EIA forecasts that total U.S. crude oil production will average 9.3 million barrels per day (b/d) in 2017, up 0.5 million b/d from 2016. In 2018, crude oil production is expected to reach an average of 9.9 million b/d, which would surpass the previous record of 9.6 million b/d set in 1970. Most of the growth in U.S. crude oil production from June 2017 through the end of next year is expected to come from tight rock formations within the Permian region in Texas and from the Federal Offshore Gulf of Mexico (GOM) (Figure 1).
The Permian region is expected to produce 2.9 million b/d of crude oil by the end of 2018, about 0.5 million b/d above the estimated June 2017 production level, representing nearly 30% of total U.S. crude oil production in 2018. The Permian region predominately spans the Permian Basin of western Texas and southeastern New Mexico, covering 53 million acres. Within the Permian Basin are smaller sub-basins, including the Midland Basin and the Delaware Basin, all of which contain historically prolific non-tight formations as well as multiple prolific tight formations such as the Wolfcamp, Spraberry, and Bone Spring. With the large geographic area of the Permian region and stacked plays, operators can continue to drill through several tight oil layers and increase production even with sustained West Texas Intermediate (WTI) prices below $50 per barrel (b).
According to the June monthly average rig count from Baker Hughes, 366 of the 915 onshore rigs in the Lower 48 states are operating within the Permian region. EIA estimates that this number will fall slightly during the second half of 2017 to 345 at the end of 2017 and then grow to 370 by the end of 2018.
In addition to responding to changes in WTI price, increases in rig counts are also related to cash flow. In the Permian, operators have been able to maintain positive cash flow because of lower costs, higher productivity, and increased hedging activity by producers, many of whom have sold future production at prices higher than $50/b. Available cash flows could potentially contribute to the growth of rigs in this region notwithstanding relatively flat prices since December 2016.
Based on EIA’s Drilling Productivity Report">Drilling Productivity Report, productivity in the Permian, as measured by new-well oil production per rig in barrels per day, is forecast to decrease month-over-month for the 10th consecutive month in June (Figure 2). Output per rig is likely decreasing because operators are drilling more wells than they are completing. Completing a well is the process of casing, cementing, perforating, and hydraulically fracturing a well to make it ready for producing. When operators drill a well but do not complete it, the inventory of drilled but uncompleted wells (DUCs) increases, which tends to lower output per drilling rig. Oil flows only after a well is completed. The trend of operators drilling more wells than they are completing does not have a clear cause, but a widening of theWTI-Midland crude oil price discount to WTI-Cushing since the beginning of 2017 suggests the possibility of some minor transportation constraints. Lags in well completion may also reflect implementation of strategies that drill more wells from a single pad, with completion equipment not deployed until all wells are drilled.
Average output per well shows that productivity based on initial production rates continues to increase in the Permian region (Figure 3). Initial production based on average output per well year-to-date is higher than the 2016 annual average. Many operators are continuing to experiment with completion techniques to maximize output per well, suggesting the 2017 annual average initial production rate could continue to increase.
The dynamics related to drilling in the GOM differ from those in Lower 48 onshore regions. Because of the length of time needed to complete large offshore projects, oil production in the GOM is less sensitive to short-term oil price movements than Lower 48 onshore production. In 2016, eight projects came online in the GOM, contributing to production growth. Another seven projects are anticipated to come online by the end of 2018. Based on anticipated production at both new and existing fields, crude oil production in the GOM is expected to increase to an average of 1.7 million b/d in 2017 and 1.9 million b/d in 2018.
U.S. average regular gasoline falls and diesel retail prices climb
The U.S. average regular gasoline retail price fell two cents from the previous week to $2.28 per gallon on July 17, up five cents from the same time last year. The Midwest price fell over four cents to $2.18 per gallon, the West Coast, Rocky Mountain, and East Coast prices each fell one cent to $2.81 per gallon, $2.33 per gallon, and $2.21 per gallon, respectively, and the Gulf Coast price fell less than one cent, remaining at $2.03 per gallon.
The U.S. average diesel fuel price rose one cent to $2.49 per gallon on July 17, nine cents higher than a year ago. The Midwest price increased two cents to $2.44 per gallon, the East Coast and Gulf Coast prices each increased one cent to $2.53 per gallon and $2.32 per gallon, respectively, and the Rocky Mountain price increased less than one cent to $2.59 per gallon. The West Coast price remained unchanged at $2.77 per gallon.
Propane inventories gain
U.S. propane stocks increased by 3.5 million barrels last week to 65.7 million barrels as of July 14, 2017, 21.7 million barrels (24.8%) lower than a year ago. Gulf Coast, Midwest, and East Coast inventories increased by 2.3 million barrels, 0.8 million barrels, and 0.6 million barrels, respectively, while Rocky Mountain/West Coast inventories decreased by 0.2 million barrels. Propylene non-fuel-use inventories represented 4.4% of total propane inventories.
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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.