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Oil Major Total Sees 10 Million Bpd Supply Gap In 2025

Oil Major Total Sees 10 Million Bpd Supply Gap In 2025

France’s supermajor Total is warning that the world could find itself with a shortfall of supply of 10 million barrels per day (bpd) between now and 2025, due to continued underinvestment in the industry, the OPEC+ pact, and cracks in the U.S. shale business model.

“There is a risk of supply crunch in the mid-term,” Helle Kristoffersen, President, Strategy and Innovation at Total, said on the company’s Q4 earnings call this week.

“We have seen in 2020 how OPEC managed to bring back market discipline. We’ve seen the cracks in the US shale model, and we’ve seen a continued underinvestments in the oil industry as a whole,” Kristoffersen said.

The market needs new oil projects, considering the fact that many producing oilfields will see natural declines in production, the executive said.

“And that’s true, even if you take very cautious view on short-term demand recovery and on future demand levels,” Kristoffersen added, noting that “a 10 million barrels per day gap in supply between now and 2025, that’s a massive shortfall of supply to cover in just a very few number of years.”

Last year, the coronavirus accelerated a structural decline in upstream oil investments as all E&P firms, oil supermajors, U.S. shale producers, and national oil companies alike, slashed capital expenditures in the wake of the price crash.

Investments in new oil supply have now slumped to a more-than-a-decade low.

OPEC+ currently has a lot of spare capacity that could come on stream when demand recovers. But sustained investments in oil and gas will be needed to meet global consumption of oil, which the world will continue to need, peak demand or not, analysts and forecasters warn.

“The world may be sleepwalking into a supply crunch, albeit beyond 2021. A recovery in oil demand back to over 100 million b/d by late 2022 increases risk of a material supply gap later this decade, triggering an upward spike in price,” says Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie.

 

Peak Oil? Drivers—and Voters—Could Delay It for Years

Peak Oil? Drivers—and Voters—Could Delay It for Years

Investors and politicians have made their views clear about oil’s uncertain future. Consumers, not so much.

Drivers traverse the 405 freeway at night in California. The fate of the oil industry depends as much, or more, on consumers as it does on politicians and policymakers.

PHOTO: PATRICK T. FALLON/BLOOMBERG NEWS

You might be filling up your tank a lot longer than BP thinks.

Ambitious green policies—from politicians and even the newly climate-conscious oil companies—suggest the world is moving at warp speed away from fossil fuels. But the transition might not be easy on consumers’ wallets, which is precisely why it could take a while.

The idea of “peak oil,” historically a reference to a fear that oil supply was running out, now means something entirely different. British energy giant BP suggested that oil demand might have already reached its apex in 2019 if one were to imagine a world that doubles down on policies that restrict carbon emissions.

Others are more conservative. Under its “stated policies scenario,” the International Energy Agency estimates that oil demand will peak around 2030 and plateau. That scenario takes into account announced policy measures and its own judgment of how attainable they seem. As the IEA acknowledges, though, some of the declared policies are far-reaching targets. Chris Midgley, head of analytics at S&P Global Platts, says his group projects the world is unlikely to reach peak demand until the late 2030s, noting that demand for petrochemicals in particular seems resilient.

Transportation plays a key role in the timing of that peak; it accounts for the largest share of petroleum consumption globally. For electricity to crowd out oil as a transportation fuel, governments must either provide taxpayer subsidies that make electric vehicles more affordable or place a cost on not switching over, such as even higher taxes at the pump.

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

 

The Real Crisis For Oil Is Yet To Come

The Real Crisis For Oil Is Yet To Come

Italian energy major, Eni, described 2020 as a “year of war”, regarding the energy crisis experienced in the face of a global pandemic. But it may be too soon to see the issues faced last year as a thing of the past.  Eni is committing to lower the price of oil at which the company breaks even going into 2021, as a means of tackling the uncertainty of the oil economy in the coming months. Francesco Gattei, CFO at Eni, stated that “Volatility is growing every year.”, highlighting the need to be prepared for the energy demand of the future.

In 2020, global fuel demand decreased by 30% on average. While demand appears to be steadily increasing as Covid-19 restrictions are relaxed, the worry is that this need may not increase to pre-pandemic levels anytime soon.

Oil giants BP Plc and Total SE published forecasts which hypothesized that oil demand was at its peak in 2019, and is therefore now in decline. This comes as the production of oil and liquid fuels at the global level peaked at 94.25 million bpd in 2020, down from 100.61 million bpd in 2019. According to the Energy Information Administration, this figure is expected to increase to just 97.42 million bpd in 2021.

2020 therefore proved the perfect time for environmentalists to campaign for a shift towards renewables; as oil demand and prices plummeted in April last year. As dozens of countries agreed to Paris Agreement objectives in December, with such promises as net-zero emissions over the next 30 years, many governments and investors have also put pressure on energy companies to develop renewable strategies.

The decrease in oil demand over the last year has already forced refineries in Asia and North America to close or curb output, particularly along the U.S. Gulf Coast as companies worry demand losses might never return.

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

 

IHS Markit: Oil Demand Won’t Fully Recover Until 2022

IHS Markit: Oil Demand Won’t Fully Recover Until 2022

Global oil demand will likely take another year or so to return to pre-pandemic levels—by late 2021 or early 2022, energy expert and IHS Markit vice chairman Daniel Yergin told Al Arabiya English in a video interview on Monday.

Yergin’s expectations for oil demand are roughly in line with the forecasts by the International Energy Agency (IEA) and OPEC, which don’t expect annual oil demand to return to the pre-COVID levels next year, despite the projected rise compared to this year’s slump.

Continued low demand for jet fuel will account for 80 percent of next year’s 3.1-million-bpd gap in oil demand compared to pre-pandemic levels, the IEA said in its monthly Oil Market Report earlier this month. OPEC also revised down its oil demand projections for this year and next in its Monthly Oil Market Report for December, expecting 2021 oil demand at 95.89 million bpd, down 410,000 bpd from its projection of 96.3 million bpd from November.

IHS Markit’s Yergin doesn’t see the biggest disruption on the oil market as either bringing forward or delaying peak oil demand.

“At the end of the day, it won’t have much impact on peak oil demand, which I still think will be around 2030 or so,” Yergin told Al Arabiya English.

The Pulitzer-Prize winning energy author also discussed the U.S. shale patch and the chances of it returning to the rapid growth in production in the years just before the 2020 price crash.

“Let me give you a very simple answer, the answer is no,” Yergin told Al Arabiya English when asked if U.S. oil production could return to 1.5-million-bpd annual growth.

According to IHS Markit, shale production will stay relatively unchanged at around 11 million bpd until late 2021, before it starts rising, but it will increase at a much more moderate pace.

“So that 1.5 million barrels per day, that two million barrels per day that was so disruptive for the oil market, that’s history,” Yergin told Al Arabiya English.

The Oil Refinery Crisis Will Worsen This Winter

The Oil Refinery Crisis Will Worsen This Winter

It was only to be expected that many of the world’s refiners would be pinched between low demand for finished products and rising inventories as the pandemic lockdowns continue to stifle activity. But the warm December that is expected this year is also threatening finished products demand. And it’s possible that many of the older, small refiners won’t survive at all.

According to HIS Markit, eleven U.S. refiners are scheduled to close.

The largest refinery in the United States, Royal Dutch Shell’s Convent, Louisiana refinery has shut down after it was unable to find an interested buyer. But the Dutch oil major is closing six more refineries according to Reuters, because it cannot sell those refineries either.

Then, the largest U.S. refiner, Marathon Petroleum, is set to close several refineries, including its Gallup, New Mexico, refinery and its refinery in Martinez, California.

Japan’s Eneos Corp has shut its Osaka refinery, too, but the real pain is in Australia.

BP announced back at the end of October that it was shutting down its aging 65-year-old Kwinana refinery in Perth, because it was simply “no longer economically viable.”  Instead, the refinery will be turned into an import terminal. After this closure, BP has only three refineries left in Australia.

PBF Energy shut 85,000 bpd of its Paulsboro, NJ, refinery down. Phillips 66 shut its Alliance refinery down in the runup to Hurricane Sally, but just left it shut while it waits for better days.

Other refineries that are not shutting down are simply extending maintenance or bringing maintenance forward.

Australia’s Caltex is a prime example of this, when in early April it brought forward—and extended—maintenance on its only refinery, Lytton. Caltex vaguely said that it would restart the refinery when conditions recover.

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

U.S. crude output to decline more than previously forecast in 2020 -EIA

NEW YORK (Reuters) -U.S. crude oil production is expected to fall by 910,000 barrels per day (bpd) in 2020 to 11.34 million bpd, the U.S. Energy Information Administration (EIA) said on Tuesday, a steeper decline than its previous forecast for a drop of 860,000 bpd.

Output next year is expected to slide by 240,000 bpd to 11.10 million bpd, a smaller decline compared to the previous forecast for a slide of 290,000 bpd.

U.S. shale production has languished as oil prices collapsed after the coronavirus pandemic eroded global demand. But as hopes for a widespread rollout of a vaccine rise, U.S. crude oil production has recovered from the two-and-a-half-year lows touched in May.

Producers have begun to add drilling rigs and brought wells back online in response to the rebound in prices. [RIG/U]

Still, the EIA said that U.S. crude oil production will decline to less than 11 million bpd in March 2021 mostly because of falling production in the lower 48 states, where declining production rates at existing wells is expected to outpace production from newly drilled wells in the coming months.

The agency also expects U.S. petroleum and other liquid fuel consumption to decline 2.38 million bpd to 18.16 million bpd in 2020, unchanged from its previous forecast.

In 2021, U.S. oil demand is expected to climb by 1.63 million bpd to 19.79 million bpd, a smaller increase than its previous estimate for a rise of 1.69 million bpd.

Global consumption of petroleum and liquid fuels is expected to average 92.4 million bpd for all of 2020, which is down by 8.8 million bpd from 2019, before increasing by 5.8 million bpd in 2021, the EIA said.

What Oil’s Troubles Mean to the Rest of Us

To the extent that stock prices reflect expectations of future value, investors don’t like the prospects for oil, and oil’s demise signals muted prospects for economic growth.

Exxon-Mobil (XOM) was removed from the Dow Jones Industrial Average this past August, ending a run that began when the Dow expanded to 30 stocks in 1928. This leaves Chevron as the sole oil company in the index. For most of those 92 years, there were three oil majors in the Index (Standard of NJ/Exxon, Texaco, and Standard of CA/Chevron) – now there is one. Should you care?

In one sense, no. The Dow is an actively-managed index, and 11 of the current 30 firms have replaced other names since 2000. (Exxon-Mobil was replaced by Salesforce.) The financial media treats changes in the Dow as measures of overall market levels, but little money is actually invested in DJIA-linked products. There’s an interesting article in all that, but it’s not this one.

On the other hand, the Dow committee likes to include industries and companies that are growing and successful. Removing XOM is a measure of the decline of the economic status of “big oil.” Over the last two months, both XOM and BP have approached their lows from this past March, which were in turn the lowest prices for those stocks since 1994 (BP) or 1997 (XOM). The S&P 500 has grown by a factor of four since 1997.

The WTI price of oil is (as of October 2020) around $40 per barrel, which is the lowest since 2003 on an inflation-adjusted basis except for a brief period at the start of 2016 and a few weeks this spring. This reflects the abundance of oil supplies after the COVID-induced demand collapse, but it also is a price below what’s necessary to operate much of the industry profitably…

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

Has oil peaked?

Last month, the world’s 4th largest oil company—BP—predicted that the world will never again consume as much petroleum as it did last year. So, have we finally hit peak oil? And if so, what does that mean for our economy and our world?

There was fierce controversy in the first decade of this century over claims by petroleum geologists and energy commentators that peak oil was imminent (I was a figure in that debate, writing several books on the topic). Most of those early claims were based on analysis of oil depletion and consequent supply constraints. BP, however, is talking about a peak in oil demand—which, according to its forecast, could fall by more than 10 percent this decade and as much as 50 percent over the next 20 years if the world takes strong action to limit climate change.

Source: PeakOilBarrel.com; production in thousands of barrels per day.

Numbers from the US Energy Information Administration’s Monthly Review tell us that world oil production (not counting biofuels and natural gas liquids) actually hit its zenith, so far at least, in November 2018, nearly reaching 84.5 million barrels per day. After that, production rates stalled, then plummeted in response to collapsing demand during the coronavirus pandemic. The current production level stands at about 76 mb/d.

Many early peak oil analysts predicted that the maximum rate of oil production would be achieved in the 2005-to-2010 timeframe, after which supplies would decline minimally at first, then more rapidly, causing prices to skyrocket and the economy to crash.

Those forecasters were partly right and partly wrong. Conventional oil production did plateau starting in 2005, and oil prices soared in 2007, helping trigger the Great Recession.

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

Analysis: World has already passed ‘peak oil’, BP figures reveal

The world has already passed “peak oil” demand, according to Carbon Brief analysis of the latest energy outlook from oil major BP.

The 2020 edition of the annual outlook reveals – albeit indirectly – that global oil demand will not regain the levels seen last year. It adds that demand could soon fall rapidly in the face of stronger climate action – by at least 10% this decade and by as much as 50% over the next 20 years.

The latest outlook was delayed by six months so that it could reflect the unprecedented impact of the coronavirus pandemic. The delay also reflects BP’s plans, set out over the course of this year, to reach net-zero emissions by 2050 – as an “integrated energy company”, rather than an oil major.

This means that alongside its conservative “business-as-usual” scenario – in which demand for gas continues to rise indefinitely – BP has also looked at the effect of stronger climate action. In its “rapid” and “net-zero” scenarios, coal and oil see fast declines, while gas peaks by 2025 or 2035.

Although the net-zero focus is new, Carbon Brief analysis shows the outlook continues the trend of previous editions, by cutting the prospects for fossil fuels while raising the bar for renewables.

‘Peak oil’

Global oil demand has doubled over the past 50 years, reaching around 100m barrels per day in 2019, equivalent to an annual energy consumption of 192 exajoules (EJ).

In earlier editions of the BP outlook, global oil demand was expected to continue rising steadily. Indeed, successive editions had raised the outlook for oil, shown in blue lines in the chart below.

By 2018, BP’s outlook started to foresee an end to the upwards march for oil, with demand peaking by the mid-2030s. But the downwards revision in this year’s edition is much more dramatic (red lines), showing demand having already peaked in 2019, with large potential downside risks.

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

The Debt Crisis Is Mounting For Oil Economies

The Debt Crisis Is Mounting For Oil Economies

Dubai. Abu Dhabi. Bahrain. And, of course, Saudi Arabia. The two emirates this year issued debt for the first time in years. So did Bahrain. Saudi Arabia stepped up its debt issuance. The moves are typical for the oil-dependent Gulf economies. When the going is good, the money flows. When oil prices crash, they issue debt to keep going until prices recover. This time, there is a problem. Nobody knows if prices will recover.

In August, Abu Dhabi announced plans for what Bloomberg called the longest bond ever issued by a Gulf government. The 50-year debt stood at $5 billion, and its issuance was completed in early September. The bond was oversubscribed as proof of the wealthiest Emirate’s continued good reputation among investors.

Dubai, another emirate, said it was preparing to issue debt for the first time since 2014 at the end of August. Despite the fact the UAE economy is relatively diversified when compared to other Gulf oil producers, it too suffered a hard blow from the latest oil price crash and needed to replenish its reserves urgently. Dubai raised $2 billion on international bond markets last week. Like Abu Dhabi’s bond, Dubai’s was oversubscribed.

Oversubscription is certainly a good sign. It means investors trust that the issuer of the debt is solid. But can the Gulf economies remain solid by issuing bond after bond with oil prices set to recover a lot more slowly than previously expected? Or could this crisis be the final straw that tips them into actual reforms?

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

The End of Oil is Near, or Maybe Not

The cover of the September/October 2020 issue of Sierra magazine states “The End of Oil is Near”.  The corresponding story “The End of Oil?” was paralleled with a recent segment on Democracy Now.  I think that is wishful thinking.  To the extent that oil demand goes down in the future, it will go down because people can’t afford oil distillates at the price producers need to produce the corresponding oil.

The “The End of Oil?” article describes weak oil demand in recent years although it should be stated that global oil consumption increased over 5 million barrels/day from 2015 to 2019.  A major factor for weak oil demand growth in recent years is the increasing level of inequality in the U.S. and world.  There is an increasing population that can’t afford to buy oil distillates, or the devices that use them.  Oil distillates offer the ability to avoid manual physical effort which people tend to select when they can afford to.

“The End of Oil?” article emphasized the increase in global oil production in recent years.  Most of that production increase was associated with unconventional oil resources such as shale oil in the U.S. and oil sands in Canada.  The problem with those unconventional oil resources is that they are considerably more expensive to produce compared to conventional oil.  Conventional oil production is declining over much of the globe which has forced oil companies to move to unconventional resources.

The author describes oil majors, like ExxonMobil and Chevron, as getting into the shale oil business in recent years.  That is not a wise business decision but due to the lack of new conventional resources to exploit.

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

 

Today’s Energy Predicament – A Look at Some Charts

Today’s Energy Predicament – A Look at Some Charts

Today’s energy predicament is a strange situation that most modelers have never really considered. Let me explain some of the issues I see, using some charts.

[1] It is probably not possible to reduce current energy consumption by 80% or more without dramatically reducing population.

A glance at energy consumption per capita for a few countries suggests that cold countries tend to use a lot more energy per person than warm, wet countries.

Figure 1. Energy consumption per capita in 2019 in selected countries based on data from BP’s 2020 Statistical Review of World Energy.

This shouldn’t be a big surprise: Our predecessors in Africa didn’t need much energy. But as humans moved to colder areas, they needed extra warmth, and this required extra energy. The extra energy today is used to build sturdier homes and vehicles, to heat and operate those homes and vehicles, and to build the factories, roads and other structures needed to keep the whole operation going.

Saudi Arabia (not shown on Figure 1) is an example of a hot, dry country that uses a lot of energy. Its energy consumption per capita in 2019 (322 GJ per capita) was very close to that of Norway. It needs to keep its population cool, besides running its large oil operation.

If the entire world population could adopt the lifestyle of Bangladesh or India, we could indeed get our energy consumption down to a very low level. But this is difficult to do when the climate doesn’t cooperate. This means that if energy usage needs to fall dramatically, population will probably need to fall in areas where heating or air conditioning are essential for living.

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

North Dakota blues: The legacy of fracking

North Dakota blues: The legacy of fracking

When oil drillers descended on North Dakota en masse a decade ago, state officials and residents generally welcomed them with open arms. A new form of hydraulic fracturing, or “fracking” for short, would allow an estimated 3 to 4 billion barrels of so-called shale oil to be extracted from the Bakken Formation, some 2 miles below the surface.

The boom that ensued has now turned to bust as oil prices sagged in 2019 and then went into free fall with the spread of the coronavirus pandemic. The financial fragility of the industry had long been hidden by the willingness of investors to hand over money to drillers in hopes of getting in on the next big energy play. Months before the coronavirus appeared, one former oil CEO calculated that the shale oil and gas industry has destroyed 80 percent of the capital entrusted to it since 2008. Not long after that the capital markets were almost entirely closed to the industry as investor sentiment finally shifted in the wake of financial realities.

The collapse of oil demand in 2020 due to a huge contraction in the world economy associated with the pandemic has increased the pace of bankruptcies. Oil output has also collapsed as the number of new wells needed to keep total production from these short-lived wells from shrinking has declined dramatically as well. Operating rotary rigs in North Dakota plummeted from an average of 48 in August 2019 to just 11 this month.

Oil production in the state has dropped from an all-time high of 1.46 million barrels per day in October 2019 to 850,000 as of June, the latest month for which figures are available. Even one of the most ardent oil industry promoters of shale oil and gas development said earlier this year that North Dakota’s most productive days are over. CEO John Hess of the eponymous Hess Corporation is taking cash flow from his wells in North Dakota and investing it elsewhere.

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

CHART OF THE WEEK: The Surprising Drop In U.S. Crude Oil Production

CHART OF THE WEEK: The Surprising Drop In U.S. Crude Oil Production

U.S. crude oil production experienced a surprising drop last week, even though domestic demand for oil and petroleum products increased.  This came as a surprise to some energy analysts.  Furthermore, the IEA, International Energy Agency came out with a forecast for global oil demand to fall 8.1 million barrels per day in 2020.

I have to say, this is terrible news coming from the IEA.  Just last month, the IEA stated that global oil demand could fall to 7.1 mbd (million barrels per day), but only recently updated their forecast for an 8.1 mbd decline in 2020 due to “gloomy airline travel.”

Actually, we don’t really know what global oil demand will look like by the end of the year.  There are way too many variables.  Even though the Fed and central banks are planning to pump in more stimulus plans over the next few months, the negative SNOWBALL EFFECT of all the closed stores, unemployment, commercial real estate armageddon, collapse in airline travel, supply chain disruptions, and so forth, will likely impact oil demand to a greater degree by the end of 2020 and into 2021.

Another CURVEBALL to hit the United States is the coming collapse in U.S. Shale oil production.  While some companies have curtailed production, and are now bringing some of it back online, total U.S. crude oil production surprisingly declined to 10.7 mbd last week.

U.S. crude oil production reached a peak of 13.1 mbd in late February, right before the global contagion and shutdown of economies.  It fell to a low of 10.5 mbd in mid-June, then rebounded to 11.0 mbd for the next two months.  However, in the lasted EIA, U.S. Energy Information Agency weekly report, U.S. oil production fell from 11.0 mbd to 10.7 mbd last week.

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

Chevron Shares Slide After Recording Historic Quarterly Loss

Chevron Shares Slide After Recording Historic Quarterly Loss

Chevron Corporation reported a loss of $8.3 billion for the second-quarter 2020, the worst quarterly decline in a generation, and warned: “COVID-19 significantly reduced demand for our products and lowered commodity prices.” 

Chevron lost $1.59 per share on an adjusted basis while recording revenues around $13.49 billion. In the same quarter last year, the oil giant earned $2.27 per share on $36.32 billion. 

The earnings bloodbath was mostly due to a collapse in demand for the company’s energy products and a 60% YoY plunge in its average price per barrel of oil and natural gas liquids. h/t Bloomberg 

The quarterly loss was also due to a massive write-down of $1.8 billion in energy assets. The company fully impaired its $2.6 billion Venezuela operations from its books following U.S. sanctions. 

Chevron shares slid 3% on the earnings announcement. 

“The past few months have presented unique challenges,” said Michael Wirth, Chevron CEO, in a statement.

 “The economic impact of the response to COVID-19 significantly reduced demand for our products and lower commodity prices. Given the uncertainties associated with economic recovery and ample oil and gas supplies, we made a downward revision to our commodity price outlook, which resulted in asset impairments and other charges,” said Wirth. 

Chevron warned, “demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter of 2020.” 

Despite the considerable loss, Wirth claimed the company would “protect the dividend, invest for long term value, and maintain a strong balance sheet.”

But, it is hard to believe Chevron can justify maintaining its dividend at such a high cost with the economy now reversing and demand for energy products likely to falter in the back half of the year. 

Olduvai IV: Courage
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Olduvai II: Exodus
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