Friday, April 3rd, 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): $21.51
Last week: $22.43
Natural Gas (dollars per million British thermal units): $1.634
Last week: $1.604
Rig count (United States): 728
Last week: 772
“U.S. drilling activity was down 44 at 728 rigs. Drilling in Texas was down 29 at 368 rigs. The offshore rig marketed utilization rate in the Gulf was 75.6 percent, down from last year’s 80.5%.”
For now, offshore rigs under contract remain steady year-over-year, but could they be the next shoe to fall?
The oil industry employs more than 5 million people.
Drilling companies and oilfield services companies are likely the most vulnerable to the present downturn.
“Service firms in the shale industry will be hit the hardest, Rystad says, perhaps seeing cuts of up to 32%, as the price shock threatens new drilling activity.”
+ Nuclear industry’s response to COVID-19 outbreak – Power technology
An informative article discussing nuclear’s role in the global power generation market and precautions that are being taken to continue nuclear baseload power in a safe and secure way amid the coronavirus pandemic.
“The coronavirus spread has affected numerous industries and the global economy. One such industry is the power sector, which has witnessed a visible impact in the last two months. The electricity demand curve has taken a new shape in the affected regions.”
“Nuclear technology is a major baseload power-generating source and accounted for 10.3% of global power generation in 2019.”
The article notes that major countries (more than 10 gigawatts of installed capacity) included some of those most impacted by the virus, such as the US, China, and France. Germany, the UK, and Spain, among others, have 5GW-10GW of installed capacity each.
Since the nuclear power generation business is already one of intense security and safety, the article argues that staff members are well trained to deal with the pandemic. However, there have been cases where facilities have been temporarily shut down to control the spread of the virus among their workers.
+ EIA Quarterly: Texas coal-fired power generators lead in coal delivered – Power Engineering
Texas has been increasing its use of renewable energy, particularly wind. But the EIA’s quarterly report notes that “Texas was the leading coal-destination state, receiving about 16.5 million short tons in shipments [in 2019]. Statewide power generators consume about 1,500 trillion British thermal units (BTU) in coal power annually, according to the EIA.”
In 2019, US coal consumption suffered the largest one-year ever recorded and fell 50% in a decade.
“The Lone Star state also is a nation leader in gas and wind power generation. The Texas Gulf Coast is home to industrial and LNG export terminals promising to deliver U.S. natural gas to foreign customers for power generation.”
“Coal-fired power accounts for more than 25 percent of U.S. electricity generation capacity, second only to natural gas. Nuclear accounts for 19 percent, with renewables wind, hydro and solar generating the rest of the domestic electricity mix.”
+ Electrification: Too Much of a Good Thing? – Power Magazine
“Electrification has been a much-touted driver for the global energy transition toward decolonization. But though an all-electric future could have vast implications for the power and gas sectors, achieving it may not be so smooth.”
+ Methanol as a future proof fuel – Future Fuel Strategies
Tammy Klein released an informative blog on Wednesday that weighed the potential of different fuels, including HVO, biodiesel, electrofuels, electricity for EVs, hydrogen, biomethane, other drop-in advanced alternative fuels, CNG, LPG and LNG.
Klein went on to qualitatively analyze each fuel.
” An overall conclusion from the work is that conventional fuels are not disappearing anytime soon in the EU (or in other countries, including the U.S.). However, alternatives are continuing to grow, and not just electrification.”
She then spends the second half of the blog discussing the potential of renewable methanol by analyzing its production process as well as some European companies that are pioneering technology around this topic.
“Natural-gas prices have dropped to their lowest level in a quarter-century. But they have managed to outperform oil against a backdrop of declining demand fed by efforts to slow the spread of Covid-19.”
“Natural gas “is the victim of a perfect storm of events—growing supplies, warmer-than-usual weather, and falling demand,” says Gregory Leo, chief investment officer and head of global wealth management at IDB Bank. “The cumulative effect is price levels not seen in 25 years.””
+ Global E&P capex may hit 13-year low – Offshore Magazine
+ Oil majors slash 2020 spending by 20% after prices slump – The New York Times
+ BP cuts spending by quarter, lowers U.S. shale output – Yahoo Finance
+ Shell, Total cut spending, share buybacks in response to oil price slump – S&P Global Platts
“Global capex for exploration and production companies is expected to drop by up to $100 billion this year, about 17% versus 2019 levels, under Rystad Energy’s updated base case scenario of $34/bbl in 2020 and $44/bbl in 2021.”
Oil is currently in the low $20s.
Aside from the general market view, independents and majors across the board have cut their capital spending.
BP’s debt-heavy and spending-heavy strategy has positioned it to return respectable cash flow in a $55 oil market, but that same positioning leaves it more vulnerable than other majors when prices are lower. Until recently, Exxon and BP had both reaffirmed their massive capital spending plans. Then on April 1, BP cut its 2020 spending forecast by 25% to avoid layoffs. Exxon also announced a cut to spending. Along with a focus on reducing operating costs over the next year, Royal Dutch Shell cut its spending by around $5 billion, or 20%. Chevron decided it too would cut spending by 50% in the largest onshore U.S. oilfield, the Permian Basin, as well as total 2020 spending by 20%. Chevron also halted its $5 billion share buyback program.
+ Energy Markets with Special Guest Andy Furman from Risked Revenue – Commodity Research Group
In this podcast, oil market experts Andrew Lebow and Jim Colburn discuss key fundamental forces driving oil prices in both the futures and options markets.
Everyone is desperate to store oil amid the global oversupply.
“Traders have chartered at least five supertankers in the past day with options to store oil at sea as global stocks mount after the United States ditched plans to purchase oil for its emergency reserve, shipping sources said on Friday. Shipping sources said the vessels – each of which can carry a maximum of 2 million barrels of oil – were booked for storage options of at least three months to take advantage of a widening contango market structure, when cargoes for short-term delivery are cheaper than those for later delivery.”
This contango market was first mentioned in Energized #49 thanks to March 2020 oil market analysis by our friends at the Commodity Research Group.
This article presents an interesting read for those interested in the ever-shrinking availability for crude storage.
+ Trump to Meet with Oil CEOs about helping industry – The Wall Street Journal
Today, Trump is expected to meet with the heads of Exxon, Chevron, Occidental Petroleum, Continental Resources, and more to discuss measures to sustain this unprecedented oil crash.
“Mr. Trump is unlikely to endorse direct federal aid or market interventions during Friday’s meeting, according to a senior U.S. official, but may consider smaller actions including a waiver of a law that requires American vessels be used to transport goods, including oil, between U.S. ports.”
The New York Times provides free coronavirus tracking.
The Atlantic is my personal favorite resource for coronavirus-related editorial. Although a paid service, the publication has made its coronavirus content free.
+ Where the U.S. stands now on coronavirus testing – The New York Times
“This week, the number of coronavirus tests in the United States surpassed those in South Korea and Italy – two countries that had been testing more aggressively.”
Have a great weekend!
EKT Interactive Managing Editor