Matt Smith

Matt Smith
Last Updated: April 22, 2017
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Marine & Offshore
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Crude prices are heading lower again, rounding out a downbeat week, as the expectation of an OPEC production cut extension is more than outweighed by an ongoing lopsided market. As oversupply fears enter the fray once more, hark, here are five things to consider in oil markets today:   

1) OPEC crude exports so far this month are down compared to March, led by a drop from Saudi Arabia and Iran. Nonetheless, total global crude loadings continue to tick higher, holding above 50 million barrels per day.

As our ClipperData illustrate below, global loadings continue to grow - and strongly - on a year-over-year basis, as global producers have ratcheted up output, and more recently, on signs of crude potentially shifting out of onshore storage.

global crude loadings yoy.jpg

2) While there has been considerable focus of late on the elevated nature of OECD inventories, there has also been the suggestion that crude is instead being drawn down from areas where there is less transparancy and visibility, such as the Caribbean.

Six locations in the Carribbean export crude (not including Curacao, as it is a stepping stone for Venezuelan exports): Trinidad & Tobago, St. Lucia, St. Croix, Cayman Islands, the Bahamas and Aruba. Loadings from these six averaged 400,000 bpd last year. Year-to-date, this number is slightly lower, at 380,000 bpd - but this is due to a slow start to the year; March and April loadings are picking up. There has been one particularly interesting development of late.

Arclight Capital / Freepoint took over the Hovensa refinery complex in St. Croix in early 2016 after a period of inactivity, and is transforming it into a storage hub. We can see from our ClipperData that it started pulling in crude for storage in mid-last year, receiving regular deliveries each month of mostly heavier grades  - such as Castilla Blend and Maya.  

Its appetite changed this year, pulling in lighter crude instead such as Ekofisk from the North Sea, and WTI in recent months. This makes sense, given that lighter grades are more readily available this year, as heavier and sour crude gets bid up amid the OPEC production cut deal. 

In terms of exports from St. Croix, we saw a loading bound for Portugal in November, then a three-month absence. Since the start of March, however, we have seen three loadings. Combine this with a tick higher in loadings from Aruba and St Lucia, and a trend may be potentially emerging.

 St Croix flows ClipperData.jpg

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3) Since the start of the year, non-Canadian companies have sold more than $20 billion of Canadian oil sands assets, as companies switch their focus to short-cycle oil projects instead, such as U.S. shale.

This drying up of international investment has been offset by Canadian companies such as Cenovus Energy, Suncor and Canadian Natural Resources stepping up instead, with the expectation that their local knowledge, relationships and sharing of proprietary technologies will make the oil sands a much more viable option going forward. 

Oil sands accounted for 2.4 million barrels per day of production in 2015 (hark, below), accounting for nearly two-thirds of Canadian output.

Canadian oil sands production.jpg

According to OPEC, total Canadian production rose a further 80,000 bpd last year to average 4.5mn bpd.   Ongoing production growth is expected this year, with an increase of 210,000 bpd to average 4.71mn bpd - driven by production ramp ups for both bitumen and synthetic oil projects. Canadian supply.jpg

4) Yesterday we looked at drilled but uncompleted wells (DUCs, quack) in the Permian basin. The chart below adds a bit more color, showing both drilled and completed wells. As a reader rightly commented on yesterday's blog, this rise in DUCs is likely due to operators ensuring they maintain their land leases.

The rise in the drilled wells is likely a response to improving confidence in the oil sector, while the rising DUCs point to higher production ahead when market conditions become more favorable (think: services costs and/or oil prices). 

 Permian DUCs March 2017.jpg

The graphic below is also from the Dallas Fed's latest energy indicators, showing the change in the Texas rig count by county from May 2016 to March 2017. The Permian Basin, not surprisingly, has been the biggest beneficiary, accounting for the three counties with the biggest rig count increases: Reeves (+31), Martin (+15) and Howard (+14). 

Texas rig count.jpg

5) Finally, stat of the day comes from this WSJ article, which highlights that Chinese refining capacity has tripled this century, now accounting for 15 percent of the global total (at the end of 2015). This is ~20 percent higher than Chinese domestic demand. CNPC, China's largest oil company, project that refining capacity will increase by 5 percent in 2017, leading to higher product exports going forward.

Countering this view is the implementation of a consumption tax in China on mixed aromatics, light cycle oil and bitumen blend, which could ultimately hit exports of oil products. 

DUCs Chinese product exports Canadian oil sands total global crude loadings Permian basin
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Your Weekly Update: 11 - 15 March 2019

Market Watch

Headline crude prices for the week beginning 11 March 2019 – Brent: US$66/b; WTI: US$56/b

  • Global crude oil prices continue to remain rangebound despite bearish factors emerging
  • News that Libya was restarting its 300,000 b/d Sharara field could weaken the ability of OPEC to control supply, while a report from the US EIA hints that the market was moving into a glut
  • The EIA report showed that commercial crude inventories in the US rose by 7.1 million barrels, far higher than the 1.6 million barrel increase predicted, with a 873,000 barrel increase at Cushing and a 12% y-o-y drop in crude imports
  • By the end of 2019, with American output surging and Saudi Arabia curtailing production, the US could export more oil and liquids than the world’s largest exporter
  • Meanwhile in OPEC, PDVSA has received some aid from Russia with Rosneft agreeing to send heavy naphtha to Venezuela – a product necessary to thin heavy Venezuela crude to move by pipeline to the coast that have been affected by the American sanctions
  • On the demand side, Morgan Stanley has predicted that China’s oil consumption will peak in 2025, some 5-8 years earlier than most expectations, driven by a shift in cars towards electric vehicles and high-speed rail
  • The US active rig count fell for a third consecutive week, following a 9 rig fall with an 11 rig drop last week, with nine oil sites and two gas sites scrapped
  • Despite the bearish factors, it looks like crude has found a new comfortable range with Brent at US$65-67/b and WTI at US$56-58/b for the week


Headlines of the week

Upstream

  • Despite security concerns, Libya has restarted its largest oil field, with output at 300,000 b/d Sharara expected to reach 80,000 b/d initially, throwing a new spanner in the OPEC goal of controlling supply
  • A one-year delay to Enbridge’s Line 3 conduit in Canada due to regulatory issues has thrown new troubles onto Alberta’s beleaguered crude industry
  • ExxonMobil is planning a major acceleration of its Permian assets, aiming to produce more than 1 mmboe/d by 2024, an increase of nearly 80%
  • China has announced plans to form a national oil and pipeline company, part of a natural energy industry overhaul that will give the new firm control over at least 112,000 km of oil, gas and fuel pipelines currently held by other state firms
  • Equinor, with Petoro, ConocoPhillips and Repsol, have announced a new oil discovery in the North Sea, with the Telesto well on the Visund A platform potentially yielding 12-28 million barrels of recoverable oil
  • Aker Energy has reported a new oil discovery at the Pecan South-1A well offshore Ghana, with the Pecan field expected to hold 450-550 mboe of oil
  • Production declines at Kazakhstan’s three main oil fields will see the country slash crude exports by 2% to 71 million tons this year, with cuts mostly to China

Midstream & Downstream

  • Canadian Natural Resources is looking to ease pressure on the Alberta crude complex by bringing its 80 kb/d North West Redwater refinery online this year
  • Work has begun on the upgrade and expansion of Egypt’s Middle East Oil Refinery near Alexandria, with the project expected to boost capacity to 160 kb/d and quality to Euro V through the installation of a new CDU and VDU
  • Bahrain’s BAPCO has announced plans to expand its Sitra oil refinery by early 2023, growing capacity from 267 kb/d to 360 kb/d

Natural Gas/LNG

  • India has started up its first LNG regasification facility on the east coast, with the Ennore terminal expected to service the major cities of Chennai and Madurai
  • Total has signed an agreement with Russia’s Novatek for the formal acquisition of a 10% stake in the Arctic LNG 2 project, bringing its total economic interest in the 19.8 mtpa project in the Yamal and Gydan peninsuals to 21.6%
  • Thailand’s PTTEP has announced a new offshore gas find in Australia’s portion of the Timor Sea, with the Orchid-1 well striking gas and expected to be incorporated into the Cash-Maple field with 3.5 tcf of resources
  • Crescent Petroleum and Dana Gas’s joint venture Pearl Petroleum Company is aiming to boost gas production at Khor Mor block in Iraq’s Kurdistan region by 63% with an additional 250 mmscf/d of output
  • Petronas’ 1.2 mtpa PFLNG Satu – the world’s first floating LNG vessel – has completed its stint at the Kanowit field and will now head to its second destination, the Kebabangan gas field offshore Sabah
  • Chevron is looking to revisit its Ubon wet gas project in Thailand after a period of hiatus as the supermajor recalibrated its development costs
  • Nigeria’s NLNG Train 7 LNG project is expected to reach FID in the third quarter of the year after multiple delays
  • ExxonMobil and BP have agreed to collaborate with the Alaska Gasline Development Corporation to advance the Alaska LNG project
  • Energean Oil and Gas has started its 2019 drilling programme in Israel, focusing on four wells, including one in Karish North near the Karish discovery
March, 15 2019
Latest issue of GEO ExPro magazine covers New Technologies and Training Geoscientists, with a geographical focus on Australasia and South East Asia

GEO ExPro Vol. 16, No. 1 was published on 4th March 2019 bringing light to the latest science and technology activity in the global geoscience community within the oil, gas and energy sector.

This issue focuses on new technologies available to the oil and gas industry and how they can be adapted to improve hydrocarbon exploration workflows and understanding around the world. The latest issue of GEO ExPro magazine also covers current training methods for educating geoscientists, with articles highlighting the essential pre-drill ‘toolbox’ and how we can harness virtual reality to bring world class geological locations to the classroom.

You can download the PDF of GEO ExPro magazine for FREE and sign up to GEO ExPro’s weekly updates and online exclusives to receive the latest articles direct to your inbox.

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March, 14 2019
Norway’s Retreat in Oil Investments – Politics or Economics?

In 2017, Norway’s Government Pension Fund Global – also known as the Oil Fund – proposed a complete divestment of oil and gas shares from its massive portfolio. Last week, the Norwegian government partially approved that request, allowing the Fund to exclude 134 upstream companies from the wealth fund. Players like Anadarko Petroleum, Chesapeake Energy, CNOOC, Premier Oil, Soco International and Tullow Oil will now no longer receive any investment from the Fund. That might seem like an inconsequential move, but it isn’t. With over US$1 trillion in assets – the Fund is the largest sovereign wealth fund in the world – it is a major market-shifting move.

Estimates suggest that the government directive will require the Oil Fund to sell some US$7.5 billion in stocks over an undefined period. Shares in the affected companies plunged after the announcement. The reaction is understandable. The Oil Fund holds over 1.3% of all global stocks and shares, including 2.3% of all European stocks. It holds stakes as large as of 2.4% of Royal Dutch Shell and 2.3% of BP, and has long been seen as a major investor and stabilising force in the energy sector.

It is this impression that the Fund is trying to change. Established in 1990 to invest surplus revenues of the booming Norwegian petroleum sector, prudent management has seen its value grow to some US$200,000 per Norwegian citizen today. Its value exceeds all other sovereign wealth funds, including those of China and Singapore. Energy shares – specifically oil and gas firms – have long been a major target for investment due to high returns and bumper dividends. But in 2017, the Fund recommended phasing out oil exploration from its ‘investment universe’. At the time, this was interpreted as yielding to pressure from environmental lobbies, but the Fund has made it clear that the move is for economic reasons.

Put simply, the Fund wants to move away from ‘putting all its eggs in one basket’. Income from Norway’s vast upstream industry – it is the largest producing country in Western Europe – funds the country’s welfare state and pays into the Fund. It has ethical standards – avoiding, for example, investment in tobacco firms – but has concluded that devoting a significant amount of its assets to oil and gas savings presents a double risk. During the good times, when crude prices are high and energy stocks booming, it is a boon. But during a downturn or a crash, it is a major risk. With typical Scandinavian restraint and prudence, the Fund has decided that it is best to minimise that risk by pouring its money into areas that run counter-cyclical to the energy industry.

However, the retreat is just partial. Exempt from the divestment will be oil and gas firms with significant renewable energy divisions – which include supermajors like Shell, BP and Total. This is touted as allowing the Fund to ride the crest of the renewable energy wave, but also manages to neatly fit into the image that Norway wants to project: balancing a major industry with being a responsible environmental steward. It’s the same reason why Equinor – in which the Fund holds a 67% stake – changed its name from Statoil, to project a broader spectrum of business away from oil into emerging energies like wind and solar. Because, as the Fund’s objective states, one day the oil will run out. But its value will carry on for future generations.

The Norway Oil Fund in a Nutshell

  • Valued at NOK8.866 trillion/US$1.024 trillion (February 2019)
  • Invested in 9,138 companies in over 73 countries
  • Holds 1.3% of all global stocks
  • Holds 2.3% of all European stocks
  • Holds 2.4% of Shell, 2.3% of BP
March, 13 2019