Oil prices rebounded midweek on signs of a tighter market.
Friday, November 22nd, 2019
Oil prices rebounded midweek on signs of a tighter physical market and more rumors that OPEC+ would extend the production cuts. But the market is still awaiting direction from the U.S.-China trade war – every utterance in either direction regarding tariffs has an immediate price impact. For now, markets are optimistic, but still cautious.
ExxonMobil’s credit outlook cut on high spending. Moody’s Investors Service cut ExxonMobil’s (NYSE: XOM) debt outlook to negative, due to a “substantial” cash burn. The oil major is taking on debt in order to finance a heavy spending program, aimed at ramping up development in Guyana and the Permian, and the company is borrowing to cover its dividend. “The company’s high level of growth capital investments cannot be funded with operating cash flow and asset sales at projected levels given ExxonMobil’s substantial dividend payout,” Moody’s said. The ratings agency projects Exxon’s negative cash flow at $7 billion this year and a further $9 billion next year.
Exxon to sell $25 billion in assets. In part because of high spending, ExxonMobil plans to sell $25 billion in assets across the globe in order to free up cash. Exxon will focus on a handful of major projects in Guyana, Mozambique, Papua New Guinea, Brazil and the United States.
Legal challenges could delay Trans Mountain Expansion. Legal challenges to the Trans Mountain Expansion could further delay the beleaguered pipeline project. Experts say a court decision may not be reached until late 2020, but additional challenges could push the project’s final approval off until the end of 2022 in a worst-case scenario.
LNG cargo cancelled…but still paid for. A Singaporean gas importer cancelled an LNG cargo but still agreed to pay for it, according to Reuters. The move is an ominous sign, pointing to a state of oversupply for the LNG market.
California halts fracking. California Governor put a temporary ban on new fracking permits and also barred steam-injected oil drilling. The decision comes after a serious oil spill earlier this year at a Chevron (NYSE: CVX) site. Moreover, Gov. Gavin Newsom spoke about the need for a “phase out” of fossil fuels.
Norway’s Johan Sverdrup at 300,000 bpd. Equinor’s (NYSE: EQNR) giant Johan Sverdrup oil field is producing at 300,000 bpd, only weeks after starting up, meaning it is ahead of schedule. It is on track to reach 440,000 bpd next summer.
New Jersey doubles offshore wind target. New Jersey Governor Phil Murphy doubled its offshore wind target to 7.5 gigawatts by 2035, which would be enough electricity for 3.2 million homes.
World on track to burn double the carbon budget by 2030. The world is on track to burn twice as much fossil fuels by 2030 as can be allowed while remaining below 1.5C of warming. “We’re in a deep hole – and we need to stop digging,” Måns Nilsson, executive director of the Stockholm Environment Institute (SEI), told The Guardian.
Bill Gates tech breakthrough. A clean energy startup backed by Bill Gates announced a major breakthrough in its concentrated solar technology.
OPEC geopolitical turmoil puts supply at risk. While OPEC wrestles with a global supply surplus, turmoil in several member states could continue to put production at risk. Above all is Iraq, which is producing 4.6 mb/d. Ongoing protests have raised concerns about its oil operations. “We kind of had a second Arab Spring, but it’s been under the radar,” said Helima Croft, chief commodities strategist at RBC Capital Markets. “The real question is what is going to happen in Iraq.”
OECD: Global growth to slow. The OECD said that global GDP growth will slow to 2.9 percent this year, and stay at about that rate through 2021. It’s the weakest expansion since the financial crisis a decade ago. Last year, GDP grew by 3.5 percent. Worse, the OECD said these weren’t temporary problems. “It would be a mistake to consider these changes as temporary factors that can be addressed with monetary or fiscal policy: they are structural,” OECD Chief Economist Laurence Boone said. “Without coordination for trade and global taxation, clear policy directions for the energy transition, uncertainty will continue to loom large and damage growth prospects.”
Brookline, Mass bans new gas hookups. The town of Brookline, Massachusetts passed a ban on natural gas residential hookups for new construction and major renovations, making it the first to do so on the east coast. The move comes after a series of similar bans in several California cities.
Billionaire frackers lose almost everything. Farris and Dan Wilks made $3.5 billion in 2011 when they sold their shale company, and they invested that money back into the sector, buying land and taking stakes in a series of companies. Bloomberg reports that many of those investments have lost much of their value.
In plastics bet, BP and Shell invest in recycling. BP (NYSE: BP) and Royal Dutch Shell (NYSE: RDS.A) announced several moves to invest, innovate and scale up new recycling options. The companies are trying to develop technologies to recycle single-use plastics. The investments are intended to cut down on the epidemic of plastic pollution, but also amount to a bet on the future growth of plastics production.
Tesla unveils electric “cybertruck.” Elon Musk unveiled the trapezoidal looking electric truck, called the “Cybertruck.” The electric pickup truck will start at $39,900, but has multiple variations and will go into production in 2021.
Pennsylvania to study health impacts of fracking. Under pressure from local communities after a surge of rare cancers in Southwestern Pennsylvania, the state’s Governor Tom Wolf said that his administration would spend $3 million on a pair of studies to investigate the health impacts on the public from the shale gas industry.
Thanks for reading and we’ll see you next week.
Best Regards,
Tom Kool
Editor, Oilprice.com
P.S. – Oilprice.com's new and improved app is now officially available for FREE. If you don't like it... you can delete it. But I bet you won't. Download it today and get started right away!
Oil prices rebounded midweek on signs of a tighter physical market and more rumors that OPEC+ would extend the production cuts. But the market is still awaiting direction from the U.S.-China trade war – every utterance in either direction regarding tariffs has an immediate price impact. For now, markets are optimistic, but still cautious.
ExxonMobil’s credit outlook cut on high spending. Moody’s Investors Service cut ExxonMobil’s (NYSE: XOM) debt outlook to negative, due to a “substantial” cash burn. The oil major is taking on debt in order to finance a heavy spending program, aimed at ramping up development in Guyana and the Permian, and the company is borrowing to cover its dividend. “The company’s high level of growth capital investments cannot be funded with operating cash flow and asset sales at projected levels given ExxonMobil’s substantial dividend payout,” Moody’s said. The ratings agency projects Exxon’s negative cash flow at $7 billion this year and a further $9 billion next year.
Exxon to sell $25 billion in assets. In part because of high spending, ExxonMobil plans to sell $25 billion in assets across the globe in order to free up cash. Exxon will focus on a handful of major projects in Guyana, Mozambique, Papua New Guinea, Brazil and the United States.
Legal challenges could delay Trans Mountain Expansion. Legal challenges to the Trans Mountain Expansion could further delay the beleaguered pipeline project. Experts say a court decision may not be reached until late 2020, but additional challenges could push the project’s final approval off until the end of 2022 in a worst-case scenario.
LNG cargo cancelled…but still paid for. A Singaporean gas importer cancelled an LNG cargo but still agreed to pay for it, according to Reuters. The move is an ominous sign, pointing to a state of oversupply for the LNG market.
California halts fracking. California Governor put a temporary ban on new fracking permits and also barred steam-injected oil drilling. The decision comes after a serious oil spill earlier this year at a Chevron (NYSE: CVX) site. Moreover, Gov. Gavin Newsom spoke about the need for a “phase out” of fossil fuels.
Norway’s Johan Sverdrup at 300,000 bpd. Equinor’s (NYSE: EQNR) giant Johan Sverdrup oil field is producing at 300,000 bpd, only weeks after starting up, meaning it is ahead of schedule. It is on track to reach 440,000 bpd next summer.
New Jersey doubles offshore wind target. New Jersey Governor Phil Murphy doubled its offshore wind target to 7.5 gigawatts by 2035, which would be enough electricity for 3.2 million homes.
World on track to burn double the carbon budget by 2030. The world is on track to burn twice as much fossil fuels by 2030 as can be allowed while remaining below 1.5C of warming. “We’re in a deep hole – and we need to stop digging,” Måns Nilsson, executive director of the Stockholm Environment Institute (SEI), told The Guardian.
Bill Gates tech breakthrough. A clean energy startup backed by Bill Gates announced a major breakthrough in its concentrated solar technology.
OPEC geopolitical turmoil puts supply at risk. While OPEC wrestles with a global supply surplus, turmoil in several member states could continue to put production at risk. Above all is Iraq, which is producing 4.6 mb/d. Ongoing protests have raised concerns about its oil operations. “We kind of had a second Arab Spring, but it’s been under the radar,” said Helima Croft, chief commodities strategist at RBC Capital Markets. “The real question is what is going to happen in Iraq.”
OECD: Global growth to slow. The OECD said that global GDP growth will slow to 2.9 percent this year, and stay at about that rate through 2021. It’s the weakest expansion since the financial crisis a decade ago. Last year, GDP grew by 3.5 percent. Worse, the OECD said these weren’t temporary problems. “It would be a mistake to consider these changes as temporary factors that can be addressed with monetary or fiscal policy: they are structural,” OECD Chief Economist Laurence Boone said. “Without coordination for trade and global taxation, clear policy directions for the energy transition, uncertainty will continue to loom large and damage growth prospects.”
Brookline, Mass bans new gas hookups. The town of Brookline, Massachusetts passed a ban on natural gas residential hookups for new construction and major renovations, making it the first to do so on the east coast. The move comes after a series of similar bans in several California cities.
Billionaire frackers lose almost everything. Farris and Dan Wilks made $3.5 billion in 2011 when they sold their shale company, and they invested that money back into the sector, buying land and taking stakes in a series of companies. Bloomberg reports that many of those investments have lost much of their value.
In plastics bet, BP and Shell invest in recycling. BP (NYSE: BP) and Royal Dutch Shell (NYSE: RDS.A) announced several moves to invest, innovate and scale up new recycling options. The companies are trying to develop technologies to recycle single-use plastics. The investments are intended to cut down on the epidemic of plastic pollution, but also amount to a bet on the future growth of plastics production.
Tesla unveils electric “cybertruck.” Elon Musk unveiled the trapezoidal looking electric truck, called the “Cybertruck.” The electric pickup truck will start at $39,900, but has multiple variations and will go into production in 2021.
Pennsylvania to study health impacts of fracking. Under pressure from local communities after a surge of rare cancers in Southwestern Pennsylvania, the state’s Governor Tom Wolf said that his administration would spend $3 million on a pair of studies to investigate the health impacts on the public from the shale gas industry.
Thanks for reading and we’ll see you next week.
Best Regards,
Tom Kool
Editor, Oilprice.com
P.S. – Oilprice.com's new and improved app is now officially available for FREE. If you don't like it... you can delete it. But I bet you won't. Download it today and get started right away!
Redigert 19.01.2021 kl 05:17
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22.11.2019 kl 22:00
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Why Isn’t Winter Pushing LNG Prices Higher?
Spot LNG prices in Asia-Pacific are hovering around the $6/MMBtu level at a time when seasonal winter demand usually pushes them higher. The reason is not hard to see – excess liquefaction capacity coming on-stream in the US, compounding the build-up of capacity in recent years in Australia, as well as additions in Russia and elsewhere.
There is also a year-round seasonal impact. A mild winter generally gives way to weak summer pricing and a certain amount of residual LNG in tank. Buyers can fill up cheaply and enter the next winter season well stocked. Gas storage in Europe was full early this year, owing in large part to the availability of cheap LNG and a relatively weak drawdown over the previous winter.
But it is on the mid-2020s to which LNG developers focus has turned, perceiving a demand gap as South Asian countries in particular ramp up their demand for LNG, adding to still strong annual gains from China.
Yet the demand gap in 2020 appears to have been filled. According to GlobalData, the US will add 156.9 million metric tons per annum of new liquefaction capacity by 2023. Not all of this capacity is certain by any means, but even when only projects which have taken Final Investment Decisions (FIDs) are counted, in the US and beyond, the expected demand gap now looks narrow to non-existent.
Qatar plans an expansion from 77 million tons per annum (mtpa) to 110 mtpa come what may. Four 8 mtpa ‘megatrains’ are planned and expected on-stream at three to six-month intervals from 2024.
No formal FID has been taken, but the amount of contracting activity that has and is taking place around the North Field Expansion project indicates this capacity will emerge. In early October, Qatar Petroleum announced that it had short-listed potential partners for train construction. It has already awarded all the upstream contracts.
In Mozambique, two major projects have taken FID this year in addition to the already under construction smaller Floating LNG Coral project. In total, Mozambique can expect to go from naught to 31.5 mtpa capacity by 2024, although building two large LNG projects – Rovuma and Mozambique LNG – on the same site and at the same time is likely to create logistical challenges.
Russia’s Novatek has given a greenlight to its Arctic LNG 2 project, which will boost Russian LNG capacity by 19.8 mtpa. The company has plans to increase capacity to a total 70 mtpa by 2035, and Arctic LNG 2 will get it halfway there. Exploration successes suggest ample gas resources, and Novatek and LNG, in general, has strong Russian government support. Novatek has already demonstrated its capacity to get foreign partners, particularly Chinese finance, on board.
Then there is Canada. Although glacially slow to free itself from dependence on the US market, the FID taken on Canada LNG last year was a major step forward. The project is expected to give the country export capacity of about 13 mtpa from 2023, but there are a number of other LNG projects close to FID on both the west and east coasts, which could turn Canada into a significant market player by the mid-2020s.
Based on US Energy Information data for plants under construction or for which a formal FID has been taken – a relatively conservative measure - US liquefaction capacity should rise from 55 mtpa currently to 116.5 mtpa by 2024.
In addition to other projects, such as BP and Kosmos’s evolving west African LNG hub, and discounting the potential for existing site expansions, more than 160 mtpa of new LNG capacity can be expected on-stream by 2024.
At no time has LNG demand jumped that much in a five-year period, although the largest leap since the millennium was in 2014-2018 when LNG imports rose 97.34 mtpa.
There is on paper enough regasification capacity to absorb the increase and more being built, but the huge rise in liquefaction capacity presupposes much higher utilization in regions which have not previously demanded so much LNG, such as Europe.
The availability of competitively-priced LNG is itself a major demand stimulus, which will encourage new market entrants. But while in their initial phases LNG coming into, for example, India, Bangladesh and Pakistan, will meet existing gas deficits, the further out demand projections go, the more dependent they are on new infrastructure being built in-country.
All three south Asian countries have poor track records when it comes to the timely completion of major infrastructure projects.
McKinsey forecasts LNG demand growth of 3.6% a year from 2018-2035, arguing that supply additions will create a ‘long’ market until 2025 and possibly 2027. Others, such as Shell, in its LNG Outlook 2019, argue that supply investment is still needed to meet continued LNG demand growth, which it notes has surprised on the upside in recent years.
This optimism is not unwarranted. The potential for coal-to-gas switching in India and China, as well as the growth of new markets for gas such as in transport, are huge. Climate change concerns and local air pollution concerns suggest coal-to-gas switching will be actively pursued. But the critical issue for companies will be the timing.
On the supply side, the LNG industry appears doomed to a cycle of booms and lulls in construction activity as future supply gaps emerge and are over-filled. Demand-side growth expectations depend on longer-term structural changes largely in developing economies. There is ample potential for recurrent mismatches, with the current outlook being for an extended ‘long’ market.
Spot LNG prices in Asia-Pacific are hovering around the $6/MMBtu level at a time when seasonal winter demand usually pushes them higher. The reason is not hard to see – excess liquefaction capacity coming on-stream in the US, compounding the build-up of capacity in recent years in Australia, as well as additions in Russia and elsewhere.
There is also a year-round seasonal impact. A mild winter generally gives way to weak summer pricing and a certain amount of residual LNG in tank. Buyers can fill up cheaply and enter the next winter season well stocked. Gas storage in Europe was full early this year, owing in large part to the availability of cheap LNG and a relatively weak drawdown over the previous winter.
But it is on the mid-2020s to which LNG developers focus has turned, perceiving a demand gap as South Asian countries in particular ramp up their demand for LNG, adding to still strong annual gains from China.
Yet the demand gap in 2020 appears to have been filled. According to GlobalData, the US will add 156.9 million metric tons per annum of new liquefaction capacity by 2023. Not all of this capacity is certain by any means, but even when only projects which have taken Final Investment Decisions (FIDs) are counted, in the US and beyond, the expected demand gap now looks narrow to non-existent.
Qatar plans an expansion from 77 million tons per annum (mtpa) to 110 mtpa come what may. Four 8 mtpa ‘megatrains’ are planned and expected on-stream at three to six-month intervals from 2024.
No formal FID has been taken, but the amount of contracting activity that has and is taking place around the North Field Expansion project indicates this capacity will emerge. In early October, Qatar Petroleum announced that it had short-listed potential partners for train construction. It has already awarded all the upstream contracts.
In Mozambique, two major projects have taken FID this year in addition to the already under construction smaller Floating LNG Coral project. In total, Mozambique can expect to go from naught to 31.5 mtpa capacity by 2024, although building two large LNG projects – Rovuma and Mozambique LNG – on the same site and at the same time is likely to create logistical challenges.
Russia’s Novatek has given a greenlight to its Arctic LNG 2 project, which will boost Russian LNG capacity by 19.8 mtpa. The company has plans to increase capacity to a total 70 mtpa by 2035, and Arctic LNG 2 will get it halfway there. Exploration successes suggest ample gas resources, and Novatek and LNG, in general, has strong Russian government support. Novatek has already demonstrated its capacity to get foreign partners, particularly Chinese finance, on board.
Then there is Canada. Although glacially slow to free itself from dependence on the US market, the FID taken on Canada LNG last year was a major step forward. The project is expected to give the country export capacity of about 13 mtpa from 2023, but there are a number of other LNG projects close to FID on both the west and east coasts, which could turn Canada into a significant market player by the mid-2020s.
Based on US Energy Information data for plants under construction or for which a formal FID has been taken – a relatively conservative measure - US liquefaction capacity should rise from 55 mtpa currently to 116.5 mtpa by 2024.
In addition to other projects, such as BP and Kosmos’s evolving west African LNG hub, and discounting the potential for existing site expansions, more than 160 mtpa of new LNG capacity can be expected on-stream by 2024.
At no time has LNG demand jumped that much in a five-year period, although the largest leap since the millennium was in 2014-2018 when LNG imports rose 97.34 mtpa.
There is on paper enough regasification capacity to absorb the increase and more being built, but the huge rise in liquefaction capacity presupposes much higher utilization in regions which have not previously demanded so much LNG, such as Europe.
The availability of competitively-priced LNG is itself a major demand stimulus, which will encourage new market entrants. But while in their initial phases LNG coming into, for example, India, Bangladesh and Pakistan, will meet existing gas deficits, the further out demand projections go, the more dependent they are on new infrastructure being built in-country.
All three south Asian countries have poor track records when it comes to the timely completion of major infrastructure projects.
McKinsey forecasts LNG demand growth of 3.6% a year from 2018-2035, arguing that supply additions will create a ‘long’ market until 2025 and possibly 2027. Others, such as Shell, in its LNG Outlook 2019, argue that supply investment is still needed to meet continued LNG demand growth, which it notes has surprised on the upside in recent years.
This optimism is not unwarranted. The potential for coal-to-gas switching in India and China, as well as the growth of new markets for gas such as in transport, are huge. Climate change concerns and local air pollution concerns suggest coal-to-gas switching will be actively pursued. But the critical issue for companies will be the timing.
On the supply side, the LNG industry appears doomed to a cycle of booms and lulls in construction activity as future supply gaps emerge and are over-filled. Demand-side growth expectations depend on longer-term structural changes largely in developing economies. There is ample potential for recurrent mismatches, with the current outlook being for an extended ‘long’ market.