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.
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.
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.
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.
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).
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).
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.
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It seems to have been a topic that has been discussed for years, but a decision could finally be made. The Philippines has short-listed three different groups who are in the running to build the country’s first LNG import terminal, whittling them down from an initial 18 that submitted project proposals. The final three consist of the Philippines National Oil Company (PNOC), a joint venture between Tokyo Gas and domestic firm First Gen Corp and China’s CNOOC. The Philippines hopes to choose the final group by the end of November – an optimistic decision that belies that many, many complications that have come before. And those still to come.
First of all, the make-up of only one of the groups has been finalised. A local partner is a requirement for this project; CNOOC has yet to officially tie-up, although it has been talking to Manila-based Phoenix Petroleum, while state oil firm PNOC does not have a (deep-pocketed) partner yet. Firms including Chevron, Dubai’s Lloyds Energy Group and Japan’s JERA have reportedly contacted PNOC to express their interest, but a month before the Philippines wants to make a decision, its own home-grown hero hasn’t yet got its ducks lined up in a row.
And time is of essence. The once giant Malampaya gas field is running out of resources. Supplying piped natural gas to three power plants that feeds some 45% of Luzon’s electricity requirements, the Shell-operated field is expected to be completely depleted by 2024. With the country aiming to move away from burning coal or (imported) gasoil for power, gas is needed to replace gas. Even though the Philippines is pushing for a bilateral agreement with China to pave to way for joint exploration activities in disputed areas of the South China Sea – to the consternation of its citizens – any discovery in the Palawan basin or Scarborough Shoal will be years from commercialisation.
So LNG is the answer. And LNG has been the answer since 2008, when the need for an LNG import terminal was first identified. And it is not like no projects have been proposed – Australia’s Energy World Corp (EWC) has been wanting to build an LNG receiving terminal and power station in the Quezon province near Manila for years, but the project has been described as ‘trapped in a bureaucratic quagmire’ due to hurdles from various government agencies, or stymied by groups with competing interests.
PNOC itself has been wanting to build its own terminal in Batangas, within range of existing gas and power transmission facilities currently drawing Malampaya gas. But, just like Pertamina in Indonesia, it is cash-strapped and unable to drive the project on its own, hence the requirement for a partner/s. First Gen Corp and Phoenix Petroleum are both private players, with First Gen already operating four of the country’s five gas-fired plants while Phoenix Petroleum has close ties with CNOOC Gas.
Many announcements have been made and gone, but with this shortlist of three groups, it does finally look like the Philippines will be able to get its LNG ambitions of the ground. And it is thinking even bigger; wanting the terminal to become a LNG trading hub for the region – capitalising on the existing habit of ship-to-ship transfers of LNG cargoes into smaller parcels in the Philippine waters for delivery into southern China – challenging existing ambitions in Japan, South Korea and Singapore. But perhaps that is getting a bit ahead of themselves. Getting a project – any LNG project – off the ground is the first priority. And the rest can come after that.
Other Proposed LNG Projects In The Philippines:
Headline crude prices for the week beginning 5 November 2018 – Brent: US$72/b; WTI: US$62/b
Headlines of the week
It is a well-known fact that the oil and gas industry has a lot to offer in terms of opportunities - paycheck, lifestyle, and work-life balance. However, like everything else in life, it has a flip side as well. If you are planning to make a career in oil and gas industry, it is important to know the cons as well. Here is a list of risks associated with working in oil and gas industry that you must know to make an informed decision.
Highly competitive: survival of the fittest
Oil and gas industry is highly competitive and dynamic in nature. The job requires high level of expertise and productivity. With digitization and automation of the industry, the work functions are changing rapidly. The employees who cannot cope up and upskill with changing time and need will be automatically pushed out of the system. The foremost challenge in oil and gas industry is to stay relevant and keep upskilling.
Long work hours
Some job functions in oil industry like offshore rig workers have to work in 12-hours shift, seven days a week and for seven to 28 days in one stretch. Sometimes, overtime is also expected due to emergency or to manage the project deadlines. However, the oil companies do give equal amount of resting period to the rig workers to compensate for the long working hours. Even then, the continuous long hours is strenuous for the workforce.
The accident-prone work environment
Although rigorous safety trainings are provided to the workforce along with numerous safety measures and laws in place; accidents do occur. Sometimes, these accidents can be life-threatening. Here is quick overview of the possible accidents that you might encounter:
Risk of confined space and fall- The line workers in oil and gas industry sometimes work in confined spaces like mud pits, reserve pits, storage tanks, sand storage, and other excavated areas, where they are exposed to potential risk of ignition of inflammable vapors, exposure to harmful chemicals, and asphyxiation. Additionally, these kinds of workplaces involve risk of falls, slips and trips too which can cause severe injuries and can even turn fatal. Though the companies are extremely careful and take all safety precautions, but the risk cannot be ruled out.
Additionally, frequent exposure to chemicals used in refineries and drilling operations can impact long-term health. To offset these dangers, oil and gas companies provide comprehensive training to employees to ensure safety protocols and site-specific features.
Working in remote location
The oil and gas professionals have to work on remote location for exploration, offshore duties, pumping stations, gas plants and more. The workers in remote location often feel isolated and they are on their own to cope up with numerous work-related accidents and health hazards.
Working in oil and gas industry is extremely rewarding in terms of career growth, travelling opportunities and compensation. However, the above points must also be considered before stepping into this industry. It is important to mention here that majority of oil and gas companies are aware of the risks associated and thus have sound safety measures in place to avoid any contingency. Moreover, the government and regulatory bodies also impose strict regulations for safety and security of the workforce. Therefore, in many cases, the risk associated is considerably reduced. So, before you accept any offer from any oil and gas companies, you must carefully verify the safety measures and policies of the company. Once, you are assured, your career in oil and gas will be highly rewarding.
If you are looking for relevant opportunities, check out NrgEdge.com to kickstart your career in oil and gas industry.