Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.
Fast Facts – Houston Chronicle “Fuel Fix” as of Sunday, May 26th, 2019
Light, sweet crude (dollars per barrel): $58.63
- Last Week: $62.76
Natural Gas (dollars per million British thermal units): $2.598
- Last Week: $2.631
Rig count (United States): 983
- Last Week: 987
From May 20th to May 24th, US oil prices posted their worst week of 2019. WTI reached a weekly low of around $57.50 before clawing back some of its losses. The steep drop can be attributed to a combination of US tensions with China, sanctions on OPEC member states Venezuela and Iran which could lead to Saudi Arabia increasing production, and US crude inventories reaching their highest level since July 2017. The price drop puts WTI back to where it was in late March, and still well above where it started the year in the low $50s.
As of the publication of this newsletter, WTI is flirting with $56, shedding further losses after a more than 4% drop on Thursday.
+Frac sand expected to remain cheap as supplies outpace demand – Houston Chronicle
Frac sand prices have fallen 20% in the last 12 months because completion demand is outpaced by growing Texas supply.
+New Mexico’s Permian leads another rig count dip – Houston Chronicle
US rig count has fallen by nearly 100 rigs since Fall 2018. The New Mexican side of the Permian Basin continues to lose rigs as drilling continues to gradually slow throughout the US shale plays.
+Trump administration hardens its attack on climate science – The New York Times
This article highlights the divide between the Trump administration and government agencies like the Environmental Protection Agency (EPA) and the United States Geological Survey (USGS).
For example, the USGS models the impact of climate change through the end of the century. James Reilly, the director of the USGS, ordered that assessments from here on out only use “computer-generated climate models that project the impact of climate change through 2040, rather than through the end of the century”.
“Scientists say that would give a misleading picture because the biggest effects of current emissions will be felt after 2040”.
The article goes onto to argue both sides of the decision to shorten the USGS forecast. The pro side argues that national agendas and energy policies need to be based on accurate forecasts, and going past 2040-2050 is simply too far. The con side argues that cherry-picking data to undermine the harmful effects of CO2 emissions is “a pretty blatant attempt to politicize the science”.
+Frac sand and the law of diminishing returns – The Drilldown: In-depth answers to oilfield questions (May 13th 2019 Podcast)
Demand for frac sand has steadily increased for years now and currently averages about 1,400 pounds per lateral foot.
But, the leading edge for frac sand use, meaning the highest amounts that are tested in the field today, are stalling out. Universal to all trends, if the leading-edge stops rising or declines, that typically signals a decline in the growth rate, or even nonexistent or negative growth going forward.
In years past, operators were testing 3,000, 4,000, even 5,000 pounds per lateral foot to see if it would increase recovery. It seems that, based on the current data, the law of diminishing returns is finally at play in the fracking industry. 1,400 pounds per lateral foot may stay as the sweet spot between affordability and recovery. Each marginal pound on top of 1,400 could cost more than its recovering, meaning frac sand demand would level off at 1,400.
Richard Spears makes a good point. For a 10,000-foot lateral, which is common in the Permian nowadays, quick math would indicate that 5,000 pounds per lateral equate to 50 million total pounds of frac sand per well. It’s not that operators really wanted to endure such a logistical nightmare to transport and deploy this magnitude of sand, it’s just that since fracking is relatively new. Until now, no one had figured out when more sand was actually ineffective.
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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