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Last Updated: August 29, 2019
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Market Watch 

Headline crude prices for the week beginning 26 August 2019 – Brent: US$59/b; WTI: US$54/b

  • Having traded mixed for most of last week as the trade tit-for-tat table tennis match between the US and China continued, crude prices started on a higher note this week as President Trump signals a move to restart trade talks
  • Of course, this has happened before, so Trump’s comments at the G7 Summit in Biarritz might not amount to anything but were still taken by the market to be a positive step
  • This comes as China placed tariffs on US crude oil for the first time since the trade war began, embroiling a key growing export market for American producers in the turmoil
  • Chinese tariffs on US crude oil were imposed up until last year when they were removed, but the re-imposition of a 5% tariff could choke off a burgeoning business and further damage global oil demand
  • The news comes as the American Petroleum Institute (API) stated that it believes the escalating US-China trade dispute ‘hurts’ American energy leadership, directly impacting jobs within the sector
  • US crude stockpiles fell more than expected, which managed to prop up prices somewhat, capping off a stronger summer for fuel demand, particularly gasoline, and refineries ran at near full capacity
  • On the supply side, reports suggest that almost half of all active rigs in Venezuela will shut down by end October 2019 if the Trump administration does not extend a 90-day waiver on sanctions for American producers
  • After a gain last week broke a streak of losses, the US active rig count fell once again by a significant 19 sites, led by the loss of 7 rigs in the Permian; the total active rig count is now at its lowest in almost 18 months at 916 sites
  • Rangebound trading is the best the crude market can hope for now; the ebb and flow between the US and China on trade issues shows no end – depending on who you talk to – and crude prices will remain firmly in the US$58-60/b range for Brent and the US$54-56/b range for WTI


Headlines of the week

Upstream

  • Equinor and YPF have signed a joint exploration agreement for the CAN 100 offshore block in the North Argentinian Basin, with Equinor taking a 50% share
  • Husky Energy will resume production at the North Amethyst and South White Rose drill centres after operations were halted following the November 2018 oil spill off Canada’s Newfoundland and Labrador province
  • Equinor has struck oil at the Sputnik exploration well in Norway’s Barents Sea, with recoverable assets estimated at an initial 20-65 million barrels
  • Alberta will be extending its province output cuts to the end of 2020 to allow more time for the current oversupply to be eased by delayed pipeline projects
  • After being restarted just earlier this month, the Hibernia platform in Canada’s Newfoundland and Labrador has been halted once again after another incident
  • South Sudan has made a new crude discovery in the northern Adar oilfields, with ambitious plans to start production by the end of 2019
  • Pembina Pipeline Corp will be purchasing Kinder Morgan’s Canadian unit for US$3.3 billion, aiming to capitalise on Western Canadian oil sands
  • Lundin Petroleum AB has made a new oil discovery in Norway, with oil struck at Well 16/5-8s in the Goddo prospect under the PL81 license

Midstream/Downstream

  • Petrobras has received three binding offers for its LPG unit Liquigas Distribuidora, with the sale expected to be concluded by November
  • Petronas will be restarting the shut CDU at the Pengerang Refining and Petrochemical (PrefChem) Complex, after the plant was shut down in April following a fire that damaged the AR desulfurisation unit
  • The fire-damaged Philadelphia Energy Solutions refinery may have found a buyer in SG Preston, a biofuels producer that intends to convert the 350 kb/d complex into a renewable diesel production complex
  • Saudi Aramco’s US refining arm Motiva Enterprises has acquired full ownership of the Flint Hills Resource Port Arthur petrochemicals plant
  • Despite stating earlier that it would not be able to meet the new IMO rules of sulfur levels, Indonesia has now said that it will be able to meet the 2020 deadline for Indonesian-flagged vessels operating internationally and locally
  • Nigeria’s NNPC has awarded a tranche of crude-for-product swap deals to firms such as Vitol, Trafigura, and BP in an attempt to alleviate a domestic fuels deficit stemming from underperformance of NNPC’s refineries

Natural Gas/LNG

  • After a bombshell attempt by the government of Papua New Guinea to renegotiate the Papua LNG gas deal, Total is now looking to finalise terms by the end of August, sticking with the original deal signed in April
  • Natural gas production at the giant Zohr field in Egypt has now reached 2.7 bcf/d, up from a production level of 2 bcf/d in September 2018
  • Commercial LNG production has begun at the Cameron LNG Train 1 in Louisiana, with two additional trains planned for a total capacity of 12 mtpa
  • Total has re-confirmed its commitment to develop the US$23 billion Mozambique LNG project after it takes over Anadarko’s African assets following the acquisition of the latter by Occidental Petroleum
  • First liquids output has been produced at the Freeport LNG Train 1 project in Texas, with Trains 2 and 3 on course for completion by Q1 2020

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EIA forecasts natural gas inventories will reach record levels later this year

In the U.S. Energy Information Administration’s (EIA) February Short-Term Energy Outlook (STEO), EIA forecasts that the Lower 48 states’ working natural gas in storage will end the 2019–20 winter heating season (November 1–March 31) at 1,935 billion cubic feet (Bcf), with 12% more inventory than the previous five-year average. This increase is the result of mild winter temperatures and continuing strong production. EIA forecasts that net injections during the refill season (April 1–October 31) will bring the total working gas in storage to 4,029 Bcf, which, if realized, would be the largest monthly inventory level on record.

Mild winter temperatures for the current winter have put downward pressure on natural gas prices and led to smaller withdrawals from natural gas into storage. Year-over-year growth in dry natural gas production and natural gas exports—especially liquefied natural gas (LNG)—throughout 2019 also affected natural gas storage levels. On October 11, 2019, the total natural gas in storage surpassed the previous five-year average—an indicator of typical storage levels—for the first time since mid-2017.

lower 48 states working natural gas in storage

Source: U.S. Energy Information Administration, Natural Gas Monthly, Weekly Natural Gas Storage Report, and Short-Term Energy Outlook

The total natural gas in storage at the start of this heating season was 3,725 Bcf on October 31, 2019. EIA expects withdrawals from working natural gas storage to total 1,790 Bcf at the end of March 2020. If realized, this would be the least natural gas withdrawn during a heating season since the winter of 2015–16, when temperatures were also mild.

Injections into and withdrawals from natural gas storage balance seasonal and other fluctuations in consumption. Natural gas demand is greatest in the winter months, when residential and commercial demand for natural gas for space heating increases. Natural gas consumption in the power sector is greatest in summer months, when overall electricity demand is relatively high because of air conditioning.

monthly U.S. natural gas supply and disposition

Source: U.S. Energy Information Administration, Short-Term Energy Outlook

In the latest STEO, EIA expects the total working natural gas in storage will exceed the previous five-year average for the remainder of 2020, despite declines in dry natural gas production, increases in natural gas consumption in the electric power sector, and increases in natural gas exports. EIA expects monthly natural gas production to decline from last year’s record levels in 2020 as lower natural gas prices reduce incentives for natural gas-directed drilling and as lower crude oil prices reduce incentives for oil-directed drilling and associated gas production.

February, 25 2020
The World’s Largest Natural Gas Discovery Since 2005

At the start of February, a major new find was jointly announced by the two largest emirates within the UAE: the oil-rich Abu Dhabi and the ambitious Dubai. Between them, they literally made the world’s largest natural gas discovery since 2005. Located at the border between the two sheikdoms, the Jebel Ali field is estimated to contain some 80 trillion scf of natural gas, the largest global find since the Galkynysh field in Turkmenistan.

Stretching over 5,000 square km, an exploration campaign by Abu Dhabi involving over 10 wells confirmed the enormous discovery in early January 2020. The shallow nature of the onshore reserves should make it easier to extract gas at lower costs, hastening the time-to-market. At current estimated figures, Jebel Ali would be the fourth-largest gas field in the Middle East, behind Qatar’s North Field, Iran’s South Pars and Abu Dhabi’s own Bab field.

The politics of the UAE can be complicated; each emirate is essentially self-governing with federal oversight, which is dominated by Abu Dhabi and Dubai (which always hold the President and Prime Minister roles, according to convention). This essentially means that each emirate has grew quite independently. Fujairah, for example, developed into a bunkering port, while Sharjah went into industry and manufacturing. Dubai is globally famous for its titanic real estate projects, pursued finance, services and media, while Abu Dhabi, the largest and most blessed of all with hydrocarbon resources, turned into an energy powerhouse. Oil & gas wealth in the UAE is mainly in Abu Dhabi; so while the Jebel Ali discovery is a welcome addition for Abu Dhabi, it is a game changer for Dubai, which imports most of its energy needs.

Speculation has raised that possibility that the Jebel Ali field could vault the UAE into gas self-sufficiency, because even Abu Dhabi imports gas. The UAE has a stated goal to be gas independent by 2030. On paper, that’s possible. Abu Dhabi’s ADNOC has agreed to develop the field with Dubai’s gas supplier, the Dubai Supply Authority (DUSUP), with the entire supply will be channel to DUSUP for use in Dubai. Jebel Ali could begin producing gas by 2023, and will likely be distributed domestically through pipeline. The enormous reserves could supply the entire UAE’s gas demand for nearly 30 years, assuming optimal recovery conditions. However, in practice, self-sufficiency might take longer to achieve.

Dubai and indeed, Abu Dhabi are currently reliant on Qatar for their gas supply. An existing sales agreement that expires in 2032 sees Qatar pipe 2 bcf/d of gas to the UAE through Abu Dhabi. The problem is that these neighbours are erstwhile friends. A division in the Middle East between the pro-Saudi Arabia and pro-Iran blocs has caused a rift. Led by Saudi Arabia, several Persian Gulf states  including the UAE implemented a diplomatic and trade blockade on Qatar, isolating it. The blockade, slightly weakened, still continues today. Even now, planes flying into Qatar have to make strange manoeuvres when approaching to avoid encroaching on Saudi and UAE airspace. However, the gas supply arrangement remains in place.

And this is where the Jebel Ali discovery could come in handy. Qatar is already on track to be self-sufficient in gas terms by 2025, but will probably honour the Qatar deal until expiration. Dubai has been increasingly reliant on LNG  through an FSRU for power generation, but has attempted over the years to kick-start a number of coal or solar-power projects. Jebel Ali won’t kick the addiction, but it could definitely reduce Dubai’s reliance on Qatari gas.

Jebel Ali wasn’t the only recent gas discovery made in the UAE. Further north, the Sharjah National Oil Corp and Italy’s Eni announced a new onshore gas and condensate discovery. Though tiny in comparison to Jebel Ali, some 50 mscf/d of lean gas and condensate. The cumulative effects of these discoveries could make gas self-sufficiency a reality sooner. At this point, the UAE consumes some 7.4 bcf gas per day, while marketed production is some 6.2 bcf/d. An ambitious plan to develop Abu Dhabi’s large gas fields was the rationale behind naming the 2030 self-sufficiency deadline. With the discovery of Jebel Ali, that can now be brought forward by a couple of years at least. And there might even be some left over to be exported as LNG

The UAE Major Gas Projects:

  • Estimated reserves: 273 tcf of conventional gas, 160 tcf of unconventional gas (Abu Dhabi)
  • Ghasha ultra-sour gas field (Abu Dhabi) – 1.5 bcf, by 2025
  • Shah sour gas field (Abu Dhabi) – 1.5 bcf/d

February, 23 2020
Your Weekly Update: 17 - 21 February 2020

Market Watch   

Headline crude prices for the week beginning 17 February 2020 – Brent: US$53/b; WTI: US$49/b

  • As the Covid-19 pandemic seems to be coming increasingly under control, crude oil prices are recovering some ground as the market moves into speculative mode given the availability of cheap crude cargoes
  • Case in point, while the fear was of widespread demand destruction in China, a sudden buying spree by Chinese independent teapot refineries – attracted by cheap spot cargoes – surprised the market, being a sign that Chinese private refiners are anticipating a rebound in demand sooner rather than later
  • Despite this, the pandemic is still recalibrating Chinese energy demand in a dramatic way, with reports of four LNG tanker bound for northern China from Oman and Qatar diverted as CNOOC invoked force majeure on its contracts
  • China’s pain is also India’s gain, with so-called ‘distressed cargoes’ originally intended for China now offered to India at attractive terms from all over the world, including grades from the Caspian Sea to Latin America and West Africa
  • Based on the situation in China, the IEA is forecasting the first annual decline in quarterly global oil demand for the first time in over a decade, and dragging overall 2020 growth down by 30% to 825,000 b/d; the EIA followed suit as well, cutting its Brent price forecast for 2020 from US$64.83 to US$61.25
  • China and key Asian hubs impacted by the virus like Hong Kong and Singapore have pledged to provide extra fiscal stimulus to counteract the impact of the pandemic, possibly setting the stage for a rebound in Q2 2020
  • Saudi Arabia’s attempt to cajole the OPEC+ club into extending its supply cuts until June 2020 through an emergency February meeting has faded, with Russia being the main holdout
  • Amid the turmoil in the markets, the US active rig count remained unchanged for the week, adding two oil sites but losing gas and miscellaneous sites for a total of 790
  • Oil prices gained over the week as the Covid-19 pandemic looks to be contained; Brent should trade in a higher US$57-59/b range and WTI at US$43-55/b


Headlines of the week

Upstream

  • Saudi Arabia and Kuwait have officially restarted production from their shared Wafra field in the Neutral after five years of halted output
  • Despite being hampered by quarterly waivers that are subject to renewals by the US government, Chevron has ramped up production at its Petropiar crude upgrader plant in Venezuela to 130,000 b/d after being closed for most of 2019
  • Canada’s Alberta province’s plan to ease its crude glut through rail shipments has hit a snag, as protestors blocked train lines and the provincial government ordered trains to reduce speeds after a major derailment and fire
  • Tullow Oil reports that it has received approval from Ghana to flare gas ‘when necessary’ from its offshore fields, which should help the beleaguered company support production levels after a set of disappointing results for 2019
  • Somalia has passed a new petroleum bill into law, with the aim of setting up a regulatory framework to attract foreign upstream investment; Somalia currently does not produce any oil but estimates suggest significant reserves
  • As Uganda prepares to start producing oil for the first time, distribution and transport infrastructure remain an issue, with the state recently tapping a Chinese lender to build three roads to connect to its western oilfields
  • After a challenging few years of scandals and a subsequent refocusing on upstream, Petrobras has now hit a new upstream production record, with the ramp-up in pre-salt basins contributing to 3.025 mmboe/d in Q4 2019
  • CNOOC has commenced production at the offshore Bozhong 34-9 field in the Bohai Sea, with peak output expected at 22,500 b/d of crude by 2022

Midstream/Downstream

  • The Covid-19 Wuhan outbreak has claimed a few more refinery scalps, with ChemChina shutting down its 100 kb/d Zhenghe refinery in Shandong and reducing processing at its Changyi and Huaxing refineries by 10%; Hengli Petrochemical has cut utilisation rates at its new 400 kb/d Dalian refinery by some 17% as well, as petchem demand dries up
  • The 120,000 b/d Azzawiya Oil Refining Company refinery in Libya has been forced to halt all operations, as a prolonged conflict in the country has dried up the availability of crude for export or local refining
  • Egypt has given the go-ahead for a US$2.5 billion, 65 kb/d oil refinery in the Upper Egypt region, focusing on hydrocracking mazut – heavy, low quality fuel oil typically used for power generation – into high-value fuels
  • The Bangladesh Petroleum Corp has awarded a tender to supply some 1.06 million tons of gasoil, jet fuel, fuel oil and gasoline to Unipec and Vitol
  • Vietnam’s Nghi Son refining has offered a cargo of gasoil for export for the first time – an indication of slowing domestic demand from the Covid-19 outbreak that is hitting most major East and Southeast Asian economies

Natural Gas/LNG

  • NextDecade Corp’s US$15 billion, 26 million tons per annum Rio Grande LNG facility in Texas has been cleared for LNG exports by the US DoE
  • Portugal’s Sines port is being eyed by US energy companies as a strategic landing point for US LNG exports to Europe, as American LNG exporters race to lock down customers amid a supply glut that could last for years
  • Shell has acquired a 50% stake in Ecopetrol’s Fuerte Sur, Purple Angel and COL-5 gas blocks located in Colombia’s Caribbean deepwater region
February, 21 2020