The Magic and Wonders of US Shale Supply: Keeping energy price shock minimised: US oil supply keeping lid on prices despite global risks: IEA chief

 

 

US oil supply keeping lid on prices despite global risks: IEA chief

Growth in US oil production has kept prices at "reasonable levels" despite the recent oil tanker attacks near the Strait of Hormuz and other supply risks around the world, International Energy Agency chief Fatih Birol said.

"There is substantial amount of oil coming from the United States, which puts a strong ceiling on oil prices," Birol said in an interview Friday on the sidelines of the G20 energy ministerial meetings in Karuizawa, Japan.

"Growth from the United States is a welcome addition to oil markets, especially looking at from an oil security point of view and looking at affordability for oil importers, including Japan, Korea and other Asian importers."

The IEA's June Oil Market Report forecast non-OPEC supply growth will rise to 2.3 million b/d in 2020, from 1.9 million b/d this year amid a surge in US shale and strong output from Brazil and Norway as new fields start up.

"According to our numbers, in five years' time, the United States will be the largest exporter in the world," Birol said.

"This is great news for consumers. Think about the fact we are seeing so many developments in the world: Venezuela, Iran, Libya, Nigeria and many [others]. Still, oil prices are staying at reasonable levels."

TANKER ATTACKS A WAKE-UP CALL

The alleged attack on two oil tankers near the Strait of Hormuz Thursday was a wake-up call to stakeholders in oil markets, Birol said.

"We are seriously concerned about the recent attacks, and we are monitoring the situation very closely in consultation with our member governments. We are ready to act if and when it is necessary."

The Front Altair and the Kokuka Courageous were carrying cargoes including naphtha. The incidents followed attacks on May 12 on four tankers near the bunkering port of Fujairah.

"Having lots of supply does not mean that oil security is not important, and this very important incident reminds all of us, all actors in the markets once again, how important an issue oil security is," Birol said.

The Strait of Hormuz was the most important oil choke point, especially for Asian energy importers, he said.

"Today about 18 million barrels of oil on a daily basis flows through this choke point coming from Saudi Arabia, emirates and other countries to China, Japan, India and other Asian customers."

"But at the same time it is a major route for LNG, liquefied natural gas. About 30% of LNG goes through this strait, coming again to Japan, South Korea, and other Asian countries."

Asked whether oil importers will need to seek alternative supplies away from regions so as not to have to transit the Strait of Hormuz, Birol said: "I think this will be a situation observed by oil importers, especially in this part of the world."

Birol said he did not expect a major shift in oil flows any time soon.

The tanker attacks and heightened supply risks came at a time of concerns about lower global oil demand growth.

Asked which was the biggest risk to the oil market, Birol said the IEA cut its oil demand growth forecast in its June report mainly because of a slowing in the global economy -- "not only the advanced economy, but [also] the emerging countries. Chinese economic growth prospects are much lower than previously thought".

The IEA cut its 2019 oil growth again to 1.2 million b/d, but it sees 2020 growth of 1.4 million b/d on petrochemical demand.

 

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Detractors of shale will throw around, anything negative about shale and are in perpetual denial of any benefit from it. I guess there are no benefits to shale.!!!

The jolt would have been deadlier without the US crude oil and liquids and NG supplies breaking records. All the shale detractors, specially in the OG industry, still wont like this.

Without US shale production, we could be seeing prices well lets say WTI to be around , well figure it this way, remove all US production from Shale, subtract the crude oil output from around the world that is shut in for any reason, Venezuela failure, Libya conflict, Iran sanctions, Canadian issues, North Sea decline, Nigeria swamp militancy attacks and theft, increased demands over the last 5 years etc, and we would be looking @ 120$/bbl WTI and 130$/bbl Brent at the low end.

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U.S., Canada, Brazil oil output nearly doubles in last decade -BP SRWE 2019

Global oil production shows the U.S. leading with 16.2% share
- Canada moved to 4th in the world last year from 7th in 2008 h

From 2008 to 2018 the amount of oil produced by the U.S, Canada and Brazil almost doubled. These three countries now produce roughly one quarter of the world's oil, according to BP's annual Statistical Review of World Energy 2019 .

The U.S. alone in this time has more than doubled its oil output and effectively grabbed an additional 8 percentage point slice of the world's oil production. Annual oil production data by country shows the U.S. with a world leading 16.2% share of global production last year. In 2008, the U.S. ranked third in the world with an 8.2% share. The top two a decade ago, Saudi Arabia and Russia, now trail at 13% and 12.1% of total 2018 production, respectively.

oil_world_production.jpg

Other countries with the largest gains in production over the last decade, following the U.S., are Iraq, Canada, Brazil, and the United Arab Emirates. Canada ranked seventh in the world in 2008 with a 3.9% world share but it rose to fourth globally with a 5.5% share last year. Iraq moved up six spots to sixth in the world. Kazakhstan and Qatar also each moved up six spots to 13th and 14th among the world producers. The Republic of Congo moved up seven spots, but accounts for a relatively small 0.35% share of global oil output.

oil_world_percentange.jpg

Countries in turmoil were the largest decliners over the past decade, namely Syria, Venezuela, Sudan and Yemen. Syria fell 16 spots, Venezuela 11 and Sudan and Yemen each dropped 10 spots in the global ranking of output. Venezuela, the largest producer among the four, is now ranked 17th in the world with a 1.6% share.

Oil production from countries in the Persian Gulf and Arabian Sea regions rose from a 31.2% global share in 2008 to 33.3% by 2018.

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it may be fixing to go up more....the Halliburton frac crew I am with now said in July ALL 13 crews currently down are all fixing to get to work on ducs.  We're with a small producer out of ND with 2 rigs in Permian Wolfcamp currently drilling on 4 and 5 well pads to be finished drilled in Sept. then another 4 and 5 well pads.  Finishing frac on this one well pad next Friday then onto a couple more down the road outside Pyote but looks like we'll be busy into 2020 with this operation.

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Keeping a lid on prices when you are desperately attempting to get out of debt does not sound like a sound business strategy to me....but then again, I'm not a 'finance guy'.

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Since when has it become the responsibility of the United States of America to provide the rest of the world with cheap, abundant LTO exports...using credit/debt? The IEA talks up American shale oil, naturally, because the entire world is benefiting from it; it could care less about how fast the resource is being depleted in our nation, how woefully unprofitable it is to extract, how much debt there is associated with it, how much gas is getting wasted with it or where the water is going to come from to frac the damn things. OPEC + and Russia, by the way, are loving the whole "revolution" thing; America is growing its production and exports while other world producers are reducing theirs. In 5-6 years other world oil producers who can think past next week will be selling oil back to America for 3 times the cost.   

"Distractors" from shale oil should not be confused with folks who understand decline and depletion of hydrocarbon resources and who want the best for their country...long term. Either/ or, black or white, shale production or no shale production is a weak argument. What we're trying to sort out here, some of us anyway, is  a better way to manage shale oil production in America. Folks who can't get their arms around that have an agenda that's not in the best interest of our future. 

 

AACSYWT.jpg

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(edited)

On 6/15/2019 at 7:27 AM, Mike Shellman said:

Since when has it become the responsibility of the United States of America to provide the rest of the world with cheap, abundant LTO exports...using credit/debt? The IEA talks up American shale oil, naturally, because the entire world is benefiting from it; it could care less about how fast the resource is being depleted in our nation, how woefully unprofitable it is to extract, how much debt there is associated with it, how much gas is getting wasted with it or where the water is going to come from to frac the damn things. OPEC + and Russia, by the way, are loving the whole "revolution" thing; America is growing its production and exports while other world producers are reducing theirs. In 5-6 years other world oil producers who can think past next week will be selling oil back to America for 3 times the cost.   

"Distractors" from shale oil should not be confused with folks who understand decline and depletion of hydrocarbon resources and who want the best for their country...long term. Either/ or, black or white, shale production or no shale production is a weak argument. What we're trying to sort out here, some of us anyway, is  a better way to manage shale oil production in America. Folks who can't get their arms around that have an agenda that's not in the best interest of our future.  

Agreed that debt is generally bad.  On the other hand, debt may be preferable to our previous situation, which was dependence on the whims of violent, unpredictable regimes.  If the government is taking on debt to juice shale oil production, I understand why.  Better that than increased defense expenditures on top of massive exports of wealth to purchase oil. 

The other question you raise is reserves, and I gather you don't think North American shale production will last.  I admit I'm not an expert, so please fill in details I'm missing.  I suspect now is the time to use these allegedly limited resources.  The world is on the verge of a technological revolution.  Oil consumption will be displaced by a combination of natural gas (of which we have plenty), electricity (of which we also have plenty), and waste-to-oil production.  If we know domestic oil demand will decline, shouldn't we extract everything we have now while it still has value?  I doubt we'll end up importing in the future, but even if we did, the quantities would be far lower than they are today.  Now seems like a strategically optimal time to produce shale oil.  Why do you think we should wait? 

On that note, I'm not convinced North American shale oil production will decline so rapidly.  There have been plenty of losses, but when I read about oil majors investing heavily and talking about lower costs, I wonder if the massive debt, bankruptcies, and losses are old news.  The same thing happens in every new industry: initially, many players enter the market.  Most go bankrupt.  A few hold on long enough to make serious profits.  Is shale oil so different from past technologies? 

There's also non-shale oil.  I read about new technology lowering costs in off-shore oil, untapped fields in Alaska, coastal waters we haven't touched, the massive oil sands in Canada, and possibilities for oil shale in Utah.  Will these resources never be tapped? 

Edited by BenFranklin'sSpectacles
Typo.
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4 hours ago, Douglas Buckland said:

Keeping a lid on prices when you are desperately attempting to get out of debt does not sound like a sound business strategy to me....but then again, I'm not a 'finance guy'.

On the other hand, it is keeping the costs down for US consumers, otherwise we would probably be seeing 3+-4+$/gal gas. Nothing comes easy, there is always a trade off, some one pays a price for some other people to enjoy luxuries (necessities) at a lower cost.

Imagine the outrage that would exist right now about gas prices among other things, if 4-6mil bpd of US shale was removed from the market?

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3 minutes ago, ceo_energemsier said:

Imagine the outrage that would exist right now about gas prices among other things, if 4-6mil bpd of US shale was removed from the market?

We would be back to $100 oil in Mike Shellman's balanced market pre-shale.

Edited by wrs
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1 hour ago, wrs said:

We would be back to $100 oil in Mike Shellman's balanced market pre-shale.

And good ole Mike will be very happy with sending US$ , US$ earned by Americans, of all ages and what nots, and his kids and grand kids sending all those  hard earned dollars from every single half a barrel or a barrel of oil pumped out of every single stripper well to Q8, KSA, UAE, Iraq, Nigeria, Brazil and wherever else we will get the 4-6 mil bpd of crude. And all the gas station business owners having to take extraordinary measures to prevent fuel theft and people driving off without paying and paying a lot extra for just about everything else.

I think I am going to go to some store that sells crayons so I can buy them now while they are cheaper:D🤣

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7 hours ago, Mike Shellman said:

Since when has it become the responsibility of the United States of America to provide the rest of the world with cheap, abundant LTO exports...using credit/debt? The IEA talks up American shale oil, naturally, because the entire world is benefiting from it; it could care less about how fast the resource is being depleted in our nation, how woefully unprofitable it is to extract, how much debt there is associated with it, how much gas is getting wasted with it or where the water is going to come from to frac the damn things. OPEC + and Russia, by the way, are loving the whole "revolution" thing; America is growing its production and exports while other world producers are reducing theirs. In 5-6 years other world oil producers who can think past next week will be selling oil back to America for 3 times the cost.   

"Distractors" from shale oil should not be confused with folks who understand decline and depletion of hydrocarbon resources and who want the best for their country...long term. Either/ or, black or white, shale production or no shale production is a weak argument. What we're trying to sort out here, some of us anyway, is  a better way to manage shale oil production in America. Folks who can't get their arms around that have an agenda that's not in the best interest of our future. 

 

AACSYWT.jpg

There is a lot of truth in that cartoon. It makes me want to laugh and cry at the same time. If only people realized what it means for the future of Americans. We could repeat the whole FDR chicken in every pot scenario. I don't see a scenario where the American voters ever demand less benefits and services so that we can someday balance the budget. It should be the main thing discussed on the news. 

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Monthly U.S. crude oil imports from OPEC fall to a 30-year low

Monthly U.S. crude oil imports from OPEC fall to a 30-year low

U.S. crude oil imports from OPEC member countries

Source: U.S. Energy Information Administration, Petroleum Supply Monthly

U.S. imports of crude oil from members of the Organization of the Petroleum Exporting Countries (OPEC) in March 2019 totaled 1.5 million barrels per day (b/d), their lowest level since March 1986, based on data in EIA’s Petroleum Supply Monthly. U.S. crude oil imports from OPEC members have generally fallen over the previous decade as domestic crude oil production has increased.

From the early 1980s through the late 2000s, OPEC member countries were the source of about half of all U.S. crude oil imports. In the past decade, however, total U.S. crude oil imports have fallen and OPEC’s share of those imports has decreased. Non-OPEC countries such as Canada, Mexico, Brazil, and Colombia have made up larger shares of U.S. crude oil imports. In each of the past four years, Canada alone has supplied more crude oil to the United States than all OPEC members combined.

U.S. crude oil imports from OPEC member countries

Source: U.S. Energy Information Administration, Petroleum Supply Monthly

Through the first three months of 2019, U.S. crude oil imports from OPEC members Venezuela and Iraq have fallen the most. In 2018, Venezuela was the source of 505,000 b/d of U.S. crude oil imports, or 20% of the OPEC total. In March, the United States imported just 47,000 b/d of crude oil from Venezuela. Preliminary weekly import values show several weeks in March and May when the United States imported no crude oil from Venezuela.

U.S. sanctions directed at Venezuela's energy sector generally and Petróleos de Venezuela, S.A. specifically have driven U.S. imports from Venezuela to recent low levels. Before the United States imposed the sanctions, U.S. imports had been declining as long-term mismanagement of Venezuela’s oil industry, and widespread power outages since the beginning of this year have led to significant declines in Venezuelan crude oil production.

U.S. crude oil imports from other OPEC members also declined following a November 2016 agreement by OPEC members and a number of non-OPEC producers to cut crude oil production. As a result of the production cuts, many OPEC members reduced exports to the United States in favor of growing markets in Asia. In the first three months of 2019, the volume of U.S. crude oil imports from Saudi Arabia and Iraq—the two largest sources of imports from OPEC in 2018—have averaged 26% and 28% below their 2018 average levels.

U.S. crude oil imports from OPEC member countries by import area

Source: U.S. Energy Information Administration, Petroleum Supply Monthly

In 2018, the U.S. Gulf Coast region (defined as Petroleum Administration for Defense District 3) imported 1.4 million b/d of OPEC crude oil, or 55% of the national total of OPEC imports. With the recent decline, the U.S. Gulf Coast imported just 513,000 b/d from OPEC in March 2019. U.S. Gulf Coast imports of OPEC crude oil in March were below those for the West Coast region, marking the first time on record that the Gulf Coast region was not the predominant import area of OPEC crude oil in the United States.

For total crude oil imports, the Midwest (defined as Petroleum Administration for Defense District 2) has received more crude oil than the Gulf Coast in every month from November 2018 through March 2019, the latest available monthly value. Nearly all of the Midwest’s crude oil imports come from Canada.

U.S. crude oil imports and exports by region

Source: U.S. Energy Information Administration, Petroleum Supply Monthly

The decline in Gulf Coast crude oil imports and the recent rise in crude oil exports has led the Gulf Coast region to be a net exporter of crude oil in every month from November 2018 through March 2019. More than 90% of the U.S. crude oil exported since the start of 2018 has been shipped from Gulf Coast ports.

A recent This Week in Petroleum analysis provides more insight on recent changes and long-term trends in Gulf Coast crude oil supply.

 

https://www.eia.gov/todayinenergy/detail.php?id=39852

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C&J Energy and Keane to Merge in $1.8B Deal

Houston-based oilfield services companies C&J Energy Services and Keane Group, Inc. plan to merge in an all-stock deal valued at about $1.8 billion, including $255 million of debt, the companies announced Monday.

Under the terms of the merger agreement, C&J shareholders will receive 1.6149 shares of Keane common stock for each share of C&J common stock owned.

Both companies focus on well completions for oil and gas companies, and upon closing, the combined company will have 2.3 million hydraulic fracturing horsepower (HHP) including 50 frac fleets, 158 wireline trucks, 81 pumpdown units, 28 coiled tubing units 139 cementing units and 364 workover rigs.

In addition, the combined entity will have an expanded footprint in active U.S. basins, such as the Permian, Marcellus/Utica, Eagle Ford, Rockies/Bakken, Mid-Continent and California.

“With two strong teams, enhanced and diversified operations, a strong balance sheet, ample liquidity, attractive free cash flow and a legacy of successful R&D, the combined company will be well positioned to further invest in technology and innovation, as well as the career development of our employees to drive sustainable growth in our dynamic industry,” Keane CEO Robert Drummond said in a company release. “In C&J, we’ve found a partner who is equally committed to our strong employee culture with a focus on safety and customers, with whom we are eager to join forces to leverage our combined resources and strengths.”

C&J CEO Don Gawick added, “This agreement to merge C&J and Keane underscores the highly complementary nature of our two platforms and cultures…we are excited by the many strategic and financial benefits of this combination, including the opportunities for our employees from the greater scale and enhanced capabilities of the combined company.”

Drummond will serve as president and CEO of the combined company while Jan Kees van Gaalen, chief financial officer of C&J, will serve as executive vice president and chief financial officer and Gregory Powell, president and chief financial officer of Keane will serve as executive vice president and chief integration officer.

The merger is expected to close in the fourth quarter of 2019.

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I think that we need to recognize that regardless of who is now buying up the various shale oil basins, they are still buying the same tight rock and fluid dynamics of whoever sold it to them. The fact that a multinational has stepped in does not magically change the geology and pressure regimes in the slightest.

Furthermore, the multinational will not have any appreciable technological advantage over the previous owner. The technological leaps are generally made by the service companies, not the operators. Anyone with money has access to the technology.

The signature decline curves associated with LTO do not change with the owner, neither does the sibling well issue, lack of pipelines or shortage of competent people.

Finally, just by the nature of the business, the majority of the 'sweet spots' have been drilled. Generally speaking, each incremental well drilled from this point on will suffer an incremental loss of production potential.

Admittedly, the multinationals have deeper pockets and more money to throw at any problem, but no amount of money will change the rock properties or the fluid regime that they are drilling into.

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SOLUTIONS, not denials of tech, whining or useless self serving "advocacy"!!!!!

LNG is also being shipped from TX to Mexico, same process and set up can be used to truck out gas from the Permian as LNG to other parts of TX and demand hubs and or to pipeline and terminal sites instead of flaring it all!!!!

NextEra-Backed Venture Trucks LNG to Northeast

(Bloomberg) -- A venture backed by NextEra Energy Inc. is trucking natural gas from the Marcellus Shale to New England, where pipeline bottlenecks have helped send prices for the fuel soaring in the winter.

Closely held Edge Gathering Virtual Pipelines 2 LLC is using tractor trailers to treat gas, chill it and truck it from northeastern Pennsylvania to Rhode Island, Chief Executive Officer Mark Casaday said in a telephone interview. NextEra Energy Marketing LLC, a subsidiary of the biggest North American utility owner, is a shareholder in the company and the exclusive sales and marketing partner for the fuel.

Gas explorers are looking for new ways to get their supply to market as multibillion-dollar pipeline projects to transport shale gas to consumers in the Northeast stall amid opposition. The Trump administration has sought to speed up approval of gas lines, which have faced legal and regulatory roadblocks amid concern about fossil fuels’ contribution to climate change.

“By next year this time we will probably have increased our production five or 10 times” as more Marcellus producers sign on, Casaday said. “It’s pipeline constraints, but it’s also the connectability of pipelines. A lot of wells are in no man’s land.”

New Fortress Energy LLC, founded by billionaire Wes Edens, is also considering trucking Marcellus LNG north. Casaday said Edge Gathering is in discussions to haul supply from the Permian Basin of West Texas and New Mexico and the Bakken formation in North Dakota and Montana, where gas is a byproduct of oil drilling and is often burned off in a process known as flaring.

Edge’s first Pennsylvania project can produce the equivalent of 1 million cubic feet a day, or two truckloads, according to Casaday. Other Edge backers include LNG equipment maker Galileo Technologies SA and private equity firm Blue Water Energy LLP.

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US crude oil exports buoyed by widening WTI/Brent spread

 

The US exported more than 3 million b/d of crude for the second week in a row in the week ended June 7, aided by macroeconomic factors that have made US oil prices more attractive.

According to S&P Global Platts Analytics data, more than 3.18 million b/d was exported from the US last week, down slightly from the estimated 3.35 million that was exported during the week ended May 31. The Energy Information Administration reported US crude exports averaging more than 3 million b/d since the week ending May 24.

At least 4 million barrels loaded last week are destined for delivery to India, including one VLCC cargo that was loaded June 4 on to the tanker New Prime at the Louisiana Offshore Oil Port. New Prime was chartered by Shell for the voyage, according to Platts’ fixtures reports.

It was not the only VLCC that loaded at LOOP last week. A second ship, the Captain X Kyriakou, chartered by Mercuria, was loaded and sailed from LOOP on June 2. That cargo of US crude is expected to be delivered to South Korea, according to Platts trade flow software cFlow.

PON_20190611_USCrude.jpg

LOOP has rarely loaded two cargoes in one week since it began exports more than one year ago. The offshore facility typically loads about one cargo a month for export, and has the capacity to load some 900,000 b/d, according to company officials. LOOP declined to comment on the recent loadings.

The two VLCCs that loaded last week join another LOOP loading noticed in recent weeks. Coswisdom Lake sailed from LOOP on May 31 and is destined for Qingdao, China.

The US’ four-week crude oil exports average is 3.221 million b/d. It’s the first time that the four-week average has reached over 3 million b/d since March, according to EIA data. Various factors encourage and limit US crude exports. However, it is expected that more US crude will be exported in coming years as US production increases and infrastructure along the US Gulf Coast is expanded. Currently, the US Gulf Coast has the capacity to handle some 5.92 million b/d of crude.

Macro factors favor exports
US crude for export has benefited over the past four weeks from certain macroeconomic and geopolitical factors that have helped widen the Brent/WTI spread. Over the last four weeks, the Brent/WTI swap spread, an indicator of the competitiveness of WTI-based crudes versus their Brent-based counterparts, has averaged $8.23/b. In the four weeks prior, the swap spread averaged $7.71/b, while the four further weeks prior, the swap spread average $7.15/b.

20190611_WTIBrent.jpg

A widening swap spread is indicative of WTI-based crudes becoming more competitive in comparison to their Brent-based peers.

The factors affecting the Brent/WTI spread can be placed into two categories: demand-side and supply-side. On the demand side, lingering US-China trade tensions have created fear of an overall slowing of the global economy. Any dip in demand growth spurred by a cooling relationship between the world’s two largest economies has potential to disrupt global supply chains and investment.

US-China trade tensions have contributed to an overarching decline in momentum for European and Asian markets. Business confidence has weakened and economic indicators ranging from car production in Germany, investment in Italy, and external demand in emerging Asia have all been lackluster.

US crude oil stocks and OPEC-plus production cuts have driven supply-side concerns in the global oil complex. US crude stocks have trended upwards in 2019, with stocks climbing 6.77 million barrels in the week ending on May 31, and up nearly 40 million barrels since the start of the year, according to data from the EIA. With US crude production at record levels, and production in the Permian Basin forecast to grow 26% year over year in 2019, the global market is a natural outlet for the new barrels.

OPEC and partners, Russia in particular, sought to bring nearly 1.2 million b/d off the global market in the first half of 2019, a goal they accomplished and passed by 300,000 b/d in March. As a continuation of OPEC cuts is expected, and Saudi oil output at a four-and-a-half year low, US crude exporters are well positioned to grow market share.

WTI FOB with a loading window from June 22 to July 22 was assessed by S&P Global Platts on June 7 at a $7.30/b premium to the WTI strip. That represents a 31 cents/b premium to July barrels of WTI at the Magellan East Houston Terminal.

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OPEC’s Battle for Control of the Oil Market

 

Oil supply is confounding expectations. At Wood Mackenzie, we have just raised our forecasts for non-OPEC production, the latest in a series of incremental increases.

Cumulatively, we’ve increased volumes for 2025 by an astonishing 9 million barrels per day (b/d) compared with our forecasts in 2016, the oil price nadir. Non-OPEC supply has already bounced from the 2016 low of 54 million b/d and will touch 60 million b/d this year.

Our latest Macro Oils Long Term Outlook expects a peak of 66 million b/d in 2025, 5% above our forecast last year. Oil demand too has grown more quickly than expected, up 6 million b/d on 2016 forecasts.

Production keeps on growing despite structurally lower oil prices and upstream investment still 40% below peak.

Did we, like many others, underestimate the industry’s ability to adapt and innovate in the face of financial adversity – and keep on producing oil? Maybe. But where on earth is it all coming from? Dougie Thyne, Director of Oil Supply Analysis, identifies four main buckets.

U.S. Lower 48: tight oil and natural gas liquids (NGLs) together contribute 4.3 million b/d, half of the increase versus 2016. This primarily reflects the emergence of the Permian basin as the dominant tight oil play.

The delineation of sweet spots, more efficient drilling, and the present shift to industrialized exploitation have led to a significant improvement in Permian well economics.

Innovation has boosted expected recovery from the more mature Bakken, Eagle Ford and Scoop-Stack plays to a lesser extent.

NGLs associated with the gassier parts of the Permian and shale gas plays make up about one-third of the U.S. Lower 48 increase.

Russia: our forecasts for 2025 are 1.4 million b/d higher than three years ago, in spite of sanctions which restrict inward investment and the transfer of the latest technological advances.

The weakness of the ruble has buoyed upstream margins in Russia since the price fell, supporting higher investment, including an intense drilling program in deeper, low-permeability plays in West Siberia.

Sanction of some greenfield projects has been deferred by Russia’s involvement in OPEC+, effectively pushing new volumes out by a few years.

Guyana: only the original Liza discovery was in our 2016 forecasts. We’ve added another 0.5 million b/d by 2025, reflecting multiple subsequent deepwater discoveries. First production is due in 2020, setting Guyana on track to enter the top 12 non-OPEC producers with over 1 million b/d by the end of the decade.

Mature producers: Together, these have added over 2 million b/d compared with our 2016 forecasts. Colombia, UK, Norway, U.S. (Alaska) and Canada are among a plethora of countries which have surprised on the upside.

Cost cutting, efficiencies, reduced maintenance outages, high-grading and streamlining of new projects, new discoveries tied into existing infrastructure and, in some cases, reduced tax rates have combined to slow decline rates and boost production.

There are valid questions whether production from ultra-mature basins is sustainable at these rates, or volumes are merely being accelerated. As a result, some of these producers are slated to see steeper declines.

Non-OPEC supply won’t grow at this rate forever – in fact, it stops after 2025 as tight oil plateaus, with decline setting in by 2030. In the meantime, the OPEC+ strategy to boost revenues by constraining production and buoying up price has helped its competitors boost production and gain market share.

We estimate non-OPEC production will swallow up 4.3 million b/d, or 76%, of contestable demand over the next five years. OPEC’s scope to increase volumes through this period is limited to just 1.3 million b/d.

The mathematics sits at odds with Abu Dhabi, Kuwait and Iraq which are investing heavily in new capacity. Some producers in OPEC do see flat or declining volumes in this period.

Major supply outages are helping OPEC+ to balance the market today. Disruptions are set to leap to a record 5 million b/d later this year, including 2.5 million b/d from Iran (sanctions) and Venezuela (economic meltdown and U.S. sanctions).

It may suit the rest of OPEC, as well as the U.S., if exports from Iran and Venezuela are kept off the market for some years – at least until non-OPEC production growth shows signs of abating.
Source: Wood Mackenzie

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Abundant oil supply prevented spike to $140/b after ship attacks – US DOE deputy

 

A “very well-supplied” oil market prevented prices from spiking to $140/b last week when two oil product tankers were attacked near the Strait of Hormuz, US Deputy Energy Secretary Dan Brouillette said in an interview with S&P Global Platts.

The ship attacks and concerns about oil supply security have dominated talks among delegates at the G20 energy and environment meetings in Japan.

Saudi Arabia’s energy minister Khalid al-Falih said Saturday that the attacks have damaged global confidence in oil security, and he called for a “rapid and decisive response” to the threat to energy supplies.

International Energy Agency chief Fatih Birol said Friday that the group was very concerned about the attacks. He said IEA was ready to respond in the event of a supply disruption with a range of options, from providing members immediate policy advice to coordinating a release of emergency oil stockpiles.

Brouillette’s agency manages the US Strategic Petroleum Reserve, which currently holds 644 million barrels of crude oil. Asked if the Trump administration would tap the SPR in response to a blockage of the Strait of Hormuz, he said: “The SPR is intended for large disruptions in the marketplace.”

“I can’t tell you without knowing the details whether this particular event constitutes an emergency under the federal law,” Brouillette added. “But it’s these types of events we look at with regard to release of the SPR.”

RISING US EXPORTS

Brouillette’s message to G20 delegates focused on rising US oil and LNG exports and US producers’ willingness to meet the energy needs of Asian and other customers.

Some analysts have questioned whether the world can absorb all the light sweet crude the US is projected to export in several years, given complex refiners’ reliance on heavy crudes. US sanctions against Iran and Venezuela have removed mostly heavy crude from the market.

Brouillette dismissed the crude quality concerns. He said Gulf Coast refiners have started adjusting operations to make use of more light crude, while there has been an uptick in alternative heavy crude sources, such as offshore Gulf of Mexico production.

On LNG exports, Brouillette said China’s retaliatory tariffs and trade policy uncertainty have not damaged the prospects for the US LNG industry. He said sales to South Korea, Japan and Mexico make LNG exports to China “almost a rounding error.”

“The trade conversation with China at the moment has very little impact on US LNG production or exports,” he said.

LNG COMPETITION

Brouillette added that the US is not worried about competition from LNG export terminals in British Columbia, Canada, which hold a location advantage to Gulf Coast ports as cargoes can reach Asia quicker.

“We hope they enter the market because it means cheaper gas for everybody,” he said. “It only makes us better competitors and more efficient operations if they enter the market. We face fierce competition from Australia, Qatar and others already.”

On reports that Russia is boosting gas shipments to Europe to test the limits of US LNG exports, Brouillette said Europe’s access to US LNG imports has forced Gazprom to cut its prices.

“That’s good for consumers in Europe,” he said. “More and more countries are starting to realize the argument around diversity of supply and diversity of suppliers in particular.”

US energy secretary Rick Perry met last week with Polish President Andrzej Duda at Cheniere’s Sabine Pass LNG terminal near the Texas-Louisiana border.

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Phillips 66 is looking to build an offshore export terminal in the Gulf of Mexico, a project that would join a growing list of facilities being planned to handle the growing shipments of U.S. shale oil.

The proposed deepwater port would be located about 21 nautical miles off the Texas coast, near the Port of Corpus Christi, the company said Wednesday in a statement. Phillips 66, the largest U.S. refining company by market value, would construct two parallel pipelines to carry crude to the facility’s two floating jetties, known as single-point mooring buoys, according to people familiar with the matter, who asked not to be named because the plan hasn’t been announced.

Any offshore terminal would require approval from the U.S. Coast Guard and the U.S. Department of Transportation’s Maritime Administration.

The proposed project “would provide an additional safe and environmentally sustainable solution for the export of abundant domestic crude oil supplies from major shale basins to global markets,” Dennis Nuss, a spokesman, said in an emailed statement.

Phillips is already a partner in a venture to develop a deepwater marine terminal in Ingleside, Texas. Going ahead with an offshore project as well would put the company in direct competition with commodity trading house Trafigura Group Ltd., which is developing its own terminal in the Gulf of Mexico. That proposal has faced opposition from the Port of Corpus Christi, which along with The Carlyle Group is developing an onshore export terminal.

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