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Russia Bets Big On The World’s Least Explored Oil Frontier

Russia Bets Big On The World’s Least Explored Oil Frontier

offshore africa

When the inaugural Russia-Africa summit was held in October 2019, most industry observers believed that the majority of projects under discussion would not get past the FID stage – in no small part because of their varied economic prospects. As well as wheat exports, nuclear technologies, conventional weaponry and ore mining, oil loomed large on the agenda. With the OPEC+ agreement entering its third consecutive year and oil prices stabilizing around $60 per barrel, Russian oil firms have enough cash to invest but face an uncertain future with domestic projects as no one really wants to see their own project ending up in the category of “spare production capacity”.

International sanctions and the ramifications they entail have compelled Russia to look beyond their usual investment regions – with little to no investments in Europe since 2014. Gazprom is now an unwelcome investor in Europe and even the privately-owned LUKOIL has mulled divesting its downstream assets and has reduced its retail presence in Europe. Investing in the United States or Canada is completely out of question for reasons predominantly political, whilst Middle Eastern NOCs have grown to become competitors, themselves looking for opportunities to diversify their portfolio. Due to all of the above factors, Africa has emerged somewhat naturally as a suitable region for Russian investment.

The Russian Energy Ministry has repeatedly declined to link Russia’s newly-found interest in Africa and the OPEC+ curtailments, saying that greenfield projects usually require 5-7 years before commissioning and thus the time gap between today’s issues and future production is too wide to impact any forecasts.

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

2020 Will Be A Crucial Year For Oil

2020 Will Be A Crucial Year For Oil

Oil

It’s the start of a new year and a new decade, and the oil market is as unpredictable as ever.

Will OPEC+ extend its cuts? Will U.S. shale finally grind to a halt? Is this the “year of the electric vehicle”? Here are 10 stories to watch in 2020.

Shale debt, shale slowdown. The debt-fueled shale drilling boom is facing a reckoning. Around 200 North American oil and gas companies have declared bankruptcy since 2015, but the mountain of debt taken out a few years ago is finally coming due. Roughly $41 billion in debt matures in 2020, which ensures more bankruptcies will be announced this year. The wave of debt may also force the industry to slam on the breaks as companies scramble to come up with cash to pay off creditors.

Year of the EV. Some analysts say that 2020 will be the “year of the EV” because of the dozens of new EV models set to hit the market. In Europe, available EV models will rise from 100 to 175. The pace of sales slowed at the end of last year, but the entire global auto market contracted. EVs may struggle to keep the pace of growth going, but EVs are capturing a growing portion of a shrinking pie.

Climate change. 2020 starts off with hellish images from the out-of-control Australian bushfires. 2019 was one of the warmest years on record and the 2010s was the warmest decade on record. As temperatures rise and disasters multiply, pressure will continue to mount on the oil and gas industry. As Bloomberg Opinion points out, climate change has surged as a point of concern for publicly-listed companies. Oil executives are betting against climate action, but they are surely aware of the rising investment risk. In the past two months, the European Investment Bank is ending financing for oil, gas and coal, and Goldman Sachs cut out financing for coal and Arctic oil. More announcements like this are inevitable.

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

Uncertainties following the Abqaiq attack have shrunk the world’s safe oil reserves by around half (part 1)

Uncertainties following the Abqaiq attack have shrunk the world’s safe oil reserves by around half (part 1)

The world has returned to business as usual after the Saudis assured oil markets that production will be back soon and as oil prices have returned to pre-attack levels and even lower, indicating that oil traders focus on a weak global economic outlook.

Fig 1: Abqaiq’s oil price spike
Fig2: Saudi crude oil production drop after the Abqaiq attack

The peak oil barrel blog monitors OPEC’s oil production and published the above graph for September 2019, using data from OPEC’s Monthly Oil Market Report. The drop from around 9,800 kb/d to 8,500 kb/d translates into an approximate loss in September of 40 mb Arab Light.  Saudi oil stocks were 180 mb before the attack. Maybe tanks are filled with partially processed oil with a high sulfur content.

Iran’s oil exports

From the IEA Monthly Oil Market Report dated 12/9/2019 (2 days before the Abqaiq attack):

Fig 3: US ended sanction waivers in May 2019
https://www.iea.org/media/omrreports/fullissues/2019-09-12.pdf

The data on Iranian oil exports are fuzzy. On 13 Sep 2019 S&P Global Platts reported 424 kb/d in August (mainly to China and Syria) but warns that Iranian storage is filling up quickly, including 50 mb on tankers (mostly condensate). During the last round of sanctions in 2016 storage reached 55-60 mb.

Fig 4: Iranian oil exports by Platts

 

https://www.spglobal.com/platts/en/market-insights/latest-news/oil/091319-analysis-iran-builds-50-mil-barrel-oil-armada-as-exports-plunge

In July 2019 the Atlantic Council calculated in an article entitled

Iran’s Crude Oil Exports: What Minimum Is Enough to Stay Afloat?

that Iran needs to export 1.5 mb/d to balance the budget and 720 Kb/d as an absolute minimum in survival mode (withdrawals from the National Development Fund, foreign exchange and gold reserves)

Changed balance of power in Middle East

As Iranian oil exports have dropped below these thresholds, attacks have intensified:

12 May:  Fujairah, UAE, 4 tankers damaged in Gulf of Oman by limpet mines

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

Oil Discoveries Hit 70-Year Low

Oil Discoveries Hit 70-Year Low

Offshore

The last three years has been the worst stretch of time in seventy years for new conventional oil discoveries.

A new report from IHS Markit finds that conventional oil discoveries plunged to a seven-decade low and “a significant rebound is not expected.” Conventional exploration – as opposed to unconventional development, including shale – had already been trending down following the 2008 global financial crisis and its aftermath, which overlapped with the rise of horizontal drilling and hydraulic fracturing in several U.S. shale basins.

But the collapse of oil prices in 2014 really knocked conventional exploration – and thus, discoveries – on its back.

After OPEC refrained from cutting production in the face of a swelling supply surplus in late 2014, prices fell sharply…and continued to fall for much of the next year and a half. WTI bottomed out in early 2016 below $30 per barrel, before a pullback in drilling and production cuts by OPEC+ led to a more durable price rebound beginning in 2017.

But the multi-year downturn hit conventional exploration in multiple ways. Not only were companies slashing spending and cancelling riskier ventures, but the oil majors and investors began to view short-cycle shale drilling as inherently less risky. That was because drilling was quick – companies were able to turn projects around in a matter of weeks or months, not the years that large-scale conventional projects took, particularly those offshore in deepwater. Capital flowed en masse from conventional to unconventional development.

Predictably, that led to a steep rise in U.S. shale output, while simultaneously leading to a sharp contraction in conventional discoveries. “One of the main drivers here is the shift of investment by US independents from international exploration to shale opportunities in the United States—shorter cycle-time projects—with greater flexibility to respond to changing market conditions,” Keith King, senior advisor at IHS Markit and author of the report, said in a statement.

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

OPEC August 2019 Oil Production

OPEC August 2019 Oil Production

The OPEC charts below were produced from data published in the OPEC Monthly Oil Market Report.

The OPEC 14 was up 136,000 barrels per day in August.
Nothing happening in Algeriaexcept a slow decline.
Ditto for Angola.

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

Our Energy and Debt Predicament in 2019

Our Energy and Debt Predicament in 2019

Many people are concerned that we have an oil problem. Or they are concerned about recession and the need to lower interest rates.

As I see the situation, we have a problem of a networked economy that is not functioning well. A big part of this problem is energy-related. Strange as it may seem, energy prices (including oil prices) are too low for producers. If debt levels were growing more rapidly, this low-price problem would go away. 

The “standard way” of encouraging more debt-based purchases is by lowering interest rates. But we are running out of room to do this now. We also seem to be running out of economic investments to make with debt. If expected returns on investment were greater, interest rates would be higher.

Without economic investments, demand for commodities of all kinds, including energy products, tends to stay too low. This is the problem we have today. Our debt problem and our energy problem are really different aspects of a networked economy that is no longer generating enough total return. History suggests that these periods tend to end badly.

In the following sections, I will explain some of the issues involved.

[1] Our problem is not just that oil prices that are too low. Prices are too low for practically every type of energy producer, and in many parts of the globe.

Oil: OPEC oil producers have cut back production because they view oil prices as too low. OPEC reports a cutback in production of 2.7 million barrels per day between November 2018 and July 2019 (from 32.3 million bpd to 29.6 million bpd).

In the US, there has been an increase in bankruptcies of oil producers during 2019, relative to 2018. There has also been a reduction in the number of oil drilling rigs of 17% since the week of November 16, 2018, according to reports by Baker Hughes. These are signs of producer distress.

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

BP Is The Latest Major Oil Company To Shutter Operations In Alaska

BP Is The Latest Major Oil Company To Shutter Operations In Alaska

Yet another major oil company has backed away from one of the frontier oil discoveries of the late 20th century that not only cushioned them from OPEC, but helped them learn to drill in some of the most difficult areas of the globe.

After six decades, BP has officially exited Alaska with the sale of its business there for $5.6 billion to Hilcorp Energy, according to Bloomberg. The deal makes Hilcorp the second largest producer in the state behind ConocoPhillips. The deal includes BP’s stake in Prudhoe Bay, which is the largest producing oil field in U.S. history. It also includes BP’s Alaskan pipelines.

Alaska, meanwhile, is receding into a second tier oil province as a result of field depletion, cost-cutting and the rise of shale. The state’s oil output has slumped from its peak in the 1980s, as discoveries have dried up and major producers seek to produce crude elsewhere, most recently from shale in Texas.

Hilcorp and ConocoPhillips are two of the few big remaining oil companies still interested in investing fresh capital in Alaska.

Oswald Clint, an analyst at Sanford C. Bernstein Ltd. said:

“The divestment prov[es] that no asset is sacred even if it is 60 years old and synonymous with the company. We see the transaction as a positive catalyst, which should help the shares recover lost ground this year.”

The divestiture includes BP’s stake in the Trans-Alaskan pipeline system, which has been running below capacity for years as a result of declining oil production. Wood Mackenzie, Ltd. values the asses at a “slight premium” to the $5.6 billion purchase price, almost 1/3 of which will be paid subject to production over time. It’s a strategic move for BP, as the company looks to shift more towards shale basins and natural gas.

Jason Gammel, an analyst at Jefferies LLC, said:

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

Debunking ‘Lower Oil Supply Will Raise Prices’

Debunking ‘Lower Oil Supply Will Raise Prices’

We often hear the statement, “When oil supply is lower, oil prices will rise because of scarcity.” Now, we are getting to see firsthand whether oil prices really do rise, as oil supplies become more scarce.

Figure 1. Figure from the OPEC Monthly Oil Market Report for August 2019 showing world and OPEC oil production by month.

Figure 1 shows that world oil supply hit a peak in November 2018 and has declined since then, mostly because of a decline in OPEC’s production. So, total oil production seems to be down for about eight months, relative to the peak in November 2018.

Despite this big cutback by OPEC in its oil production, prices have not responded as OPEC had hoped:

Figure 2. Average monthly spot Brent Oil prices, based on EIA data.

In fact, as I write this, Brent oil price is currently quoted as $60.48, which is back in the range of December 2018 and January 2019 low prices. Also, reducing production doesn’t seem to be reducing inventories. Figure 3 suggests that they are now higher than they were before the reduction in oil supply took place.

Figure 3. Figure from the OPEC Monthly Oil Market Report for August 2019 showing OECD commercial oil stocks.

Why aren’t oil prices rising and oil inventories falling, if oil production has fallen?

The basic issue is that the economy is very much interconnected under the laws of physics, because energy is required for every activity that is considered part of GDP. Energy is required for any kind of heat or any kind of movement. Energy is even required for electricity. Without energy from the sun, food can’t grow; without supplemental energy of some kind (such as using electricity to heat an electric stove or burning animal dung or sticks), it becomes impossible to cook food or smelt metals.

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

OPEC’s Fight To End The Oil Glut Is Far From Over

OPEC’s Fight To End The Oil Glut Is Far From Over

Offshore rigs

OPEC and its Russia-led non-OPEC allies are in their third year of managing supply to the market, hoping to draw down high inventories and push up oil prices.

Early this month, the so-called OPEC+ coalition of partners rolled over their production cuts of a combined 1.8 million bpd into March 2020, as the resurging oil glut threatened to derail their continued efforts to manage the market.

OPEC is now considering using several metrics to assess where global oil (over)supply stands, including taking the five-year average of oil stocks in 2010-2014 instead of the most recent five-year average 2014-2018, which it currently reports in its monthly oil market reports and which the International Energy Agency (IEA) also takes as a benchmark to measure oil inventories.

Analysts warn that the 2010-2014 average metric will not give a correct comprehensive assessment of the oil market.

Fatih Birol, the IEA’s executive director, warns that moving the goalposts doesn’t change the situation in the oil market. The glut is there, regardless of how OPEC wants to measure inventories.   

“The important thing is that you can change the methodology but you cannot change the realities of the market,” Birol told Reuters, noting that the 2010-2014 average is a new perspective OPEC proposes to use, while the IEA has its own perspective.  

On the sidelines of the OPEC+ meeting in Vienna earlier this month, Khalid al-Falih, the Energy Minister of OPEC’s largest producer and de facto leader Saudi Arabia, told Al Arabiya:

“With demand rising over the next nine months and the commitments from all the countries, including the Kingdom of Saudi Arabia, we are approaching the normal levels of supplies of 2010-2014. It is one of the options in front of us as a goal.” 

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

OPEC May Production Data

The below charts, unless otherwise noted, were taken from the OPEC Monthly Oil Market Report. The data is through May, 2019 and is in thousand barrels per day.

OPEC crude only production was down 236,000 barrels per day in May but that was after April production had been revised upward by 82,000 bpd.

Iranian April production was revised upward by 43,000 bpd and Saudi Arabia April production was revised upward by 24,000 bpd.

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

OPEC Collapse Likely, Warns Iran’s Oil Minister

OPEC Collapse Likely, Warns Iran’s Oil Minister

Iran has warned that OPEC might “collapse” due to the “unilateral actions” by some of its members, in a clear jab at Saudi Arabia. 

“Iran is a member of OPEC because of its interests, and if other members of OPEC seek to threaten Iran or endanger its interests, Iran will not remain silent,” Oil Minister Bijan Zanganeh said on Thursday, as quoted by the ministry’s official news agency, SHANA.OPEC headquarters, image via WSJ

Following the US declaring its “maximum pressure” campaign to take Iran crude exports down to zero, and ending the waiver program, Saudi Arabia and its close ally UAE pledged they will maintain appropriate supply for the markets to compensate for the shortfall  in accordance with President Trump’s demands that OPEC do more to curb rising oil prices.

Zanganeh had issued the statements warning of the oil cartel’s collapse on the occasion OPEC Secretary-General Mohammad Barkindo visit to an oil and gas exhibition in the Iranian capital. Barkindo had sought to assure the Iranians that “OPEC tries to depoliticize oil” by saying at the exhibition, “I have told my colleagues at OPEC that you must leave your passports home when coming to this organization,” according to Reuters

Iran last month also accused Saudi Arabia and its allies of exaggerating their surplus oil capacity, to which the oil minister followed this week by saying “any threat from member states won’t go unanswered.”

Meanwhile the OPEC Secretary-General, in a further attempt to calm fears of an unraveling OPEC, told reporters, “It is impossible to eliminate Iranian oil from the market.” He added, “We have faced troubles in the OPEC in the last 60 years, but we have resolved them by unity.”

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

A New Mega Cartel Is Emerging In Oil Markets

A New Mega Cartel Is Emerging In Oil Markets

Oil port

China and India—two of the world’s largest oil importers and the biggest demand growth centers globally—are close to setting up an oil buyers’ club to have a say in the pricing and sourcing of crude oil amid OPEC’s cuts and U.S. sanctions on Iran and Venezuela, Indian outlet livemint reports, citing three officials with knowledge of the talks.

This is not the first time that the two major oil importers are working to create such an oil club.

India and China have discussed creating an ‘oil buyers’ club’ to be able to negotiate better prices with oil exporting countries and will be looking to import more U.S. crude oil in order to reduce OPEC’s sway, both over the global oil market and over prices, India’s Petroleum Ministry said in June 2018.

“With oil producers’ cartel OPEC playing havoc with prices, India discussed with China the possibility of forming an ‘oil buyers club’ that can negotiate better terms with sellers as well as getting more US crude oil to cut dominance of the oil block,” a tweet from the Petroleum Ministry’s Twitter account said in the middle of last year, when oil prices were rising ahead of the return of the U.S. sanctions on Iran’s oil industry.

According to the officials cited by livemint, China and India have exchanged senior-level visits several times since then and have made progress on “joint sourcing of crude oil.” Related: Massive Drop In U.S. Oil Rig Count Fails To Arrest Price Slide

Reports of the strengthened Chinese-Indian cooperation in potentially forming an oil buyers’ club come just as the U.S. sanction waivers for all Iranian oil customers expire this week.

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

Why An OPEC Oil Supply Surge Won’t Happen

Why An OPEC Oil Supply Surge Won’t Happen

Oil well Middle East

The end of the Iranian sanction waivers by the Trump Administration has put oil traders on edge.

While most analysts are optimistic about OPEC leader Saudi Arabia being able to fill the gap left by lower Iranian oil exports, reality could be totally different. Looking at the ongoing discussions between OPEC’s two key members, Saudi Arabia and the UAE, there are no real signs that the Kingdom of Oil will be willing to increase its overall oil production to keep prices at the pump low in oil importing nations.

The real crux at present is what the market will do when, on the 2nd of May, the Iran sanction waivers end. History has shown that oil importers are very well equipped to take mitigating measures to counter the effects of the Iran sanctions. Saudi Arabia, and others, will have to be very careful to stabilize the market without falling into a Trumpian trap, which could result in an oversupply situation in the short term.

At present, all signs point to higher oil prices. If no real additional oil is brought onto the market, shortages will become visible within months. Statements made by U.S. president Trump and U.S. Secretary of State Mike Pompeo that Saudi Arabia and the UAE will add supplies to counter the loss of Iranian volumes are currently only wishful thinking, and not based on any hard promises from Riyadh or Abu Dhabi.

OPEC’s leaders are in a powerful position to react to Trump’s calls for additional volumes and lower prices as they wish. Washington’s strategy may well have backfired, as U.S. shale will not be able to supply the markets with the necessary crude grades. At the same time, national oil companies are willing to take a backseat, as long as OPEC+ production cuts are in place. 

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

Saudi Oil Minister: We Won’t Ramp Up Oil Production Soon

Saudi Oil Minister: We Won’t Ramp Up Oil Production Soon

Khalid al Falih

Saudi Arabia plans to stay within the limits of its ceiling under the OPEC+ production cut deal in May and will certainly not rush to ramp up production, although it would respond to customer needs if they want more oil, Saudi Energy Minister Khalid al-Falih said on Wednesday.

As the U.S. announced on Monday that it would be ending sanction waivers for all Iranian oil customers, the Trump Administration said that it “had extensive and productive discussions with Saudi Arabia, the United Arab Emirates, and other major producers to ease this transition and ensure sufficient supply.”

While the U.S. and President Trump appear certain that Saudi Arabia would compensate for Iranian losses, the Kingdom seems reluctant to start swiftly raising production before seeing actual figures for how much Iranian oil will actually be lost and how tight the market will be.

Saudi Arabia’s oil production in May is pretty much set and will differ “very little” from previous months, Reuters quoted al-Falih as saying in Riyadh today.

Last month, OPEC’s de facto leader and largest producer Saudi Arabia followed through its commitment from February to cut deeper and pump well below 10 million bpd in March. Saudi Arabia’s crude oil production dropped by a massive 324,000 bpd from February to stand at 9.794 million bpd in March—just as al-Falih had said the Kingdom would do. Saudi Arabia pumped around 9.8 million bpd in March, some 500,000 bpd below the 10.311-million-bpdcommitment in the OPEC+ deal.

Speaking today, al-Falih said, as carried by Reuters:

“Inventories are actually continuing to rise despite what is happening in Venezuela and despite the tightening of sanctions on Iran. I don’t see the need to do anything immediately.”

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

OPEC March Data and Saudi Report

OPEC March Data and Saudi Report

The below OPEC charts were taken from data in the OPEC Monthly Oil Market Report. All data is through March 2019 and is in thousand barrels per day.

There was another big decline in OPEC production in March, down 534,000 barrels per day.

The decline was mostly Saudi Arabia, Venezuela, and Iraq.

Iran, Libya and Venezuela are exempt from quotas. Everyone except Saudi Arabia are near their quota. Saudi is over half a million barrels per day below their quota.

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

Olduvai IV: Courage
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Olduvai II: Exodus
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