Friday, November 8th, 2019
Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.
Before diving into this week’s content, we’d like to remind you to join our Energized LinkedIn Group. We will be releasing frequent news and snippets of Energized newsletters through the group. We hope to see you there. Also, if you haven’t already, visit our website to gain access to our free Oil 101 introductory course, our popular series of mobile-ready videos describing “How the industry works.” Ready for more? Check out our in-depth Oil 201 course which covers exploration, drilling, production, well completions, and refining. If your company or group is interested in Oil 101, let’s talk. We license our courses for use as internal training for sales, IT and operations teams. Think you know someone who would enjoy this newsletter? Pass it on! They can subscribe and access our Energized archives here.
Now, onto this week’s issue.
Curated weekly oil and gas newsletter
Oil Prices and Markets
+ Fast Facts – Houston Chronicle “Fuel Fix” as of Sunday, November 3rd, 2019
Light, sweet crude (dollars per barrel): $56.20
Last Week: $56.66
Natural Gas (dollars per million British thermal units): $2.714
Last Week: $2.30
Rig count (United States): 822
Last Week: 830
+ Natural gas soars on cold-weather forecasts – The Wall Street Journal
“Prices are at their highest level since late March; investors focus on inventory data”
Natural gas prices tend to go up in the wintertime and that’s exactly what’s occurring in the commodities market with cold weather forecasts for November and the following months.
“While a sustained rally in natural-gas prices could significantly push up heating costs for consumers, cutting into available income and threatening economic growth, prices are still down for the year and well below where they were around this time last year.”
This Wall Street Journal article discusses the trading around the commodities market, so feel free to give it a read if you’re interested in that. If not, the main takeaway is that natural gas prices went up 17% since last week, which is a pretty big move for prices that have been in the low $2.00-2.40 range for some time now.
Trade, Policy, and Commerce
Before getting into the article, here’s some primer on the Jones Act. Also known as Section 27 of the Merchant Marine Act of 1920, the Jones Act was a return to American protectionist/isolationist policies commonly seen before World War 1 (think Theodore Roosevelt’s Big Stick initiatives in Nicaragua, Cuba, Venezuela, etc.) The United States was looking for ways to sustain the industrial and manufacturing boom that came as a result of America entering WWI in 1917. As a result, Congress enacted the Jones Act, which stimulated the American shipping industry by requiring “goods shipped between U.S. ports to be transported on ships that are built, owned, and operated by United States citizens or permanent residents.” That basically means that shipping costs to non-continental U.S. states or lands such as Alaska, Hawaii, Puerto Rico, Guam, U.S. Virgin Islands, etc. are significantly increased because there’s a small supply of American built, owned and operated vessels that can deliver imports. “This creates a scenario in which shipping companies can charge higher rates because of a lack of competition, with the increased costs passed on to consumers.”
The Wall Street Journal Opinion piece questions the delivery of Russian gas to an American port in the wake of U.S. natural gas supply that is now the largest in the world. Why import more supply when we have enough and producers want higher prices? The author argues the Jones Act is partially to blame.
“It’s a particular problem for liquid natural gas, since there are zero LNG tankers that meet Jones Act rules. That means Puerto Rico effectively is barred from importing gas from LNG terminals in Georgia or Louisiana. As a result, it apparently turned to Siberia. The same happened two winters ago in New England, where gas is short due to a lack of pipeline capacity. A tanker of Russian gas was unloaded in Boston. How is this an “America First” policy?”
Eliminating the Jones act would stimulate other industries and free up the possibility for more trade deals. The author argues the cost-efficiencies of eliminating the Jones Act simply outweigh the pros of insulating the American shipping industry from foreign competition. Give the article a read to decide what you think about the Jones Act and feel free to start a discussion with our nearly 200-member Energized LinkedIn Group.
“Southeast Asia Energy Outlook 2019 finds encouraging indications in many areas, but also some warning signs in terms of the security and sustainability of energy systems. The report, part of the IEA’s flagship World Energy Outlook series, was released alongside two other studies focused on the region: The Future of Cooling in Southeast Asia and ASEAN Renewable Energy Integration Analysis.”
“Southeast Asia is set to become a key driver of world energy trends over the next 20 years as its energy demand grows at twice the global average, reflecting the region’s economic rise but also increasing the challenges for its policy makers, according to a new report by the International Energy Agency.”
The IEA, one of the leading energy agencies in the world, dropped a bomb with these reports, reinforcing the potential of Southeast Asia as covered by this newsletter, specifically in our LNG Spotlight Issue.
Probably the most ambitious quote from the report was the following: “”Southeast Asia is set to have a major impact over the next two decades, adding the equivalent of Japan’s entire energy system to global demand. This rapid growth underscores the importance of Southeast Asian countries’ energy policies for their citizens but also for the world,” said Dr. Fatih Birol, the IEA’s Executive Director.”
Is Southeast Asia’s energy potential as big as Japan’s, the third-largest economy and one of the largest energy importers in the world? Dr. Birol says so. But that’s because the IEA is forecasting 60% growth between now and 2040 based on today’s policy settings. That estimate sounds reasonable when you consider that “since 2000, Southeast Asia’s 80% increase in overall energy demand has largely been met by a doubling in fossil fuel use.”
The article is full of highlights from the three reports. Worth a read if you live in Southeast Asia or are interested in the Southeast Asian energy market.
+ IHS Markit: US oil production growth heading for “major slowdown” – Oil & Gas Journal
“US shale production—the chief source of rapid growth that made the US the world’s largest oil producer—is slowing down fast, according to a recent report from IHS Markit.”
“”Going from nearly 2 million b/d annual growth in 2018, an all-time global record, to essentially no growth by 2021 makes it pretty clear that this is a new era of moderation for shale producers,” said LeBlanc. ”
IHS Markit’s grim outlook should come as no surprise to Energized readers who are familiar with other reports and opinions such as data discussed by the Spears Brothers in Episode 126: Hitting The Brakes.
Bear in mind that slowing growth and no growth are not necessarily bad. It just means that massive upswings can’t last forever. It’s a similar comparison to a developing economy such as China, posting massive GDP growth rates every year until the economy gets big, and well, can’t grow as fast (this is happening to China by the way, whose economic growth slowed to a 27-year low). Again, it’s not terrible. U.S. production, like China, has grown so much in the past few years that it’s unsustainable, if not even healthy, for growth rates to slow so that the market can catch up to itself.
+UK records rise in offshore hydrocarbon releases – Offshore Magazine
For those of you involved in the safety aspect of the industry, this article is for you.
-“The fatal accident rate per 100,000 flying hours fell to zero for the first time since 2001, despite flying hours increasing by 12% in 2018 to 77,286.”
-“On the minus side, major hydrocarbon releases, which had declined steadily since 2012, increased to four across the shelf in 2018.”
Hydrocarbon releases basically mean oil and gas leaks, which can be extremely dangerous offshore or onshore. Safety is a major concern for offshore projects as the 10th anniversary of the Deepwater Horizon Oil Spill will occur next year.
“OGUK’s Health and Safety Manager Trevor Stapleton said: “We cannot take our eye off the ball. When it comes to getting people home safely, nothing is more important, and we must strive to always do better…””
Energy in Transition
“Specially adapted trucks in Germany are being tested on electric roads.”
The link is a fun and informative video that describes a system that is being tested on German trucks. The system looks like a typical electric rail system for passengers, only with trucks. Worth a watch if you’re interested in energy in transition. “Trucks turn off their diesel engines while connected. The driver decides when to connect and disconnect.” A pretty cool combination of diesel and renewable energy sources.
+ Saudi Aramco: the buyers matter more than the price – The Wall Street Journal
The article discusses the long-anticipated IPO of Saudi Aramco, the largest National Oil Company (NOC) in the world. Aramco is responsible for producing 1/8 barrels of oil in the world. The valuation would be $1.5-2.0 trillion, more than Apple, Microsoft, or Amazon and more than five times ExxonMobil on the low end. The problem is that NOCs typically garner lower valuations than corporations due to their enhanced political risk.
Saudi Aramco hopes to get half of the money from Saudi Arabia and half from global investors. The company expects to pay a $75 billion annual dividend. The article notes that Saudi Aramco is a source of pride in Saudi Arabia, so the real challenge will be raising international capital.
+ Chevron selling Azerbaijan interests to MOL – Offshore Magazine
“MOL has agreed to acquire Chevron Global Ventures’ and Chevron BTC Pipeline’s E&P and midstream interests in Azerbaijan for $1.57 billion.”
Chevron’s sale to MOL, a Hungarian multinational oil and gas company, is likely part of the company’s effort to focus more on onshore production and refining.
Chevron’s unconventional portfolio value has doubled between 2017 and 2019 thanks to land optimization, well performance, and better technology.
It’s no surprise Chevron has been able to grow its unconventional upstream assets so rapidly: The company is spending $3.6 billion of its $20 billion capital and exploratory expenditures in the Permian alone, with another $1.6 billion in other shale plays. Chevron has an industry-leading earnings per barrel (EPB) of $2.66 and the highest-complexity refinery system with an NCI of 12.7.
“The Nelson Complexity Index (NCI) is a measure of the sophistication of an oil refinery, where more complex refineries are able to produce lighter, more heavily refined and valuable products from a barrel of oil. Refineries that are higher on the Nelson Complexity Index are valued higher relative to their peers because of their ability to handle lower quality crude oil or produce more value-added products. Due to their greater complexity, high NCI refineries are more costly to build and operate.” –Investopedia
Have a great weekend!
EKT Interactive Managing 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.