Friday, September 27th, 2019
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
+ 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.
+ 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.
+ 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.
+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!
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.