ENERGY: Oil report for June 22, 2018
OPEC’s Agreement Sends Oil Prices Soaring
OILPRICE.COM – OPEC issued a communique that called on a return to 100 percent compliance for the group, down from 152 percent in May. The announcement deferred country-specific allocations, likely because they could not agree on the details. The decision likely means that any country with spare capacity will be able to boost production. In practice, Saudi Arabia and Russia will carry the lion’s share. How individual countries make decisions about how much to produce, while still trying to stay below a collective cap, opens up a lot of uncertainty.
Oil up on vague outcome. Oil prices moved up the WSJ. “Any increase in production will come at the expense of spare capacity so that leaves the market much more vulnerable to future supply shocks,” she added.morning, on expectations that the result from the OPEC+ meeting won’t lead to a supply glut. In recent days, there seemed to be a bit of convergence on a plan to boost production, perhaps by around 600,000 bpd. That amount would merely offset the declines from Venezuela over the past year, and would not plug the entire supply deficit facing the market. “The market caught up a little in terms of realizing that the rumored increase was less than what is necessary to balance the market,” Emily Ashford, director of energy research at Standard Chartered, told
OPEC eyed 1 mb/d increase, but couldn’t agree. OPEC’s technical committee recommended a supply increase of about 1 million barrels per day, although press reports widely noted that such an increase would likely only be nominal, and actual barrels put onto the market would reach only about 600,000 bpd because several countries have no ability to boost output. The recommendation came even as Iranian oil minister Bijan Zanganeh walked out of a meetingnight, although he met with his Saudi counterpart morning. The discord likely led to the vague decision on 100 percent compliance, rather than on country-specific increases.
Oil and gas methane emissions higher than expected. A new study finds that the oil and gas industry might be leaking more methane from operations than is commonly thought. The study puts the methane leakage rate at about 2.3 percent of total production, or 60 percent higher than the EPA estimates. The difference is the equivalent of heating 10 million homes, and it also cancels out some of the net climate benefit that comes from switching from coal to gas for electricity.
EPA to put biofuels obligations onto large refiners. In a sign of retreat after outrage from the biofuels and corn ethanol industries, the EPA is reportedly set to propose putting biofuels obligations onto large refiners. The agency had issued a series of waivers to smaller refiners, allowing them to get out of buying and blending biofuels, to the anger of the ethanol industry. After the political fallout, the EPA seems to be reversing course, but will shift those requirements onto large refiners. The move is a sign of the political power of the corn lobby, as well as Midwestern Republicans in Congress.
Kimmeridge exits Carrizo, after activist campaign. Activist private equity group Kimmeridge Energy Management sold its position in Carrizo Oil & Gas (NASDAQ: CRZO) this week after a campaign to try to change the company’s strategy. Kimmeridge tried to get Carrizo to sell its oil fields in the Eagle Ford and to shift the company’s focus to the Permian. However, Carrizo resisted and Kimmeridge ultimately decided to sell its 8.1 percent stake. Maintaining Eagle Ford assets turned out to be a winner, now that Permian prices have plunged because of pipeline constraints.
U.S. natural gas output to soar 60 percent. A new report from IHS finds that U.S. natural gas production could jump 60 percent over the next 20 years, a finding that suggests the shale gas revolution has decades of running room. Dry gas production could hit 81 billion cubic feet per day this year, but rise to 118 bcf/d by 2037. Natural gas is expected to capture about 50 percent of the electricity market by 2040, up from about a third today.
Libyan forces retake oil terminal. Libya briefly saw the outage of about 450,000 bpd of supply because of attacks from militants, combined with the destruction of several oil storage tanks. Reuters reports that East Libyan forces have retaken the shuttered oil ports of Es Sider and Ras Lanuf, the two largest in the country. The three storage tanks that were destroyed will take years to repair. “Libyan production is very low but we are going to resume very soon,” Mustafa Sanalla, chairman of Libya’s National Oil Corp.,told reporters in Vienna. “After a couple of days we will resume, we start our operations hopefully.”
Permian DUCs to rise. Pipeline bottlenecks are forcing Permian drillers to leave more and more wells uncompleted. The drilled but uncompleted wells (DUCs) has more than doubled from the start of 2017, and should continue to rise as Permian pipelines fill up. “Some companies will have to shut in production, some companies will move rigs away, and some companies will be able to continue growing because they have firm transportation,” Pioneer Natural Resources (NYSE: PXD) CEO Scott Sheffield said.
Corpus Christi port receives funding for upgrade. The Port of Corpus Christiapproved $217 million for upgrades to equip the facility to handle large oil tankers. The 1-million-barrel Suezmax and the 2-million-barrel VLCCs can only partially load at the facility right now. The upgrade will expand the port’s – and the country’s – export capacity.
Global Energy Advisory –
|The hottest shale oil play in the United States may be nearing its limit in production because of a growing shortage of pipeline capacity. Drillers are already being forced to leave wells unfracked because they have no way of transporting the oil from the wellhead to refineries and in three to four months they might have to start actually shutting down wells because the existing pipelines will be filled to capacity, unable to take in any more crude.
The pipeline bottleneck problem in the Permian started garnering media attention only recently as production in the play boomed, reaching an estimated 3.277 million bpd this month, according to the latest EIA figures. There are plans for new pipelines that will add over a million bpd of capacity but these are yet to be built and until they are the problem will remain.
Pioneer Natural Resources chairman this week said some drillers will be forced to shutter production and others will have to move their rigs elsewhere. A lucky few with a certain pipeline capacity will get to stay and continue pumping as usual, but they are not without their problems.
A recent IHS Markit report says that Big Oil companies in the Permian will need to cough up as much as $30 billion between now and 2020 to meet their production targets for the play. This, the market research firm said, will mean more acreage purchases, mergers and acquisitions as well as higher production costs as the greater demand for oilfield services will boost prices for these services.
Amid shareholder pressure for keeping costs down, Big Oil in the Permian, which includes Exxon, Shell, and Chevron, will have to be really ingenious to juggle these costs with the rising prices for services in the Permian and the need to buy land and smaller drillers. The pipeline capacity shortage will certainly not help them achieve this goal.
Deals, Mergers & Acquisitions
• Equinor has finalized the acquisition of a 25% non-operated stake in the Roncador oil field from Brazil’s Petrobras for a cash consideration of $2 billion and additional payments of up to $550 million contingent on investments in the field’s production growth. Roncador is the third-largest producing oil field in Brazil, located in the prolific Campos basin. The stake will add some 60,000 bpd to Equinor’s equity production in Brazil.
• BP has pulled out of a deal with the Australian division of Woolworths for the acquisition of its fuel station network. The supermajor said the $1.32-billion acquisition no longer fitted in with its strategic objectives. Woolworths operated 527 fuel stations and convenience stores across Australia in 2016 when the deal was first announced.
• Equinor has bought 50% in a 118 MW solar power project in Argentina that will have the capacity to power 80,000 households when completed. The construction should be completed by late 2019 and will cost an estimated $95 million. The other 50% of the project were acquired by another Norwegian company, Scatec Solar. Equinor and Scatec will provide 40% of the equity financing for the project and the rest will come from a bridge loan, again supplied by Equinor. The total of Equinor’s financial participation in the project is $77 million. The final investment decision will e made later this year.
• Shell has sold its 15% stake in Malaysian LNG and its interests in two offshore fields in Norway as part of its divestment program that followed the acquisition of BG Group three years ago. From the sale of the Malaysian interest Shell will pocket some $640 million and the two Norwegian field stakes will fetch $556 million. The divestment program envisages proceeds of some $30 billion.
Tenders, Auctions & Contracts
• ConocoPhillips has awarded three contracts for the front-end engineering design of its Barossa offshore gas and condensate field in Australia’s Northern Territory. Conoco operates the Barossa field in partnership with South Korean SK E&S and Australian Santos Energy. Gas from the field will feed the Darwin LNG project after production from the current source of gas for the liquefaction facility, from the Bayu-Undan field will cease in the early 2020s.
• Mozambique is close to finalizing the contracts for the development of gas fields awarded in a 2015 tender, with winners including Exxon and Eni. The U.S. company plans to drill two wells in the African country once the contracts are signed, and Eni has plans for one well, all to be drilled next year. Mozambique has estimated gas reserves of some 180 trillion cubic feet.
Discovery & Development
• Nexen Energy, a unit of Chinese CNOOC, said it will go forward with its $300.3-million expansion project in the Alberta oilsands. The expansion will increase bitumen production from the Long Lake project by 26,000 bpd daily, with first of the new oil expected in 2020. The Chinese company’s decision is a rare one amid an exodus of foreign companies from Canada’s oilsands on pipeline bottlenecks and higher production costs but Nexen said in a statement it remains committed to its Canadian operations.
• Exxon is looking into reports of an attack on a gas pipeline construction project in Papua New Guinea. The project is part of Exxon’s PNG LNG project, which earlier this year suffered a temporary shutdown after a devastating quake. The company said the construction project is going as planned, despite ongoing tensions in the Highlands region, where the pipeline is being built.
• Total said it expected to start pumping oil in Uganda no earlier than 2021, which is a year later than the initial deadline for the start of production in the east African country. The final investment decision on the Tilenga project that Total operates in partnership with CNOOC and Tullow Oil as minority partner, is seen to be made later this year and production is slated to begin. Uganda has estimated reserves of about 6.5 billion barrels of oil and gas but production launch has been repeatedly delayed by disputes between oil companies and the government.
• Exxon is planning an LNG import terminal on the eastern coast of Australia in anticipation of a projected supply crunch emerging in the beginning of next decade. Exxon is currently active in gas production in the Gippsland basin off the coast of Victoria but output there is seen to drop by half from its current level by 2022. Importing gas seems inevitable and Exxon will face competition from two more LNG import projects, one from AGL Energy and one from Japan’s JERA.
• Nigeria’s High Court has dismissed a case brought by Shell against the National Oil Spill Detection and Response Agency for a $3.6-billion fine imposed by the agency on the supermajor for an oil spill from the Bonga field. The company argued the agency had no powers to impose such penalties but the judge ruled in favor of NOSDRA.
• The Stockholm Court of Appeals has suspended a ruling by the Court of Arbitration in favor of Ukraine’s state gas company Naftogaz against Russia’s Gazprom. The suspension means Gazprom could halt asset seizures pursued by Naftogaz across Europe. The Ukrainian company has appealed the court’s decision and most recently said it had been granted the right to seize Gazprom assets in Britain by a local court.
Politics, Geopolitics & Conflict
• Israel’s security services have arrested a former energy and infrastructure minister on allegations of spying for Iran.
• Saudi-led coalition forces have seized the airport in Hodeida, the port city that the coalition and the Houthi rebels have been fighting over for a week already.
• Colombia has a new president who has bet on improving the investment climate in the Andean country, cutting taxes, and reducing the government’s participation in the economy.