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Market Watch

Headline crude prices for the week beginning 19 November 2018 – Brent: US$67/b; WTI: US$57/b

  • After taking a severe beating all of last week – with Brent tumbling by over US$4/b alone on November 14 – global crude prices recovered somewhat this week, as language from OPEC signalled that production cuts might be back on the agenda
  • Crude has been sliding over the past two weeks as American sanctions on Iranian crude exports were muted by surprise waivers granted to 8 large importers, switching the narrative from constrained supply to a supply glut
  • South Korea seems to be taking full advantage of the waiver it received, scheduling meetings to resume Iranian oil imports after halting them for three months, aiming to take some 200,000 b/d of crude, mainly condensate
  • Alarmed by this change, Saudi Arabia is now backing a production cut of at least 1 mmb/d to stabilise the market – likely around the US$70/b sweet spot; with the biannual OPEC meeting around the corner, this would be the likely place to announce such a measure
  • A recent joint meeting between OPEC and NOPEC concluded that a majority of the members felt that the current market situation substantiates a production cut in 2019, which may rise to 1.5-2 mmb/d above the proposed 1mmb/d cut
  • Saudi Arabia already intends to export 500,000 b/d less barrels in December, taking the lead to stem the price rout, although Russia is advising against rash moves and a need to ‘monitor the situation’
  • Global trade tensions are also feeding into the demand outlook, as US Vice President Mike Pence issued sharp rebukes to China at the recent APEC meeting in Papua New Guinea, with the disagreements resulting in the failure to issue a joint communique for the first time
  • Meanwhile, the US gas markets have been on a see-saw ride, triggered by a ‘polar vortex’ that brought freezing Arctic temperatures to the US Midwest and northeast, moving against crude oil’s downward trajectory; US natural gas futures jumped 30% in a day, then plunged 25% the next day
  • In Asia, forecasts of a milder winter caused Asian spot LNG prices to weaken on the expectation that China’s short-term LNG demand will not be so strong this year
  • There was another gain in the US active rig count, with 2 new oil rigs added to the list, a slowdown from the large 14 rig gain from the week before; with American Thanksgiving being this weekend, drilling activity should slow down
  • Crude price outlook: OPEC+’s best efforts to prop up crude prices won’t see any fruit until early December, when – or if – a supply cut deal can be reached; until then the downward pressure on crude prices will continue. We see the range for Brent at US$63-65/b and WTI at US$53-55/b this week


Headlines of the week

Upstream

  • After being halted for a year, Iraq has resumed oil exports from Kirkuk via the region’s pipeline to Ceyhan, Turkey, with some 50-100/000 b/d flowing through, with plans to also increase total capacity to some 1 mmb/d
  • ADNOC has announced a US$1.4 billion investment plan to upgrade and expand the Bu Hasa oil field from 550,000 b/d to 650,000 b/d by 2020
  • India has signed an agreement with ADNOC to lease half of the Padur strategic reserve facility, giving it capacity to store up to 18 million barrels of crude
  • Saudi Aramco has signed a deal to supply some 130,000 b/d of crude to China’s Hengli Petrochemical in 2019 for its new refinery in Dalian, Aramco’s second such agreement with a Chinese firm this year after Zhejiang Rongsheng
  • ConocoPhillips has entered into exclusive talks with Ineos to sell off its UK oil and gas assets, including the Clair Field, for some US$3 billion

Downstream

  • Chevron is reportedly in talks to acquire the Pasadena Refining System’s 110 kb/d refinery in Texas from Petrobras, as it aims to expand its refining system to capitalise on rising volumes of American shale crude
  • Despite being officially opened, the commercial start-up of SOCAR’s 200 kb/d STAR refinery in Turkey has been delayed to Q1 2019, with full capacity only set to be reached in mid-2019 due to minor faults revealed during testing
  • ADNOC has signed a new sales agreement with China’s Wanhua Chemical Group to supply up to 1 million tons of LPG per year for 10 years
  • Spain has joined a number of European countries, including the UK and Denmark, in proposing to ban the sale of gasoline or diesel cars by 2040

Natural Gas/LNG

  • Cheniere has produced first LNG at its Corpus Christi LNG project in Texas, with the first of a planned five trains of 22.5 mtpa total capacity coming online following the recent start-up of Train 5 at its Sabine Pass site in Louisiana
  • Cheniere is also looking to make its Final Investment Decision on Train 6 at Sabine Pass by next year, with the firm being bullish about demand in China
  • ADNOC and Saudi Aramco have signed a new gas pact aimed at collaborating in the natural gas and LNG sectors, a move possibly aimed at challenging the status of Qatar as the Middle East’s LNG champion
  • Energean Oil and Gas is now aiming to deliver first gas from its Karish and Tanin developments offshore Israel in the first quarter of 2021
  • ADNOC has agreed to extend its gas supply agreement with ADNOC LNG, its joint venture with BP, Total and Mitsui, to 2040 after it expires in March 2019
  • Total, along with ExxonMobil and Oil Search, has signed a new MoU with Papua New Guinea on gas agreement terms for the 5.4 mtpa Papua LNG project
  • Eni has been awarded a new concession in Abu Dhabi by ADNOC, taking on 25% of the offshore ultra-sour Ghasha Concession gas mega project
  • In a very busy week for ADNOC, the Abu Dhabi firm also signed a framework agreement with Uzbekneftgaz to collaborate on upstream and downstream operations and projects in Uzbekistan
  • Russia’s Novatek has reported a sizable new commercial gas discovery in the giant Nyakhartinsky block in the Yamal-Nenets region

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Your Weekly Update: 9 - 13 December 2019

Market Watch  

Headline crude prices for the week beginning 9 December 2019 – Brent: US$64/b; WTI: US$59/b

  • The recent adjustment to the OPEC+ supply deal may not have been enough to convince the market completely, but a deal is still better than no deal; with the club coordinating to formalise the existing level of production as cuts, crude prices capped off a week of gains but failed to move higher
  • The new supply quotas include a reduction of 500,000 b/d across OPEC+, though this does not remove additional barrels from the market but rather seals in the current level of production, where Saudi Arabia is overcompensating for non-compliance elsewhere; the challenge now is also to ‘equitably redistribute’ the Saudi burden among other members
  • Saudi Arabia also pledged an additional voluntary cut of 400,000 b/d, provided all OPEC+ members meet their own quotas; compliance did, however, get easier as the club agreed to remove condensate from the crude quotas, benefitting Russia
  • The new supply deal will only stay in place until March 2020 – not quite enough time to resolve the supply glut – but OPEC is also betting that the relentless rise in American crude production will slow down in 2020
  • There is a reason to believe this, given the sharp decline in American drilling activities; but debt-laden US shale drillers might actually do the opposite – accelerate drilling to produce more oil to stave off their creditors
  • There are hints that a US-China trade deal might be coming soon, as China agreed to stop the planned implementation of tariffs on US goods due to kick on December 15; a deal cannot happen soon enough, with reports that Chinese exports to the US fell by 23% y-o-y, flagging up worries about oil demand
  • OPEC’s attempt to expand its influence by courting Brazil to its membership has been rebuffed by Petrobras, with its CEO stating that he is ‘against cartels’
  • In. the US, the EIA reports that the US moved to be a net exporter of crude and petroleum products for the first time since 1973 – aided by growth in crude and refined product exports, with imports largely flat
  • The US active rig count fell below 800 for the first time in 32 months, shedding 5 oil rigs but gaining 2 gas ones for a net loss of 3; the rig count is now down 276 from 1,075 sites working a year ago
  • OPEC’s headline agreement will prop up oil prices, but since details of the new ‘distribution’ of cuts is not yet clear, there will be no appetite for the market to allow crude to break out beyond their range; Brent is expected to stay in the US$64-65/b range, while WTI will stay at the US$59-60/b range


Headlines of the week

Upstream

  • Apache’s closely watched Maka-1 oil well – adjacent to ExxonMobil’s massive Liza field– is going for a third test drill, raising suspicions that Maka-1 could prove to be a bust, dashing hopes of Suriname emulating Guyana’s success
  • Following Murphy Oil and ExxonMobil’s exit from Malaysian upstream, oilfield service provider Petrofac is also mulling an exit, selling its assets – which include a stake in the PM304 field – for US$300 million
  • Libya and Turkey have agreed to a potentially contentious maritime deal demarcating their nautical exclusive economic zones, setting both countries up for a showdown with Greece, Cyprus, and Egypt over exploration rights
  • Repsol’s upstream arm is the first oil major to align its business goals with the Paris climate change accord, aiming to eliminate all net greenhouse gas emissions from its own operations and customers by 2050 – with a change in focus away from output growth towards value generation and clean energy
  • Canadian oil sands producers in Alberta are looking at new ways to export their crude, which would involve removing condensate, light oils and other diluents from the oil sands, and shipping the heavier latter by more cost-effective rail
  • UK independent EnQuest has been awarded 85% of the offshore Block PM409 PSC in Peninsular Malaysia, with Petronas Carigali holding the remaining 15%
  • Fresh from the success of starting up the giant Johan Sverdrup oilfield ahead of schedule, Equinor now estimates that it will be able to raise recoverable reserves from the field from 2.7 billion boe to 3.2 billion boe

Midstream/Downstream

  • PDVSA has reached a deal with Curacao to operate the 335,000 Isla refinery for another year, extending a contract that was set to expire at the end of 2019, but the new arrangement has been described as a  ‘transition’ by Curacao
  • Turkey’s state sovereign wealth fund – the Turkish Wealth Fund – will be investing some US$10 billion to build a new integrated refinery and petrochemicals complex in Adana, with construction expected to begin in 2021
  • Sonangol has terminated its contract with Hong Kong-based consortium United Shine to plan to build its new 60,000 b/d Cabinda refinery in Angola but will seek new investors and partners to go ahead with the project

Natural Gas/LNG

  • First gas has begun to flow into Sempra’s Cameron LNG Train 2 in Louisiana, marking the start of the final commissioning stage of the phase that will eventually incorporate 3 trains with 12 million tpa capacity
  • The Power of Siberia natural gas pipeline – connecting Russia and China – has launched, which will deliver up to 38 bcm of natural gas annually for 30 years to CNPC and Chinese customers from the enormous gas fields in eastern Siberia
  • After years spent getting Kitimat LNG in Canada’s BC off the ground, Chevron will be selling its 50% stake in the project – part of a broader retreat from natural gas amid a bleak price outlook – adding new woes to the troubled project
  • Prior to Chevron’s decision to exit Kitimat LNG, Canada’s Energy Regulator has doubled the timeframe of the project’s export license – allowing it to export up to 18 million tpa of LNG (up from 10 million tpa previously) for 40 years
  • ExxonMobil has shelved plans to build an LNG import terminal in Australia’s Victoria state after failing to secure enough buyers for the project
  • Train 1 at the Freeport LNG export terminal in Texas has begun operations, with Train 2 and Train 3 expected next year for a full capacity of 15 mtpa
December, 13 2019
EIA analysis explores India’s projected energy consumption

In the U.S. Energy Information Administration’s (EIA) International Energy Outlook 2019 (IEO2019), India has the fastest-growing rate of energy consumption globally through 2050. By 2050, EIA projects in the IEO2019 Reference case that India will consume more energy than the United States by the mid-2040s, and its consumption will remain second only to China through 2050. EIA explored three alternative outcomes for India’s energy consumption in an Issue in Focus article released today and a corresponding webinar held at 9:00 a.m. Eastern Standard Time.

Long-term energy consumption projections in India are uncertain because of its rapid rate of change magnified by the size of its economy. The Issue in Focus article explores two aspects of uncertainty regarding India’s future energy consumption: economic composition by sector and industrial sector energy intensity. When these assumptions vary, it significantly increases estimates of future energy consumption.

In the IEO2019 Reference case, EIA projects the economy of India to surpass the economies of the European countries that are part of the Organization for Economic Cooperation and Development (OECD) and the United States by the late 2030s to become the second-largest economy in the world, behind only China. In EIA’s analysis, gross domestic product values for countries and regions are expressed in purchasing power parity terms.

The IEO2019 Reference case shows India’s gross domestic product (GDP) growing from $9 trillion in 2018 to $49 trillion in 2050, an average growth rate of more than 5% per year, which is higher than the global average annual growth rate of 3% in the IEO2019 Reference case.

gross domestic product of selected countries and regions

Source: U.S. Energy Information Administration, International Energy Outlook 2019

India’s economic growth will continue to drive India’s growing energy consumption. In the IEO2019 Reference case, India’s total energy consumption increases from 35 quadrillion British thermal units (Btu) in 2018 to 120 quadrillion Btu in 2050, growing from a 6% share of the world total to 13%. However, annually, the level of GDP in India has a lower energy consumption than some other countries and regions.

total energy consumption in selected countries and regions

Source: U.S. Energy Information Administration, International Energy Outlook 2019

In the Issue in Focus, three alternative cases explore different assumptions that affect India’s projected energy consumption:

  • Composition case: EIA assumes India’s economy shifts toward further growth in manufacturing, which increases energy consumption.
  • Technology case: EIA assumes India’s industrial technology does not advance as quickly as in the IEO2019 Reference case, resulting in greater energy use.
  • Combination case: EIA combines the assumptions in the Composition and Technology cases.

EIA’s analysis shows that the country's industrial activity has a greater effect on India’s energy consumption than technological improvements. In the IEO2019 Composition and Combination cases, where the assumption is that economic growth is more concentrated in manufacturing, energy use in India grows at a greater rate because those industries have higher energy intensities.

In the IEO2019 Combination case, India’s industrial energy consumption grows to 38 quadrillion Btu more in 2050 than in the Reference case. This difference is equal to a more than 4% increase in 2050 global energy use.

December, 13 2019
U.S. onshore wind capacity exceeds 100 gigawatts

Cumulative U.S. installed onshore wind capacity exceeded 100 gigawatts (GW) on a nameplate capacity basis as of the end of September 2019, according to the U.S. Energy Information Administration’s (EIA) Preliminary Monthly Electric Generator Inventory. More than half of that amount has been installed since the beginning of 2012. The oldest wind turbines still operating in the United States came online as early as 1975.

installed wind capacity by state

Source: U.S. Energy Information Administration, Preliminary Monthly Electric Generator Inventory

As of the third quarter of 2019, 41 states had at least one installed wind turbine. Texas had the most capacity installed, at 26.9 GW, followed by Iowa, Oklahoma, and Kansas. These four states accounted for half of the total U.S. installed wind capacity.

In the United States, wind turbines tend to come online late in the year. Based on information reported in the Preliminary Monthly Electric Generator Inventory, EIA expects that an additional 7.2 GW of capacity will come online in December 2019. EIA also expects that another 14.3 GW of wind capacity will come online in 2020. If realized, the United States would have about 122 GW of wind capacity by the end of next year.

December, 13 2019