Friday, March 27th, 2020
Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.
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Now, onto this week’s issue.
Curated weekly oil and gas newsletter
Oil Prices and Markets
Light, sweet crude (dollars per barrel): $22.43
Last week: see Energized #49
Natural Gas (dollars per million British thermal units): $1.604
Last week: see Energized #49
Rig count (United States): 772
Last week: see Energized #49
+ Coronavirus Resource Center – John Hopkins
By far the best, most accurate, real-time coronavirus case tracker. I highly recommend using this as your go-to source to track confirmed, recorded, and fatal COVID-19 cases.
+ U.S. Surpasses China to Become Country With Most Coronavirus Cases – The Wall Street Journal
Just a few weeks ago, the U.S. wasn’t taking the virus seriously. Now, it’s the most infected country, despite having a population less than a third the size of China’s.
“In the U.S., hospitals in hot spots including New York and Seattle have passed a tipping point, as a relentless surge in cases forces some to move patients to outlying facilities, divert ambulances and store bodies in a refrigerated truck. Fatalities in the U.S. from the new coronavirus topped 1,170 Thursday.”
+ Record Rise in Unemployment Claims Halts Historic Run of Job Growth – The Wall Street Journal
“A record 3.28 million workers applied for unemployment benefits last week as the new coronavirus hit the U.S. economy, marking an abrupt end to the nation’s historic, decadelong run of job growth.”
“The strong labor market kept the U.S. economy humming for a decade—straight through a European debt crisis, Japan’s tsunami, a Chinese economic slowdown, a domestic manufacturing slump, volatile energy prices and a global trade war.
And then, in a matter of days, it stopped.”
+ The impact of COVID-19 on global shipping – In THE KNOW podcast 14, The Maritime Executive
“Since December 2019, the novel coronavirus (COVID-19) has spread throughout the world. The outbreak and the public health response have had a serious impact on every sector of the maritime industry: global cruise lines have halted operations, container carriers have had to blank dozens of sailings, and offshore operators are looking at a severe downturn in the oil market. For this episode, Maritime Executive publisher and editor-in-chief Tony Munoz brought together three top experts – maritime medicine leader Dr. Arthur Diskin, admiralty lawyer Erik Kravets and Port of Tampa President and CEO Paul Anderson – in a conference call on the global coronavirus challenge.”
This podcast is just 8 minutes long and worth listening to.
+ Funding for purchase of 30 million crude oil barrels left out of stimulus – The Houston Chronicle
“A planned purchase of 30 million barrels of crude for the Strategic Petroleum Reserve does not appear to be funded under the $2 trillion stimulus package agreed to by Republicans and Democrats Wednesday.”
As the Houston Chronicle Fuel Fix reported, “With OPEC and Russia no longer willing — at least for now — to prop up oil prices, the U.S. energy industry was looking to good ol’ Uncle Sam to buy up some of crude flooding the market and maybe lift prices a bit.
Fighting the Coronavirus, the Houston Way
Companies large and small are stepping up to the plate to fight the coronavirus by re-tooling production lines to make essential products. From Hanes switching from underwear to ventilators to the uses of car parts in medical equipment, the list goes on and on. Houstonians in Harris County received a dire message at 2 pm on Thursday that issued an official emergency alert to stay at home. The coronavirus is rippling through small businesses throughout the city. We’ve included a few notable stories of how Houstonians are fighting the virus.
+ Gulf Coast Distillers Is Making Hand Sanitizer Instead of Booze – Eater Houston
I heard this one Thursday on NPR but apparently local Houston publication, Eater, picked it up as well. The largest distillery in Texas has plans to possibly shift its gin and bourbon operations to hand sanitizer. It’s brilliant, it’s helpful, and it’s the right thing to do. Go Texas!
+ TXRX Labs Make Medical Supplies For Local Hospitals – TXRX Labs
“On March 19, TXRX launched the manufacturing of face shields, washable procedure masks with disposable inner filter, replacement n95 respirator, replacement Powered Air Purifying Respirators (PAPR), and substitute Tyvek suits. This equipment is in critically short supply and Houston will need literally thousands and thousands of these items to protect our front line medical works.”
Volunteer workers. 24-hour shifts. Houstonians are lending a helping hand with volunteer work and by donating precious funds to help healthcare workers on the front lines. My neighbor works in the ER in the Texas Medical Center and trust me, they are overwhelmed.
Thank you TXRX!
+ “This feels like Harvey”: Houston volunteers help make personal protective equipment – The Houston Chronicle
“TX/RX is providing the face shields to Memorial Hermann for free for now. But as the amount of equipment delivered increases, von Kurnatowski anticipates that the hospitals will begin purchasing them.”
It’s amazing what 3D printers can do. TXRX Labs has received major interest from a Harvey battle-hardened Houston community.
“TX/RX has only made a few hundred shields so far, but the goal is to ramp up production to 1,000 per day. The company hopes to add masks and respirators to its suite of equipment made available to hospitals as well. TX/RX already has received requests for protective equipment from 15 hospitals and clinics across the country.”
It’s not just local companies that are helping fight the Coronavirus. The industrial conglomerate, Honeywell, is a maker of just about everything, hosting a slew of industrial and household products and software that the company manufactures and maintains. Honeywell is a global technology leader that pioneers everything from strengthening cybersecurity to onboard vibration monitoring systems. Honeywell also licenses its brand name to retail products made by other manufactures like thermostats, sensors, alarm systems, heaters, fans, home generators, paper shredders, air conditioners, and more. It’s likely you have Honeywell products in your home and have been exposed to them on countless occasions.
“Honeywell is ramping up operations to produce millions of N95 disposable respirators to help support the need for critical safety equipment.”
The production effort will create 500 new jobs as well.
OPEC and the U.S.
+ OPEC, U.S. Shale Producers Open Talks Amid Oil Rout – The Wall Street Journal
Debt-heavy shale producers are struggling in the new low oil price environment. A late-stage move by the Texas Railroad Commission has attempted to open a dialogue with OPEC to resolve the Saudi-Russian price war (see Energized #49).
Texas would naturally look to partner with Saudi Arabia to reduce production. “U.S. antitrust laws prevent a formal deal and there is no suggestion the two sides would coordinate on production decisions. But the Texas regulator is considering curtailing output in America’s largest oil-producing state for the first time in decades, people familiar with the matter have previously said.”
Ryan Sitton, the current TRC chair, made it clear that he didn’t want Texas to do anything on its own, signaling a request for national support.
EKT Interactive president, Marty Stetzer, thinks that Ryan Sitton is quite the entrepreneur. It will be interesting to see how he responds to his recent election loss, and what role he will take as he returns to the industry.
+ What is the Texas Railroad Commission anyway, and why does it matter? – Marty Stetzer
The Railroad Commission of Texas is the state agency that regulates the oil and gas industry, gas utilities, pipeline safety, safety in the liquefied petroleum gas (LPG) industry, and surface coal and uranium mining. Despite its name, it ceased regulating railroads in 2005.
Established by the Texas Legislature in 1891, it is the state’s oldest regulatory agency and began as part of the Efficiency Movement of the Progressive Era. From the 1930s to the 1960s it largely set world oil prices but was displaced by OPEC after 1973. In 1984, the federal government took over transportation regulation for railroads, trucking, and buses, but the Railroad Commission kept its name. With an annual budget of $79 million, it now focuses entirely on oil, gas, mining, propane, and pipelines, setting allocations for production each month.
The agency’s reach expanded as it took over responsibility for regulating oil pipelines (in 1917), oil and gas production (1919), natural gas delivery systems (1920), bus lines (1927), and trucking (1929). It grew from 12 employees in 1916 to 69 in 1930 and 566 in 1939. It does not have jurisdiction over investor-owned utility companies; that falls under the jurisdiction of the Public Utility Commission of Texas.
A crisis for the petroleum industry was created by the East Texas oil boom of the 1930s, as prices plunged to 25 cents a barrel. The traditional TRC policy of negotiating compromises failed; the governor was forced to call in the state militia to enforce the order. Texas oilmen decided they preferred state to federal regulation and wanted the TRC to give out quotas so that every producer would get higher prices and profits. Pure Oil Company opposed the first statewide oil pro-rationing order, which was issued by the TRC in August 1930. The order, which was intended to conserve oil resources by limiting the number of barrels drilled per day, was seen by small producers like Pure as a conspiracy between government and major companies to drive them out of business and foster monopoly in the oil industry.
Ernest O. Thompson (1892–1966), head of the TRC from 1932 to 1965, took charge of the agency and indeed the oil industry by appealing to an ideal of Texas’ role in the global oil order—the civil religion of Texas oil. He cajoled, harangued, and browbeat recalcitrant producers into compliance with the TRC’s pro-rationing orders. The New Deal allowed the TRC to set national oil policy. As late as the 1950s, the TRC controlled over 40% of United States crude production and approximately half of the estimated national proved reserves. It served as a model in the creation of OPEC. Gordon M. Griffin, chief engineer of the TRC during World War II, developed the formula for pro-rationing to keep production flowing for the military.
As you can see, the Texas Railroad Commission has a lot of power. Its decisions have ripple effects throughout the world.
“”A Saudi official said “the perfect [scenario] would be the U.S. giving their word over this and that would make it easier to convince everyone to cooperate.”” The Texas Railroad Commission’s bold move to enter talks with Saudi Arabia is, in part, a representation of the feelings of the nation’s largest oil and gas producing state, and therefore, is of significance.
+ Is Depression-Era Production Regulation What OPEC Really Wants to See? – Journal of Petroleum Technology
The latest words from the Texas Railroad Commission.
This is a good piece by JPT that follows up on the WSJ article. It’s an article to further understand the history behind the TRC, the commission’s relationship with OPEC, and why regulation goes against the free market.
+ A Unified Theory of the Oilpatch – Spears Insider, The Drilldown
The Spears Brothers’ podcast, The Drilldown, launched a solid and relevant episode this week. Enjoy!
“Global oil inventories are set to increase due to the drop in oil demand and the rise in OPEC+ output. Richard and John discuss how much inventories might rise, how long it will take before they are back to normal, and the implications for US oilfield activity, oil production and oil prices.”
The Energy Mix – IEA
This week’s issue of the IEA’s newsletter, The Energy Mix, provides useful commentary on the importance of energy in modern society, energy’s role in government stimulus plans, the struggles of petrol states during this time, the energy transition, and more.
“Millions of people are now confined to their homes, resorting to teleworking to do their jobs, e-commerce sites to do their shopping, and streaming video platforms to find entertainment. A reliable electricity supply underpins all of these services, as well as powering the devices most of us take for granted such as fridges, washing machines and light bulbs.”
Speaking of power, EKT Interactive is in the process of developing Power 101, a new learning series focused on the global power generation industry. Planned modules currently include coal-fired and gas-fired plant operations and flue-gas desulfurization. If you’re interested in learning more about this important industry, post in the Energized! LinkedIn group or message me directly on LinkedIn.
This brief IEA newsletter is worth reading to remind us all of just how vital energy is to the frontline force fighting the coronavirus, from hospitals to ambulance drivers and more.
On the stimulus side, “large-scale investment to boost the development, deployment and integration of clean energy technologies – such as solar, wind, hydrogen, batteries and carbon capture (CCUS) – should be a central part of governments’ plans because it will bring the twin benefits of stimulating economies and accelerating clean energy transitions.”
And of course, oil-producing countries whose very nature depends on petroleum sales are in a dire predicament (see Energized #49).
+ U.S. shale industry braces for pain as budget cuts run deeper – The Houston Chronicle
Chevron, Halliburton, Schlumberger. More and more major oil and gas companies are gutting their budgets.
“The largest of those, Schlumberger, said it would cut up to 30 percent of its $1.7 billion capital spending budget, with most of the remaining funds going to the company’s more profitable international operations. The company expects to layoff workers and reduce compensation as part of restructuring efforts in North America, CEO Olivier Le Peuch said at an energy conference in New Orleans.”
Budget cuts are the worst among highly leveraged upstream exploration and production (E&P) companies as well as oilfield services companies.
+ Oil giants announce steep cutbacks – Axios
“Shell is cutting planned capital spending this year to $20 billion or lower, compared to the pre-crisis estimate of $25 billion.”
“Oil at $30 per barrel means a roughly $3 billion hit to capital spending, which means a new target of under $15 billion this year.”
Shell plans to lower operating costs by $3 billion over the next year whereas Total hopes to knock $800 million off its operating costs.
+ Chevron reduces 2020 capital spending plan – Oilfield Technology
“The company is reducing its guidance for 2020 organic capital and exploratory spending by 20% to US$16 billion. Reductions are expected to occur across the portfolio and are estimated as follows:
- US$2 billion in upstream unconventionals, primarily in the Permian Basin.
- US$700 million in upstream projects and exploration.
- US$500 million in upstream base business spread broadly across US and international assets.
- US$800 million in downstream and chemicals and other.”
Have a great weekend!
EKT Interactive Managing Editor