NrgEdge Editor

Sharing content and articles for users
Last Updated: February 22, 2018
1 view
Business Trends
image

Market Watch

Headline crude prices for the week beginning 19 February 2017 – Brent: US$65/b; WTI: US$62/b

  • Crude prices enjoyed a series of gains last week, boosted by a return of confidence to equity markets and the dollar continuing to remain weak.
  • Signs that crude inventories in the key storage hub in Cushing, Oklahoma were being drawn away to coastal shipping terminals for export have been taken as a sign that increasing American production is being met by increasing demand for American production.
  • This has allowed the Brent-WTI spread to narrow to its smallest level in six months, as Cushing inventories shrank by some 3.64 million barrels and 2.5 million barrels over the last two weeks.
  • Analysis by OPEC and its NOPEC allies have concluded that the supply glut is dissipating faster than expected on strong demand, expecting a rebalancing in 2Q or 3Q18.
  • This lays the ground for OPEC to announce the phase out of the supply freeze deal at its upcoming June meeting in Vienna; more cooperation with the NOPEC block is expected, with UAE Energy Minister Suhail Al Mazrouei stating he hoped the alliance would ‘last forever’.
  • A continued alliance would be necessary, in case surging US shale production thwarts plans and causes a global pivot back to over-supply.  
  • Further output growth is expected; the US is on course to hit 11 mmb/d production levels faster than expected this year, while major firms noted in their financial statements that global oil demand could reach 100 million barrels this year.
  • The latest US budget deal also includes a little noticed tripling of carbon tax credit for carbon dioxide re-injection to increase crude output, which could accelerate shale production. The tax credit has been permanently increased to US$35/ton of carbon dioxide, up from US$10/ton.
  • The US active oil and gas rig count was unchanged last week, as 7 new oil rig additions was offset by the loss of 7 gas rigs.   
  • Crude price outlook: Crude prices are set for a steady week, with Brent staying in the US$64-65/b range, while WTI settles within the US$61-62/b range.

Headlines of the week

Upstream

  • A standoff occurred in the eastern Mediterranean as the Turkish military allegedly blocked a drillship headed for an Eni wildcat in Cypriot waters; Turkey does not maintain diplomatic relationships with Cyprus and claims some of its waters, adding complexity in the rush to explore there.
  • The US is set to launch its largest offshore auction in history on March 21, offering some 77.3 million acres in the Gulf of Mexico, hoping that interest will perk up after a similar sale last year attracted little attention.
  • In the diplomatic quagmire that is the South China Sea, the Philippines and China have agreed to set up a special panel to address cooperation to jointly exploit oil and gas resources in the area.
  • Bolstered by the discovery of the giant Zohr field, Egypt is turning its sights to the Gulf of Suez, partnering with Schlumberger to launch a seismic survey in the area to gauge hydrocarbon potential.
  • Ahead of next month’s crude oil futures contract launch on the Shanghai International Energy Exchange, the bourse has approved the use of six bonded storage warehouses across eight sites in China.

Downstream

  • In a surprise move, President Donald Trump indicated that he would support a US$0.25/gallon increase federal gasoline and diesel taxes to pay for infrastructure upgrades, the first increase in the tax since 1993.
  • A fire broke out at the Isla refinery in Curacao, halting production at the catalytic cracker, complicating the situation as the island chooses between extending its deal with PDVSA or go with new Chinese investors.

Natural Gas/LNG

  • Even as Egypt makes steps to becoming natural gas self-sufficient, Israel has agreed to supply some 64 bcm of gas from the Tamar and Leviathan fields to Egypt’s Dolphinus Holdings to create greater energy security.
  • Woodside has bought ExxonMobil’s 50% stake in Australia’s Scarborough field for US$744 million, and aims to raise some US$1.96 billion to develop the remote location that could fuel expansion at Pluto LNG.
  • Just as Eni speeds ahead with plans for Zohr, BP has begun gas production at Egypt’s Atoll Phase One, producing some 350 mcf of gas and 10,000 barrels of condensate seven months ahead of schedule.
  • BP has also moved closer to developing the Tortue gas field in West Africa with Kosmos Energy, after Mauritania and Senegal agreed to a production split deal to govern output from the cross-border field, expected in 2021.
  • LNG exports from Peru’s Pampa Melchorita facility have resumed after a pipeline rupture suspended supplies from the onshore Camisea fields.
  • Kogas is seeking arbitration to amend its LNG contract with the NW Shelf Australian venture, a bold move that could encourage other Asian buyers.

Corporate

  • Saudi Aramco’s impending IPO has attracted the attention of Russian banks and a joint Russia-China investment fund in a move that could deepen ties between the two giant oil producers.

Petronas CEO Wan Zulkiflee Wan Ariffin has had his contract renewed for a second 3-year term, underscoring his success in leading the firm.

nrgedge news oilandgas energy weeklyupdate
3
3 0

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

Latest NrgBuzz

The Strait of Hormuz and Oil Prices

The UK has just designated the Persian Gulf as a level 3 risk for its ships – the highest level possible threat for British vessel traffic – as the confrontation between Iran with the US and its allies escalated. The strategically-important bit of water - and in particular the narrow Strait of Hormuz – is boiling over, and it seems as if full-blown military confrontation is inevitable.

The risk assessment comes as the British warship HMS Montrose had to escort the BP oil tanker British Heritage out of the Persian Gulf into the Indian Ocean from being blocked by Iranian vessels. The risk is particularly acute as Iran is spoiling for a fight after the Royal Marines seized the Iranian crude supertanker Grace-1 in Gibraltar on suspicions that it was violating sanctions by sending crude to war-torn Syria. Tensions over the Gibraltar seizure kept the British Heritage tanker in ‘safe’ Saudi Arabian waters for almost a week after making a U-turn from the Basrah oil terminal in Iraq on fears of Iranian reprisals, until the HMW Montrose came to its rescue. Iran’s Revolutionary Guard Corps have warned of further ‘reciprocation’ even as it denied the British Heritage incident ever occurred.

This is just the latest in a series of events around Iran that is rattling the oil world. Since the waivers on exports of Iranian crude by the USA expired in early May, there were four sabotage attacks on oil tankers in the region and two additional attacks in June, all near the major bunkering hub of Fujairah. Increased US military presence resulted in Iran downing an American drone, which almost led to a full-blown conflict were it not for a last-minute U-turn by President Donald Trump. Reports suggest that Iran’s Revolutionary Guard Corps have moved military equipment to its southern coast surrounding the narrow Strait of Hormuz, which is 39km at its narrowest. Up to a third of all seaborne petroleum trade passes through this chokepoint and while Iran would most likely overrun by US-led forces eventually if war breaks out, it could cause a major amount of damage in a little amount of time.

The risk has already driven up oil prices. While a risk premium has already been applied to current oil prices, some analysts are suggesting that further major spikes in crude oil prices could be incoming if Iran manages to close the Strait of Hormuz for an extended period of time. While international crude oil stocks will buffer any short-term impediment, if the Strait is closed for more than two weeks, crude oil prices could jump above US$100/b. If the Strait is closed for an extended period of time – and if the world has run down on its spare crude capacity – then prices could jump as high as US$325/b, according to a study conducted by the King Abdullah Petroleum Studies and Research Centre in Riyadh. This hasn’t happened yet, but the impact is already being felt beyond crude prices: insurance premiums for ships sailing to and fro the Persian Gulf rose tenfold in June, while the insurance-advice group Joint War Committee has designated the waters as a ‘Listed Area’, the highest risk classification on the scale. VLCC rates for trips in the Persian Gulf have also slipped, with traders cagey about sending ships into the potential conflict zone.

This will continue, as there is no end-game in sight for the Iranian issue. With the USA vague on what its eventual goals are and Iran in an aggressive mood at perceived injustice, the situation could explode in war or stay on steady heat for a longer while. Either way, this will have a major impact on the global crude markets. The boiling point has not been reached yet, but the waters of the Strait of Hormuz are certainly simmering.

The Strait of Hormuz:

  • Connects the Persian Gulf to the Gulf of Oman/Indian Ocean
  • Length: 167km
  • Width: 96km (widest) to 39km (narrowest)
  • Controlled by Iran, the UAE and Musandam (Oman)
  • The conduit for 33% of all LNG trade and 20% of total crude oil demand
July, 16 2019
Your Weekly Update: 8 - 12 July 2019

Market Watch 

Headline crude prices for the week beginning 8 July 2019 – Brent: US$64/b; WTI: US$57/b

  • Bolstered by the renewed OPEC+ supply pact but rattled by increasing tensions between Iran and the US, oil prices started the week steady after gaining over the previous week
  • With the OPEC+ supply deal extended to March 2020, focus will now shift to adherence and in particular, Russian commitments to the agreement that previously wavered over 1H19
  • More critical to the market is the escalating standoff between the US and Iran around the Straits of Hormuz and even beyond; British forces seized an oil tanker off Gibraltar that was suspected to carrying Iranian crude to Syria, drawing share criticism from Iran
  • Iran itself confirmed that it was raising its level of nuclear enrichment above levels agreed to in the 2015 deal that ended sanctions, and accused European signatories to the deal of ‘not doing enough’
  • Iranian forces also confronted a British tanker escorted by a warship in the Persian Gulf, with the narrow channel now a flashpoint for action
  • As a recipient of Middle Eastern crude, China has also raised security levels for its vessel passing through the Straits of Malacca after doing the same for the Straits of Hormuz, raising some eyebrows
  • While the confrontation – or lack of – between the US and Iran will be the main driver behind oil prices movement in the second half of 2019, the trade policies of the Trump administration that may now hit secondary Asian manufacturing nations such as Vietnam is also leaving the global economy increasingly fragile
  • Against this backdrop, the US active oil and gas rig count fell again, dropping five oil sites and gaining one gas site for a net loss of four rigs
  • As the Iranian situation deteriorates, the market will be pricing more risk premiums into traded prices, which should inch up towards the US$65-67/b range for Brent and US$59-61/b for WTI

Headlines of the week

Upstream

  • Marathon Oil has completed the sale of its UK businesses to RockRose Energy, handing over the Brae and Foinaven area fields for US$345 million
  • Despite pulling out from the UK North Sea, ConocoPhillips is still active in Norway, recently submitting a new plan to re-develop the Tor field in Great Ekofisk, which was shut down in 2015 despite only 20% of resources extracted
  • In a bit to boost national production, Nigerian independent Aiteo Eastern E&P has announced plans to spend up to US$15 billion over the next five years to drill new wells and re-visit existing assets
  • Eni and Vitol have been awarded rights to Block WB03 in the offshore Tano basin in Ghana, with Eni holding 70% and expanding its presence in the country
  • Total has approved Phase 3 development at the onshore Dunga field in Kazakhstan that will increase capacity by 10% to some 20,000 b/d by 2022
  • Eni has launched production from the Mizton field in Mexico’s Bay of Campeche Area 1 – the first new offshore new field development by an international firm since reforms in 2008
  • Halliburton and Kuwait Oil have signed an agreement to explore for oil offshore Kuwait which makes Kuwait’s first foray in offshore upstream services
  • Energean Oil & Gas has purchased Electricite de France’s Italian unit for US$850 million, gaining assets in Egypt, Italy, Algeria, Croatia and the North Sea to complement its existing fields in Israel and Greece

Midstream/Downstream

  • China will be launching a new low-sulfur bunker fuel oil contract on the Shanghai Futures Exchange by the end of 2019, just as new IMO regulations on marine fuel oil sulfur content caps kick into effect in 2020
  • Just as American crude production hits new highs, American refining capacity has also reached a new record high of 18.8 million b/d
  • China has issued a new round of crude oil import quotas for private oil refiners, allowing them to bring in an additional 56.85 million tonnes (~1 mmb/d) over the remainder of 2019
  • In the fallout over the contaminated crude scandal at the Druzhba pipeline, Russian pipeline operator Transneft has capped volumes of Rosneft crude that can be transported to Germany and Poland on the pipeline
  • The US Environmental Protection Agency (EPA) has proposed an increased biodiesel mandate to 20.04 billion gallons in 2020 up from 19.92 billion gallons in 2019, but may not extend the hardship waiver program which drew criticism
  • Iraq and Oman have signed a new MoU to cooperate in the oil and gas sector which includes plans for a shared Omani refinery processing Iraqi crude

Natural Gas/LNG

  • Kosmos Energy has struck new gas at the Greater Tortue Ahmeyim-1 well in the Albian reservoir offshore Mauritania and Senegal, which will support the Greater Tortue Ahmeyim LNG project that is on track for a 2022 start
  • Kenya and Tanzania have entered into talks to explore cross-border natural gas trading, aimed at delivering Tanzanian natural gas to Kenya to bypass requiring and building facilities for LNG imports
  • Energean Oil & Gas is reportedly looking to sell its stake in the major Glengorn gas discovery in the UK once its acquisition of Edison E&P is completed
  • Saudi Aramco has started work on the Jafurah gas terminal that will take unconventional gas from the Ghawar oil field to the coast for processing
July, 12 2019
TODAY IN ENERGY: U.S. utility-scale battery storage power capacity to grow substantially by 2023

Utility-scale battery storage units (units of one megawatt (MW) or greater power capacity) are a newer electric power resource, and their use has been growing in recent years. Operating utility-scale battery storage power capacity has more than quadrupled from the end of 2014 (214 MW) through March 2019 (899 MW). Assuming currently planned additions are completed and no current operating capacity is retired, utility-scale battery storage power capacity could exceed 2,500 MW by 2023.

U.S. utility-scale battery storage capacity

Source: U.S. Energy Information Administration, Annual Electric Generator Report and the Preliminary Monthly Electric Generator Inventory

EIA's Annual Electric Generator Report (Form EIA-860) collects data on the status of existing utility-scale battery storage units in the United States, along with proposed utility-scale battery storage projects scheduled for initial commercial operation within the next five years. The monthly version of this survey, the Preliminary Monthly Electric Generator Inventory (Form EIA-860M), collects the updated status of any projects scheduled to come online within the next 12 months.

Growth in utility-scale battery installations is the result of supportive state-level energy storage policies and the Federal Energy Regulatory Commission’s Order 841 that directs power system operators to allow utility-scale battery systems to engage in their wholesale energy, capacity, and ancillary services markets. In addition, pairing utility-scale battery storage with intermittent renewable resources, such as wind and solar, has become increasingly competitive compared with traditional generation options.

The two largest operating utility-scale battery storage sites in the United States as of March 2019 provide 40 MW of power capacity each: the Golden Valley Electric Association’s battery energy storage system in Alaska and the Vista Energy storage system in California. In the United States, 16 operating battery storage sites have an installed power capacity of 20 MW or greater. Of the 899 MW of installed operating battery storage reported by states as of March 2019, California, Illinois, and Texas account for a little less than half of that storage capacity.

U.S. operating utlity-scale battery storage by state

Source: U.S. Energy Information Administration, Annual Electric Generator Report and the Preliminary Monthly Electric Generator Inventory

In the first quarter of 2019, 60 MW of utility-scale battery storage power capacity came online, and an additional 108 MW of installed capacity will likely become operational by the end of the year. Of these planned 2019 installations, the largest is the Top Gun Energy Storage facility in California with 30 MW of installed capacity.

As of March 2019, the total utility-scale battery storage power capacity planned to come online through 2023 is 1,623 MW. If these planned facilities come online as scheduled, total U.S. utility-scale battery storage power capacity would nearly triple by the end of 2023. Additional capacity beyond what has already been reported may also be added as future operational dates approach.

Of all planned battery storage projects reported on Form EIA-860M, the largest two sites account for 725 MW and are planned to start commercial operation in 2021. The largest of these planned sites is the Manatee Solar Energy Center in Parrish, Florida. With a capacity of 409 MW, this project will be the largest solar-powered battery system in the world and will store energy from a nearby Florida Power and Light solar plant in Manatee County.

The second-largest planned utility-scale battery storage facility is the Helix Ravenswood facility located in Queens, New York. The site is planned to be developed in three stages and will have a total capacity of 316 MW.

July, 11 2019