Happy Friday and welcome to Energized! Before diving into a hopefully sunny Memorial Weekend with friends and family, let’s take a look at the geopolitics, news, and happenings of energy markets this past week.
Fast Facts – Houston Chronicle “Fuel Fix” as of Sunday, May 19th, 2019
Light, sweet crude (dollars per barrel): $62.76
- Last Week: $61.66
Natural Gas (dollars per million British thermal units): $2.631
- Last Week: $2.619
Rig count (United States): 987
- Last Week: 988
+The silence before the storm in oil markets – OilPrice.com
The article introduces the recent oil price volatility, global influences acting on current prices, and likely scenarios that would push prices higher or lower in the future. This is a good article to read if you’re interested in the effects of U.S. sanctions on Iran, the ramifications of the trade dispute between China and the United States, recent OPEC actions, and predictions going forward.
+Siemens spinning off gas and power division – CompressorTech2
“Siemens’ Gas and Power – comprising the company’s oil and gas, conventional power generation, power transmission, and related services businesses – is to be given complete independence and entrepreneurial freedom through a carveout and a subsequent public listing (spin-off).”
Lisa Davis, the CEO of Siemens’ Gas and Power, thinks that being independent will enable the division to “concentrate fully on the highly specific and quickly changing requirements of our markets and customers”.
Joe Kaeser, President and CEO of Siemens AG, said “Breadth, size, and a “one size fits all” approach will be replaced by focus, speed, and adaptability”.
Kaeser and Davis’ complimenting remarks, in conjunction with Siemens choice to retain a little less than 50% of the new company, indicate that management is confident with the spin-off.
+Oxy moves forward on Permian “Direct Air Capture” plant – Houston Chronicle
In Energized #005 we linked a MotorTrend article that discussed Canadian-based Carbon Engineering’s Direct Air Capture (DAC) technology that essentially scrubs the atmosphere for CO2. Low and behold, Oxy announced on Wednesday that it’s designing the first ever Permian Basin direct air capture plant. The plant won’t just be the first DAC plant in West Texas, it will also be the largest in the world.
Oxy is working with Carbon Engineering, the same company mentioned by MotorTrend, to capture 500,000 metric tons of carbon dioxide per year.
Oxy hopes to “build multiple plants, each capable of capturing 1 million metric tons per year”.
It seems that everything Oxy touches garners a headline. Buying Anadarko pole-vaulted Oxy to exploration and production behemoth status, yielding dramatic headlines and shaking up power and control in West Texas. Spearheading the construction of at least one renewable-powered DAC plant in the Permian proves favorable for Oxy’s image as an environmentally conscious independent oil company.
Winning a bidding war is one thing, but winning the hearts and minds that shape public perception is something entirely different.
+Seasonality and the Oilpatch – The Drilldown: In-depth answers to oilfield questions (May 6th, 2019 Podcast)
Richard and John Spears explain the seasonality of global oil demand. As we know, oil demand generally increases year over year, but when do those increases occur? Fascinatingly enough, the increases responsible for the entire year over year trend occur mostly between Q2-Q3.
To begin the year, oil demand stays relatively flat between Q4 of the prior year to Q1 of the current year. Then, between Q1 and Q2, demand picks up slightly by about 300,000-400,000 bpd. But between Q2 and Q3, demand spikes by an increase of 1,000,000 bpd. Demand doesn’t increase from Q3-Q4.
Visually, this looks like this:
Q4 (prior year)-Q1: Flat
Q1-Q2: 300,000-400,000 bpd increase
Q2-Q3: 1,000,000 bpd increase
Q4-Q1(next year): Flat
One reason for the massive spike from July-September is vacations.
Since the majority of the world’s population lives in the Northern Hemisphere, and people across the world travel by car and air during the summer more than any other season, it makes sense that the Spring and Summer seasons represent upticks in global oil consumption.
Additionally, transportation volumes via pipeline, rail, and truck as well as storage of oil, inventories, and refinery turnarounds all peak in the second quarter in preparation for the demand spike in Q3.
As far as rig count goes, Canadian rig count peaks in February. Between February and May, rig count falls 75% due to the bitter and wet cold, reaches a trough in May, gradually increases until December before spiking 50% from December to February.
Until about a decade ago, The U.S. would typically see a 20-25% drop in rig count between January to April before reaching a bottom in April only to rise 50% between April and December.
Unlike the Canadian weather-induced rig count, the seasonality of American rig count was more of a result of the tax code. Funding was often raised through tax shelters so independents would deplete their budgets by the end of the year and spend the first quarter raising money from investors all over again.
Now, the tax code has changed and there’s basically no seasonality in US rig count.
There are other reasons why cyclicality and seasonality occur in the oil business. January-February 2018 saw rig count numbers fall due to horrible weather.
If you have been subscribing to this newsletter for the past month you would know that completion numbers in the Permian Basin have been falling for a while now due to the lack of takeaway capacity.
For the time being, wells will be drilled but remain uncompleted. Completion activities like cementing, casing, and fracking all prelude production, meaning you don’t want to complete a well until there is a market available for your product. Since pipelines provide a safer and cheaper option for hydrocarbon transport than truck or rail, many operators will wait for pipelines to come online, causing West Texas completions to continue declining.
+Deepwater drilling pickup continues, contractor claims – Offshore Magazine
Seadrill CEO Anton Dibowitz was quoted in Offshore Magazine on Thursday. “We continue to see increased contracting activity in the deepwater market, in many instances with improved contract terms such as mobilization payments and certain capex being paid for by the customer.
“While the spot market for short-term work remains competitive, we are starting to see improvements in rates for longer-term work.”
Most of you are already familiar with our Oil 101 course, at least the free version. Did you know that we have companies that license the course to use as internal training for sales, IT and operations teams? If your group needs this, let’s talk.
Have a great weekend!
EKT Interactive Contributing Editor
Head Writer | Eau Claire Writing
Eau Claire Writing is a Houston-based freelance writing company that specializes in gas compression, turbomachinery, onshore and offshore drilling, and well service content for the oil and gas industry.
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