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The Race Is On: Big Oil Rushes To Supply The 1 Billion Disconnected

The Race Is On: Big Oil Rushes To Supply The 1 Billion Disconnected

power meter

Supermajors are taking on more renewable energy commitments lately as they prepare for a less carbon-intensive future. Some of them are going a step further, coupling these green commitments with humanist causes such as providing access to energy to part of the one billion people all over the world who have no electricity.

Power for All director William Brent reviewed in a recent story this push that will see Shell, Total, French Engie, Schneider Electric and others of their caliber, build electricity supply from clean sources for 200 million of this one billion within the next ten years. Shell is the most ambitious, aiming to provide access to electricity for 100 million, and Total plans to provide 25 million people in Africa with solar energy derived power within the next two years.

Others are also catching up with the green agenda. Exxon recently announced it had inked a 12-year deal with Danish renewable energy company Orsted to buy 500 MW of electricity produced by solar and wind farms to power its oil production in the Permian. The deal reflects falling renewable energy prices, which is making renewable energy a lot more competitive with fossil fuels, not to mention the reputational effect its deployment would have on Big Oil– and Big Oil is in serious need of news that is good for its reputation. Even with a redoubling of efforts to move more quickly into renewable energy territory, challenges remain, however.

Shell and BP, for instance, are being pressured by activist shareholders into doing more to lower their carbon footprint. One such activist shareholder, Dutch group Follow This, has been actively pressuring the companies it holds shares in to be more active in carbon footprint reduction work.

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

Big Oil Doubles Down On Shale Despite Price Drop

Big Oil Doubles Down On Shale Despite Price Drop

big oil shale

It’s the time of the year when oil companies start announcing their budgets for next year and besides a steady albeit guarded optimism, one thing stands out: oil majors are doubling down on their shale endeavors.

Chevron, ConocoPhillips, and Hess Corp all announced their capex plans for next year in the last few days and all three have big plans for U.S. shale. In fact, Conoco said it would allocate half of its budget on onshore operations in the United States, while Hess Corp said the bulk of its US$1.89 billion production growth budget, or US$1.425 billion, would be poured into the Bakken play.

Chevron has  earmarked US$3.6 billion for expanding its production in the Permian and another US$1.6 billion will be invested in other shale plays in the United States. That makes a total of US$5.2 billion for U.S. shale, which is substantially higher than this year’s budget of US$4.3 billion.

Anadarko, which made its 2019 spending plans public last month, said it planned to allocate more than two-thirds of its 2019 budget to shale operations, with a particular focus on the Delaware Basin in the Permian and the DJ basin in Colorado.

According to Bloomberg, shale has become “a safe haven” for Big Oil amid the recent increased volatility in prices. The argument is that shale production costs are much lower than a few years ago and combine with the opportunity for a steady production increase and quicker returns than conventional projects.

The recent assessment of the U.S. Geological Survey of the recoverable reserves in the Wolfcamp basin must have added fuel to Big Oil’s shale enthusiasm.

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

Is This The Next Disaster For Canadian Drillers?

Is This The Next Disaster For Canadian Drillers?

Oil infrastructure

The government of Alberta this week took an unprecedented decision to enforce a crude oil production cut so excess inventories could be shrunk and the price of western Canadian grades could improve, but the industry’s problems are far from over. They will be among the hardest hit by the International Maritime Organization’s new emission rules, to enter into effect in two years, which will require a reduction of the sulfur content of bunkering fuel to 0.5 percent from 3.5 percent.

“We’ve got challenges with respect to pipelines, we’ve got challenges with respect to rail and now we’ve got challenges with respect to our demand market,” Bloomberg quoted the chief executive officer of the Canadian Energy Research Institute as saying at a presentation this week. The emission rules will start affecting the price of Canadian crude next year, Allan Fogwill, along with other analysts, believes.

Canadian crude is heavy and sour, that is, high in sulfur content, which is the obvious reason why the IMO changes would affect prices, adding to already substantial pressure from pipeline bottlenecks and the rising amount of crude that is being transported by costlier rail.

According to IHS Markit analyst Kurt Barrow, the emission rules will make Canadian crude another $7-8 cheaper than West Texas Intermediate in 2019. Even the completion of the Line 3 replacement project won’t offset these losses, although it will add 375,000 bpd to daily pipeline capacity.

Another analyst, Wood Mackenzie research director Mark Oberstoetter, told Bloomberg Western Canadian Select will likely be US$20 cheaper than WTI for most of 2019, which is the cost of railway transportation for Albertan heavy crude. All in all, things are looking pretty bad. But how bad is bad?

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

Oil Falls On Crude Inventory Build

Oil Falls On Crude Inventory Build

Oil jack

Crude oil prices slipped further down today after the Energy Information Administration reported crude oil inventories for the week to November 23 had added 3.6 million barrels. That’s compared with a build of 4.9 million barrels a week earlier.

The EIA figures came after yesterday the American Petroleum Institute reported an estimated inventory increase of 3.453 million barrels, which failed to affect prices in any significant way.

EIA also said gasoline inventories last week had declined by 800,000 barrels and distillate fuel inventories had added 2.6 million barrels. A week earlier, the authority estimated a decline of 1.3 million barrels in gasoline and a 100,000-barrel decline in distillate fuel inventories.

Meanwhile, production is hitting new highs and this will continue, according to most estimates, unless oil prices continue declining at a fast pace. The likelihood of this happening is relatively low, however. OPEC is meeting next week in Vienna to discuss a new round of production cuts and most analysts expect the cuts to be agreed with Russia also joining in again.

However, Morgan Stanley, for one, sees a 33-percent chance of the cartel failing or refusing to agree a production cut, in which case prices will definitely slump more, pressured by bleak economic outlooks and concerns about a crude oil oversupply. The argument against a production cut is simple enough: market share. It’s no wonder some OPEC members have already spoken against a cut, notably Libya, which said it expected to be granted an exemption from any cuts.

Besides the OPEC meeting, oil market observers would be watching the G20 meeting, where Russia may or may not give a clear indication whether it will join any cut agreements. Just like last time, Moscow would be a crucial ally for the cartel if it decides to join the cuts or a deal-breaker if it decides to sit these out.

 

Mexico’s Oil Crisis Deepens

Mexico’s Oil Crisis Deepens

Pemex oil

Mexico’s state oil company Pemex said it produced an average 1.76 million bpd of crude in October, down 7 percent from October last year, Reuters reports, citing data released by the company. This is also one of the lowest monthly production rates since 1990 when records began.

The decline was attributed to the natural depletion of mature fields, highlighting the urgent need for new production in the country. The outgoing government of Enrique Pena Nieto launched a sweeping reform in Mexico’s energy sector, one of its aims being to open up the local oil wealth to foreign operators in order to stem this decline in production. The incoming government is currently reviewing oil contracts signed by the previous administration to make sure no corruption was involved in the deals.

Exports of crude also declined last month, and by a lot more than production. Pemex exported an average 1.03 million bpd, down by 25 percent from a year earlier. President-elect Andres Manuel Lopez Obrador earlier this year said Pemex should keep more crude for its refineries instead of exporting it to reduce Mexico’s dependency on imported fuels, but the country’s refining sector needs a lot of work to make this plan successful.

It was in October that Pemex’s refineries hit a record low utilization rate of 25.7 percent, according to an S&P Global Platts report, which also noted the causes of the drop included shortages of light crude and technical difficulties at some refineries. Pemex would need to upgrade its refineries to produce more gasoline to make local refining more profitable as currently its facilities produce a lot more fuel oil than would make economic sense.

Despite the problems, Obrador has ambitious plans, including an increase in crude oil production to 2.6 million bpd by the end of his six-year term in office and a lot more domestic refining.

Canadian Oil Producers Divided On Output Cuts

Canadian Oil Producers Divided On Output Cuts

crude pipelines

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

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

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

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

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

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

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

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

Is Shale The Future For Big Oil?

Is Shale The Future For Big Oil?

oil rig

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

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

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

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

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

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

Oil, Gas Drilling In Canada Set For A Decline

Oil, Gas Drilling In Canada Set For A Decline

Canada oil rig

Drilling for oil and gas in Canada will likely decline by 5 percent in 2019, the Petroleum Services Association of Canada has forecast, blaming pipeline capacity shortages and the resultant discount in Canadian heavy to the West Texas Intermediate benchmark for the outlook.

The PSAC said it expected oil and gas companies to drill 6,600 new wells next year, which would be down from 6,980 this year and the lowest number of new wells in three years. Yet over the year, drilling will increase, the PSAC forecast, as the volume of oil transported by rail, for lack of enough pipelines, continues to grow.

On the good news front, the discount at which Western Canadian Select trades to West Texas Intermediate is seen to narrow from the current over US$50 a barrel to about US$24.50 a barrel, with the average WTI price for 2019 projected at US$69 a barrel.

The National Energy Board of Canada recently released a report forecasting that oil and gas production will continue to increase while domestic consumption declines thanks to energy efficiency. Natural gas, along with hydropower and other renewable sources, will come to account for a bigger share of the country’s energy mix while oil production grows for exports.

In the next 20 years, NEB expects crude oil production to grow by as much as 58 percent while natural gas production expands by 33 percent, both helped by improving extraction technology that will maintain the industry’s competitiveness.

Not all believe, however, in this competitiveness. In fact, industry executives are quite disgruntled about the discount at which WCS is trading to WTI as well as by the high carbon taxes they are obliged to pay. The combination of factors has eaten into their bottom lines and will likely continue doing it as no new pipeline projects are coming on line any time soon and producers are forced to resort to costlier oil-by-rail options.

Trump: There’s Enough Oil To Offset Iran Loss

Trump: There’s Enough Oil To Offset Iran Loss

Trump Iran

President Donald Trump has determined there was enough crude oil and oil products supply globally to offset any loss of supply from Iran after U.S. sanctions enter into force next week.

In a memorandum, Trump said “there is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum and petroleum products purchased from Iran by or through foreign financial institutions.”

The memorandum also mentioned there was enough spare production capacity globally to allow for any necessary production increase. Amid growing worry about the global economy, however, the necessity for any production increases in oil has been questioned by analysts and Saudi Arabia’s Energy Minister, Khalid al-Falih, although Falih also separately said the Kingdom will continue to boost production this month.

Earlier this week, Reuters reported that the world’s top three producers—Russia, the United States, and Saudi Arabia—pumped 33 million bpd combined in September. A month later, Russia’s production alone hit another post-Soviet record of 11.41 million bpd.

These figures are in line with the sentiment expressed by President Trump and expectations by some observers that the effect of the sanctions’ entry into effect on prices will be moderate. This is what the Congressional Research Service’s top Iran expert Kenneth Katzman said, commenting on Trump’s memorandum, as quoted by the Washington Examiner.

Recent reports that Iran’s oil exports ahead of the sanctions were higher than earlier estimated also provided fuel for expectations of a moderate price effect, as did the news that Washington has granted India a waiver from the sanctions, obviously satisfied with the nation’s efforts to reduce its imports from Iran.

Sanctions against Iran will enter into effect on November 5 at midnight, a day before the mid-term elections in the United States. Keeping a lid on oil prices ahead of the vote has been a priority for the Trump administration.

Big Oil Walking A Tightrope As Prices Rise

Big Oil Walking A Tightrope As Prices Rise

offshore arctic

Supermajors have had a great year so far, and their third-quarter results, to be released over the next couple of weeks, are likely to strengthen this impression. But this does not necessarily mean that investors will reward them. Investors have become a lot more careful in the past few years, and chances are they will want to see more proof of post-crisis flexibility and strict cost discipline before stock prices reflect an increase in trust.

On the face of it, Exxon, Shell, Chevron, and their likes have everything going for them: oil prices are higher, free cash flow is coming in at higher rates, and there have even been a few discoveries, most notable among them Exxon’s 4-billion-barrel elephant off the coast of Guyana. But Big Oil still needs to be cautious.

In a recent article for 24/7 Wall Street, its senior editor Paul Ausick noted the heightened prospects of even higher oil prices after a Reuters report revealed that OPEC has been having trouble lifting production by the promised 1 million bpd. From May to September, the cartel’s combined production plus Russia’s had fallen well short of that figure because of production declines in Venezuela, Iran, and Angola, among others. These, the internal OPEC document that Reuters saw, offset some substantial output hikes from Saudi Arabia, Russia, the UAE, Iraq, and Kuwait.

What this means is that there seems to be less spare capacity than optimists believed. This, in turn, means prices are likely to climb further, despite a fresh assurance from Treasury Secretary Steven Mnuchin that traders have already factored in the U.S. sanctions against Iran. Mnuchin’s warning that Washington will insist on importers cutting Iranian crude imports by more than 20 percent most certainly has not helped rein in prices, though its effect has yet to be fully acknowledged.

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

BP Chief: Saudi Arabia Is Holding Back Production

BP Chief: Saudi Arabia Is Holding Back Production

Bob Dudley

“I think Saudi Arabia does have capacity that can bring to the market,” BP’s chief executive Bob Dudley told CNBC on Wednesday on the sidelines of the Oil & Money Conference in London.

“But on the other side of it you have very unpredictable circumstances in Venezuela and of course, with the Iran sanctions,” Dudley noted, commenting on the current market forces driving the oil prices.

As the start date of the U.S. sanctions on Iran’s oil is less than four weeks away, the market is jittery and prone to emotional reactions regarding the two key uncertainties over the next couple of months—how much Iranian oil will be lost to the U.S. sanctions, and how much spare capacity Saudi Arabia can bring (or is willing to bring) to offset possible steep losses.

Analysts are estimating that the sanctions on Iran will remove at least 1 million bpd from the market, with some predicting losses could be as large as 2 million bpd.

The only really large spare capacity is in Saudi Arabia, but the issue with this is that it has never been tested, because Saudi Arabia has never pumped more than 10.72 million bpd, its all-time high record from November 2016. Last week, the Saudis hastened to inform the market that they are currently pumping 10.7 million bpd—just shy of the all-time record high—and could even tweak that 10.7 million “slightly higher” next month.

In view of those uncertainties, BP’s Dudley told CNBC that he expects in terms of oil prices that “it’s going to be 45 days of extreme volatility, it could spike up, it could also go the other way.”

“If waivers were granted to others, to big oil consuming countries, you could see it (the price) go down, there’s a lot of uncertainty right now,” Dudley said.

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

UN Puts $2.4 Trillion Annual Price Tag On Mitigating Climate Change

UN Puts $2.4 Trillion Annual Price Tag On Mitigating Climate Change

UN

Climate scientists are not known for giving good news, and the UN’s Intergovernmental Panel on Climate Change that convened in South Korea was no exception: the scientists that compiled a special report on the climate situation on the planet slapped optimists in the face: the world needs to spend US$2.4 trillion every year until 2035 to slow down the effects of climate change.

Perhaps shockingly, the panel noted that at the current warming rates, Earth’s atmosphere will in less than one hundred years be 3 degrees Celsius warmer than it was before the start of the Industrial revolution, which is twice what the Paris Agreement stipulated in one of its scenarios. No wonder that the panel is calling for following the 1.5-degree scenario instead of the 2-degree one, which was widely seen as more realistic. Realistic or not, apparently, the world needs to work towards a temperature climb reduction of 1.5 degrees, the panel says.

The 1.5-degree scenario will require cutting CO2 emissions by as much as 45 percent over the 20-year period from 2010 to 2030 and to a net zero by 2050—net zero meaning that all CO2 released will need to be captured and stored or reused. But that’s just one aspect of the seismic shift that humankind would have to affect to curb the temperature rise.

Another aspect would be the phase-out of coal and a reduction in the amount of natural gas used for power generation. To some observers unburdened by excessive planetary anxiety, this would probably sound ridiculous: natural gas has emerged as the lesser evil compared with coal and oil, the so-called bridge fuel to a future powered entirely by renewable sources.

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US Demands For More Oil Could Backfire

US Demands For More Oil Could Backfire

drilling rig

This week the State Department accused OPEC of hiding spare capacity exceeding 1.4 million barrels daily. It urged the cartel to use it to stop the oil price rally that has continued uncomfortably close to midterm elections. The request—or demand, depending on your interpretation—is unprecedented and it might do more harm than good.

Bloomberg quoted a veteran energy analyst from Jefferies, Jason Gammel, as saying, “This is the lowest level of spare capacity in the global system relative to demand that I’ve ever seen. Spare capacity is moving to a precariously low point.” The problem is, nobody seems to be certain exactly how much OPEC’s spare capacity is.

In its latest Short-Term Energy Outlook, the EIA estimated OPEC’s spare production capacity at 1.66 million bpd. But the International Energy Agency last month estimated OPEC’s spare capacity at 2.7 million bpd and is fast declining. What we do know, however, is how much spare capacity Saudi Arabia has: 1.3 million bpd, as revealed by the Energy Minister of the Kingdom during the Russian Energy Week in Moscow.

This is bad news. Until now, various sources, including the Saudis themselves and the EIA, put the Kingdom’s spare capacity at between 1.5 and 2 million bpd. In June, President Trump said the Saudis could pump 12 million bpd. The IEA concurred. Saudi Arabia’s September production rate rose to 10.7 million bpd.

From this level of production, with 1.3 million bpd in spare capacity, we get a maximum production rate of 12 million bpd, indeed. However, Khalid al-Falih delivered a worrying message: Saudi Arabia will spend US$20 billion on maintaining and boosting its spare capacity in the coming years. The news naturally cast doubt on whether the current capacity will be sufficient to cover demand.

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

IEA: Plastics Will Replace Fuels As Key Oil Demand Driver

IEA: Plastics Will Replace Fuels As Key Oil Demand Driver

Oil tanker

Plastics will displace fuels as the main driver for crude oil demand, the International Energy Agency said today, adding that petrochemicals will come to account for more than 33 percent of oil demand growth globally in the period to 2030. By 2050, they will drive half of the global oil demand growth, raising this demand by 7 million bpd by that year.

The report that contains the projection is titled The Future of Petrochemicals, and the IEA said it was part of a series of reports that aim to uncover “blind spots”, or facets of the global energy industry that receive less attention than they deserve.

Petrochemicals are indeed Big Oil’s big hope for the future—but the more distant future. Petrochemicals are used in thousands of products, with the biggest group among these being single-use plastic products. The bad news for oil is that green initiatives around the world are mounting, and many of them are targeting precisely this group of products. And yet, even if single-use plastic products are removed from the supply chain, enough demand will remain to drive the consumption of crude oil.

“Petrochemicals are one of the key blind spots in the global energy debate, especially given the influence they will exert on future energy trends,” IEA’s head, Fatih Birol, said. Petrochemicals are not just the plastics we see in single-use grocery bags. Petrochemical products are also essential in renewable energy installations such as solar panels and wind turbines, but also batteries, and thermal insulation, and thousands of other products and components.

The durability of petrochemicals demand is evident in the demand growth trends: the IEA says demand for plastics has almost doubled over the last 18 years, exceeding the demand growth rate of every other bulk material, including steel, aluminum, and cement. Perhaps more importantly, emerging markets have yet to catch up to developed ones in their plastics consumption. Now that’s a guarantee for steady demand in the future.

Venezuela’s Oil Exports Are Falling Even Faster Than Expected

Venezuela’s Oil Exports Are Falling Even Faster Than Expected

Tanquero

A delay in port repairs following a tanker collision is putting additional pressure on already pressured Venezuelan crude oil exports, Reuters quoted anonymous sources close to PDVSA as saying this week. It seems that Venezuela’s woes are only multiplying as time goes by, although news from official Caracas sources seems more upbeat. Oil, however, appears at the forefront of Venezuela’s plight.

A dock at Venezuela’s biggest oil port, Jose, was closed in late August after a tanker collided with it. At the time, Reuters reported that the repairs would delay the delivery of 5 million barrels of crude, destined for Rosneft, which, according to the news outlet, could put a strain on relations between the Russian company and PDVSA, which have a money-for-oil agreement. This is only the latest in PDVSA’s troubles with its oil exports.

Besides a steady decline in production, Venezuela’s state-run oil company earlier this year ran into problems with its storage capacity and export terminals in the Caribbean as U.S.-based ConocoPhillips took an aggressive approach to enforcing a court ruling that awarded it US$2 billion in compensation for the forced nationalization of two projects in Venezuela. The company this summer seized several of PDVSA’s assets on Caribbean islands, which made it difficult for the Venezuelan state company to meet its export obligations. Having few options, PDVSA eventually caved, settling with Conoco.

Dock repairs are further complicating matters. PDVSA is supposed to deliver to Rosneft some 4 million bpd of crude under the latest bilateral agreement signed this April. On top of that, it normally exports crude for U.S. Valero Energy and Chevron from the same dock, the South dock of the Jose port, which is responsible for processing processes as much as 70 percent of the country’s crude oil exports.

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

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