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Last Updated: May 31, 2019
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Market Watch

Headline crude prices for the week beginning 27 May 2019 – Brent: US$68/b; WTI: US$58/b

  • After tumbling down last week on the escalation of the US-China trade war, global crude oil prices have steadied up although the downside risk remains vast as the health of the global economy has become fragile
  • Beyond just China, US President Donald Trump launched a new front in his trade war, imposing tariffs on all Mexican imports over ‘facilitating illegal immigration’; in between the trade tiffs with allies, sanctions on rogue-ish states and possible military action towards Iran, the global geopolitical situation is dicey and crude prices have tumbled in response.
  • Ahead of its meeting in Vienna next month, OPEC and the wider OPEC+ group is adamant about controlling supply over the remainder of 2019; but while the Middle Eastern members are adhering, Russia is lagging and has seen sales of its crude to the USA increase dramatically
  • Also on the supply side, the chronic political turmoil has taken its toll on Venezuela, where production fell to 740,000 b/d in March, making the founding member of OPEC only the fourth current largest Latin American oil producer behind Brazil, Mexico and Colombia
  • But while the oil world frets about the health of global demand, American drillers reduced active rigs for the third consecutive week, cutting five oil rigs and starting up one gas rig for a net loss of 4 to a total of 983
  • With trouble brewing on the horizon on several macro-economic fronts – and seemingly happily fanned by US belligerence – the trend for crude oil price is downwards; we expect Brent to drop down to a trading range of US$63-65/b and WTI to US$55/57/b while the situations (attempts) to calm down


Headlines of the week

Upstream

  • Shell has started up its Appomattox floating production system in deepwater US Gulf of Mexico several months ahead of schedule, with expected production of 175,000 boe/d from the Norphlet formation
  • Ukraine will be launching a third licensing round for 2019 in June, covering nine blocks across three regions for a period of 20 years, as well as a public tender for nine onshore and one offshore block for 50 years
  • Canada’s controversial Trans Mountain pipeline expansion that will move oil sands from Alberta to British Columbia has been given a boost as a BC Appeals Court ruled that the province does not have the jurisdiction to restrict the project
  • Shell has announced a small upstream success in Albania, with the Shpirag 4 onshore well showing flow of ‘several thousand barrels per day’ of light oil
  • A consortium led by Italy’s Eni has won the offshore block MLO 124 in Argentina’s Malvinas Basin near Tierra del Fuego
  • Polish refiner Lotos is reportedly looking at purchasing upstream assets to reduce its dependence on Russian crude given the recent toxic crude situation
  • There might be turmoil in Guyana, as its anti-corruption agency is investigating how exploration rights were awarded to ExxonMobil and Tullow

Midstream & Downstream

  • China’s Jinling refinery exported its first cargo of gasoline from Nanjing, shipping it to Singapore as Chinese players expand their export operations on swollen domestic inventories and a new round of higher export quotas
  • A month after South Africa’s Strategic Fuel Fund acquired 90% of the B2 Block in South Sudan, the state-backed fund is looking to expand its scope to include midstream facilities and a possible 60 kb/d refinery in Pagak
  • The toxic crude situation across Russia’s Druzhba pipeline appears to have been mostly rectified, with refineries in Poland and Slovakia now receiving clean oil
  • Russia’s 180 kb/d Antipinsky refinery has officially filed for bankruptcy, with a London court ordering its assets to be frozen in favour of VTB Trading
  • Despite being a major crude producer, Angola has been facing severe fuel shortages domestically and has signed Trafigura and Total to supply gasoline, diesel and marine gas oil by tender through May 2019

Natural Gas/LNG

  • Gazprom has confirmed its recent giant gas discoveries in Russia’s Yamal peninsula, with the Dinkov and Nyarmeyskoye fields in the Kara Sea estimated to hold up to a collective 17.9 tcf of recoverable resources
  • Russia’s Novatek has unveiled plans to build the new Ob LNG plant near the port of Sabetta in the Yamal Peninsula, which is planned to have capacity for 4.8 million tons per year and come into operation in 2023 for US$5 billion
  • The US$20 billion Abadi LNG project in the Arafura Sea might actually be progressing as Japan’s Inpex has reportedly reached an agreement with the new Widodo government on the development plan for the giant gas field
  • Australia’s Woodside is on the hunt to expand its LNG portfolio with a particular focus on foreign opportunities along with domestic brownfield assets
  • The little known Cynergy Group from Cyprus has announced plans to spend up to US$10 billion to buy and unite under-utilised gas assets in the East Mediterranean with the intent of cutting through bureaucratic red tape

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The Shale Showdown in 2020 – What’s Happening?

When asked in December about the projected slowdown in American shale output, the new US Energy Secretary shrugged off the notion, describing it as a mere ‘pause’. Blaming the expected slowdown to the ‘natural adjustments’ of oil and gas prices instead of a structural decline in production, Dan Brouilette is painting a rosy picture of US shale – where riches still lie underneath, waiting for the right price to be extracted. Of course he would paint such a picture. Brouilette is the new Energy Secretary, replacing Rick Perry. He couldn’t come in on a message of doom and gloom. But his pretty picture isn’t accurate either.

Schlumberger just posted a US$10 billion loss for the full year 2019, despite relatively flat y-o-y revenues. CEO Oliver Le Peuch called its international performance ‘positive’, but blamed ‘land market weakness’ causing a sharp decline in North American revenues and profits. Land market is code word for shale, and Schlumberger isn’t the only one facing problems. Halliburton announced a loss of US$1.1 billion in 2019, taking a US$2.2 billion charge on weakening US shale activity as North American revenue for Halliburton fell by 21% in 4Q19 and 18% for the whole year. While its results managed to beat analyst predictions – already stung by Schlumberger’s results – Halliburton doesn’t expect things to get rosier either, signalling that it expected ‘customer spending’ in North America to be down again in 2020.

And it isn’t just service companies suffering. US supermajor Chevron booked a US$11 billion write-down on a collection of assets in its latest set of financials, including on a major deepwater project in the Gulf of Mexico, the Kitimat LNG project in Canada and onshore Appalachian shale assets. Taken as a whole, the total impairment might coming from Chevron’s lowered forecast for oil and gas prices to the US$55-60/b range for 2020, but that shale was singled out is a major factor. And Chevron isn’t the only one. BP, Repsol and even ExxonMobil are expecting weakness. Only Shell and Total, who haven’t devoted as much attention to US shale, particularly the Permian, have been relatively insulated.  

Why is this happening? There are two different factors operating. From a producers’ standpoint, the rising tide of US shale output is contributing to weakening global prices  for oil – and that has a lot to do with the debt burden of existing US shale players, who have to keep drilling to pay off loans. Added conventional production coming online from Guyana, Brazil and Norway at the same time aren’t helping with prices either, despite OPEC+’s best intentions. From a service company’s perspective, firms like Schlumberger and Halliburton derive their revenue from drilling activity, not drilling output. And US drilling activity has dropped steeply over the past year, currently down by over 250 rigs according to the Baker Hughes weekly rig count. Much of this is onshore, principally in the Permian but also in other basins, as the once nimble and dynamic drillers are forced to stop activity either through bankruptcy or to shut shop temporarily as crude prices fall to uneconomical levels.

The US EIA has issued a new forecast, predicting that US shale output will slow down to a 1.1 mmb/d gain over 2020. That’s still optimistic, taking total US production to 13.3 mmb/d. In 2021, however, the EIA think output growth will fall even further, to an annual gain of just 400,000 b/d. Implicit to that forecast is that the EIA expects prices to remain subdued over the new two years, because shale drillers would respond to higher prices with increased drilling. There is also production structure to consider. Shale well produce immediate results, but show steep declines after. From 2012 to 2019, the amount of drilled but uncompleted (DUCs) wells – ie. wells that can be exploited within a short time frame – grew and grew; in the last 9 months, the glut of DUCs has shrunk – suggested that the industry is not drilling new wells as fast as they are completing already-drilled. Drilling activity has declined, and the chronic decline in the Baker Hughes active rig count – 18 of the last 21 weeks showed a net loss of rigs – is just proof of that.

It may not be the picture that Dan Brouilette wants to paint, but it is reality. The shale slowdown is real. It is also true that shale activity would increase if prices rose to more viable levels – say the US$65-70/b range – but let’s be honest, what are the odds of that happening when shale itself is the cause of weakening prices.

January, 28 2020
Flow Meter | Types Of Flow Meters From Nagmanflow

Nagman has diversified into dealing with Flow meters or Instruments viz Electro-Magnetic Flow Meters, Coriolis Mass Flow Meter, Positive Displacement Flow Meter, Vortex Flow Meter, Turbine Flow Meter, Ultrasonic Flow Meter.

Electro-Magnetic Flow Meter:
Size : DN 3 to DN 3000 mm
Flow Velocity : 0.5 m/s to 15 m/s
Accuracy : ±0.5%, ±0.2% of Reading

Coriolis Mass Flow Meter:
Size : DN8~DN300
Flow Range : 8 to 2500000 Kg/hr (for liquids)
4 to 2500000 Kg/hr (for gases)
Accuracy : 0.1% 0.2% 0.5% of Normal Flow Range

Positive Displacement Flow Meter:
Size : DN 15 ~ DN 400
Max. Flow Range : 0.3 m3/hr to 1800 m3/hr
(Will vary based on the measured media & temperature)
Accuracy : 0.1% 0.2% 0.5%

Vortex Flow Meter:
Size : DN 25 to DN 300
Flow Range : 1.3 m3/hr to 2000 m3/hr (Water)
8.0 m3/hr to 10000 m3/hr (Air)
Accuracy : ±1.0% of Reading

Turbine Flow Meter:
Size : DN 4 to DN 200
Flow Range : 0.02 m3 /hr to 680 m3 /hr
Accuracy : 1.0% or 0.5% of Rate

Ultrasonic Flow Meter:
Type : Hand held Ultrasonic Flow meter with S2, M2, L2 Sensors
Accuracy : ±1% of Reading at rates > 0.2 mps
Measuring Range : DN 15 – DN 6000


January, 24 2020
EIA expects U.S. net natural gas exports to almost double by 2021

In its Short-Term Energy Outlook (STEO), released on January 14, the U.S. Energy Information Administration (EIA) forecasts that U.S. natural gas exports will exceed natural gas imports by an average 7.3 billion cubic feet per day (Bcf/d) in 2020 (2.0 Bcf/d higher than in 2019) and 8.9 Bcf/d in 2021. Growth in U.S. net exports is led primarily by increases in liquefied natural gas (LNG) exports and pipeline exports to Mexico. Net natural gas exports more than doubled in 2019, compared with 2018, and EIA expects that they will almost double again by 2021 from 2019 levels.

The United States trades natural gas by pipeline with Canada and Mexico and as LNG with dozens of countries. Historically, the United States has imported more natural gas than it exports by pipeline from Canada. In contrast, the United States has been a net exporter of natural gas by pipeline to Mexico. The United States has been a net exporter of LNG since 2016 and delivers LNG to more than 30 countries.

In 2019, growth in demand for U.S. natural gas exports exceeded growth in natural gas consumption in the U.S. electric power sector. Natural gas deliveries to U.S. LNG export facilities and by pipeline to Mexico accounted for 12% of dry natural gas production in 2019. EIA forecasts these deliveries to account for an increasingly larger share through 2021 as new LNG facilities are placed in service and new pipelines in Mexico that connect to U.S. export pipelines begin operations.

Net U.S. natural gas imports from Canada have steadily declined in the past four years as new supplies from Appalachia into the Midwestern states have displaced some pipeline imports from Canada. U.S. pipeline exports to Canada have increased since 2018 when the NEXUS pipeline and Phase 2 of the Rover pipeline entered service. Overall, EIA projects the United States will remain a net natural gas importer from Canada through 2050.

U.S. pipeline exports to Mexico increased following expansions of cross-border pipeline capacity, averaging 5.1 Bcf/d from January through October 2019, 0.5 Bcf/d more than the 2018 annual average, according to EIA’s Natural Gas Monthly. The increase in exports was primarily the result of increased flows on the newly commissioned Sur de Texas–Tuxpan pipeline in Mexico, which transports natural gas from Texas to the southern Mexican state of Veracruz. Several new pipelines in Mexico that were scheduled to come online in 2019 were delayed are expected to enter service in 2020:

  • Pipelines in Central and Southwest Mexico (1.2 Bcf/d La Laguna–Aguascalientes and 0.9 Bcf/d Villa de Reyes–Aguascalientes–Guadalajara)
  • Pipelines in Western Mexico (0.5 Bcf/d Samalayuca–Sásabe)

U.S. LNG exports averaged 5 Bcf/d in 2019, 2 Bcf/d more than in 2018, as a result of several new facilities that placed their first trains in service. This year, several new liquefaction units (referred to as trains) are scheduled to be placed in service:

  • Trains 2 and 3 at Cameron LNG in Louisiana
  • Train 3 at Freeport LNG in Texas
  • Trains 5–10, six Moveable Modular Liquefaction System (MMLS) units, at Elba Island in Georgia

In 2021, the third train at the Corpus Christi facility in Texas is scheduled to come online, bringing the total U.S. liquefaction capacity to 10.2 Bcf/d (baseload) and 10.8 Bcf/d (peak). EIA expects LNG exports to continue to grow and average 6.5 Bcf/d in 2020 and 7.7 Bcf/d in 2021, as facilities gradually ramp up to full production.

monthly natural gas trade

Source: U.S. Energy Information Administration, Natural Gas Monthly

January, 24 2020