Easwaran Kanason

Co - founder of PetroEdge
Last Updated: September 25, 2018
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Business Trends
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Brent crude is once again flirting with the US$80/b level. By the time October begins, it is likely that Brent prices will be comfortably over the mark, pulling WTI prices up towards the same level. The last time crude prices surged (and sustained) above this level, US$80/b was identified as the level where demand destruction began, as countries and companies scaled back on oil usage. Since the price crash in 2015, demand has managed to pick up tremendously, in no small part due to cheap prices. Where do prices go from here? Can they return to the US$100/b level? That would be cheery news for oil firms, who are finally emerging from a tough slump, but it could also return us to the excesses of the previous cycle, repeating the same problems.

The direction for oil prices – at least for the foreseeable futures – is definitely up. The main thrust for this is Iran. Or rather, renewed American sanctions on Iran. Though the Trump administration’s aim to reduce Iranian crude exports to zero is probably a pipe dream – in no small part due to pushback from India and China – the sanctions will still manage to remove at least 1 million b/d from the market. At a time when Venezuela production is in a downward spiral and disruption continually threatens OPEC’s North African members, this supply risk is constantly pushing prices levels up. OPEC has vowed to turn on the spigots in association with its NOPEC partners, but not to a level that can offset all the losses, to appease members such as Iran and Iraq. This is unlikely to be revised drastically at the upcoming OPEC meeting in December. The US is not happy about the situation – witness President Trump’s flailing tweets – and the American Congress is considering an anti-cartel bill that could open OPEC to lawsuits, all to rectify a situation that it itself created.

Because of this, major oil trading houses and banks are predicting prices to rise even further. Goldman Sachs, which once famously predicted prices could spike to US$200/b during the 2008 boom, is curiously cautious in maintaining its prediction at a floor of US$80/b, as is Citibank. JP Morgan, however, expects Brent to hit US$85/b as early as November, on a path to rise to US$90/b. Trading houses are more bullish. Mercuria and Trafigura are both predicting US$100/b prices by early 2019 – citing the lack of spare capacity in the market to replace lost volumes. Even the shale rush in the US that has made America the world’s largest crude producer will not be enough to replace lost Iranian volumes in the short- and medium-term. Most analysts expect the Iranian losses to be at least 1 mmb/d, with some analysts predicting that Iranian exports would fall to just 700,000 b/d from 2.1 mmb/d last year, shipped mostly to China and to India, with land routes used to circumvent shipping and insurance sanctions.

At prices like this, one would expect oil producers to rush in to fill the gap. But pipeline infrastructure limitations in the Permian are hampering distribution to Gulf Coast export hubs, while promising upstream production in Guyana, Mexico and Australia are still far, far off from commercialisation. Meanwhile, vast new LNG facilities has come onstream, together with major natural gas finds, accelerating oil’s displacement by gas in key sectors such as power and petrochemicals. Meanwhile, oil firms expect the bonanza to continue; service firms, particularly deepwater-focused ones, are seeing enthusiastic signs, as firms push towards riskier projects made economical only at high oil prices. This has happened before, as most would remember, but the oil industry has a short memory. Where will crude prices go from here? Nobody can agree on the exact magnitude, but everyone agrees that the direction is up.

Factors influencing the rise to US$100/b oil: 

  • Sanctions on Iranian crude, removing up to 1.5 mmb/d of oil – UP
  • Risk of military escalation between Iran and US - UP
  • OPEC’s reluctance to expand output quotas – UP
  • Financial turmoil in Venezuela, affecting PDVSA – UP
  • Expanding trade war between China and US – UP
  • US sanctions on Russian energy exports - UP
  • ISIS/militant clashes in Libya - UP
  • Limited pipeline infrastructure preventing onshore shale oil in the US from coming to market – UP
  • Slowing demand in China – DOWN
  • Emerging currency woes in key oil importers like India, Indonesia and Turkey - DOWN

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U.S. renewable electricity generation has doubled since 2008

U.S. annual renewable generation

Source: U.S. Energy Information Administration, Electric Power Monthly

Renewable generation provided a new record of 742 million megawatthours (MWh) of electricity in 2018, nearly double the 382 million MWh produced in 2008. Renewables provided 17.6% of electricity generation in the United States in 2018.

Nearly 90% of the increase in U.S. renewable electricity between 2008 and 2018 came from wind and solar generation. Wind generation rose from 55 million MWh in 2008 to 275 million MWh in 2018 (6.5% of total electricity generation), exceeded only by conventional hydroelectric at 292 million MWh (6.9% of total generation).

U.S. solar generation has increased from 2 million MWh in 2008 to 96 million MWh in 2018. Solar generation accounted for 2.3% of electricity generation in 2018. Solar generation is generally categorized as small-scale (customer-sited or rooftop) solar installations or utility-scale installations. In 2018, 69% of solar generation, or 67 million MWh, was utility-scale solar.

U.S. annual net generation, wind and solar

Source: U.S. Energy Information Administration, Electric Power Monthly

Increases in U.S. wind and solar generation are driven largely by capacity additions. In 2008, the United States had 25 gigawatts (GW) of wind generating capacity. By the end of 2018, 94 GW of wind generating capacity was operating on the electric grid. Almost all of this capacity is onshore; one offshore wind plant, located on Block Island, off the coast of Rhode Island, has a capacity of 30 megawatts. Similarly, installed solar capacity grew from an estimated less than 1 GW in 2008 to 51 GW in 2018. In 2018, 1.8 GW of this solar capacity was solar thermal, 30 GW was utility-scale solar photovoltaics (PV), and the remaining 20 GW was small-scale solar PV.

Growth in renewable technologies in the United States, particularly in wind and solar, has been driven by federal and state policies and declining costs. Federal policies such as the American Reinvestment and Recovery Act of 2009 and the Production Tax Credit and Investment Tax Credits for wind and solar have spurred project development.

In addition, state-level policies, such as renewable portfolio standards, which require a certain share of electricity to come from renewable sources, have increasing targets over time. As more wind and solar projects have come online, economies of scale have led to more efficient project development and financing mechanisms, which has led to continued cost declines.

Conventional hydroelectric capacity has remained relatively unchanged in the United States, increasing by 2% since 2008. Changes in hydroelectric generation year-over-year typically reflect changes in precipitation and drought conditions. Between 2008 and 2018, annual U.S. hydroelectric generation was as low as 249 million MWh and as high as 319 million MWh, with hydroelectric generation in 2018 totaling 292 million MWh. Generation from other renewable resources, including biomass and geothermal, increased from 70 million MWh to 79 million MWh in the United States between 2008 and 2018, and it collectively represented 1.9% of total generation in 2018.

March, 20 2019
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.

Download GEO ExPro Vol. 16, No. 1

March, 14 2019