russia and Ukraine flared up just as most of Europe was gripped by Arctic cold and just before the spy poisoning scandal in which the UK accused Moscow of poisoning a former double agent in England by a military-grade nerve agent of a type developed by Russia.

Russia’s gas giant Gazprom, which delivers around one-third of Europe’s gas, uses the Ukrainian gas system as a key route for its gas supplies. While European Union institutions want to reduce European dependence on Russian gas, Russia wants to cut its dependence on the Ukrainian transit route for its supplies to the EU by building pipelines to bypass Ukraine.

Yet, according to Ukraine, Russia will need the Ukrainian route to ship gas to Europe even after 2019, when the current transit agreement expires, the chief executive of Ukraine’s national company Naftogaz, Andriy Kobolyev, told Bloomberg in an interview this week.

“Gazprom will not be able to cope without the Ukrainian gas transportation system after 2019, so they will need to sign a new contract with us,” Kobolyev told Bloomberg, noting that Russia uses gas supplies to advance its political goals.

“Russia is totally unwilling to separate gas and politics — from their perspective it’s the same and gas plays a very important instrument in achieving a wider geopolitical agenda,” Kobolyev said.

The gas companies of Russia and Ukraine have been locked in bitter disputes for more than a decade, and the relations were further strained by the 2014 Russian annexation of Crimea.

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OPEC Doubles Down On Draining Oil Inventories

March 20, 2018

OPEC Doubles Down On Draining Oil Inventories

Although the oil market has been improving, OPEC still has work to do to bring global oil inventories back to their five-year average—the metric that OPEC has vowed to achieve with the production cut deal, OPEC Secretary General Mohammad Barkindo said on Monday while on a visit to Azerbaijan.

“The worst is probably over for now. We are beginning to see light at the end of the tunnel but we still have some work to do because we still have inventories that are higher than the 5-year average,” Barkindo said at a press briefing in Azerbaijan’s capital of Baku, as carried by Reuters.

Barkindo’s words signal that OPEC is committed to totally erasing the glut, even if it has mostly achieved this part of its mission.

Last month, the Energy Minister of OPEC’s leading producer Saudi Arabia, Khalid al-Falih, saidthat “If we have to err on over-balancing the market a little bit, so be it.”

In an interview with Azeri television Real TV, Barkindo said on Monday that he hoped that stability would be restored to the global oil market this year.

“We are beginning to see that the stability is gradual but still returning to the market,” said OPEC’s secretary general.

Azerbaijan is part of the non-OPEC countries that have joined the cartel in the pact to support oil prices and draw down excess global oil stockpiles through voluntary production cuts or managed decline.

According to OPEC’s latest Monthly Oil Market Report from last week, preliminary data for January showed that total OECD commercial oil stocks rose by 13.7 million barrels from December, reversing the drop of the last five months. At 2.865 billion barrels, OECD stocks were 206 million barrels lower than in January 2017, but 50 million barrels above the latest five-year average, OPEC said.

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Canada Is Facing A Heavy Crude Crisis

March 17, 2018

Canada Is Facing A Heavy Crude Crisis

Canada’s benchmark heavy crude oil widened its discount to WTI to the largest in six trading sessions on Thursday, as additional storage capacity in Alberta and data about lower crude-by-rail shipments added concerns over the domestic oil glut, as TransCanada’s Keystone Pipeline has yet to return to normal pressure levels following a leak and temporary shutdown last November.

On Thursday, Western Canadian Select was trading at a discount of US$27 a barrel to WTI. The discount widened to the biggest level, US$30.55 a barrel, in four years on February 5, after a selloff following the temporary shutdown of Keystone in mid-November.

This week, market participants were digesting news about increased storage capacity and January crude-by-rail data. Crude-by-rail exports out of Canada fell by 11.3 percent month on month in January to 140,959 bpd, according to the latest data by Canada’s Crude Oil Logistics Committee, quoted by Platts. Analysts had expected rail crude exports to be either flat or down, because Canadian rail operators and customers had reported delays in shipments due to extreme weather.

In addition, Kinder Morgan Canada and Canadian midstream operator Keyera said earlier this week that they added two additional tanks at the Base Line Terminal for service ahead of schedule. The two tanks add an additional 800,000 barrels of crude storage to the 1.6 million barrels currently in operation.

Meanwhile, data from Canada’s National Energy Board (NEB) showed that the Keystone Pipeline, which was restarted on November 28 after a shutdown on November 16, had throughput volumes of 582,000 bpd in December, following a slump to 298,000 bpd in November.

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Huge Chinese Demand Fuels The Next U.S. Gas Boom

March 12, 2018

Huge Chinese Demand Fuels The Next U.S. Gas Boom

China’s push for cleaner air and fuel is driving an unprecedented demand for natural gas, and the United States is well-positioned to seize this opportunity and export even more of its growing gas production to the thirsty nation.

U.S. companies have plans for even more liquefied natural gas (LNG) export trains and facilities to come online in the coming years, and this winter’s surge in Chinese LNG demand and imports underpins a second wave of LNG investment in the United States, analysts and company executives believe.

The Chinese push to cut pollution and make millions of households switch to natural gas from coal for heating resulted in China becoming the world’s second-largest LNG importer in 2017, outpacing South Korea and second only behind Japan, the U.S. EIA said last month. Chinese LNG imports surged 46 percent last year. And while China increased its domestic production and pipeline imports last year, it was not enough; natural gas shortages in northern China led to record levels of LNG imports during the winter. Overall, natural gas imports accounted for 40 percent of China’s 2017 natural gas supply, and LNG made up more than half of those imports. True, China is planning to hit an all-time high for natural gas production this year, which includes raising the share of gas in its energy mix—still, domestic production growth will be woefully insufficient compared to its soaring consumption.

So, the United States is all too happy to step in to supply part of that demand.

Cheniere Energy is one such supplier, which signed last month two long-term deals—through 2043—to supply LNG to China National Petroleum Corporation (CNPC), with the LNG price indexed to the Henry Hub price plus a fixed component.

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U.S. Navy Boosts Mediterranean Presence As Exxon Set To Explore Offshore Cyprus

March 6, 2018

U.S. Navy Boosts Mediterranean Presence As Exxon Set To Explore Offshore Cyprus

The U.S. Navy has increased its Mediterranean fleet, just a couple of weeks before Exxon is due to send two surveying vessels to explore offshore Cyprus near the area where Turkey blocked an Eni drilling ship from prospecting in February, Turkish news outlet Ahval reports.

Last year, ExxonMobil and Qatar Petroleum signed an exploration and production (E&P) sharing contract with the Cyprus government, under which the companies will start drilling in a block offshore Cyprus this year.

Two weeks ago, Turkish Navy vessels threatened to sink a drilling ship that oil major Eni has hired to explore for oil and gas offshore Cyprus—a divided island whose northern part is run by Turkish Cypriots and is recognized only by Turkey.

According to local media reports, four or five ships of the Turkish Navy tried to prevent Saipem’s 12000 drilling vessel from performing exploration in the Exclusive Economic Zone (EEZ) of Cyprus.

Turkey, which recognizes the northern Turkish Cypriot government and doesn’t have diplomatic relations with the internationally recognized government of Cyprus, claims that part of the Cyprus offshore area is under the jurisdiction of Turkish Cypriots or Turkey.

Earlier this month, Eni said that together with France’s Total, it had made a promising gas discovery offshore Cyprus, confirming that the Zohr-like play—where Eni found the biggest gas deposit in the Mediterranean offshore Egypt—extends into the Cyprus Exclusive Economic Zone.

According to Greek newspaper Ekathimerini, Exxon is intent on surveying its block offshore Cyprus despite the Turkish Navy activities and the blockade on Eni’s prospecting in the area.

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Russian Hackers Target U.S. Energy Infrastructure

March 3, 2018

Russian Hackers Target U.S. Energy Infrastructure

Russia has been trying to interfere with U.S. energy markets and influence U.S. energy policy by using Russian operatives to troll social media platforms with divisive and inflammatory posts, a report by House Republicans has revealed.

The report—issued by the United States House of Representatives Committee on Science, Space, and Technology—includes examples of Russian-propagated content on Facebook, Twitter, and Instagram, targeting U.S. energy markets and domestic energy policy.

“Russian-sponsored agents funneled money to U.S. environmental organizations in an attempt to portray energy companies in a negative way and disrupt domestic energy markets,” the report said.

“Documents that the American social media companies produced for the Committee confirmed that Russian agents were exploiting American social media platforms in an effort to disrupt domestic energy markets, suppress research and development of fossil-fuels, and stymie efforts to expand the use of natural gas,” the Republicans’ report says.

“By posting content that supports positions held by both liberals and conservatives alike, the Russians used social media to instigate and inflame discord in the United States. Russian social media manipulators intentionally injected foreign propaganda into American political discourse. These Russian agents are only interested in creating discord in America while hiding behind an anonymous and misleading social media pseudonym, as demonstrated by the highly divisive, often contradictory posts provided in this report.”

The Chairman of the U.S. House Science, Space, and Technology Committee, Lamar Smith (R-Texas) said in a statement, commenting on the report:

“Russia benefits from stirring up controversy about U.S. energy production. U.S. energy exports to European countries are increasing, which means they will have less reason to rely upon Russia for their energy needs. This, in turn, will reduce Russia’s influence on Europe to Russia’s detriment and Europe’s benefit.

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Oklahoma Bolsters Earthquake Protocol For Frackers

March 2, 2018

Oklahoma Bolsters Earthquake Protocol For Frackers

Oklahoma has witnessed a surge in earthquakes over the past decade. Regulators and scientists largely agree that the higher seismic activity is associated with the injection of wastewater from oil and gas production into wastewater wells.

Now Oklahoma is tightening its seismic protocol for the oil and gas operations in the state in an effort to reduce the chances of induced earthquakes. The oil industry welcomed the move, describing it reasonable and data-driven.

Earlier this week, the Oil and Gas Conservation Division (OGCD) at the Oklahoma Corporation Commission announced changes in the seismic protocol to “further address seismicity” in the state’s largest oil and gas play.

Under the tougher seismic protocol, all operators conducting hydraulic fracturing operations are now required to monitor real-time seismicity readings during active operations by using a seismic array, a system of linked seismographs arranged in a regular geometric pattern to increase sensitivity to earthquake detection.

Oklahoma is also lowering the minimum level at which operators must take action, from a 2.5 magnitude (ML) to 2.0 ML. Generally, the minimum level at which people can feel earthquakes is about 2.5 ML.

The third key change in the seismic protocol is that some operators will have to pause operations for 6 hours at 2.5 ML, with the magnitude level now lowered from the 3.0 ML minimum level at which operators had to pause operations under the previous protocol.

“The overall induced earthquake rate has decreased over the past year, but the number of felt earthquakes that may be linked to well completion activity, including hydraulic fracturing, in the SCOOP and STACK has increased,” OGCD Director Tim Baker said.

“Ultimately, the goal is to have enough information to develop plans that will virtually eliminate the risk of a felt earthquake from a well completion operation in the SCOOP and STACK,” said the Director of the Oklahoma Geological Survey (OGS), Dr. Jerry Boak.

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Peak U.S. Shale Could Be 4 Years Away

February 25, 2018

Peak U.S. Shale Could Be 4 Years Away

U.S. shale production growth has outperformed even the most bullish forecasts, forcing OPEC and the International Energy Agency (IEA) to revise up American supply growth projections month after month.

The U.S. Energy Information Administration (EIA) also expects shale/tight oil to continue to grow in all possible modeled scenarios for the next four years, according to its Annual Energy Outlook 2018 published this month.

While the EIA is not predicting what will happen, it is modeling possible production scenarios under certain assumptions. Under one of those modeled projections—the Low Oil and Gas Resource and Technology case—the assumptions applied are lower resources and higher costs. In this model, U.S. tight oil production—including the plays Bakken/Three Forks/Sanish, Eagle Ford, Woodford, Austin Chalk, Spraberry, Niobrara, Avalon/Bone Springs, and Monterey—is expected to rise from 4.96 million bpd in 2017 to 5.59 million bpd in 2022, and then to start declining on a steady downward trend by 2050, when tight oil production is expected to be at 4.42 million bpd.

This is one of the side cases in EIA’s models, and one of the most unlikely, because it assumes no technological breakthroughs, lower resources, and higher costs. Under this model, total U.S. crude oil production is pegged at 9.14 million bpd this year, while figures are currently available, showing that production is already above 10 million bpd and likely to average more than 10.5 million bpd this year.

The Reference case scenario shows tight oil production jumping to more than 7 million bpd by 2025 and surpassing 8 million bpd in 2036, before starting to level off some time in the early 2040s. Total U.S. crude oil production in the Reference case is between 11 million bpd and 12 million bpd by 2050, “as tight oil development moves into less productive areas and as well productivity declines,” the EIA says.

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India Will Lead Global Oil Demand By 2035

February 20, 2018

India Will Lead Global Oil Demand By 2035

Oil market participants and analysts have been closely watching the record level of supply coming out of the United States that is threatening to undo OPEC’s production cuts. But in the latter part of 2017 and early in 2018, robust oil demand growth — both in emerging markets and OECD economies — has supported oil prices as much as the cartel’s production restraint and the weakening U.S. dollar.

Traditionally, all eyes have been fixated on China and the pace of its oil demand and imports growth, but lately India has grabbed global attention after its oil imports rose to record highs amid strong economic growth and fuel demand. Projections of India’s long-term energy and oil consumption are also optimistic, and India is already a major oil demand growth driver.

In China, January crude oil imports jumped to a new record of 9.57 million bpd, but forecasts of slower GDP growth are making analysts wary of overly optimistic projections. China’s crude oil demand growth could slow down this year to 4.2 percent from 5.5 percent last year, according to S&P Platts analysts.

In India, high refinery runs and expanding refining capacity amid a strong recovery in demand pushed crude oil imports to a record 4.93 million bpd in January 2018, up by double digits compared to both December 2017 and January 2017, according to data compiled by Thomson Reuters Oil Research & Forecasts.

Although the January imports figure may have a seasonal explanation, with spring refinery maintenance approaching, longer-term projections and Indian refinery expansion plans support the view that oil demand growth will be strong. India plans to boost its crude oil refining capacity by 77 percent by 2030 to meet its growing fuel demand.

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Saudi/Russia-Led Oil Supergroup In The Making

February 15, 2018

Saudi/Russia-Led Oil Supergroup In The Making

OPEC and the non-OPEC producers’ part of the production cuts deal will have a plan for long-term cooperation drafted by the end of 2018, as they seek to institutionalize their current collaboration into a supergroup of oil producers led by Saudi Arabia and Russia, the UAE’s Energy Minister Suhail Al Mazrouei told The National in an interview published on Thursday.

The producers aim “together with the secretary general [of OPEC, Mohammad Barkindo], to put together a draft agreement for this group [of 24] to stay together for a longer time”, Al Mazrouei said.

Putting together a draft charter and discussing it during the year is one of the UAE’s aspirations, said the minister whose country is currently holding OPEC’s presidency.

“If we achieve the market balance, I think we can see significant amount of investments coming to the E&P business and we can see that many of the 24 countries who have signed the Declaration of Cooperation can benefit from it,” Al Mazrouei told The National.

The idea to follow up on the current OPEC/non-OPEC cooperation came originally from OPEC’s Secretary General Mohammad Barkindo, who said as early as in October last year that the partnership could be institutionalized.

Last month, Khalid al-Falih, the energy minister of OPEC’s de facto leader and largest producer Saudi Arabia, said that “There is a readiness to continue cooperation beyond 2018…The mechanism hasn’t been determined yet, but there is a consensus to continue.”

Al-Falih, as well as Russia’s Energy Minister Alexander Novak, has hinted several times that the cooperation could continue in some form—although not necessarily in oil market management—even after the end of 2018, when the current pact to curtail oil production expires.

In an interview with S&P Global Platts published earlier this week, Novak said that Russia wanted to build a long-term relationship with Saudi Arabia and the broad OPEC alliance once their agreement expires.

U.S. Mandates Biggest Non-Emergency Strategic Oil Selloff

February 13, 2018

U.S. Mandates Biggest Non-Emergency Strategic Oil Selloff

The budget deal that the U.S. Congress passed and President Donald Trump signed into law last Friday calls for selling 100 million barrels of the Strategic Petroleum Reserve (SPR) by 2027 to help fund the government.

The sale of 100 million barrels of crude oil in the next decade would represent the largest non-emergency sell-off of strategic oil reserves and would equate to some 15 percent of the current stockpiles in the SPR.

The mandate for the SPR sale has drawn criticism because, some experts say, it would blunt the purpose of the strategic reserve to mitigate major global oil supply disruptions or price shocks. Other critics have said that tapping the emergency oil reserve for non-energy needs of the government is short-sighted, and that the SPR should not be used as a “government ATM.”

The Bipartisan Budget Act of 2018 mandates the Secretary of Energy to draw down and sell from the SPR a total of 30 million barrels of crude oil between fiscal years 2022 and 2025; another 35 million barrels during fiscal year 2026; and additional 35 million barrels in fiscal year 2027. In addition, under a budget deal from 2015, the Secretary of Energy is authorized to draw down up to US$350 million worth of crude oil from the SPR in the 2018 fiscal year to use for modernization of the reserve.

The budget deal also reduces the minimum required level in the reserve under which no drawdowns can be made, to 350 million barrels from 450 million barrels.

According to the Congressional Budget Office, the sale of the 100 million barrels from the SPR would generate US$6.36 billion between 2018 and 2027.

As of February 2, 2018, the SPR held a total of 665.1 million barrels of crude oil, while the current storage capacity is 713.5 million barrels, according to the Department of Energy. The average price paid for oil in the Reserve is $29.70 per barrel.

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North America’s Next Big Shale Play

February 2, 2018

North America’s Next Big Shale Play

The oil price crash of 2014 not only weighed on Canada’s oil sands industry, but it also directed more company investment into shorter-cycle shale projects in the U.S. at the expense of more capital- and energy-intensive oil sands production in Canada.

While the oil sands will continue to be a growth story thanks to investments made before the downturn, Canadian energy officials and many oil companies — both Canada-based and supermajors — are increasingly looking to explore and drill in the two largest shale formations, Duvernay and Montney, estimated to hold billions of barrels of light tight oil and trillions of cubic feet of gas.

Currently, Canada’s shale oil production is around 335,000 bpd, according to estimates by energy consultancy Wood Mackenzie, quoted by Reuters. This is some 8 percent of total Canadian production, which the National Energy Board (NEB) says was nearly 4.2 million bpd in 2017. Wood Mackenzie expects shale oil production to rise to 420,000 bpd in a decade.

Some two-thirds of Canada’s oil production comes from oil sands. In 2017, Canadian oil sands production is expected to have exceeded 2.6 million bpd, according to IHS Markit. Production is expected to continue to grow, thanks to investments made prior to the oil price crash, while future investment is “to remain lower than historical levels”, the data and analysis provider said in a report earlier this week.

Investment in new oil sands production capacity has dropped by two-thirds since the oil price crash — from more than $30 billion to just over $10 billion estimated for 2017 — and may fall further this year before starting to recover, IHS Markit says.

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The 10 Oil Projects Adding 1.1 Million Bpd To Global Supply

January 27, 2018

The 10 Oil Projects Adding 1.1 Million Bpd To Global Supply

The ten largest upcoming onshore oil projects worldwide are expected to add 1.135 million bpdto the global oil supply by 2025, according to research and analytics firm GlobalData.

The ten biggest onshore projects—out of a total of 126 such developments worldwide—are expected to consume US$83.1 billion of investment to bring them to production, Oilfield Technology reports, quoting figures by GlobalData.

Of this spending, US$46.7 billion is expected to be made by 2025.

The ten largest onshore projects are expected to produce a total of 9.7 billion barrels of crude oil over their lifetime, according to GlobalData.

In terms of single project development investment, the Kuyumbinskoye conventional oil development in Russia is the leader, with US$12.8 billion expected to be spent over the field’s lifetime. The project is expected to have peak production at 215,485 bpd in 2029. The Kuyumbinskoye project is followed by Cenovus Energy’s Telephone Lake oil sands project with investment of US$10 billion throughout its lifespan, GlobalData says, as carried by Oilfield Technology.

The average breakeven oil price for the upcoming top onshore fields is US$55 per barrel, with Canada at the lowest breakeven of US$52 a barrel and Russia at the highest at US$57 per barrel.

Full-cycle capex per barrel of oil equivalent is expected to average US$7.5 for conventional oil projects, US$9.2 for oil sands developments, and US$9.8 for heavy oil projects, according to GlobalData.

Confidence in the oil and gas industry has started to return with higher oil prices, and a majority of respondents in a DNV GL survey have recently said that they plan to increase capital expenditure this year. The Norway-based energy industry advisory firm noted that while last year confidence in the growth prospects for oil and gas firms had stood at 32 percent of respondents, now it has gone up to 63 percent.

Trump’s Offshore Drilling Plan Is A Slippery Slope

January 23, 2018

Trump’s Offshore Drilling Plan Is A Slippery Slope

The Trump Administration has offered to open more than 90 percent of the federal Outer Continental Shelf (OCS) for consideration of future exploration and development. The proposal is in stark contrast to the current lease sale program that puts 94 percent of the shelf off limits.

“The important thing is we strike the right balance to protect our coasts and people while still powering America and achieving American Energy Dominance,” U.S. Secretary of the Interior Ryan Zinke said upon announcing the plan.

The OCS is thought to contain billions of barrels of technically recoverable oil and trillions of cubic feet of natural gas that could potentially enhance U.S. energy security. The Bureau of Ocean Energy Management’s (BOEM) latest estimates from 2016 show a mean of 89.87 billion barrels of undiscovered technically recoverable oil and a mean of 327.49 trillion cubic feet of undiscovered technically recoverable natural gas in the federal OCS.

The question is, how much new offshore drilling can realistically happen? And how much would this help to boost the American energy dominance?

While the world and the U.S. will continue to increase their demand for oil, the finalization of the new offshore lease sale plan is probably two years away, and drilling in new lease areas is even further down the road. It’s hard enough to predict where oil prices will be five months from now, let alone five years from now, in order to gauge how much interest there will be in half a decade.

As it stands, almost every east and west coastal state is against the new plan, and objections in the comment periods are looming. So are lawsuits. Opposing states may refuse to issue infrastructure authorizations, because states control the first three miles of shallow waters, and only after that does federal jurisdiction begin.

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