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Energized! #025

Friday, September 27th, 2019

Hello all,

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.

Energized!

Curated weekly oil and gas newsletter

Oil Prices and Markets

+ Fast Facts – Houston Chronicle “Fuel Fix” as of Sunday, September 22nd, 2019

Light, sweet crude (dollars per barrel): $58.65

Last Week: $54.85

Natural Gas (dollars per million British thermal units): $2.53

Last Week: $2.614

Rig count (United States): 868

Last Week: 886

Global Oil Demand

In this issue of Energized, we are going to spend a fair amount of time talking about global oil demand. It’s that special time of the year when the first half of 2019 data has been parsed and edited, second-half estimates have been updated, and 2020 estimates are in.

For the record, current global oil consumption is about 101 million barrels per day. Of that, the US is about 20%, followed by the EU and China tied at around 15% apiece.

US: 20 million
China: 14 million
India: 5 million
Japan: 4 million
Saudi Arabia: 3.9 million
Russia: 3.2 million
Brazil: 3 million
South Korea: 2.8 million
Germany: 2.5 million
Canada: 2.4 million
Iran: 2 million
Mexico: 2 million
France: 1.6 million
Indonesia: 1.6 million
UK: 1.6 million
Thailand: 1.3 million
Singapore: 1.3 million
Italy: 1.2 million
Spain: 1.2 million
Taiwan: 1 million

From this list, it’s clear to see that Asia is absolutely booming. Of the top 20, there are eight Asian countries that together make up about a third of global consumption (China, India, Japan, South Korea, Indonesia, Thailand, Singapore, and Taiwan).

Four of the smaller Asian countries, specifically South Korea, Thailand, Singapore, and Taiwan, consume about half as much as the entire EU, and South Korea alone consumes more than any European country, excluding Russia of course.

But where are the future catalysts for growth? The Spears brothers give their take on global oil demand in their recent episode of the Drill-Down to give us a better idea of where growth is coming from and what to expect in the coming years.

+Global Oil Demand – Ep128: The Drilldown in-depth answers to oilfield questions

Although originally forecasted to grow by 1.7 million bpd, 2019 global oil demand is more likely to end the year averaging only about 1 million bpd of growth. This is due, in part, to delayed data from 2018. The data eventually showed that 2018 slowed a little more than expected.

Over the past 10 years, global oil demand has grown by an average of 1.4 million bpd. The lowest growth in a year over the time period will be this year, at 1.0 million barrels per day. The highest figure during that time frame was 2.2 million bpd of average growth in a year.

The Spears brothers’ forecast matches the International Energy Agency’s (IEA’s) recent monthly report that stated: “The situation is becoming even more uncertain… global oil demand growth has been very sluggish in the first half of 2019.”

There are two main points of tension that could dampen further growth estimates. The first is that 2018 was weaker than expected. What if lowering the forecast to 1.0 million bpd for this year is still too high given the trade tensions between the US and China, an election year next year, etc? Trade tensions have effects on GDP growth and dampen profits on businesses with international exposure in the short-term. China, alone, accounts for 50% of the growth in oil consumption and the US makes up 20%. That means a whopping 70% of oil consumption growth is coming from the two countries that have been battling it out with trade for almost two years. That would be 700,000 bpd if 1.0 million is truly the growth number in 2019.

The current outlook for 2020 global GDP growth is 3.6%. “Decent, sustained economic growth,” as John Spears put it. With that kind of GDP, oil forecasters believe 2020 oil consumption will average 1.4 million bpd, which has been the average for the past ten years.

So why the anticipated return to the 10-year average oil demand growth in 2020? It’s expected that because oil prices were 10% lower this year than they were in 2018, the discount will roll over to 2020 and stimulate demand. Additionally, the developing countries will continue to contribute heavily towards oil consumption.

The Spears brothers close with one of their most emphasized theses of the year, which is the following pattern that is emerging.

Wall Street is disenchanted with oil and gas companies, specifically upstream, after years of these companies outspending free cash flow and taking on debt. Therefore, shareholders are unforgiving towards large, uncertain projects or reckless spending based on market cycles. As a result, oil prices respond less to supply than they used to. On top of that, you have child wells yielding less than parent wells which limit growth unless more wells are drilled. But drilling more wells requires more money (loans) which the debt market isn’t willing to give unless the interest rates are high (8% from Warren Buffett to Oxy) and shareholders aren’t willing to wait for (downside selling pressure on stocks). As a result, inventories will gradually decrease as companies dip into their inventories to float current demand without drilling new wells, leaving less backup supply. The shale plays can’t generate as much production on the fly as they used to because the best drilling sites have already been taken, leaving still plenty of reserves that can be drilled, just at compressed margins. Keep in mind that the United States is responsible for ALL of the year over year growth in global consumption. What you’re left with is a gradually decreasing supply despite a predictable increasing demand with a floor around 1 million bpd which will eventually lead to prices going up.

So there you have it; the logic behind the big prediction. That there’s less supply than widely believed. That the shale plays are not simply a faucet that can be tapped into without delay. That demand growth year over year has slowed but it’s still 1 million bpd that the US, alone, has supplied for the last few years but now that reliable supply may not be as reliable going forward.

Upstream

+ Permian Space Race: Satellites Become Latest Tool for Competitive Shale Play – Houston Chronicle

Sourcewater has developed software and AI technology that uses satellite images to trace oilfield activity in the Permian Basin.

“At least a half dozen energy data firms are offering satellite imaging of the 75,000-square mile oil field to provide intelligence to energy companies on the activities ranging from the appearance of drilling pads and hydraulic fracturing ponds to the movements of drilling rigs and frac crews across Permian’s expanse in West Texas and southeastern New Mexico.”

This technology has a lot of buyers:

Oil and gas companies want to know where competitors are operating.
Oilfield services companies want to gain leads on where potential sites will need equipment and crews.
Environmental groups want to trace pollution and natural gas flaring.
Commodity traders and midstream companies looking to build pipelines want to see the storage tanks to gauge inventories and supply.

Natural Gas/LNG

+ Uplifting times for coal bed methane – Oilfield Technology June 2019

K.C. Chen, Upwing Energy, USA, discusses how new artificial lift technology can help coal bed methane gain market traction.

“Coal bed methane (CBM) is gaining market traction as coal production declines. Today’s US $12.5 billion CBM market is expected to climb to US$17.3 billion by 2020 as more of the estimated 9,000 trillion cubic feet of global resources come into production. Key production regions will be North America, Europe, and Asia Pacific.”

Image Source: Energyjustice.net

So what is CBM? Coal bed methane is simply natural gas (methane) tucked away in coal deposits or seams. CBM is formed during the process of coalification, the transformation of plant material into coal.

“The non-linear relationship between the pressure and gas storage capacity of CBM has a major impact on ultimate gas recovery.”

There’s really two kinds of gas stored in coal bed methane. The first is the gas absorbed by the coal formation, which is much larger than the volume of gas stored in the open pore space.

“The absorbed gas requires the lowest possible reservoir pressure to reduce the molecular bond to organics and transfer absorbed gas into the fracture system.”

The problem with current downhole artificial lift techniques is that they either add energy to the flow stream by transmitting power downhole or modify the physical characteristics of the produced field. On the other hand, CBM production requires the lowest bottom hole pressures possible.

Positive and dynamic displacement pumps transmit power downhole through electric cables, reciprocating or rotating drive rods, or high-pressure hydraulic fluid. Gas lift, surfactants, and demulsifiers modify the physical characteristics of the produced field such as density, viscosity, and surface tension.

The article discusses Upwing Energy’s new artificial lift technology for coal-based methane that adds external energy to the system and changes the physical properties, such as density, of the produced fluids.

Offshore

+Making the connection – Oilfield Technology June 2019

Rob Kennedy, Wood, UK, explains why the subsea sector is ripe for a digital leap forward

The subsea sector is notoriously high cost and has historically relied on manual processes, paving the way for countless opportunities in digitalization.

The article discusses digital services developed by Wood that feed into each phase of the project life cycle through a model which offers a connected design, connected build, and connected operations.

The article goes on to discuss Wood’s new technology by category. If you’re interested in subsea digitalization, this detailed article is for you.

Have a great weekend!

-Danny Foelber

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.

Unsubscribe | Update your profile | 9813 Shadow Wood Dr., Houston, TX 77080

UPDATED Energized! #024: Abqaiq-Khurais Attack Spotlight Issue

Friday, September 20th, 2019

Hello all,

We’d like to take a moment to sincerely apologize for the mixup this morning. Energized #24 was intended for release at 2:00 PM central time, but instead, an outline of the issue was released at 2:00 AM central time. We apologize for the inconvenience and confusion this prior email containing the outline may have caused. Thank you for subscribing to our weekly newsletter and we hope you enjoy the updated content below which includes recent updates on the Abqaiq and Khurais attacks, a description of what both facilities actually do, upstream, environmental, technology, midstream, offshore, and water treatment and supply news. We apologize, again, for this error and any confusion we may have caused.

Sincerely,

-Danny Foelber

Managing Editor, EKT Interactive

Energized!

Curated weekly oil and gas newsletter

Oil Prices and Markets

+ Fast Facts – Houston Chronicle “Fuel Fix” as of Sunday, September 15th, 2019

Light, sweet crude (dollars per barrel): $54.85

Last Week: $56.52

Natural Gas (dollars per million British thermal units): $2.614

Last Week: $2.496

Rig count (United States): 886

Last Week: 898

September Spotlight Issue

The Attack on Saudi Arabian Oil and Gas Processing Facilities (Abqaiq and Khurais)

A photograph taken by the commercial satellite company Planet shows the Abqaiq facility shortly after an attack on Sept. 14.

Image Source: Planet Labs Inc.

The Story

On Sunday, Sept. 15, coordinated strikes on Saudi Arabian oil facilities stripped the country of more than 5 million barrels per day of production capability, representing a 50% decrease in the amount of daily Saudi Arabian oil capacity. The following Monday was one of the craziest trading days year to date. Oil was up as much as 15%, the largest one day increase in over a decade before ending the day up 12.9%. All three major stock indexes were negative due to concerns that higher oil prices could encourage a global recession.

Oil proceeded to shed about half its gains the following day when Prince Abdulaziz bin Salman, the energy minister of Saudi Arabia, estimated that oil production would be restored to normal levels by the end of September. The truth is, no one exactly knows who made the attack or when Saudi Arabia will be able to restore production. What we do know is that the attack was sophisticated enough to break Saudi’s defense systems. Saudi Arabia blames Iran for the attack, it’s petro-rival and one of the more militarily sophisticated countries in the region. For more information on the story and an archive of the attacks, check out the daily-updated “2019 Abqaiq-Khurais Attack” Wikipedia page.

Despite the ups and downs, oil is closer to $60 now than it was when the week started. Rig count declined again last week to 886 in the United States, but that decline was before the news of strikes on Saudi Arabian oil facilities. Drilling companies will likely increase their rig needs in this improved environment. Expect rig count to stabilize or even increase next week.

Abqaiq and Khurais Oil and Gas Processing Facilities

Image Source: VOA – https://www.voanews.com/middle-east/iran-threatens-war-oil-prices-spike

While we wait for the story to unfold, let’s discuss why the targeted strikes at the oil and gas processing facilities operated by Saudi Aramco at Abqaiq and Khurais were so critical to Saudi’s production, and what these facilities actually do.

Image Source: Atlantic Council

Abqaiq

+ Bloomberg Journalist at Abqaiq Reveals Damage to Oil Field – Yahoo Finance

The Abqaiq facility converts sour crude into sweet crude by removing sulfur impurities before sending the crude to downstream refineries. The processing facility is responsible for processing 7 million barrels of oil per day, a whopping 7% of global oil production!

Abqaiq is best described as the Midland, Texas of Saudi Arabia. The largest oil and gas processing facility in the world is a gated community owned and operated by Saudi Aramco. Located in the Eastern Province of Saudi Arabia, Abqaiq is directly north of the second largest sand desert in the world, Rub’ al-Khali. About 1,500 full-time workers live and operate the plant.

Abqaiq dates its history back to 1940 when the oilfield was discovered and developed by Saudi Aramco. Proven reserves currently stand at 22.50 billion barrels. Current production is 400,000 barrels per day. The East-West Crude Oil Pipeline carries most of the production away from the oilfield.

Khurais Oil Field

+ Saudi Aramco Khurais Mega Project – Hydrocarbons Technology

The Khurais oilfield produces about 1.5 million barrels per day of crude oil and is estimated to hold up to 20 billion barrels of oil.

Located a little over 200 km from Abqaiq is the much younger Khurais oil field. The Khurais megaproject is a term used to describe the development of the Khurais field along with the Abu Jifan and Mazalij oil fields. This oilfield development was the “largest of several Saudi Aramco projects intended to boost the production capacity of Saudi Arabia’s oilfields from 11.3 million bpd to 12.5 million bpd by 2009.” Saudi Arabia currently produces about 12.3 million bpd.

Megaprojects in oil gas and power are characterized by high value (often defined as greater than $250 million), comparably high benefits, years-long timelines, and correspondingly high risk. Construction and engineering projects have become more complex and ambitious faster than our ability to manage them. Oil/gas/infrastructure projects are now much longer in duration and far more complex than even in the mid 2,000s, with corresponding increased risks and failures. In all cases, governments will have a critical influence in the direction of the future energy system. The ultimate success of a complex program has very little dependency on how the program is managed once the construction phase begins and far greater dependency on what happens before that phase begins. Planning is everything.

The scale of the Khurais project is truly a megaproject. Khurais Spans 2,890km², Mazalij 1,630km², and Abu Jifan covers 520km². The project’s total cost is estimated at $10billion. The Khurais project began in 2006 and was led by Halliburton on the drilling side, Snamprogetti on the crude and utilities side, and Hyundai for gas. The drilling was completed in early 2009 and production began on June 10th, 2009. 1.2 million bpd of Arabian light crude was instantly added to Saudi Arabia’s export capacity.

Today, there are four existing oil and gas separation plants (GOSPs) in operation in the Khurais field and one GOSP in each of the two other fields. Currently, the combined production capacity is 300,000bpd. The scope of the construction spanned across Saudi Arabia, involved major construction at six locations, and the development of 10,000 km² of land.

The Khurais central processing facility provides crude process and stabilization facilities. The facility is supported by an airstrip, wells, trunklines, seawater supply, and injection lines, residential facilities constructed in 2008 that house 1,000 personnel and an industrial complex, and product lines.

“In addition to the 1.2 million bpd of Arabian light crude blend that is produced and delivered through the east/west pipeline, the program also produces 320 million standard cubic feet a day (scfd) of sour gas for Shedgum Gas Plant and 80,000bpd of natural gas liquids (NGL) for the Yanbu Gas Plant.”

As you can see, a coordinated strike on Saudi Arabia’s largest oilfields and processing facilities is a huge blow to both Saudi Arabia and global supply. Just to reiterate, the Abqaiq facility converts sour crude into sweet crude by removing sulfur impurities before sending the crude to downstream refineries. The processing facility is responsible for processing 7 million barrels of oil per day, which is 7% of global oil production. The Khurais oilfield produces about 1.5 million barrels per day of crude oil and is estimated to hold up to 20 billion barrels of oil.

The rest of this week’s issue will cover other news that has surfaced in the past few weeks. After all, the rest of the world doesn’t stop during a crisis, and if anything, moves even faster.

Technology

+BP Using Drones to Track Methane Emissions – Offshore Engineer

“One of the world’s largest oil and gas companies is using advanced technology originally designed for use on Mars to remotely monitor methane emissions from its offshore assets in the North Sea.”

Environment

+Jeff Bezos Announces Climate Pledge – CNET

Image Source: Forbes

Jeff Bezos, CEO of Amazon, recently announced The Climate Pledge. The Climate Pledge is an effort by Amazon to reach the terms enacted by the Paris Agreement 10 years ahead of schedule.

Today, Amazon is at 40% renewable energy. They’ve done that by building 15 utility-scale solar and wind farms, installing rooftop solar on fulfillment centers, and more. By 2024, Amazon plans on being 80% renewable, and by 2030, 100% of operations will be driven by renewable energy.

Natural Gas/ LNG

+ Moving on from LNG myths – LNG Industry 2019

Asia and Europe are seeking to replace coal and nuclear power plants with electricity generated by cleaner-burning natural gas.

“ The move to natural gas is particularly evident in China and India, where rapid development and industrialization have contributed to not only rising standards of living but to urban air pollution responsible for killing millions of people in the world’s most populous nations every year”.

The permits and proceedings required for LNG infrastructure are complicated in the US and Canada. Although these restrictions are less severe in developing nations, these nations are still reliant on the construction of export terminals from (typically) developed nations.

“Most of these permits require public input, often in the form of public meetings or hearings before a board, commissions or agency that will rule on an application. Securing the necessary approvals to advance a project can take years and tens of millions of dollars, if not hundreds of millions.”

“Opponents of LNG projects usually can be divided into two categories: those that are ideologically opposed to the continued production and use of fossil fuels; and locals who oppose nearby industrial activity.”

The article goes on to refute common LNG myths in an effort to support the continued expansion of LNG infrastructure.

+ Driving outage excellence with digital technologies – LNG Industry July 2019

“On average, operators can lose up to US $11 million of revenue every day that an LNG plant is out of commission.”

This article is about BHGE’s design for maintainability (DFM) methodology. “This approach considers all the maintenance procedures, from the conceptual design, where maintainability is the measure of how easily and efficiently equipment can be maintained over time.”

+No Jetty? No Problem – LNG Industry July 2019

This article outlines an innovative, flexible solution for the jetty-free loading of LNG.

UTS (Universal Transfer System) is the world’s first commercial LNG cargo transfer with a jetty-less system.

“An LNG carrier located 100m from shore offloaded a cargo of LNG through the UTS and its cryogenic flexible floating pipeline to the shore receiving facility. The jetty-less transfer of LNG is opening new thinking as to how the importation or exportation of LNG may be possible without the cost burden and inflexibility of traditional fixed jetty infrastructure.”

Unites States Oil and Gas

+ Race for the top – Oilfield Technology July 2019

Image Source: EIA

Oilfield Technology correspondent, Gordon Cope, explains how the US has sprinted ahead of its international rivals when it comes to oil and gas production and asks: where does it go from here.

“According to the US Energy Information Administration (EIA), output from the US stood at 12.1 million bpd of crude and 79 billion cubic feet per day of dry gas as of April 2019. In terms of total energy output, it no surpasses Russia and Saudi Arabia as the largest producer.”

“By the spring of 2019, production of light crude in the Permian Basin in west Texas and eastern New Mexico had ballooned to over 4.1 million bpd, with the associated output of natural gas approcahing 10 billion cubic feet per day.”

The article revisits the Chevron-Occidental-Anadarko story

The article cover’s ExxonMobil’s foothold in the region with incredible detail

Exxon announced its plans to increase Permian production to 1 million boe/d by 2024. “The US-based company has large, contiguous landholdings in the basin, allowing for enhanced drilling and its use of advanced technologies (including subsurface characterization, subsurface modeling, and data analytics). It currently has 48 rigs working in the basin with 55 planned by the end of the year. Plans are also underway to develop dedicated transportation to deliver 600,000 bpd of oil and 1 billion cubic feet per day of natural gas to its refineries and petrochemical plants on the US Gulf Coast (USGC). Exxon expects to significantly increase recovery and reduce CAPEX per well; in all, the company estimates that it can make a 10% return at a modest US $35/bbl.

Oilfield Technology discusses the Permian’s takeaway capacity problem, negative natural gas spot prices at the Waha regional hub in West Texas, and the expected new pipeline construction in the region. We’ve covered these topics before in this newsletter, but just to reiterate.

Oil Pipelines

Plains All American Sunrise Expansion: 500,000 bpd

Cactus II: 670,000 bpd

EPIC: 900,000 bpd

“In April 2019, EPIC, based in San Antonio, Texas, was given the green light by the US Army Corps of Engineers to build two new pipelines from the Permian basin to export terminals on the USGC capable of carrying up to 590,000 bpd of liquids a distance of 650 miles to the port of Corpus Christi, Texas.”

Gas Pipelines

Kinder Morgan’s Permian Highway Pipeline: 2 billion cubic feet of natural gas per day

Kinder Morgan’s Gulf Coast Express Pipeline: 1.92 billion cubic feet of natural gas per day

As a result of spot prices at the Waha hub reaching a record low negative $4.28 per million Btu in April 2019, Apache suspended 250 million cubic feet per day of its Permian production to avoid excess flaring. Apache will be Kinder Morgan’s largest customer and has contracted over 1 billion cubic feet per day on Kinder Morgan’s new pipelines which are expected to come into service in late 2019 and early 2020.

“IHS markit predicts that by 2023, Permian production will reach 5.4 million bpd of crude, 1.7 million bpd of natural gas liquids (NGLs), and 15 billion cubic feet per day of gas.”

The article goes on to cover other US oil and gas updates, including the Gulf of Mexico, North Dakota, Alaska, Marcellus and Utica Shale, LNG, US Challenges, and predictions for the future.

Oilfield technology hit it out of the park with this article. I highly recommend you subscribe to the magazine and bookmark or print out this article for reference. It will carry value for the rest of 2019 and 2020 as these projects and estimates come to fruition.

+ Drilling down: Encana roars back to life with Permian Basin projects – Houston Chronicle

“Canadian oil company Encana is roaring back to life as the company prepares for a large round of horizontal drilling in the Permian Basin. The exploration and production company filed for 14 drilling permits on its Neal 39 leases in Upton County. Located about 22 miles northwest of Rankin, the wells target the Spraberry formation down to a total depth of 10,300 feet. Encana has filed for 101 drilling permits so far this year. Out of those projects, 89 were in the Permian Basin. The other 12 were in the Eagle Ford Shale of South Texas.”

Offshore

+ On the fast track – Oilfield Technology June 2019

A modular approach can be used to standardize and fast track FPSO projects.

+ Exxon considering sale of UK North Sea assets (report) – Energy Voice

“ExxonMobil is considering a sale of its North Sea assets as it focusses on US shale production, according to a news report. The firm, which has been in the UK sector for 50 years, has held sales talks with a number of operators in recent weeks, according to Reuters. Citing industry sources, the news agency said a deal for Exxon’s assets could fetch $2billion. The move would follow other US operators ConocoPhillips and Chevron, who have sold off their UK portfolios to Chrysaor and Ithaca respectively this year. Exxon, which is headquartered in Texas, has already put its Norwegian assets up for sale, which analysts have predicted could bring up to $3.1bn. According to its website, ExxonMobil is responsible for around five percent of the UK’s oil and gas production.”

Water Supply & Treatment

+ Flowing with the times – Oilfield Technology July 2019

“ The decision to automate pumps, tanks, and other production operations has created workforce efficiencies on a significant scale by removing the need for field personnel to physically attend every site every day. Real-time monitoring also alerts personnel to changes – and often impending problems – thereby increasing production by reducing downtime. It is no surprise then, that similar economies and efficiencies are to be had by automating water systems that grow in size and complexity every year.”

Have a great weekend!

-Danny Foelber

EKT Interactive Managing Editor

Head Writer | Eau Claire Writing

Unsubscribe | Update your profile | 9813 Shadow Wood Dr., Houston, TX 77080

Energized! #023

Friday, September 13th, 2019

Hello all,

Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.

Now, onto this week’s issue.

Energized!

Curated weekly oil and gas newsletter

Oil Prices and Markets

+ Fast Facts – Houston Chronicle “Fuel Fix” as of Sunday, September 8th, 2019

Light, sweet crude (dollars per barrel): $56.52

Last Week: $55.10

Natural Gas (dollars per million British thermal units): $2.496

Last Week: $2.285

Rig count (United States): 898

Last Week: 904

+ Total rig count falls below 900 for first time since 2017 – Houston Chronicle

The United States rig count continued its trend lower, falling below 900 for the first time since 2017. “Oklahoma, which has seen its rig count plummet by 45 percent in just 12 months, lost five rigs for the week, while Texas declined by three rigs, including two from the Permian Basin. North Dakota, with its Bakken shale, was the only state to add to its drilling rig tally.”

+US crude oil is gaining on Brent crude. Why that matters – Barrons

A good explanation from Barrons on the crude price differential between West Texas intermediate (WTI) and Brent and how this difference affects the economics of US production.

Environment

+ Who are the biggest U.S. methane emitters? – CBS News

A follow up to our environmental discussion from last week.

+Rice scientists develop clean tech to transform carbon dioxide into fuels – Houston Chronicle

An interesting follow up to our July Energized Spotlight Issue on Carbon Capture and Storage

“Chemical and biomolecular engineer Haotian Wang and his team of researchers at Rice University developed a cleaner and more efficient process to turn carbon dioxide into a feedstock for chemicals and fuel for electricity generation without using oil, natural gas or coal.”

Offshore

+ Equinor completes $1B Gulf of Mexico deal – Rigzone

Equinor completed a $965 million deal with Shell Offshore Inc to acquire an additional 22.45% interest in the U.S. Gulf of Mexico (GOM) Caesar Tonga oil field. Equinor now has 46% in total. Anadarko Petroleum Corporation has 33.75% and Chevron has 20.25%.

The field now produces a total of more than 130,000 barrels of oil equivalent per day

+ Digital Twins: Enhancing subsea asset integrity – Oilfield Technology June 2019

How subsea asset integrity managers are using digital twins to reduce operational risks and costs from planning to decommissioning.

We’ve discussed digital twins, in-depth, throughout this newsletter. The article defines digital twins as “a virtual representation of an entire physical asset or a critical element of it.”

Digital twins help reduce costs and risks during planning, construction, operation, life extension, or decommissioning.

Upstream

+ Bigger is better – Oilfield Technology July 2019

Before going into the article, it’s important to understand what coiled tubing is and why it’s the fastest-growing segment of the well-services industry. Check out this 2-minute video.

“While the number of wells completed in 2018 is just 69% of those completed in 2014 according to the US Energy Information Administration (EIA), the growth in lateral lengths has mostly offset this factor.”

This article breaks down why longer laterals across all the major US basins has led to a transformation in the coiled tubing and hydraulic workover market.

Coiled tubing is used to drill out the plugs left behind after hydraulic fracturing.

Longer coiled tubing strings can be used to reach the toes of these wells.

“With the increase in lateral length, the demand grew for new units to increase the capacity of coiled tubing to ensure reaching total depth (TD) of the well. Additionally, as the lateral lengths increased, the outer diameter of the coiled tubing needed to increase as well. The reduced space in the annulus between the coiled tubing and the completion confines the coiled tubing better as it buckles, allowing better transmission of force downhole and thus extending the depth the coiled tubing can reach before becoming frictionally locked. In order to support these developments, new coiled tubing units have been created that are able to carry heavier weight and larger capacity.”

+ Hitting the Breaks – Episode 126 of the Drilldown: In-depth answer to oilfield questions

Well count in the Bakken has been going up but production is decreasing
In 2018, US crude oil production grew 1.8 million bpd year over year (YOY)
In June 2019, US crude oil production was growing at just 1.2 million bpd YOY. Granted, that growth faces tough comparables against 2018 figures but still, the production growth rate is declining nationwide
The Spears brothers go on to predict that the growth rate will continue to decline to less than 1 million bpd YOY by the end of August, and maybe even down to 500,000 by August 2020.
Again, these numbers are classic comparables, as in up 500,000 bpd from where we are today, but still, a gradual trend is forming towards a decrease in the production growth rate.
So why is it slowing? As we have discussed in this newsletter, we are drilling and fracing fewer wells. As Richard Spears mentions, the wells are also not as good per foot. They could be overall the same, but they have longer laterals so there’s more rock exposure. Additionally, as we covered with Concho Resources recent quarterly report disaster, they found that drilling wells in close proximity to each other negatively affected the production of those wells.

Conclusion:

Oil prices are likely to go up over time. There seems to be overconfidence on the supply side due to the sheer might of the shale revolution but inventory numbers, frac job numbers, etc. all point to challenges on the supply side, challenges that have led to unexpected higher costs.

Natural Gas/ LNG

+ Under Control – LNG Industry July 2019

“According to the GIIGNL, the total liquefaction capacity reached 406 million tpy at 2018 year-end. 42 countries were LNG importers with a global active regasification capacity of 868 million tpy. LNG tankers number 563 vessels globally, including 33 floating storage and regasification units (FRSUs) with a total cargo capacity of 83.1 million m³”.

The rest of the article goes onto explain how terminal headers can help to safely drive and control the pumps that transfer LNG from their tanks to various applications.

South America

+ Luck of the Draw – Oilfield Technology June 2019

South American crude analysis by country

Mexico, for example, “imports over 800,000 bpd of gasoline and other refined fuels just to meet its domestic needs.”

“Pemex also announced plans to drill 506 new wells in 20 recently-discovered fields in 2019, more than triple the number drilled in 2018. The targets include 16 offshore projects and four onshore; new production platforms and other infrastructure are also slated. The plan is to add 300,000 bpd in new production by 2022.”

Have a great weekend!

-Danny Foelber

EKT Interactive Managing Editor

Head Writer | Eau Claire Writing

Unsubscribe | Update your profile | 9813 Shadow Wood Dr., Houston, TX 77080

Energized! #022

Friday, September 6th, 2019

Hello all,

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.

Energized!

Curated weekly oil and gas newsletter

Oil Prices and Markets

+ Fast Facts – Houston Chronicle “Fuel Fix” as of Sunday, September 1st, 2019

Light, sweet crude (dollars per barrel): $55.10

Last Week: $54.17

Natural Gas (dollars per million British thermal units): $2.285

Last Week: $2.152

Rig count (United States): 904

Last Week: 916

Oil Services

+ TechnipFMC to split into two companies – Offshore Engineer

“Franco-American oil services firm TechnipFMC Plc said on Monday [August 26th] it would spin off its engineering and construction operations into a separate company, leaving it as a technology-focused equipment supplier to oil and gas companies.”

“TechnipFMC received a record volume of orders in the second quarter, supported by new liquefied natural gas (LNG) projects.”

Environment

+Energy companies set to get reprieve on methane rules – The Wall Street Journal

This WSJ article plays off of the ongoing Trump administration narrative to erase the Obama administration’s legislation on methane emissions. The narrative continued on August 27th when the Trump administration formally introduced a new proposal.

“Methane, which accounts for about 10% of U.S. greenhouse-gas emissions, is about 25 times more potent than carbon dioxide in trapping the earth’s heat, according to estimates used by the EPA. Its figures show the oil-and-gas industry has long been the nation’s largest emitter of methane, even before discoveries in shale and fracking led to a wave of new drilling.”

Probably the most glaring tension from the article is the rift between agencies, most notably the API and EPA, and supermajors such as ExxonMobil and Shell.

Politically speaking, the question is should the industry maintain “Obama-era requirements for the industry to install technologies that monitor and limit leaks from new wells, tanks and pipeline networks and to more frequently inspect for leaks” or move onto voluntary programs where the companies themselves commit to more inspections and agree to replace and update outdated and environmentally harmful systems.

Interestingly enough, ExxonMobil and Shell are proponents of government regulation, arguing that voluntary programs and rollbacks in policy “undermine the argument that natural gas is a cleaner fuel.” On the other hand, the API and EPA argue that “the industry has an incentive to limit emissions because it can sell the gas it traps.”

This divide is fascinating. ExxonMobil and Shell are essentially saying that they are committed to reducing methane emissions anyway, so it will look even better, and cost less legal fees, to simply keep the current regulations in place.

Oil and gas companies large and small are incredibly concerned with their images and brands in terms of public sentiment and convincing the workforce that they are morally sound companies. Without regulations, even voluntary measures by ExxonMobil and Shell will be discounted in the face of some small E&P company, somewhere in the middle of nowhere, that is running and gunning without any concern for environmental protection. “Without nationwide methane regulation, [the] industry is only as strong as its weakest link,” said Ben Ratner, a senior director at the Environmental Defense Fund.

President Trump is in a league of his own. While there’s a least a discussion between companies and regulatory bodies, Trump has publicly called climate change a hoax, saying it hurts business.

“The production and transport of methane involves millions of miles of pipelines, and the gas often leaks through the network’s innumerable joints and vents. That adds methane to the heat-trapping gases in the atmosphere.”

“The industry leaks about 2.3% of all the natural gas it produces, according to a series of studies finished last year and led by the Environmental Defense Fund.”

This is a big topic of conversation. We will continue to cover it in this newsletter as the story develops.

U.S. Shale (with 3 articles from Oil & Gas 360)

+ U.S. shale oil output to rise to record 8.77 million bpd in September (EIA) – Oil & Gas 360

+ EPIC announces initial crude delivery into Corpus Christi – Oil & Gas 360

+NuStar receives first shipment of Permian Basin crude oil at Corpus Christi Terminal – Oil & Gas 360

These three articles were mentioned on episode 118 of the Texas Oil and Gas Podcast. We are here to connect the dots for you and tell you a quick summary of what this means for the Permian.

After months of falling rig count and spot prices, September may just be the month where things start turning around in West Texas.

The biggest monthly increase in Permian production since April is expected to occur in September when production should increase 75,000 bpd to a new record, 4.42 million bpd. Helping steady prices and lead to the production increase are the lauch of new pipelines, such as Plains All American Pipeline LP’s 670,000-bpd Cactus II pipeline system. On the downstream side, the first shipment of Permian crude arrived at NuStar’s Corpus Christi export terminal.

“After being transported more than 500 miles, the Permian Basin crude oil is being stored in storage tanks at NuStar’s facility where company officials said it will be loaded onto a tanker for export.”

“The pipeline build out comes at a time when the Port of Corpus Christi is widening and deepening the ship channel and the South Texas waterway is expected to become the largest crude oil export hub in the United States within the next five years.”

Additionally, EPIC announced that interim crude service on its 24″ Y-Grade Pipeline has begun delivering crude from Crane, TX to various terminals in Corpus Christi and Ingleside, TX. Interim crude service will give EPIC the ability to deliver up to 400,000 barrels of oil per day to refineries around Corpus Christi.

Offshore

+Brazil propelling FPSO market boom – Offshore Magazine

“OSLO, Norway – The global market for FPSOs is headed for a major renaissance with as many as 24 FPSO awards expected by 2020, driven mostly by Brazil, according to analyst Rystad Energy. South America leads the pack with 12 sanctioned FPSO projects planned by the end of next year, followed by Asia with four, Europe and Africa with three each, and two more in Australia. Rystad expects Brazil – currently witnessing an influx of international E&P companies – to contract seven more FPSOs in 2020, thereby bringing the country’s tally to more than one-third of the awards anticipated globally this year and next. The seven projects already confirmed this year collectively represent production capacities of more than 700,000 b/d of oil and around 60 MMcm/d of gas.”

+ NOV lands contract to build massive offshore wind turbine installation ship – Houston Chronicle

“Shimizu Corporation awarded NOV a contract to design and build a ship that will be used to install turbines for a 9-gigawatt wind farm off the coast of Japan.” The ship will include wind turbines that can each produce between 9 to 12 megawatts of electricity.

Natural Gas/ LNG

+ Time to stay strong – LNG Industry July 2019

Support is high for natural gas and LNG in Asian markets, but recent declines in Asian LNG spot prices have weakened the market.

“LNG is facing increased competition from pipeline gas and alternate energy sources, dampening Asia’s appetite for LNG.”

This is one reason for the collapse in LNG prices. Mid-scale LNG projects, FLNG platforms, and more provide other ways for investors to dip their toes into the LNG market without exhausting CAPEX.

“Projecting forward, pipeline gas from Russia via the landmark “Power of Siberia” deal will likely dampen China’s LNG imports. China’s gas storage and processing capacity bottlenecks will limit the gas it can absorb in the short-run.”

Just like the discount that Permian oil and gas bears to standard market prices, so too are the spot and contract markets of regional LNG supply and demand disconnected. The variance between European markets and Asian markets has left Europe as the marginal “swing” destination for surplus LNG volumes.

“Weak LNG spot prices and uncertainty regarding future pricing undermines the incentive to invest in new capacity.”

“The consensus expectation amongst industry experts is the global LNG market will tighten significantly by the early 2020s.” The global LNG market could move from surplus to defificit and back to surplus again, post-2025.

“The industry needs to add between 100 million tpy and 250 million tpy of capacity by 2025 in order to meet anticipated demand.”

What will fill this demand? As previously stated, mid-scale projects provide a happy medium between meeting demand and not hemorrhaging costs. “The next wave of LNG projects will be very different to the first generation. These projects will be considerably less capital-intensive, responding to industry drive for lower cost onshore and offshore delivery solutions.”

Also changing is the once prolific but now dwindling relationship between LNG and oil. “The smart money is for an eventual decoupling of LNG from oil with a gas benchmark like Henry Hub or Waha Hub in West Texas applied instead. The close historical correlation between LNG prices and crude oil is already breaking down.”

What if coal replaced oil as the commodity tied to gas? This would certainly have positive and negative effects. On one hand, it’s an attractive strategy in Asian markets with high volumes of coal generation. Indeed, coal is much less volatile than oil. On the other hand, global coal benchmakrs would hurt developing nation pricing, as many of these nations are using LNG as a replacement for coal, not an affiliate.

“The long-term demand outlook for gas remains exceptionally strong as the world gravitates towards cleaner energy sources. Shell, for example, expects gas to account for more than 40% of total energy demand growth until 2035, driven by clean air policies and emissions reduction targets.”

“In the IEA’s latest World Energy Outlook, demand for natural gas is forecast to rise by 45% by 2040. In the IEA’s “New Polciies Scenario,” gas overtakes coal by 2030 as the second-largest source of energy after oil.”

Conclusion: Asia is where the action is. European and Australian headlines are dominating the scene, Europe as a buyer desperate for clean-burning energy and Austalia as a fair weather supplier. A focus on the Asian market is just as important.

Upstream

+ From cloud to clarity – Oilfield Technology July 2019

Hannah Chittenden, Doug Angus, and Katie Jeziorskio, ESG solutions, Canada, explain how increased microseismic resolution helps model and mitigate parent-child interaction and frac hits.

Ah, the continuing discussion of parent-child wells. A parent well is the initial well that is designated for drilling, with the assumption that the general area has the potential for more wells. Subsequent wells that derive from that first well are called child wells and tpyiclaly yield less than the parent well. As more child wells are drilled, it becomes a profit/loss calculation, with a declining profit ratio until the company can’t breakeven and they stop drilling child wells altogether.

+ A DUC dynasty? We don’t think so – Spears Insider

We have discussed the Drilled but Uncompleted Well (DUC) count several times in this newsletter. The DUC count is a crucial measure of oil and gas supply. A DUC is exactly what it sounds like, a well that has been drilled but has yet to undergo the crucial fracing process that results in hydrocarbons rising to the surface, marking the beginning of production. There have been several sources, including the EIA, confirming the United States DUC count as rising steadily month over month to over 4,000 now. The Spears brothers have a different take, claiming the DUC count isn’t just lower than what the EIA is saying, it’s practically nonexistent.

“In this era of “capital discipline”, what oil company management team would admit to their shareholders that they took a bunch of capital, drilled holes in the ground at $3M per and then left them without completing them? It looks like in almost every case oil companies decided to sell oil today at a small discount rather than wait 6 months and sell it at a possibly higher price once the pipelines get built. Who wants to take the risk that oil prices will be higher in 6 months?”

Water Treatment & Supply

+ Shifting Focus – Oilfield Technology July 2019

Here are the trends. Fracing and horizontal drilling are increasing, the costs associated with this drilling is decreasing, but associated water costs are increasing mostly due to deeper wells and longer laterals. This article is a great read for those interested in water usage trends, how much water is produced per well, water treatment, and water recycling,

Have a great weekend!

-Danny Foelber

EKT Interactive Managing Editor

Head Writer | Eau Claire Writing

Unsubscribe | Update your profile | 9813 Shadow Wood Dr., Houston, TX 77080

Energized! #021

Friday, August 30th, 2019

Hello all,

Happy Friday and welcome to Energized, your weekly look into the geopolitics, news, and happenings of energy markets.

Now, onto this week’s issue.

Energized!

Curated weekly oil and gas newsletter

Oil Prices and Markets

+ Fast Facts – Houston Chronicle “Fuel Fix” as of Sunday, August 25th, 2019

Light, sweet crude (dollars per barrel): $54.17

Last Week: $54.87

Natural Gas (dollars per million British thermal units): $2.152

Last Week: $2.220

Rig count (United States): 916

Last Week: 935

Midstream

+ 3 reasons why the Permian Basin needs 1 more crude pipeline – Wood Mackenzie

For those interested in a bit of history on how the Permian outgrew its takeaway capacity as well as an outlook for the basin’s growth and infrastructure needs in the coming decades, this article’s for you.

“The early 2020s will see a massive build-out in a short period of time – we estimate more than 3.5 million b/d of Permian-to-Gulf Coast crude takeaway capacity by the end of 2022, effectively doubling long-haul capacity from the basin. This burst of buildout will likely lead to overcapacity short term. A key question remains for long-term planning – will additional pipeline capacity ever be called on again, or is the build-out complete?”

Resilient Permian basin oil production continues into the 2030s

Source: Wood Mackenzie North America Crude Markets Service

+ TechnipFMC wins $7.6 billion contract for Arctic LNG-2 Project – Reuters

“Oil services company TechnipFMC won a $7.6 billion contract with Russia’s Novatek and its partners for the Arctic 2 liquefied natural gas project in western Siberia, pushing TechnipFMC’s shares higher.”

Environmental News

+ How climate change could impact the economy – Yahoo Finance

According to JP Morgan Chase, climate change will only reduce the global GDP by 7% over a time period when it will, at forecasted rates, compound to grow over 450%.

Aside from arguing the economic side of climate change, the environmental side is still a fresh topic. Displaced species relocating to alien environments, harmed land and marine ecology, land loss leading to inhabitance in places like the Southern Parishes of Louisiana (The New Yorker published a piece on this topic in April). The effects are serious.

The Yahoo Finance panel provides valuable insight on the topic of climate change. I found Kristin Myers’ point that developing countries shoulder the brunt of climate change poignant and accurate. She cited the Somalian famine as a prime example, which occurred in 2018 and caused emigration out of Somalia and into neighboring African and even European countries.

Massive emigrations out of developing countries create a strain on the infrastructure and health care of developed countries accepting immigrants. A case like the Somalian famine shows that the consequences of climate change can begin with developing countries and then trickle down into developed countries. It’s a global problem that may not affect the economy, but it certainly impacts the well-being of humans and other life on this planet.

Fear not, the energy industry is mindful of climate change. In case you missed it, check out the July Spotlight Issue in Energized #15 to learn how artificial and natural means of carbon capture and storage can stunt or even reverse climate change.

Safety & Security

+ Hormuz: Iran spoofing bridge to bridge communications? – Marine Log

“MARAD has issued a revised advisory for vessels operating in the Persian Gulf, Strait of Hormuz, and Gulf of Oman. It warns that heightened military activity and increased political tensions in this region continue to pose serious threats to commercial vessels.”

Energy Job Market

+ Oil has a millennial problem – Bloomberg

“The industry is facing recruitment challenges all over the world. In a survey of more than 33,000 people working in oil and gas conducted by oilandgasjobsearch.com and NES Global Talent, almost 90% said skills shortages were damaging productivity, with gaps widening in every sector of the industry.”

The article tells the oil and gas talent shortage story through the eyes of a recent Oxford graduate named Robert Paver. Recent college graduates and millennials are disenchanted by the oil and gas industry due to scars from the 2015 oil downturn, negative sentiment towards fossil fuels, polarizing policy surrounding renewables, and lack of confidence in energy industry job security. These pressures are even greater in many European countries, where environmental policy is one of the most heavily debated topics. According to Mads Huuse, professor of geophysics at the University of Manchester. “A lot of geoscience students in the U.K. don’t work in the industry, they work in insurance companies and banks.” It’s safe to say public perception is at or near an all-time low.

Permian Basin: All segments (Upstream, Midstream, & Downstream)

+ UH Study: Increased production raises questions about USGC port capacity – Oil & Gas Journal

West Texas production is largely slated for export now that the United States is shifting its focus towards an energy-exporting nation for oil, natural gas, and liquefied natural gas. As many of you know from this newsletter and other sources, Permian production has been dampened due to a lack of pipelines. We have recently discussed problems emerging in the upstream segment as well, with Permian producers, especially independents, struggling to maintain strong free cash flow in the midst of falling oil prices and logistical issues.

What we haven’t talked as much about is how the downstream segment ties into the Permian.

This recent study by my Alma Mater, the University of Houston, ties it all together.

A few quotes from the article:

“As US refiners and other customers will be unable to absorb rising production from the Permian basin, several potential obstacles could stand in the way of successfully exporting the excess production.”

“The independents are relatively inexperienced with exports, and if they can’t build that expertise, they could become targets for acquisition,” Krishnamoorti said. “They also face additional stress because of the flight of capital from the Permian.”

“Construction of additional pipelines under way or planned to carry oil from the Permian to export terminals along the Gulf Coast should relieve current bottlenecks by mid-2020, but new bottlenecks will emerge downstream. Export terminals in Corpus Christi, in particular, are unlikely to be ready to handle the volume, even though the port is designed to handle VLCCs.”

“The lack of a solution for the flaring of gas in the Permian poses a risk to the continued viability of the Permian.”

Upstream

+ Whiting Petroleum slashes workforce by a third – Journal of Petroleum Technology

+ E&P growth shifts offshore and globally but more cost and job cuts on the way – Journal of Petroleum Technology

NOV’s recent Q2 earnings report could curb anyone’s enthusiasm for working in the oil and gas industry. The CEO was quoted as calling the current business climate a “generational oilfield downturn.” Layoffs are mounting in the oilfield services industry. NOV is desperate to reduce general and administrative costs so much so that they are offering voluntary early retirement with severance packages.

Herein lies the dichotomy. On the one hand, there is a talent shortage. On the other, there are job cuts due to the number of redundancies and inefficient segments of several large oil and gas firms. So what does it mean? Companies want to hire talented individuals that think differently and can help the organization prosper in this changing business environment. If you’re new to the industry, don’t let the layoffs scare you. Many times, it’s not the individual’s fault but the division they were under. Marketable skills are timeless, and possessing them paves the way for an energy career teeming with opportunity.

There is some good news from the two JPT articles. Oilfield services companies are shifting their focus, once again, offshore. Offshore is really the bread and butter of oilfield services companies. Onshore, especially the shale plays, is less predictable than offshore. Operators are focusing more on cash flow so offshore is more attractive.

“The rig count for shale plays has been sinking while offshore spending has jumped from depressed levels.”

“We expect offshore commitments to nearly double from 2018 to 2020, and sustain high levels of spending over the next five years,” said Matthew Fitzsimmons, vice president on Rystad Energy’s oilfield services team.

+ Shale drilling’s worst yet to come, biggest rig owner says – World Oil

Helmerich & Payne made the same mistake during the second quarter of 2019 that many of its peers made: it underestimated the slowdown in North American spending.

“The full effect of the industry’s emphasis on disciplined capital spending continues to reverberate through the oil field services sector,” he [CEO John Lindsay] said in a Wednesday statement. “We are reluctant to predict another bottom and see further softening during our fourth fiscal quarter as our guidance would indicate.”

The U.S. oil rig count has fallen 11% this year, according to Baker Hughes.

+ No quick exit from Permian oil from private equity – Bloomberg

“Publicly traded oil and gas producers used to be the natural acquirers, but a drop in crude prices, combined with investor demands for them to conserve cash, has diminished their appetite for deals.”

Oil and Gas Supply

+ How we think about inventories – The Drilldown: In-depth answers to oilfield questions episode 124

When we think about oil inventories we’re typically not talking about reserve supply. Instead, the focus is on commercial oil inventories held up by industrial nations that are part of the Organization for Economic Cooperation and Development (OECD).

Currently, inventories sit at 1.6B for non-USA, 1.3B for USA, bringing the total to ~2.9B.

2.9B is the 3^rd highest ever recorded inventory number which would garner the assumption that oil prices would be low, which they are. In fact, the only time they were higher was in 2015 and 2016, when oil prices were tanking.

As John Spears points out, the key metric here isn’t this total OECD inventory number, it’s the days of consumption, which is simply OECD inventories divided by global consumption. That number is about 100 million per day or a total of 28.4 days. At less than a month, the days of consumption number is the 2^nd lowest figure ever recorded, the lowest being in 2013 when oil was over $100 per barrel.

In reality, the OECD inventory number is relatively small right now, which would lead you to believe oil prices should be higher. Well, why aren’t they? A common assumption is that, due to the versatility of unconventional production, the shale plays can quickly bring oil to market so there is less need for oil inventories. Not so true, as we have found with the takeaway capacity problem in the Permian. This assumption is dampening oil prices. Oil prices are lower than they really “should” be or where, given past data, we would think they would be given the current business climate.

Conclusions…

Although oil inventories are at the 3^rd highest ever at 2.9 billion globally, relative inventories are the second-lowest ever due to the linear uptrend growth in global consumption, which is at an all-time high.
The market is assuming that drillers can flip a switch and bring hydrocarbons to market. Even if they wanted to, they can’t because of the exceedance in takeaway capacity. Even if they could, they probably wouldn’t due to Wall Street’s short leash with E&P companies and emphasis on reducing capital expenditures. There’s a lot more resistance than is commonly believed.
Misinformation and Misrepresentation of inventory supply:
1. + Analytics Firm: Permian fracturing work underreported by 21% in 2018 – Journal of Petroleum Technology
2. “Findings from analytics firm Kayrros suggest the average well in the Permian Basin of West Texas and southeastern New Mexico is both less productive and more expensive than reflected in public data.”
3. “The underreported activity also means the backlog of Permian drilled-but-uncompleted (DUC) wells is much smaller than commonly thought, Kayrros said. “The prevalent view that shale operators sit on a large backlog of DUCs that could be quickly brought to production even without further drilling is thus deeply misleading,” it said. “There is just no such inventory.””
4. Sites like FracFocus, which is a voluntary repository of self-reported completions data, is useful but cannot be relied on for 100% accuracy.

Final Conclusion: Oil inventories are relatively low but oil prices don’t reflect this supply strain due to the common perception that unconventional drilled but uncompleted well supply is high and there are drillers chomping at the bit to bring products to market. In reality, these drillers have their hands tied with investor obligations to operate within free cash flow.

Have a great weekend!

-Danny Foelber

EKT Interactive Managing Editor

Head Writer | Eau Claire Writing

Unsubscribe | Update your profile | 9813 Shadow Wood Dr., Houston, TX 77080

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September Spotlight Issue

The Attack on Saudi Arabian Oil and Gas Processing Facilities (Abqaiq and Khurais)

A photograph taken by the commercial satellite company Planet shows the Abqaiq facility shortly after an attack on Sept. 14.

Image Source: Planet Labs Inc.

Image Source: VOA – https://www.voanews.com/middle-east/iran-threatens-war-oil-prices-spike

Image Source: Atlantic Council

Image Source: Forbes

Image Source: EIA

Resilient Permian basin oil production continues into the 2030s