NrgEdge Editor

Sharing content and articles for users
Last Updated: October 13, 2017
1 view
Business Trends
image

Last week in World oil:

Prices

  • Despite OPEC’s best efforts to insist the ‘supply freeze is working’, crude oil prices continue to dawdle as the market instead focuses on continued oversupply, particularly with US production returning from Hurricane Harvey closures. Brent is trading at US$55/b, and WTI at US$49/b.

Upstream

  • In a potential landmark decision, Brazil’s oil regulator ANP approved Petrobras’ request to source a rig platform from abroad, skirting the country’s obligation to source from domestic producers. Meant to explore the oil-rich pre-salt Libra area, the waiver to strict local content rules was granted due to a lack of domestic capacity, potentially paving the way to opening up the Brazilian services sector to international competition.
  • Total, Eni and Statoil are courting buyers for their stake in the Teesside oil terminal, which receives crude from Norway’s Ekofisk fields. A price of up to US$400 million is expected for the trio’s joint 70.5% stake, with ConocoPhillip intent on remaining as operator through its 29.3% stake.
  • Ties between Venezeula and Russia continue to deepen out of necessity as the former moves to stave off a domestic financial crunch by consorting with Rosneft. The Russian energy firm currently holds 49.9% collateral in PDVSA’s American refining subsidiary Citgo, and Venezuela is negotiating to swap that for shares in its oilfield assets and a fuel supply deal to provide some much need energy products for the cash-strapped nation.
  • US drillers reduced active rigs by 4 – two oil, two gas – with energy firms delaying spending plans as prices remain weak.

Downstream & Midstream

  • TransCanada has given up on the Energy East pipeline, which would have delivered oil sands crude from landlocked Alberta to Canada’s eastern seaboard ports. Facing stiff opposition from environmental groups, the C$15 billion project is less important than it once was, now that the Keystone XL pipeline – which will send Alberta crude down to the US Gulf Coast – is resuming.
  • Shell and Vitol subsidiary Varo Energy have agreed to discontinue talks to sell Shell’s 37.5% stake in the 220 kb/d PCK refinery in Scwedt, Germany to the latter. The deal would have included the Arhem terminal in the Netherlands, then seen as part of Shell’s global divestment drive.

Natural Gas and LNG

  • Statoil and its partners on the Troll gas field, Norway’s largest, are working to increase its output. Work to allow oil and gas to be produced simultaneously from the Troll West reservoir will introduce some much-needed flexibility to a field that represents 40% of Norway’s gas resources. Output is expected to reach a record high of 36 bcm this year.
  • The BRUA natural gas pipeline in Eastern Europe is back on track after an earlier hiccough in summer when Hungary doubted the commercial viability of the pipeline that will connect Bulgaria, Romania, Hungary and Austria. All four countries have now agreed to resume the project, which will deliver an initial 1.75 bcm of gas from Bulgaria and Romania in 2019


Last week in Asian oil

Upstream

  • Reliance is selling a Marcellus shale oil and gas block it acquired in 2010 for US$126 million, almost a third of the price it paid seven years ago. It illustrates how highly competitive the US shale industry has become, and many majors that invested are now backing out due to low oil prices. Reliance sold the asset to BKV Chelsea LLC, with Carrizo Oil & Gas – the operator of the asset – also selling out. This cuts Reliance’s US shale assets to two, acquired in the 2010 US$2 billion spending spree, and Reliance is likely to cut the other two loose as well.

Downstream & Midstream

  • India’s Reliance has purchased US crude for the first time, as the widening differential between US WTI and Brent prompts the owner of the largest refining complex in the world to capitalise on crude spreads. Capable of processing even the most challenging crudes, the Jamnagar refinery bought a million barrels of West Texas Intermediate Midland crude and a smaller cargo of Eagle Ford Crude – a light, sweet mix that is slightly unusual for its configuration. Reliance itself may be giving up on upstream assets in the US, but cheaper American crude has prompted it to join IndianOil, HPCL and BPCL in buying American cargoes, with year-to-date purchases of 7.85 million barrels so far, a record high.

Natural Gas & LNG

  • LNG output has begun at Chevron’s Wheatstone in Australia, with the first cargo expected at the end of October. Operational after six years of construction, Wheatstone has faced less hurdles in achieving operation than Chevron’s larger Gorgon LNG, but also suffered a similar cost blowout. Only the first liquefaction train is operational; the second will join within eight months, with a total capacity of 8.9 mtpa of LNG, most of which is destined for East Asia. Wheatstone is the sixth of Australia’s mammoth LNG projects to start up, with the only two remaining being Shell’s Prelude floating LNG unit and Inpex’s Ichthys project.
  • Kazakhstan will begin exporting natural gas to China by pipeline on October 15, shipping an initial 5 bcm to PetroChina over a year for a reported price of US$1 billion. It is the first such deal between China and Kazakhstan, which has until now shipped its gas to Russia as additional pipelines were required to connected to the main pipeline linking China and the three main Central Asia energy producers.
  • Shell has cancelled its US$900 million deal to sell its Thai gas field stakes to the Kuwait Foreign Petroleum Exploration Company. Originally announced in January this year as part of Shell’s ongoing divestment drive to reduce debt, the collapse of the sale looks to be linked to Shell having reached its US$30 billion divestment target early, which has led it to retain some of the smaller jewels it had put on sale. Through its local subsidiaries, Shell has a 22.22% stake in the Bongkot natural gas field, whose concession is set to expire in 2023.  

3
3 0

Something interesting to share?
Join NrgEdge and create your own NrgBuzz today

Latest NrgBuzz

Brazil Needs a “Makeover” For Future Bids

The year’s final upstream auctions were touted as a potential bonanza for Brazil, with pre-auction estimates suggesting that up to US$50 billion could be raised for some deliciously-promising blocks. The Financial Times expected it to be the ‘largest oil bidding round in history’. The previous auction – held in October – was a success, attracting attention from supermajors and new entrants, including Malaysia’s Petronas. Instead, the final two auctions in November were a complete flop, with only three of the nine major blocks awarded.

What happened? What happened to the appetite displayed by international players such as ExxonMobil, Shell, Chevron, Total and BP in October? The fields on offer are certainly tempting, located in the prolific pre-salt basin and including prized assets such as the Buzios, Itapu, Sepia and Atapu fields. Collectively, the fields could contain as much as 15 billion barrels of crude oil. Time-to-market is also shorter; much of the heavy work has already been done by Petrobras during the period where it was the only firm allowed to develop Brazil’s domestic pre-salt fields. But a series of corruption scandals and a new government has necessitated a widening of that ambition, by bringing in foreign expertise and, more crucially, foreign money. But the fields won’t come cheap. In addition to signing bonuses to be paid to the Brazilian state ranging from US$331 million to US$17 billion by field, compensation will need to be paid to Petrobras. The auction isn’t a traditional one,  but a Transfer of Rights sale covering existing in-development and producing fields.

And therein lies the problem. The massive upfront cost of entry comes at a time when crude oil prices are moderating and the future outlook of the market is uncertain, with risks of trade wars, economic downturns and a move towards clean energy. The fact that the compensation to be paid to Petrobras would be negotiated post-auction was another blow, as was the fact that the auction revolved around competing on the level of profit oil offered to the Brazilian government. Prior to the auction itself, this arrangement was criticised as overtly complicated and ‘awful’, with Petrobras still retaining the right of first refusal to operate any pre-salt fields A simple concession model was suggested as a better alternative, and the stunning rebuke by international oil firms at the auction is testament to that. The message is clear. If Brazil wants to open up for business, it needs to leave behind its legacy of nationalisation and protectionism centring around Petrobras. In an ironic twist, the only fields that were awarded went to Petrobras-led consortiums – essentially keeping it in the family.

There were signs that it was going to end up this way. ExxonMobil – so enthusiastic in the October auction – pulled out of partnering with Petrobras for Buzios, balking at the high price tag despite the field currently producing at 400,000 b/d. But the full-scale of the reticence revealed flaws in Brazil’s plans, with state officials admitting to being ‘stunned’ by the lack of participation. Comments seem to suggest that Brazil will now re-assess how it will offer the fields when they go up for sale again next year, promising to take into account the reasons that scared international majors off in the first place. Some US$17 billion was raised through the two days of auction – not an insignificant amount but a far cry from the US$50 billion expected. The oil is there. Enough oil to vault Brazil’s production from 3 mmb/d to 7 mmb/d by 2030. All Brazil needs to do now is create a better offer to tempt the interested parties.

Results of Brazil’s November upstream auctions:

  • 6 November: Four blocks on offer, two awarded (Buzios, 90% Petrobras 5% CNOOC 5% CNODC ; Itapu, 100% Petrobras)
  • 7 November: Five blocks on offer, one awarded (Aram, 80% Petrobras 20% CNOOC)
November, 14 2019
Short-Term Energy Outlook

Highlights  

Global liquid fuels

  • Brent crude oil spot prices averaged $60 per barrel (b) in October, down $3/b from September and down $21/b from October 2018. EIA forecasts Brent spot prices will average $60/b in 2020, down from a 2019 average of $64/b. EIA forecasts that West Texas Intermediate (WTI) prices will average $5.50/b less than Brent prices in 2020. EIA expects crude oil prices will be lower on average in 2020 than in 2019 because of forecast rising global oil inventories, particularly in the first half of next year.
  • Based on preliminary data and model estimates, EIA estimates that the United States exported 140,000 b/d more total crude oil and petroleum products in September than it imported; total exports exceeded imports by 550,000 b/d in October. If confirmed in survey-collected monthly data, it would be the first time the United States exported more petroleum than it imported since EIA records began in 1949. EIA expects total crude oil and petroleum net exports to average 750,000 b/d in 2020 compared with average net imports of 520,000 b/d in 2019.
  • Distillate fuel inventories (a category that includes home heating oil) in the U.S. East Coast—Petroleum Administration for Defense District (PADD 1)—totaled 36.6 million barrels at the end of October, which was 30% lower than the five-year (2014–18) average for the end of October. The declining inventories largely reflect low U.S. refinery runs during October and low distillate fuel imports to the East Coast. EIA does not forecast regional distillate prices, but low inventories could put upward pressure on East Coast distillate fuel prices, including home heating oil, in the coming weeks.
  • U.S. regular gasoline retail prices averaged $2.63 per gallon (gal) in October, up 3 cents/gal from September and 11 cents/gal higher than forecast in last month’s STEO. Average U.S. regular gasoline retail prices were higher than expected, in large part, because of ongoing issues from refinery outages in California. EIA forecasts that regular gasoline prices on the West Coast (PADD 5), a region that includes California, will fall as the issues begin to resolve. EIA expects that prices in the region will average $3.44/gal in November and $3.12/gal in December. For the U.S. national average, EIA expects regular gasoline retail prices to average $2.65/gal in November and fall to $2.50/gal in December. EIA forecasts that the annual average price in 2020 will be $2.62/gal.
  • Despite low distillate fuel inventories, EIA expects that average household expenditures for home heating oil will decrease this winter. This forecast largely reflects warmer temperatures than last winter for the entire October–March period, and retail heating oil prices are expected to be unchanged compared with last winter. For households that heat with propane, EIA forecasts that expenditures will fall by 15% from last winter because of milder temperatures and lower propane prices.


Natural gas

  • Natural gas storage injections in the United States outpaced the previous five-year (2014–18) average during the 2019 injection season as a result of rising natural gas production. At the beginning of April, when the injection season started, working inventories were 28% lower than the five-year average for the same period. By October 31, U.S. total working gas inventories reached 3,762 billion cubic feet (Bcf), which was 1% higher than the five-year average and 16% higher than a year ago.
  • EIA expects natural gas storage withdrawals to total 1.9 trillion cubic feet (Tcf) between the end of October and the end of March, which is less than the previous five-year average winter withdrawal. Withdrawal of this amount would leave end-of-March inventories at almost 1.9 Tcf, 9% higher than the five-year average.
  • The Henry Hub natural gas spot price averaged $2.33 per million British thermal units (MMBtu) in October, down 23 cents/MMBtu from September. The decline largely reflected strong inventory injections. However, forecast cold temperatures across much of the country caused prices to rise in early November, and EIA forecasts Henry Hub prices to average $2.73/MMBtu for the final two months of 2019. EIA forecasts Henry Hub spot prices to average $2.48/MMBtu in 2020, down 13 cents/MMBtu from the 2019 average. Lower forecast prices in 2020 reflect a decline in U.S. natural gas demand and slowing U.S. natural gas export growth, allowing inventories to remain higher than the five-year average during the year even as natural gas production growth is forecast to slow.
  • EIA forecasts that annual U.S. dry natural gas production will average 92.1 billion cubic feet per day (Bcf/d) in 2019, up 10% from 2018. EIA expects that natural gas production will grow much less in 2020 because of the lag between changes in price and changes in future drilling activity, with low prices in the third quarter of 2019 reducing natural gas-directed drilling in the first half of 2020. EIA forecasts natural gas production in 2020 will average 94.9 Bcf/d.
  • EIA expects U.S. liquefied natural gas (LNG) exports to average 4.7 Bcf/d in 2019 and 6.4 Bcf/d in 2020 as three new liquefaction projects come online. In 2019, three new liquefaction facilities—Cameron LNG, Freeport LNG, and Elba Island LNG—commissioned their first trains. Natural gas deliveries to LNG projects set a new record in July, averaging 6.0 Bcf/d, and increased further to 6.6 Bcf/d in October, when new trains at Cameron and Freeport began ramping up. Cameron LNG exported its first cargo in May, Corpus Christi LNG’s newly commissioned Train 2 in July, and Freeport in September. Elba Island plans to ship its first export cargo by the end of this year. In 2020, Cameron, Freeport, and Elba Island expect to place their remaining trains in service, bringing the total U.S. LNG export capacity to 8.9 Bcf/d by the end of the year.


Electricity, coal, renewables, and emissions

  • EIA expects the share of U.S. total utility-scale electricity generation from natural gas-fired power plants will rise from 34% in 2018 to 37% in 2019 and to 38% in 2020. EIA forecasts the share of U.S. electric generation from coal to average 25% in 2019 and 22% in 2020, down from 28% in 2018. EIA’s forecast nuclear share of U.S. generation remains at about 20% in 2019 and in 2020. Hydropower averages a 7% share of total U.S. generation in the forecast for 2019 and 2020, down from almost 8% in 2018. Wind, solar, and other nonhydropower renewables provided 9% of U.S. total utility-scale generation in 2018. EIA expects they will provide 10% in 2019 and 12% in 2020.
  • EIA expects total U.S. coal production in 2019 to total 698 million short tons (MMst), an 8% decrease from the 2018 level of 756 MMst. The decline reflects lower demand for coal in the U.S. electric power sector and reduced competitiveness of U.S. exports in the global market. EIA expects U.S. steam coal exports to face increasing competition from Eastern European sources, and that Russia will fill a growing share of steam coal trade, causing U.S. coal exports to fall in 2020. EIA forecasts that coal production in 2020 will total 607 MMst.
  • EIA expects U.S. electric power sector generation from renewables other than hydropower—principally wind and solar—to grow from 408 billion kilowatthours (kWh) in 2019 to 466 billion kWh in 2020. In EIA’s forecast, Texas accounts for 19% of the U.S. nonhydropower renewables generation in 2019 and 22% in 2020. California’s forecast share of nonhydropower renewables generation falls from 15% in 2019 to 14% in 2020. EIA expects that the Midwest and Central power regions will see shares in the 16% to 18% range for 2019 and 2020.
  • EIA forecasts that, after rising by 2.7% in 2018, U.S. energy-related carbon dioxide (CO2) emissions will decline by 1.7% in 2019 and by 2.0% in 2020, partially as a result of lower forecast energy consumption. In 2019, EIA forecasts less demand for space cooling because of cooler summer months; an expected 5% decline in cooling degree days from 2018, when it was significantly higher than the previous 10-year (2008–17) average. In addition, EIA also expects U.S. CO2 emissions in 2019 to decline because the forecast share of electricity generated from natural gas and renewables will increase, and the share generated from coal, which is a more carbon-intensive energy source, will decrease.
November, 14 2019
The U.S. placed near-record volumes of natural gas in storage this injection season

The amount of natural gas held in storage in 2019 went from a relatively low value of 1,155 billion cubic feet (Bcf) at the beginning of April to 3,724 Bcf at the end of October because of near-record injection activity during the natural gas injection, or refill, season (April 1–October 31). Inventories as of October 31 were 37 Bcf higher than the previous five-year end-of-October average, according to interpolated values in the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report.

Although the end of the natural gas storage injection season is traditionally defined as October 31, injections often occur in November. Working natural gas stocks ended the previous heating season at 1,155 Bcf on March 31, 2019—the second-lowest level for that time of year since 2004. The 2019 injection season included several weeks with relatively high injections: weekly changes exceeded 100 Bcf nine times in 2019. Certain weeks in April, June, and September were the highest weekly net injections in those months since at least 2010.

weekly net changes in natural gas storage

Source: U.S. Energy Information Administration, Weekly Natural Gas Storage Report

From April 1 through October 31, 2019, more than 2,569 Bcf of natural gas was placed into storage in the Lower 48 states. This volume was the second-highest net injected volume for the injection season, falling short of the record 2,727 Bcf injected during the 2014 injection season. In 2014, a particularly cold winter left natural gas inventories in the Lower 48 states at 837 Bcf—the lowest level for that time of year since 2003.

November, 11 2019