OPEC acknowledged this week that U.S. shale production rising
Friday, March 16, 2018
OPEC acknowledged this week that U.S. shale production was rising quickly, and suggested that supply growth would surpass demand this year. Trump’s recent tariffs have created fears of a global trade war, inventory declines have slowed and the rig count has risen once again. Despite all this bearish news, oil prices jumped on Friday, with WTI breaking above $62 and Brent nearing $66.
Saudi Arabia indicates commitment to OPEC cuts. Saudi Arabia dismissed concerns of a fraying OPEC deal, stating that the country would remain committed to the production limits this year. The response came after the Iranian oil minister suggested his country wanted to ramp up production, sparking speculation that the OPEC deal could begin to suffer, but Saudi Aramco said on Wednesday that its output would remain below 10 million barrels per day (mb/d). “Saudi Arabia continues to lead by example by producing below the production targets it agreed to,” the Saudi energy ministry said in the news release. That statement was unusual because the company typically does not publish what it will produce ahead of time.
U.S. accuses Russia of cyberattacks against power plants. The Trump administration accused Russia of staging cyberattacks against U.S. and European nuclear power plants and water and electric systems. Russia had allegedly compromised some power plants by the spring of 2017 and could have disrupted their operations. “We now have evidence they’re sitting on the machines connected to industrial control infrastructure, that allow them to effectively turn the power off or effect sabotage,” said Eric Chien, a security technology director at Symantec, according to the New York Times. “From what we can see, they were there. They have the ability to shut the power off. All that’s missing is some political motivation.”
EPA signals fight with California over fuel efficiency standards. The U.S. EPA chief Scott Pruitt indicated that the agency would battle with California over the state’s tighter fuel efficiency requirements for passenger vehicles. The EPA has an April 1 deadline to decide whether or not it wants to try to revise Obama-era fuel efficiency standards for cars and light trucks for model years 2022-2025. California has often led the nation in such standards, which have been credited with dramatically improving the efficiency of the nation’s auto fleet and slowing the growth of gasoline consumption.
Trump admin staff shakeups. President Trump kicked off what appears to be a significant overhaul of his cabinet this week, sacking Rex Tillerson in favor of CIA Director Mike Pompeo for Secretary of State. That move has raised fears of a more belligerent foreign policy, which could put Iranian oil at risk later this year. Meanwhile, there are rumors that Trump was considering moving Secretary of Energy Rick Perry over to Veterans Affairs, although that wasn’t a done deal. Also, EPA chief Scott Pruitt has reportedly been angling for the Attorney General job should the president force out current AG Jeff Sessions. However, again, nothing is certain at this time.
West Virginia orders halt of construction of Rover pipeline. West Virginia regulators ordered Energy Transfer Partners (NYSE: ETP) to stop construction on the 700-mile Rover pipeline, which would carry 3.25 billion cubic feet of natural gas from West Virginia and Ohio to Michigan. Regulators cited multiple water pollution violations.
Iraq struggling to attract new investment. Iraq has had ambitious goals of ratcheting up oil production in the years ahead, but the low margins in the country are deterring international companies from making new investments. Many companies lowered their production targets in 2013 and 2014 and might have to lower them again as investment stays on the sidelines, according to Reuters. Iraq added around 2.5 million barrels per day of new supply over the past decade, but growth has stalled out in the past few years. “There are alternatives in tight oil and deepwater from many of the Iraq players that are more favorable,” Ian Thom, principal analyst at WoodMac, told Reuters. Iraq is getting close to having the capacity to produce 5 mb/d, and could still expand supply by another 10 percent, but that is a far cry from the 12 mb/d the country had once hoped to produce by the end of the decade.
OPEC acknowledges shale growth. OPEC sharply revised up its forecast for U.S. shale growth this year, an admission that rival non-OPEC production is set to growth significantly. The group said the U.S. would produce 260,000 bpd more than previously thought, and that total global supply would rise faster than demand this year. Meanwhile, the IEA issued a mostly unchanged forecast from last month, but said that Venezuela’s sharp decline could push the oil market into deficit in 2018.
Statoil changes name to Equinor in nod to green energy. Norway’s Statoil (NYSE: STO) announced a name change to Equinor, which would reflect a greater focus on renewable energy. The prefix “equi” is supposed to represent equal or equality, an indication that the company would focus on many types of energy production and not just oil and gas. From a marketing standpoint, many analyst panned the name change, but others see it as a sign of the changing times.
U.S. Commerce to release details on tariff exclusions. The Trump administration has indicated it would be reluctant to grant exemptions to U.S. companies from tariffs on steel and aluminum imports, and would only do so on a rigorous case for national security. That is an ominous sign for the oil and gas industry, which desperately wants a waiver. Many projects upstream, midstream and downstream require a type of steel that is hard to come by in the United States. For instance, imported steel made up 77 percent of the steel used in pipelines, according to an industry study. The Trump administration is set to release details on the exemption process this week or next week.
Libya oil looks steady. Libya suffered some temporary setbacks recently at a handful of oil projects, but the country’s output has proved resilient. The IEA said in a report this week that the North African country’s output was steady and looks set to “hold onto recent gains.” Libya’s production has held up at about 1 mb/d for nearly six months.
OPEC acknowledged this week that U.S. shale production was rising quickly, and suggested that supply growth would surpass demand this year. Trump’s recent tariffs have created fears of a global trade war, inventory declines have slowed and the rig count has risen once again. Despite all this bearish news, oil prices jumped on Friday, with WTI breaking above $62 and Brent nearing $66.
Saudi Arabia indicates commitment to OPEC cuts. Saudi Arabia dismissed concerns of a fraying OPEC deal, stating that the country would remain committed to the production limits this year. The response came after the Iranian oil minister suggested his country wanted to ramp up production, sparking speculation that the OPEC deal could begin to suffer, but Saudi Aramco said on Wednesday that its output would remain below 10 million barrels per day (mb/d). “Saudi Arabia continues to lead by example by producing below the production targets it agreed to,” the Saudi energy ministry said in the news release. That statement was unusual because the company typically does not publish what it will produce ahead of time.
U.S. accuses Russia of cyberattacks against power plants. The Trump administration accused Russia of staging cyberattacks against U.S. and European nuclear power plants and water and electric systems. Russia had allegedly compromised some power plants by the spring of 2017 and could have disrupted their operations. “We now have evidence they’re sitting on the machines connected to industrial control infrastructure, that allow them to effectively turn the power off or effect sabotage,” said Eric Chien, a security technology director at Symantec, according to the New York Times. “From what we can see, they were there. They have the ability to shut the power off. All that’s missing is some political motivation.”
EPA signals fight with California over fuel efficiency standards. The U.S. EPA chief Scott Pruitt indicated that the agency would battle with California over the state’s tighter fuel efficiency requirements for passenger vehicles. The EPA has an April 1 deadline to decide whether or not it wants to try to revise Obama-era fuel efficiency standards for cars and light trucks for model years 2022-2025. California has often led the nation in such standards, which have been credited with dramatically improving the efficiency of the nation’s auto fleet and slowing the growth of gasoline consumption.
Trump admin staff shakeups. President Trump kicked off what appears to be a significant overhaul of his cabinet this week, sacking Rex Tillerson in favor of CIA Director Mike Pompeo for Secretary of State. That move has raised fears of a more belligerent foreign policy, which could put Iranian oil at risk later this year. Meanwhile, there are rumors that Trump was considering moving Secretary of Energy Rick Perry over to Veterans Affairs, although that wasn’t a done deal. Also, EPA chief Scott Pruitt has reportedly been angling for the Attorney General job should the president force out current AG Jeff Sessions. However, again, nothing is certain at this time.
West Virginia orders halt of construction of Rover pipeline. West Virginia regulators ordered Energy Transfer Partners (NYSE: ETP) to stop construction on the 700-mile Rover pipeline, which would carry 3.25 billion cubic feet of natural gas from West Virginia and Ohio to Michigan. Regulators cited multiple water pollution violations.
Iraq struggling to attract new investment. Iraq has had ambitious goals of ratcheting up oil production in the years ahead, but the low margins in the country are deterring international companies from making new investments. Many companies lowered their production targets in 2013 and 2014 and might have to lower them again as investment stays on the sidelines, according to Reuters. Iraq added around 2.5 million barrels per day of new supply over the past decade, but growth has stalled out in the past few years. “There are alternatives in tight oil and deepwater from many of the Iraq players that are more favorable,” Ian Thom, principal analyst at WoodMac, told Reuters. Iraq is getting close to having the capacity to produce 5 mb/d, and could still expand supply by another 10 percent, but that is a far cry from the 12 mb/d the country had once hoped to produce by the end of the decade.
OPEC acknowledges shale growth. OPEC sharply revised up its forecast for U.S. shale growth this year, an admission that rival non-OPEC production is set to growth significantly. The group said the U.S. would produce 260,000 bpd more than previously thought, and that total global supply would rise faster than demand this year. Meanwhile, the IEA issued a mostly unchanged forecast from last month, but said that Venezuela’s sharp decline could push the oil market into deficit in 2018.
Statoil changes name to Equinor in nod to green energy. Norway’s Statoil (NYSE: STO) announced a name change to Equinor, which would reflect a greater focus on renewable energy. The prefix “equi” is supposed to represent equal or equality, an indication that the company would focus on many types of energy production and not just oil and gas. From a marketing standpoint, many analyst panned the name change, but others see it as a sign of the changing times.
U.S. Commerce to release details on tariff exclusions. The Trump administration has indicated it would be reluctant to grant exemptions to U.S. companies from tariffs on steel and aluminum imports, and would only do so on a rigorous case for national security. That is an ominous sign for the oil and gas industry, which desperately wants a waiver. Many projects upstream, midstream and downstream require a type of steel that is hard to come by in the United States. For instance, imported steel made up 77 percent of the steel used in pipelines, according to an industry study. The Trump administration is set to release details on the exemption process this week or next week.
Libya oil looks steady. Libya suffered some temporary setbacks recently at a handful of oil projects, but the country’s output has proved resilient. The IEA said in a report this week that the North African country’s output was steady and looks set to “hold onto recent gains.” Libya’s production has held up at about 1 mb/d for nearly six months.
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Global Energy Advisory March 16th 2018
Alberta has stepped up its fight with British Columbia over the extension of the Trans Mountain oil pipeline that B.C.’s government is staunchly opposing. The Albertan parliament this week unanimously voted in favor of a motion supporting the Kinder Morgan project.
The motion follows statements from Prime Minister Rachel Notley and Alberta’s Lieutenant Governor Lois Mitchell, the latter of whom warned Alberta might reduce oil and gas flows to British Columbia in retaliation for the opposition.
The Albertan parliament also insists that the federal government pressures British Columbia into backing down from its efforts to stop Trans Mountain’s expansion. According to the conservative party, Ottawa has not done enough to push forward the project that it approved last year.
Meanwhile, oil producers from Alberta have found another way to get their crude to the western North American coast and from there to Asian markets. Earlier this month, the first cargo of Albertan heavy crude left on a tanker to China from Portland, Oregon.
Access to Asian markets is precisely the point of expanding Trans Mountain, to boost its capacity threefold. Yet the expansion would substantially increase tanker traffic at B.C.’s ports and its new government along with a strong environmentalist lobby is against this.
The government in Victoria argues that the more tankers call at its ports, the higher the risk of a spill. While statistically correct, in terms of probability the argument is not so strong. There are several thousand tankers in the world ocean at any given point but spills are rare.
Deals, Mergers & Acquisitions
• Shell will exit the Draugen field in Norway completely and put up for sale smaller stakes in a number of other fields, the company said. The Draugen produces about 225,000 bpd and Shell has a 44.56% stake in it. The asset disposal is part of a $30-billion divestment drive following Shell’s acquisition of BG Group in 2016, which significantly increased its debt burden. To date, Shell has made divestments worth $25 billion.
• Separately, the Anglo-Dutch supermajor has teamed with Blackstone Group on a $10-billion offer for the U.S. shale oil and gas portfolio of BHP Billiton. The book value of the assets of $14 billion. The miner was forced to put it up for sale by activist investors Elliot Management, which holds 5% in BHP.
• Eni will offload a 10% stake in the Shorouk offshore gas concession to Emirati Mubadala for $934 million. The concession contains the huge Zorh gas field. Eni currently holds 60% in Shorouk, partnering with Rosneft, with 30%, and BP, with 10%. Zohr produces some 400 million cubic feet of natural gas daily.
Tenders, Auctions & Contracts
• Shell is close to signing the first long-term LNG supply contract with Hong Kong, after beating competitors including Petronas. The ten-year deal, beginning in 2020, will supply Hong Kong utility CLP Power with 1.2 million tons of LNG annually. The deal will only be finalized after Shell makes a final investment decision on an LNG import terminal.
• Baghdad has invited investors to bid for the construction of a 70,000-bpd refinery in western Iraq. Interested companies have until June 14 to submit their offers, free to choose between two options: Build-Own-Operate or Build-Own-Transfer. Last year, the Iraqi government announced plans to build four new refineries to make up for capacity destruction during the war with Islamic State.
• The UAE’s Adnoc has awarded Italy’s Eni two offshore concessions, including a 5% interest in the Lower Zakum field and a 10% stake in two other fields that make up the second concession area, Umm Shaif and Nasr. Targeted production from Lower Zakum is 450,000 bpd and the target for Umm Shaif and Nasr is 460,000 bpd. Adnoc is the operator of both concessions with 60% stakes.
• Summit Power and Mitsubishi will together work on a $3-billion LNG-to-power project in Bangladesh. The project will involve the construction of a receiving LNG terminal with a capacity of 1.5 billion cubic feet of natural gas daily and two 1.2 GW gas turbine combined power generators and the relevant transmission lines.
• Qatar Petroleum and Adnoc have renewed a concession for the development of the Bunduq field that the UAE and Qatar share in the Persian Gulf. The concession is held by a Japanese consortium. The renewal comes despite tensions between the two neighbors amid the Saudi-led blockade of Qatar.
• Iran has signed a $742-million contract with Russian Zarubezhneft for the development of the Aban and Paydar fields, which currently produce 36,000 bpd. The target production for the fields is 48,000 bpd. The Russian company will cough up 80% of the funds needed for the fields’ development and its local partner, private company Dana Energy will supply the rest.
• Japan’s Tokyo Gas has agreed on a 13-year flexible liquefied natural gas purchase deal with Malaysia’s Petronas in the latest move among large buyers of the super-cooled fuel to shift away from fixed destination contracts. LNG agreements have traditionally stipulated fixed destination for cargoes, where buyers were not allowed to sell on the fuel. According to the heads of agreement signed, Tokyo Gas will buy Malaysian LNG for up to 13 years from April this year, purchasing up to 500,000 tons a year for the first six years and up to 900,000 tons in the next 7 years.
Discovery & Development
• BP has surprised itself and the world by reporting higher production from mature fields for last year. This goes counter to what has so far been considered the natural order of things in the oil industry, and highlights the growing importance of modern technology for improving oil extraction rates.
• Shell has secured sole access to 16,000 bpd of oil pumped from two fields in the Niger Delta, after securing a $270-million loan for the operator of the fields, Amni International. The Anglo-Dutch major partnered with GT Bank on the loan. Production from the offshore Ima and Okoro/Setu is not as easy as production from onshore fields but, according to Amni, the loan will help it boost production there.
• Alberta’s energy ministry is offering $770 million in incentives for the oil and gas industry in the province aimed at stimulating diversification. The incentives will take the form of grants and royalty credits, and come on the heels of another $770-million package provided by the government for the construction of up to five partial oil upgraders for the oil sands industry.
• Statoil and its partners in the development of the Askeladd field will invest $642 million in the field, which is expected to produce 21 billion cubic meters of natural gas and 2 million cubic meters of condensate starting in 2020. The gas and condensate will be supplied to an LNG plant onshore.
• Eni has started drilling the Rabat Deep 1 well offshore Morocco. The drilling work should take about 50 days. The Italian major has partnered on the Rabat Deep Permits with the local state hydrocarbons agency ONHYM, which holds 25% in the project, Woodside Energy, with 25%, and Chariot Oil and Gas Investment, with 10%.
• As oil prices rise again and the country’s oil production rapidly expands, Ghana is on track to make a remarkable claim for a country mired in poverty not long ago: It is likely to have one of the world’s fastest-growing economies this year, according to international financials organizations.
Company News
• Statoil has rebranded, changing its name to Equinor and sporting a new red logo in reflection of its shift away from fossil fuels and into renewables. The company has no plans to reduce its oil and gas production but it wants to be seen as a broader energy company rather than only an oil and gas producer.
Politics, Geopolitics & Conflict
• British PM Theresa May has ordered the expulsion of 23 Russian diplomats in reaction to Russia’s alleged involvement in a nerve gas attack against a former double agent living in the UK. Russia is preparing to retaliate while May faces a stumbling block on her quest for a united front against Moscow in the face of France.
• President Trump has ousted Secretary of State Rex Tillerson, replacing him with the former chief of the CIA Mike Pompeo.
• Venezuela has asked the UN to send a mission that will observe and monitor the elections due to take place in the troubled South American nation in May.
• Thanks to cost cuts and large oil discoveries made before the oil price crash, Norway will be able to sustain its oil and gas production over the next five years. But reduced exploration drilling and lack of big discoveries in the past two years spell trouble for Western Europe’s biggest oil and gas producer after 2023, authorities fear.
Alberta has stepped up its fight with British Columbia over the extension of the Trans Mountain oil pipeline that B.C.’s government is staunchly opposing. The Albertan parliament this week unanimously voted in favor of a motion supporting the Kinder Morgan project.
The motion follows statements from Prime Minister Rachel Notley and Alberta’s Lieutenant Governor Lois Mitchell, the latter of whom warned Alberta might reduce oil and gas flows to British Columbia in retaliation for the opposition.
The Albertan parliament also insists that the federal government pressures British Columbia into backing down from its efforts to stop Trans Mountain’s expansion. According to the conservative party, Ottawa has not done enough to push forward the project that it approved last year.
Meanwhile, oil producers from Alberta have found another way to get their crude to the western North American coast and from there to Asian markets. Earlier this month, the first cargo of Albertan heavy crude left on a tanker to China from Portland, Oregon.
Access to Asian markets is precisely the point of expanding Trans Mountain, to boost its capacity threefold. Yet the expansion would substantially increase tanker traffic at B.C.’s ports and its new government along with a strong environmentalist lobby is against this.
The government in Victoria argues that the more tankers call at its ports, the higher the risk of a spill. While statistically correct, in terms of probability the argument is not so strong. There are several thousand tankers in the world ocean at any given point but spills are rare.
Deals, Mergers & Acquisitions
• Shell will exit the Draugen field in Norway completely and put up for sale smaller stakes in a number of other fields, the company said. The Draugen produces about 225,000 bpd and Shell has a 44.56% stake in it. The asset disposal is part of a $30-billion divestment drive following Shell’s acquisition of BG Group in 2016, which significantly increased its debt burden. To date, Shell has made divestments worth $25 billion.
• Separately, the Anglo-Dutch supermajor has teamed with Blackstone Group on a $10-billion offer for the U.S. shale oil and gas portfolio of BHP Billiton. The book value of the assets of $14 billion. The miner was forced to put it up for sale by activist investors Elliot Management, which holds 5% in BHP.
• Eni will offload a 10% stake in the Shorouk offshore gas concession to Emirati Mubadala for $934 million. The concession contains the huge Zorh gas field. Eni currently holds 60% in Shorouk, partnering with Rosneft, with 30%, and BP, with 10%. Zohr produces some 400 million cubic feet of natural gas daily.
Tenders, Auctions & Contracts
• Shell is close to signing the first long-term LNG supply contract with Hong Kong, after beating competitors including Petronas. The ten-year deal, beginning in 2020, will supply Hong Kong utility CLP Power with 1.2 million tons of LNG annually. The deal will only be finalized after Shell makes a final investment decision on an LNG import terminal.
• Baghdad has invited investors to bid for the construction of a 70,000-bpd refinery in western Iraq. Interested companies have until June 14 to submit their offers, free to choose between two options: Build-Own-Operate or Build-Own-Transfer. Last year, the Iraqi government announced plans to build four new refineries to make up for capacity destruction during the war with Islamic State.
• The UAE’s Adnoc has awarded Italy’s Eni two offshore concessions, including a 5% interest in the Lower Zakum field and a 10% stake in two other fields that make up the second concession area, Umm Shaif and Nasr. Targeted production from Lower Zakum is 450,000 bpd and the target for Umm Shaif and Nasr is 460,000 bpd. Adnoc is the operator of both concessions with 60% stakes.
• Summit Power and Mitsubishi will together work on a $3-billion LNG-to-power project in Bangladesh. The project will involve the construction of a receiving LNG terminal with a capacity of 1.5 billion cubic feet of natural gas daily and two 1.2 GW gas turbine combined power generators and the relevant transmission lines.
• Qatar Petroleum and Adnoc have renewed a concession for the development of the Bunduq field that the UAE and Qatar share in the Persian Gulf. The concession is held by a Japanese consortium. The renewal comes despite tensions between the two neighbors amid the Saudi-led blockade of Qatar.
• Iran has signed a $742-million contract with Russian Zarubezhneft for the development of the Aban and Paydar fields, which currently produce 36,000 bpd. The target production for the fields is 48,000 bpd. The Russian company will cough up 80% of the funds needed for the fields’ development and its local partner, private company Dana Energy will supply the rest.
• Japan’s Tokyo Gas has agreed on a 13-year flexible liquefied natural gas purchase deal with Malaysia’s Petronas in the latest move among large buyers of the super-cooled fuel to shift away from fixed destination contracts. LNG agreements have traditionally stipulated fixed destination for cargoes, where buyers were not allowed to sell on the fuel. According to the heads of agreement signed, Tokyo Gas will buy Malaysian LNG for up to 13 years from April this year, purchasing up to 500,000 tons a year for the first six years and up to 900,000 tons in the next 7 years.
Discovery & Development
• BP has surprised itself and the world by reporting higher production from mature fields for last year. This goes counter to what has so far been considered the natural order of things in the oil industry, and highlights the growing importance of modern technology for improving oil extraction rates.
• Shell has secured sole access to 16,000 bpd of oil pumped from two fields in the Niger Delta, after securing a $270-million loan for the operator of the fields, Amni International. The Anglo-Dutch major partnered with GT Bank on the loan. Production from the offshore Ima and Okoro/Setu is not as easy as production from onshore fields but, according to Amni, the loan will help it boost production there.
• Alberta’s energy ministry is offering $770 million in incentives for the oil and gas industry in the province aimed at stimulating diversification. The incentives will take the form of grants and royalty credits, and come on the heels of another $770-million package provided by the government for the construction of up to five partial oil upgraders for the oil sands industry.
• Statoil and its partners in the development of the Askeladd field will invest $642 million in the field, which is expected to produce 21 billion cubic meters of natural gas and 2 million cubic meters of condensate starting in 2020. The gas and condensate will be supplied to an LNG plant onshore.
• Eni has started drilling the Rabat Deep 1 well offshore Morocco. The drilling work should take about 50 days. The Italian major has partnered on the Rabat Deep Permits with the local state hydrocarbons agency ONHYM, which holds 25% in the project, Woodside Energy, with 25%, and Chariot Oil and Gas Investment, with 10%.
• As oil prices rise again and the country’s oil production rapidly expands, Ghana is on track to make a remarkable claim for a country mired in poverty not long ago: It is likely to have one of the world’s fastest-growing economies this year, according to international financials organizations.
Company News
• Statoil has rebranded, changing its name to Equinor and sporting a new red logo in reflection of its shift away from fossil fuels and into renewables. The company has no plans to reduce its oil and gas production but it wants to be seen as a broader energy company rather than only an oil and gas producer.
Politics, Geopolitics & Conflict
• British PM Theresa May has ordered the expulsion of 23 Russian diplomats in reaction to Russia’s alleged involvement in a nerve gas attack against a former double agent living in the UK. Russia is preparing to retaliate while May faces a stumbling block on her quest for a united front against Moscow in the face of France.
• President Trump has ousted Secretary of State Rex Tillerson, replacing him with the former chief of the CIA Mike Pompeo.
• Venezuela has asked the UN to send a mission that will observe and monitor the elections due to take place in the troubled South American nation in May.
• Thanks to cost cuts and large oil discoveries made before the oil price crash, Norway will be able to sustain its oil and gas production over the next five years. But reduced exploration drilling and lack of big discoveries in the past two years spell trouble for Western Europe’s biggest oil and gas producer after 2023, authorities fear.