ENERGY: Oil report October 18, 2019 (CHARTS, GRAPHS)
Oil prices were down on Friday morning as the global economy continues to struggle with the realities of the U.S.-China trade war and crude inventories continue to build.
Saudi Aramco IPO to be delayed. Just days before the official launch of the IPO was to be announced, it now appears that the Saudi Aramco public offering will be delayed again. Bloomberg reports that there is a gap between the valuation that Aramco wants and the one that banks are coming up with. There is also a lack of clarity on some aspects of the company, complicating the calculus for the banks involved. It’s unclear when the offering will go forward, but Bloomberg said it would be delayed until at least December or January, instead of November.
Analysts see deeper OPEC+ cuts in December. As a result of weak demand a growing supply, and the growing likelihood of a glut in 2020, many analysts are betting that OPEC+ undertakes deeper cuts when they meet in Vienna in December. “If by December there are clear signs of economic weakness, then a further deepening by a minimum of 500,000 barrels a day would be highly likely,” Citigroup’s Ed Morse said.
Large EIA inventory build. The EIA reported a large 9.3-million crude oil inventory build for last week.
Oilfield services look to clean energy. A growing number of oilfield services companies are pursuing clean energy projects. “Almost 100 per cent of our tech development goes in the direction of the post-transition business,” Stefano Cao, CEO of Saipem, an Italian engineering group, told the FT. “The collapse of the oil price [in 2014] was an awakening to a new world.” In August, TechnipFMC (NYSE: FTI) announced plans to spin off its LNG business so that it can focus on clean energy. The current downturn in the market is likely accelerating this trend, analysts said.
Citgo’s fate in the balance as debt payment looms. Citgo has a $913 debt payment due at the end of the month, and creditors could seize parts of the company if it does not pay. But the company is stuck in the middle of U.S. sanctions, and the geopolitical battle over Venezuela.
Colorado will scrutinize 2,000-foot setbacks. A highly-anticipated study found that shale drilling operations pose health risks to people within 2,000 feet of drill sites in Colorado. The study found that the risk was highest during the flowback stage, when water and chemicals return to the surface. State regulators said they would apply additional scrutiny to drilling permits that are sited within 2,000 feet. Current law only requires setback distance of 500 feet, or 1,000 feet for high-occupancy buildings.
DTE Energy to buy gas gathering for $2.25 billion. DTE Energy’s (NYSE: DTE) pipeline unit, DTE Midstream, said that it would buy a natural gas gathering line system in the Haynesville shale in Louisiana for $2.25 billion.
More cuts to shale outlook. Several U.S. shale drillers saw their credit outlooks cut by analysts in the past week. Low oil prices and a struggle with profitability has soured investor sentiment.
Exxon to go on trial. After more than three years, ExxonMobil (NYSE: XOM) will finally go to trial next week over accusations that it misled shareholders about its financial risks from climate change. The odds are steep for the New York Attorney General bringing the case, but if Exxon loses the fallout could be significant. “If the state wins and especially if it obtains a large award, disclosures may become even more careful and even more cases may be brought,” Michael Gerrard, director of the Sabin Center for Climate Change Law at Columbia University, told E&E News.
Friday morning as worrying fundamentals and economic uncertainty boosted bearish sentiment further. OPEC+ is coming under an increasing amount of pressure to cut production as its next meeting nears.
U.S.’ green economy worth $1.3 trillion. A new study estimates that America’s “green economy” supports 9.5 million jobs, or about 4 percent of the U.S. workforce, and generates $1.3 trillion in annual revenue, or about 7 percent of U.S. GDP. “Don’t listen to the political rhetoric,” Mark Maslin, a professor of geography and one of the study’s authors, told Bloomberg. “Just look at the data and be hard-nosed about it, and say, ‘Okay, if we’re going to support the economy and make it grow and have lots of employment, this is where I need to invest.’”
Ethanol prices fall on EPA plan. EPA released details on its “fix” for ethanol, and prices for ethanol credits sank after the Trump administration seemed to deliver a disappointing proposal. Farm groups were angered by the “broken promise.”
Soaring shipping costs cut into U.S. exports. Bloomberg reports that due to the global spike in shipping costs – following U.S. sanctions on Chinese shipping giants – the number of deals on oil cargoes from the U.S. Gulf Coast is dwindling. “The Port of Corpus Christi is preparing for a slower U.S. crude export growth rate from its site in November because of the surge in freight rates from the Cosco sanctions,“ said Sean Strawbridge, the chief executive officer of the Port of Corpus Christi.
More coal layoffs. U.S. coal production is set to slide by 10 percent this year, which will likely lead to more job cuts.
Exxon’s strong Permian results. According to Wood Mackenzie, ExxonMobil (NYSE: XOM) is posting strong results in the Permian basin, including on decline rates, parent-child well interference, and cost savings. The consultancy cautions that it is still early, but Exxon is on its way to achieving its lofty production goals in the Permian.
TC Energy declares force majeure on Keystone pipeline. TC Energy (TSE: TRP) declared force majeure on the Keystone pipeline after a snow storm hit Manitoba.
Why Don’t We Fight Wars Over Carrots?
What are the geopolitics of carrots? It’s an odd question to ask, but one posed by veteran oil analyst Professor Paul Stevens at the LNGgc conference held October 9-10 in London. The point of the question is that carrots do not have geopolitics because they are cheap, abundant and available nearly everywhere.
Stevens was comparing carrots to renewable energy and contrasting both with oil. Renewable energy is widely distributed and available in some form to all countries.
Oil resources, at least conventional resources, are highly concentrated in the Middle East, while the main areas of consumption, with the exception of North America, tend to lack domestic reserves commensurate with demand.
Stevens’ observation was that decarbonization will de-politicize the provision of energy in terms of geopolitical competition for access to oil reserves and supply.
However, before this promised land is reached, geopolitics is likely to have some very real impacts and there is no certainty that energy security will improve. The path of decarbonization, whether fast, slow or unfinished, is likely to prove rocky.
The wide gap between climate change ambitions and current policies, alongside the large drop in renewable energy costs, suggest that oil companies may be substantially underestimating the likely speed and scale of change.
Take, for example, ratings agency Fitch’s recent report Midwest US Set To Experience Strong Growth In Solar Sector, which forecasts the addition of 100 GW of solar power capacity by 2030 in the US mid-West alone. Contrast this with comments made in London in October by Shell CEO Ben van Beurden that oil and gas companies have “no choice” but to continue investing in long-life projects because the world will continue to demand fossil fuels.
However, the idea that peak oil demand occurs soon (circa 2030) and is followed by a rapid decline in oil consumption is one-dimensional. It is built around the singular threat of climate change and does not assess the destabilizing impact on the Middle East, already fraught with tension and scarred by conflict, of a rapid decline in its life-blood oil revenues. The rapid change scenario – in which climate change is averted – may well prove more destabilizing than gradual adaptation.
Moreover, even in the rapid change scenario oil remains a multi-billion dollar industry. Near 100 million b/d of oil demand today cannot be replaced overnight or even in a decade in a world in which energy demand continues to grow led by non-OECD nations.
There is a general tendency to think that because the consequences of climate change are potentially so extreme politicians globally will act in concert with sufficient vigor and determination to avert disaster. This is a strong argument, but one based more on the moral imperatives created by the anticipated consequences of climate change than on an assessment of the practical ability to change.
That the world is not changing fast enough to avoid global warming is currently not an outside possibility but a most-likely outcome. The US Energy Information Administration’s reference scenario in its latest International Energy Outlook sees demand for all fossil fuels continuing to grow to 2050, an outlook clearly incompatible with the targets of the Paris Agreement on Climate Change.
Disasters unfold in part because global political thinking and decision-making lacks the institutions and cooperation to make action possible. Those institutions that do exist are weak because geopolitics remains dominated by national interests. The fact may be that climate change is a global challenge beyond both nation states’ ability to transcend their own concerns and oil and gas companies’ unwillingness to change their still profitable traditional business models.
For all the progress made by the COP series of climate change conferences, the breakdown in European unity, as evidenced by Brexit, and by a rules-based world trade order, as shown by the US-China trade war, suggest the global or at least transboundary policy harmonization required to address climate change is even less likely today than just three years ago.
As a result, policy failure is as legitimate a planning scenario as rapid transition.
However, the implications for energy security are also profound. Renewable energy may have a carrot-like abundance, but its deployment will not be sufficient in time to avoid the socio-economic consequences of climate change. The world will remain dependent on international oil and gas/LNG supply chains, but in a situation in which changing temperatures create all manner of new stresses and strains relating to food production, water supplies, population movement and catastrophic weather events.
Where are we now?
It is possible to place today’s oil market, characterized by oversupply amid weak demand, in the early peak oil consumption narrative. Weak oil demand is a combination of growing alternative transport fuel use – mainly electricity and LNG – as well as slower trade growth.
For the moment though the latter is the dominant factor, but the correlation between global economic recovery and oil demand declines as energy consumption overall becomes steadily less oil intensive, prompting industry rationalization and reorientation.
However, it is equally possible and perhaps more legitimate to place the oil industry within the failed policy scenario.
Across the broad scope of long-term energy forecasts, few, if any, actually predict rapid transition. That oil and gas companies are misjudging the likely pace and timing of change is a hypothesis based on the hope that governments and companies will act successfully to avert climate change. The most probable scenario is not 100% success, but maybe 60-80% success.
—— AUTO – GENERATED; Published (Halifax Canada Time AST) on: October 18, 2019 at 05:18PM