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In a dynamic that shows just how far U.S. oil production has come in recent years, the U.S. Energy Information Administration (EIA) said on Monday that in the last two months of 2018, the U.S. Gulf Coast exported more crude oil than it imported.

Monthly net trade of crude oil in the Gulf Coast region (the difference between gross exports and gross imports) fell from a high in early 2007 of 6.6 million b/d of net imports to 0.4 million b/d of net exports in December 2018. As gross exports of crude oil from the Gulf Coast hit a record 2.3 million b/d, gross imports of crude oil to the Gulf Coast in December—at slightly less than 2.0 million b/d—were the lowest level since March 1986.

U.S. oil production hit a staggering 12.1 million b/d in February, while that amount has been projected to stay around that production mark in the mid-term then increase in the coming years. The U.S. is the new global oil production leader, followed by Russia and Saudi Arabia, while Saudi Arabia is still the world’s largest oil exporter – a factor that still gives Riyadh considerable leverage, particularly as it works with Russia, and other partners as part of the so-called OPEC+ group of producers. However, Saudi Arabia’s decades-long role of market swing producers has now been replaced by this coalition of producers, reducing Riyadh’s power both geopolitically and in global oil markets. In short, what Saudi Arabia could once do on its own, it has to do with several partners.

Meanwhile, U.S. crude oil production, particularly in the Gulf Coast region, is still increasing. In November 2018, U.S. Gulf Coast crude oil production set a new record of 7.7 million b/d, the IEA report added.

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Vietnam’s Energy Dilemma Is About To Become A Crisis

March 9, 2019

Vietnam’s Energy Dilemma Is About To Become A Crisis

Vietnam can’t seem to get a break. The country lies just beneath China, its giant neighbor to the north, and shares many of the same socialist ideals that Beijing promulgates. However, Sino-Vietnamese relations have been a source of tension for years dating back to the colonization of Vietnam by China centuries ago – a historical fact that the average Vietnamese citizen has never forgotten. Even after the protracted and costly war between North Vietnam and the U.S.-backed South Vietnamese government, that ended more than 40 years ago, China (which had proven a valuable ally for Hanoi during the war) turned on its smaller communist ally and invaded the country in 1979. It was a brief but bloody border war which showed Beijing that Vietnam could still hold its own.

Fast forward several decades and Hanoi is still trying to placate Beijing while at the same time rapidly improving relations with one-time adversary Washington. In fact, U.S.- Vietnamese relations, both trade and bilateral, have improved so much recently that the two sides could now arguably be called allies in the Asia-Pacific region. Of course, much of that alliance, similar in some respects to the decades-old U.S. alliance with Saudi Arabia, is born of necessity. The U.S.-Saudi alliance was berthed in the aftermath of World War 2, held together amid shared concerns during the cold war, and remains amid worries over Iranian hegemony ambitions in the Middle East. The U.S.-Vietnamese alliance is largely held together over the mutual aim of both Washington and Hanoi to keep China’s economic and military ambitions in check in the Asia-Pacific region, particularly in the volatile South China Sea, where Beijing claims as much as 90 percent of the troubled body of water.

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This Is Just The Beginning Of Europe’s Gas War

February 12, 2019

This Is Just The Beginning Of Europe’s Gas War

In a move that should not surprise energy pundits nor even those that follow geopolitical news in Europe, on Thursday Russian gas giant Gazprom said it’s looking to gain an even larger gas market share in Europe following record-high 2018 exports, as it expects a decline in Europe’s gas output combined with rising demand. Last year Gazprom sold more than 200 billion cubic meters (bcm) of natural gas to Europe, including Turkey, while its gas market share in the region rose to more than a third, Reuters said in a report on the matter.

Elena Burmistrova, in charge of the Gazprom’s exports, said the company would be able to offset a production decline in the EU, mainly at the Netherlands’ Groningen, once Europe’s largest natural gas field. “North Sea production is also gradually declining … So, the space for Russian gas is being freed up,” she said on the sidelines of the European Gas conference in Vienna.

Future gas wars

Gazprom’s statement comes as EU gas production is projected to spiral downward over the next 12 years. Regardless of possible development of non-traditional gas resources, production will decline by 43% against the 2013 level, Russia’s National Energy Security Fund (NESF) said recently. Moreover, the Paris-based International Energy Agency (IEA) forecasts that EU gas production will halve by 2040.

This dwindling production also comes as a number of EU states are poised to break away from over-reliance on both nuclear and coal needed for power generation, leaving opportunities for renewables, particularly solar and wind power, as well as liquefied natural gas (LNG) imports. However, all of these sources will take more time and funding to develop before they can add a more significant percentage of the bloc’s energy mix going forward.

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Controversial Nord Stream 2 Pipeline Could Be Operational By November

February 1, 2019

Controversial Nord Stream 2 Pipeline Could Be Operational By November

In what would be an early geopolitical win for Moscow, German news agency DW reported yesterday, citing one of the project’s engineers, that the Nord Stream 2 natural gas pipeline should be operational by November.

Klaus Haussmann, an engineer at Nord Stream 2’s future landfall site at Lubmin on Germany’s Baltic Sea coast, told German public radio station Deutschlandfunk that the “raw” laying of the pipeline would be finished by the middle of 2019, according to the DW report. “Then comes the entire installation of the electrical equipment, security chains. And, then it’s planned on the large scale that we get the first conduit filled with gas in November, from Russia,” Haussmann said.

Haussmann said his concern was more the impact of the Baltic’s winter weather and waves on construction at sea and less so the international pros and cons. “For two years or more, Nord Stream 2 has been pretty much under fire. But at the moment we have more worries with the weather outside,” he said.

Geopolitically charged pipeline

Nord Stream 2 is a 759 mile (1,222 km) natural gas pipeline running on the bed of the Baltic Sea from Russian gas fields to Germany, bypassing existing land routes over Ukraine, Poland and Belarus. It would double the existing Nord Stream pipeline’s current annual capacity of 55 bcm.

However, it is arguably one of the most geopolitically charged energy projects ever proposed. Germany maintains that the pipeline is needed to increase natural gas supply as some EU members move away from nuclear for power generation, but not everyone agrees. The U.S., under the past three presidents including Donald Trump, has long countered that the pipeline puts European national security in jeopardy – a concern that seems grounded given Russia’s history of using gas a geopolitical weapon in the middle of winter.

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Natural Gas Skyrockets As China Pledges Huge Supply Boost

November 15, 2018

Natural Gas Skyrockets As China Pledges Huge Supply Boost

With an eye on last winter’s natural gas supply debacle, Chinese state-owned energy giant CNOOC has pledged a 20 percent rise in gas supply, the company said on Tuesday. The company, one of three state-run oil majors, said that it will supply 24.6 billion cubic meters (bcm) of natural gas during the heating season that kicks off this week, up 20 percent year-on-year, to meet rising natural gas demand in the country.

China is in the process of replacing over reliance on coal usage for both industrial and residential end users to offset rampant air pollution, particularly in its larger urban centers. By government mandate, at least 10 percent of the country’s energy mix needed for power generation by 2020 must be natural gas, with further earmarks set for 2030.

CNOOC, the country’s largest oil and gas producer, said 6.1 bcm of natural gas will be supplied to seven northern provinces and municipalities, up 63.5 percent from last year. The company added that most of the natural gas it’s supplying this year is from offshore fields, coal bed gas and imported liquefied natural gas (LNG). According to reports, CNOOC has also been negotiating with LNG suppliers to ensure gas supply, including dealers from Australia, Indonesia, Malaysia, Qatar, Nigeria and Russia. However, due to the ongoing trade war between the US and China, CNOOC spot purchases of LNG is coming to a halt amid Beijing’s retaliatory tariff on US-LNG imports.

LNG tariffs will also come full circle, since other LNG producers will likely increase their spot prices in the mid-term to a point just under US LNG prices including a tariff, with Chinese firms being forced to pay the extra price.

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Nord Stream 2 Could Still Be Derailed By U.S. Sanctions

November 14, 2018

Nord Stream 2 Could Still Be Derailed By U.S. Sanctions

The potential for more tensions in relations between the U.S. and Russia continue to mount. Late last week, U.S. Energy Secretary Rick Perry said that Washington could still impose sanctions related to the building of the controversial Nord Stream 2 pipeline, which would bring Russian gas directly to Germany under the Baltic Sea. Perry made his comments in Warsaw as the Trump administration tries to convince EU members to sign LNG deals with U.S. producers to offset over reliance on Russian pipeline gas.

On Thursday, Polish state-run gas firm PGNiG signed a long-term LNG deal with U.S.-based Cheniere Marketing International. Poland has been fervent in its resistance to the Nord Stream 2 pipeline as well as working to reduce its reliance on geopolitically charged Russian gas. Moscow, for its part, has cut gas supply to Europe in the past during cold winter months to exert its influence in the region.

Warsaw and Washington also signed on Thursday a joint declaration on enhanced energy security cooperation. “This is also a clear signal that the U.S. strongly supports a pro-Poland and pro-Europe energy security policy,” Perry said. “Energy security in turn requires energy diversity. That is the reason we oppose the Nord Stream 2 project which would further increase the dangerous energy dependence many European nations have on the Russian federation,” he added.

Poland consumes around 17 billion cubic meters of gas annually, more than half of which comes from Russian energy giant Gazprom under a long-term deal that expires in 2022. However, Poland has said that it would not renew the gas supply deal, making the country race against time to replace the contract with new gas volumes.

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This Major Cover Up Could Wreak Havoc On Global Oil Markets

November 4, 2018

This Major Cover Up Could Wreak Havoc On Global Oil Markets

The decision facing President Donald Trump is not an easy one, a problem not of his own choosing and one that the politically charged president would rather not have to deal with.

To sanction or not sanction Saudi Arabia over the alleged killing last month of prominent Saudi journalist Jamal Khashoggi (that often criticized in his Washington Post columns the royal family and Saudi Prince Mohammed bin Salman) will dictate U.S.-Saudi relations more than any other development since the 1973 Arab oil embargo that sought to punish Washington and its western allies over its support of Israel in the Yom-Kippur War.

The fallout and disapproval has taken on a life of its own in both diplomatic circles and among global media outlets after news initially broke that Jamal Khashoggi had been killed in the Saudi consultant in Istanbul in early October. Not that politically charged killings are anything new, unfortunately, but the problem in this instance was the inconsistencies in the Saudi narrative from the onset.

Changing narrative

Saudi officials initially rejected assertions that Khashoggi had even been killed. On October 15, Trump said Saudi Arabia’s King Salman denied any involvement, and the president suggested that “rogue killers” could be responsible for the killing. The next day, Trump said criticism of Saudi Arabia was another case of “guilty until proven innocent.” And the following day, he said he’d contacted Turkish officials and requested audio and video related to the case, “if it exists.”

However, amid all of the uncertainty and political posturing, Turkey pushed its investigation. The Associated Press on October 16 quoted a high-level Turkish official as saying police who entered the consulate found “certain evidence” that Khashoggi was killed there.

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Iran’s Worst Nightmare Is Coming True

October 30, 2018

Iran’s Worst Nightmare Is Coming True

In what must seem like a nightmare scenario for Iran, not only is another U.S. president leveling sanctions against its economy, and particularly that economy’s lifeblood, its oil sector, but the current U.S. president has admittedly made it his mission to drive Tehran to its knees over what he sees as non-compliance over the 2015 nuclear accord between western powers and Tehran.

As recently as the start of this month, the oil markets narrative was that perhaps President Donald Trump had pushed a bit too hard by reimposing sanctions against Iran. Oil markets, for their part, were jittery while both global oil benchmark Brent and U.S. Benchmark West Texas Intermediate (WTI) futures hit four-year highs largely on supply concerns. Some predicted that $100 per barrel oil by the end of the year was imminent, while Tehran maintained a defiant tone, stating that neither Saudi Arabia nor OPEC would be able to pump enough oil to compensate for the loss of Iranian barrels, estimated between 500,000 bpd and 1 million bpd.

Now, what a different just a few weeks can make. Oil prices are now trending downward, falling for a third consecutive week as global stock markets tumbled and oil markets focused on a weaker demand outlook for crude going forward. Brent crude fell 2.7 percent last week and is down 10.5 percent from its October 3 high of $86.74. WTI ended the week down some 2.2 percent and has now dropped around 12 percent from its recent high of on October 3. Moreover, in a sign of things to come, hedge-fund and money managers are trimming their bets that crude oil prices will rise.

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China’s Oil Addiction Is Its Main Weakness As A Superpower

October 24, 2018

China’s Oil Addiction Is Its Main Weakness As A Superpower

For decades, the U.S. was so reliant on foreign crude oil imports that it dictated much of the country’s foreign policy spanning numerous presidential administrations. As far back as the 1970s, especially after the 1973-74 Arab oil embargo that threatened economic survival, foreign policy decisions became increasingly subservient to OPEC, and mostly Saudi oil imports. This dynamic can still be felt currently as yet another president, this time Donald Trump, juggles another Middle Eastern geopolitical dilemma with no easy answers over the killing of Saudi journalist Jamal Khashoggi likely at the hands of Saudi agents inside Turkey.

Now, however, the U.S. has positioned itself among the top three global oil producers, and it has also removed the vulnerability that saw the U.S. embroiled in several middle eastern conflicts. Additionally, it still has the U.S. Navy’s 5^th fleet guarding oil exports leaving the Middle Eastern region, including the volatile and strategic strait of Hormuz.

While the U.S. still has to figure out its game plan going forward amid a record 11 million barrels per day (bpd) of oil production, and the increasingly complex relationship with long term key ally Saudi Arabia and other Arab states, China is now also finding itself in an increasingly vulnerable spot as it relies more on both foreign crude oil and natural gas imports to fund its growing economy.

Gas thirst

Just the numbers coming out of China should be cause for concern for Beijing energy planners. First, China’s gas consumption in 2017 soared to new record highs, reaching 235.2 billion cubic meters (bcm), marking an increase of 17 percent or 34 bcm from the previous year. However, the real story has been China’s LNG demand spikes.

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The Implications Of A Fractured U.S., Saudi Alliance

October 17, 2018

The Implications Of A Fractured U.S., Saudi Alliance

After the resurgence of the U.S. oil industry in recent years due to hydraulic fracking and the shale oil revolution, most thought the days of Middle Eastern oil producers, Saudi Arabia in particular, being able to threaten use of the so-called oil weapon as geopolitical leverage or even coercion were over. But that couldn’t be further from the truth.

Even though the U.S. is pumping oil at record levels, hitting 11 million barrels of oil per day, a rate that should have negated such a threat from ever resurfacing, it seems that Washington has also arguably shot global oil markets in the foot by re-imposing economic sanctions against Iran, with more sanctions slated to hit the Islamic Republic’s energy sector in just a matter of weeks.

The loss of Iranian barrels from global oil markets has already pushed prices well past $80 per barrel recently, and prices could break into the $90 plus range after November. Added to the fray are long term production problems in major OPEC producers Venezuela, Nigeria and Libya – in effect offsetting the ramp-up in U.S. production and the ability for shale producers to play the coveted role of oil markets swing producer. Now Saudi Arabia has taken at least marginal control of oil markets back again – not a comforting prospect for many.

Saudi Arabia said on Sunday it would retaliate against any punitive measures from the U.S. linked to the disappearance of Washington Post columnist Jamal Khashoggi with even “stronger ones.” In what Bloomberg News called an implicit reference to the kingdom’s petroleum wealth, the Saudi statement noted the Saudi economy “has an influential and vital role in the global economy.”

1973 oil embargo remembered

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A New Era Of Geopolitical Risk In Global Oil Markets

October 9, 2018

A New Era Of Geopolitical Risk In Global Oil Markets

Amid never ending talk and speculation over how many more barrels of Iranian oil will be removed from global markets once sanctions slated to hit Iran’s oil production on November 6 take effect, some are claiming that geopolitical factors have driven the market just as much as supply fundamentals.

At Russia Energy Week in Moscow last week, both Saudi and Russian energy ministers saidthey see rising geopolitical risk as driving the recent oil price increase at a time when there is sufficient supply in the market. Of course, the notion of sufficient supply will be tested soon, as will both Saudi Arabia’s and OPEC’s spare production capacity will be called on to maintain this supply.

“Prices are continuing to rise and I think that proves the point that it is not the fundamentals of oil supply and demand that is behind this price increase,” Saudi energy minister Khalid al-Falih said on Thursday during the conference.

“The market has a strong influence,” he added. “Financial investors, speculators, sentiment, future expectations. The true elephant in the room is geopolitics. That has all combined to feed the market frenzy.”

Following al-Falih’s cue, Russian energy minister Alexander Novak agreed that geopolitical risks were having a disproportionate impact on global oil prices, which have recently breached new four-year highs.

On Friday, global oil benchmark London-traded Brent crude futures dipped slightly but still settled at a robust $84.33 per barrel, a price point that could arguably mark the beginning of supply disruption in developing economies where a strong U.S. dollar and rising oil prices are already creating economic woe, especially in Asia, including the Philippines, Vietnam and India.

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Russian Oil Production Hits Post-Soviet Record

September 23, 2018

Russian Oil Production Hits Post-Soviet Record

While there has been no love-loss between the U.S. and Russia in recent years, news coming out of Moscow yesterday was sure to cheer the most ardent Russian naysayers in both Washington and especially the U.S. energy patch.

A Russian government official, according to a Bloomberg report, asking to not be named since the information hasn’t been made public yet, said on Thursday that the country’s oil production increased to a new post-Soviet high and is fluctuating between 1.54 million and 1.55 million tons a day, driven mostly by state-run energy firm Rosneft.

Those numbers equal between 11.29 million and 11.36 million barrels per day (bpd) of output, bypassing a previous record set in October 2016, just a few months before Russian agreed to participate with a Saudi-led OPEC to reign in an over supplied global oil market and prop prices back up from multi-year lows.

News about Russia’s increased oil output comes a few days before the next meeting between OPEC and non-OPEC producers in Algiers where the informal group of producers will discuss their next step amid the variety of challenges facing current global oil markets as well as make a decision whether or not to extend their cooperation into next year – a safe bet would be that the game is still afoot and that cooperation will be extended

Top of the agenda at Algiers is sure to include talk about fresh U.S. sanctions that will hit Iran’s energy sector on November 4, and continued problems with Venezuela’s output and uncertainty going forward over Nigerian and Iraqi production. The meeting also comes amid worries that increased trade war moves by Washington against China and counter tariff moves by Beijing will eventually hurt economic growth and dampen global demand for crude oil.

Trump’s global oil markets playbook

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The U.S. Calls On Russia To Cap Soaring Oil Prices

September 16, 2018

The U.S. Calls On Russia To Cap Soaring Oil Prices

As crucial mid-term congressional elections in November draw near, the Trump administration is feeling the heat over higher oil prices. London-traded global oil benchmark Brent breached the $80 per barrel price point on Wednesday, its highest level since May 2. NYMEX-traded U.S. oil benchmark West Texas Intermediate Crude (WTI) reached over $70 per barrel on Wednesday.

While both benchmarks pared gains on Thursday, moving back from four month highs, as investors focused on risk from the ongoing emerging market crises and trade disputes that could trim demand as supply tightens, high oil prices along with corresponding higher gasoline prices in the U.S. have the opportunity to play havoc with Republican hopes to hold onto key seats in November and retain control in Congress. Such a loss would ensure that Trump’s second half in office would face severe uphill battles with possible heightened calls from Democrats for impeachment.

Amid higher oil prices that could easily settle above $80 per, U.S. Energy Secretary Rick Perry is reaching out to Russia.

“The kingdom (Saudi Arabia), the members of OPEC that are opting their production to be able to make sure that the citizenry of the world does not see a spike in oil price … are to be admired and appreciated, and Russia is one of them,” Perry said after meeting Russian Energy Minister Alexander Novak in Moscow on Wednesday.

The U.S., Russia and Saudi Arabia are also working together to make sure the world has access to affordable energy, Perry added.

Reaching out to Russia

In what can arguably be called an act of concession prompted by worries over spiking global oil prices, Perry said he proposed creating a joint investment fund to develop new projects with Russia, adding the Russian Direct Investment Fund (RDIF) could be part of such a fund. The RDIF said that is supported such a fund.

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The U.S. Is The World’s Top Oil Producer, But For How Long?

September 14, 2018

The U.S. Is The World’s Top Oil Producer, But For How Long?

The U.S. Energy Information Administration (EIA) said on Tuesday that the U.S. likely surpassed Saudi Arabia and Russia earlier this year to become the world’s top crude oil producer. The EIA based its disclosure on preliminary estimates in its Short-Term Energy Outlook which is released every month.

The U.S., in news that was widely covered by media at the time, bypassed Saudi Arabia in February to become the second largest global oil producer, the EIA says. It was the first time in more than 20 years that the U.S. out produced Saudi Arabia. Then in June and August, U.S. output bypassed Russia for the first time since February 1999.

The EIA expects that U.S. crude oil production, most of it light sweet crude, will continue to exceed Russian and Saudi Arabian crude oil production for the remaining months of 2018 and through 2019.

The EIA disclosure comes as oil markets are trying to make sense out of both supply and demand questions as well as geopolitical uncertainty. Since President Trump decided in May to reimpose sanctions against Iran over its nuclear development program, uncertainty has seized the market. The first row of new sanctions against Iran were put in place in August, while more hard-hitting sanctions against the country’s energy sector will take effect on November 4.

Trump’s quandary

With the prospect of as many as 1-2 million barrels per day (bpd) of Iranian barrels being removed from global markets, both Saudi Arabia, likely bowing to pressure from Trump, and also Russia, have already pledged to increase output to keep a ceiling on prices. This uncertainty comes as crucial mid-term congressional elections, slated for November, approach. The concern for Trump and Republican candidates has been higher global oil prices and higher gasoline prices hitting voters in the pocket book and possibly causing voter backlash at the polls.

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This Vital Oil And Gas Choke Point Could Be At Risk

August 22, 2018

This Vital Oil And Gas Choke Point Could Be At Risk

Beijing is taking to task a Pentagon report, ”Military and Security Developments Involving the People’s Republic of China 2018” released last Thursday on China’s military activities.

The annual report issued by the Pentagon and presented to Congress, highlights growing Chinese naval capability, all the while underscoring the narrowing gap between China’s maritime forces and he U.S. Navy as well as China’s increased naval activity in the Western Pacific Ocean. The report states that China’s People’s Liberation Army Navy (PLAN) has global ambitions far beyond the traditional perimeters of its land-based defense systems, a claim that Beijing has always cleverly downplayed.

“The PLAN continues to develop into a global force, gradually extending its operational reach beyond East Asia and the Indo-Pacific into a sustained ability to operate at increasingly longer ranges,” the Pentagon report said, “The PLAN’s latest naval platforms enable combat operations beyond the reach of China’s land-based defenses.”

“China’s aircraft carrier and planned follow-on carriers, once operational, will extend air defense coverage beyond the range of coastal and shipboard missile systems, and enable task group operations at increasingly longer ranges,” the report states. It adds that Chinese bombers are also likely training for “strikes” on U.S. targets. Experts agree, claiming that decades of increased investment in new technology by China’s military means it will soon have the capabilities to strike U.S. military installations in the Pacific by air.

“Furthermore, the PLAN now has a sizable force of high-capability logistical replenishment ships to support long-distance, long-duration deployments, including two new carrier operations. The expansion of naval operations beyond China’s immediate region will also facilitate non-war uses of military force.” China continues to learn lessons from operating its first aircraft carrier, Liaoning, the Pentagon said.

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