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Last Updated: October 25, 2019
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Market Watch  

Headline crude prices for the week beginning 21 October 2019 – Brent: US$59/b; WTI: US$53/b

  • Crude prices remain rangebound, with the market focused on a fragile economic outlook as major economies across the globe show signs of slowing growth
  • In particular, this has been focused on trade relations between the US and China; a sudden thaw in negotiations lead to what the US has described as a ‘partial deal’, with China offering to make additional agricultural purchases in exchange for a freeze on new tariffs – but a full deal still remains far off
  • Calculations by the IEA, EIA and OPEC also point to the need for OPEC+ to make another cut by December, giving the current build in global oil inventories; whether or not the hurting OPEC members agreed to the cuts at the December meeting, however, is another question
  • Not helping the situation is the fact the US crude production is accelerating – with Gulf of Mexico production rising to a new annual record of 1.8 mmb/d and US shale production expected to hit 9 mmb/d by the end of the year
  • However, soaring oil tanker rates – which is good news for beleaguered shippers – is clamping down on US exports, as Asian buyers are choosing to buy crude from closer to home; global shipping rates have been surging since the US imposed sanctions on Chinese shipowners, including COSCO, for breaching US sanctions on Iran
  • In Venezuela, the US is taking a softer stance – having extended sanctions exemptions for a Nynas-PDVSA biofuels joint venture and also close to extending the waiver for Chevron to operate (but with more conditions)
  • The White House will be losing its Energy Secretary, as Rick Perry will resign by the end of 2019, having brokered a new biofuels mandate that tries to appease both American refiners and farmers
  • After a brief rise, the US active rig count is back in the red, losing six gas rigs but gaining one oil rig for a net loss of five, bringing the total active rig count to 851
  • Bullish data released by the US government mid-week sent prices higher, but wider worries over the global economy will continue to cap any gains; Brent should trade in the US$59-61/b range and WTI in the US$54-56/b range

Headlines of the week

Upstream

  • At the recent deepwater auction in Brazil, Total and its partners led the sale by taking the high-profile Block C-M-541 – home of the Nemo prospect – while Malaysia’s Petronas made its debut by focusing on the Campos basin
  • Equinor has won a new exploration permit in Australia, gaining the WA-542-P site in the offshore Northern Carnarvon Basin, west of the recent Dorado strike
  • Energean Oil and Gas will be selling its North Sea assets – held by Edison E&P UK and Norway – to the Neptune Energy Group for US$250 million
  • Nigeria’s government has passed a new amendment to its Production Sharing Contract, raising royalties sharply and throwing a number of major deepwater projects into questionable territory
  • Algeria has passed a new law aimed at boosting investment in its upstream sector by cutting taxes but has triggered widespread civil protests

Midstream/Downstream

  • Having courting Eni and Austria’s OMV for upstream projects, ADNOC is now looking to persuade the two European firms to partner on its refining projects that are meant to expand capacity from 922 kb/d to 1.5 mmb/d by 2025
  • Singapore’s APEX has launched a new low-sulfur fuel oil (LSFO) contract, just ahead of the deadline for new IMO regulations on marine fuels to kick in
  • Chinese crude processing volumes reached a new high of 13.75 mmb/d in September as new integrated mega-refineries on the coast began operations

Natural Gas/LNG

  • Santos has agreed to purchase ConocoPhillips’ upstream gas assets in northern Australia for US$1.4 billion, gaining COP’s operating interests in the Darwin LNG plant and the Bayu Undan, Barossa and Poseiden gas fields
  • Total will be spending US$600 million to expand its presence in India’s LNG market, purchasing a 37.4% in domestic gas distributor Adani Gas, which is currently developing the Mundra and Dhamra LNG import terminals
  • Dominion Energy will sell a 25% interest in the Cove Point LNG project in Maryland to Brookfield Asset Management for some US$2 billion in cash
  • US regulators have proposed to loosen transport rules that would allow LNG to be transported by rail in hopes of connecting inland gas to coastal export hubs
  • Equinor has downgraded recoverable reserve estimates at the UK-Norway cross-border Utgard gas and condensate field by nearly 30% to 40 million boe
  • DTE Energy has purchased the Momentum Midstream and Indigo Natural Resources’ natural gas gathering system and pipeline in Louisiana for US$2.25 billion, adding to its distribution capacity along the US Gulf Coast
  • Lukoil has taken a 5% stake in the Ghasha ultra-sour 1.5 bcf/d gas mega-project in Abu Dhabi – made up of the Hail, Ghasha, Dalma and other fields – marking the first time a Russian firm has joined an ADNOC concession
  • The US Department of Energy has approved the Plaquemines LNG project in Louisiana for exports, allowing it to export up to 3.4 bcf/d of LNG

Corporate

  • Schlumberger announced that it was taking a huge write-down of US$12.7 billion in its latest financial earnings report, mainly from a US$8.8 billion goodwill hit from its acquisition of Cameron International Corp in 2016
  • Saudi Aramco has once again delayed its IPO, after having planned for an October 20 launch, citing time required to give potential investors more clarity after the recent crippling attacks on its Abqaiq processing plant

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Short-Term Energy Outlook

Highlights  

Global liquid fuels

  • Brent crude oil spot prices averaged $60 per barrel (b) in October, down $3/b from September and down $21/b from October 2018. EIA forecasts Brent spot prices will average $60/b in 2020, down from a 2019 average of $64/b. EIA forecasts that West Texas Intermediate (WTI) prices will average $5.50/b less than Brent prices in 2020. EIA expects crude oil prices will be lower on average in 2020 than in 2019 because of forecast rising global oil inventories, particularly in the first half of next year.
  • Based on preliminary data and model estimates, EIA estimates that the United States exported 140,000 b/d more total crude oil and petroleum products in September than it imported; total exports exceeded imports by 550,000 b/d in October. If confirmed in survey-collected monthly data, it would be the first time the United States exported more petroleum than it imported since EIA records began in 1949. EIA expects total crude oil and petroleum net exports to average 750,000 b/d in 2020 compared with average net imports of 520,000 b/d in 2019.
  • Distillate fuel inventories (a category that includes home heating oil) in the U.S. East Coast—Petroleum Administration for Defense District (PADD 1)—totaled 36.6 million barrels at the end of October, which was 30% lower than the five-year (2014–18) average for the end of October. The declining inventories largely reflect low U.S. refinery runs during October and low distillate fuel imports to the East Coast. EIA does not forecast regional distillate prices, but low inventories could put upward pressure on East Coast distillate fuel prices, including home heating oil, in the coming weeks.
  • U.S. regular gasoline retail prices averaged $2.63 per gallon (gal) in October, up 3 cents/gal from September and 11 cents/gal higher than forecast in last month’s STEO. Average U.S. regular gasoline retail prices were higher than expected, in large part, because of ongoing issues from refinery outages in California. EIA forecasts that regular gasoline prices on the West Coast (PADD 5), a region that includes California, will fall as the issues begin to resolve. EIA expects that prices in the region will average $3.44/gal in November and $3.12/gal in December. For the U.S. national average, EIA expects regular gasoline retail prices to average $2.65/gal in November and fall to $2.50/gal in December. EIA forecasts that the annual average price in 2020 will be $2.62/gal.
  • Despite low distillate fuel inventories, EIA expects that average household expenditures for home heating oil will decrease this winter. This forecast largely reflects warmer temperatures than last winter for the entire October–March period, and retail heating oil prices are expected to be unchanged compared with last winter. For households that heat with propane, EIA forecasts that expenditures will fall by 15% from last winter because of milder temperatures and lower propane prices.


Natural gas

  • Natural gas storage injections in the United States outpaced the previous five-year (2014–18) average during the 2019 injection season as a result of rising natural gas production. At the beginning of April, when the injection season started, working inventories were 28% lower than the five-year average for the same period. By October 31, U.S. total working gas inventories reached 3,762 billion cubic feet (Bcf), which was 1% higher than the five-year average and 16% higher than a year ago.
  • EIA expects natural gas storage withdrawals to total 1.9 trillion cubic feet (Tcf) between the end of October and the end of March, which is less than the previous five-year average winter withdrawal. Withdrawal of this amount would leave end-of-March inventories at almost 1.9 Tcf, 9% higher than the five-year average.
  • The Henry Hub natural gas spot price averaged $2.33 per million British thermal units (MMBtu) in October, down 23 cents/MMBtu from September. The decline largely reflected strong inventory injections. However, forecast cold temperatures across much of the country caused prices to rise in early November, and EIA forecasts Henry Hub prices to average $2.73/MMBtu for the final two months of 2019. EIA forecasts Henry Hub spot prices to average $2.48/MMBtu in 2020, down 13 cents/MMBtu from the 2019 average. Lower forecast prices in 2020 reflect a decline in U.S. natural gas demand and slowing U.S. natural gas export growth, allowing inventories to remain higher than the five-year average during the year even as natural gas production growth is forecast to slow.
  • EIA forecasts that annual U.S. dry natural gas production will average 92.1 billion cubic feet per day (Bcf/d) in 2019, up 10% from 2018. EIA expects that natural gas production will grow much less in 2020 because of the lag between changes in price and changes in future drilling activity, with low prices in the third quarter of 2019 reducing natural gas-directed drilling in the first half of 2020. EIA forecasts natural gas production in 2020 will average 94.9 Bcf/d.
  • EIA expects U.S. liquefied natural gas (LNG) exports to average 4.7 Bcf/d in 2019 and 6.4 Bcf/d in 2020 as three new liquefaction projects come online. In 2019, three new liquefaction facilities—Cameron LNG, Freeport LNG, and Elba Island LNG—commissioned their first trains. Natural gas deliveries to LNG projects set a new record in July, averaging 6.0 Bcf/d, and increased further to 6.6 Bcf/d in October, when new trains at Cameron and Freeport began ramping up. Cameron LNG exported its first cargo in May, Corpus Christi LNG’s newly commissioned Train 2 in July, and Freeport in September. Elba Island plans to ship its first export cargo by the end of this year. In 2020, Cameron, Freeport, and Elba Island expect to place their remaining trains in service, bringing the total U.S. LNG export capacity to 8.9 Bcf/d by the end of the year.


Electricity, coal, renewables, and emissions

  • EIA expects the share of U.S. total utility-scale electricity generation from natural gas-fired power plants will rise from 34% in 2018 to 37% in 2019 and to 38% in 2020. EIA forecasts the share of U.S. electric generation from coal to average 25% in 2019 and 22% in 2020, down from 28% in 2018. EIA’s forecast nuclear share of U.S. generation remains at about 20% in 2019 and in 2020. Hydropower averages a 7% share of total U.S. generation in the forecast for 2019 and 2020, down from almost 8% in 2018. Wind, solar, and other nonhydropower renewables provided 9% of U.S. total utility-scale generation in 2018. EIA expects they will provide 10% in 2019 and 12% in 2020.
  • EIA expects total U.S. coal production in 2019 to total 698 million short tons (MMst), an 8% decrease from the 2018 level of 756 MMst. The decline reflects lower demand for coal in the U.S. electric power sector and reduced competitiveness of U.S. exports in the global market. EIA expects U.S. steam coal exports to face increasing competition from Eastern European sources, and that Russia will fill a growing share of steam coal trade, causing U.S. coal exports to fall in 2020. EIA forecasts that coal production in 2020 will total 607 MMst.
  • EIA expects U.S. electric power sector generation from renewables other than hydropower—principally wind and solar—to grow from 408 billion kilowatthours (kWh) in 2019 to 466 billion kWh in 2020. In EIA’s forecast, Texas accounts for 19% of the U.S. nonhydropower renewables generation in 2019 and 22% in 2020. California’s forecast share of nonhydropower renewables generation falls from 15% in 2019 to 14% in 2020. EIA expects that the Midwest and Central power regions will see shares in the 16% to 18% range for 2019 and 2020.
  • EIA forecasts that, after rising by 2.7% in 2018, U.S. energy-related carbon dioxide (CO2) emissions will decline by 1.7% in 2019 and by 2.0% in 2020, partially as a result of lower forecast energy consumption. In 2019, EIA forecasts less demand for space cooling because of cooler summer months; an expected 5% decline in cooling degree days from 2018, when it was significantly higher than the previous 10-year (2008–17) average. In addition, EIA also expects U.S. CO2 emissions in 2019 to decline because the forecast share of electricity generated from natural gas and renewables will increase, and the share generated from coal, which is a more carbon-intensive energy source, will decrease.
November, 14 2019
The U.S. placed near-record volumes of natural gas in storage this injection season

The amount of natural gas held in storage in 2019 went from a relatively low value of 1,155 billion cubic feet (Bcf) at the beginning of April to 3,724 Bcf at the end of October because of near-record injection activity during the natural gas injection, or refill, season (April 1–October 31). Inventories as of October 31 were 37 Bcf higher than the previous five-year end-of-October average, according to interpolated values in the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report.

Although the end of the natural gas storage injection season is traditionally defined as October 31, injections often occur in November. Working natural gas stocks ended the previous heating season at 1,155 Bcf on March 31, 2019—the second-lowest level for that time of year since 2004. The 2019 injection season included several weeks with relatively high injections: weekly changes exceeded 100 Bcf nine times in 2019. Certain weeks in April, June, and September were the highest weekly net injections in those months since at least 2010.

weekly net changes in natural gas storage

Source: U.S. Energy Information Administration, Weekly Natural Gas Storage Report

From April 1 through October 31, 2019, more than 2,569 Bcf of natural gas was placed into storage in the Lower 48 states. This volume was the second-highest net injected volume for the injection season, falling short of the record 2,727 Bcf injected during the 2014 injection season. In 2014, a particularly cold winter left natural gas inventories in the Lower 48 states at 837 Bcf—the lowest level for that time of year since 2003.

November, 11 2019
Your Weekly Update: 4 - 8 November 2019

Market Watch  

Headline crude prices for the week beginning 4 November 2019 – Brent: US$62/b; WTI: US$56/b

  • Good broader economic data helped push crude prices up, as better-than-expected US job numbers and a big uptick in Chinese manufacturing orders allayed some fears over the health of the global economy
  • Those worries still persist, but the upbeat data does show that the slowdown might not be prolonged, especially if the US and China manage to hammer out a comprehensive trade deal that White House officials have hinted is in the works
  • The USA, under Trump, has formally withdrawn from the Paris climate accord, placing the USA as one of only 3 countries not to be a party to the comprehensive collection of emission reductions by country
  • OPEC production rebounded to 29.7 mmb/d in October, recovering from the 1.23 mmb/d drop in September caused by the attacks on Saudi crude facilities
  • Having recently lost Qatar and Ecuador, OPEC – via Saudi Arabia – has reportedly informally reached out to Brazil to join the oil club, highlighting the growing importance of Brazilian output; President Jair Bolsonaro has indicated that he would be ‘eager to accept’ the offer
  • Ahead of the OPEC meeting in Vienna on 5-7 December, Saudi Aramco is now scheduled for public listing on the Saudi stock exchange on December 11; this might lead to a push for a deeper or longer tenure for the current supply deal at the Vienna meeting, as Aramco seeks to bolster its valuation
  • The massacre in onshore drilling countries in the US, as the Baker Hughes index indicates that five oil and three gas rigs were dropped last week for a net loss of 8 and a total of 822, as bankruptcies increase in major shale areas
  • There isn’t much room for crude prices to grow in the current environment; indeed, prices are likely to trade with a downward bias at US$58-60/b for Brent and US$53-55/bd for WTI

Headlines of the week

Upstream

  • Total has chosen to sell off its 86.95% stake in Brunei’s offshore Block CA1 to Shell for some US$300 million in line with its global non-core asset divestment
  • Myanmar’s delayed upstream licensing round has now been set for early 2020, with the government aiming to pass a draft oil and gas bill before moving ahead
  • Apache expects to bring two ‘high volume’ wells in the North Sea online over the next two months, with Storr operating by November and Garten by the end of the year, which could double its current 54,000 b/d North Sea output
  • A new offshore oil discovery has been announced in Equatorial Guinea by Kosmos Energy, with the S-5 well in the Rio Muni Basin yielding crude flows

Midstream/Downstream

  • ExxonMobil has put its refinery in Billings, Montana up for sale once again, looking to fetch US$500 million for the 60 kb/d plant, with interested buyers including Valero and Marathon
  • Russia is moving ahead with settling the cases of contaminated crude oil transported via its Druzhba pipeline; Lukoil and Hungary’s MOL have signed a settlement deal, while Total has opted to sell its 720,000-barrel cargo on the open market at a discount of over US$25/b
  • Saudi Aramco may be gaining a bigger foothold in Africa, as NNPC announced plans to collaborate with the Saudi oil firm to revamp Nigeria’s four ailing state refineries that are buckling from age
  • Marathon has folded under pressure from activist investors, announcing that it will be spinning off its fuel retail business while also reviewing a future possibility to spin off its pipeline business as well
  • ALFA Mexico’s petchems subsidiary Alpek has agreed to acquire PET manufacturer Lotte Chemical UK from South Korea’s Lotte Chemical
  • Kuwait Petroleum has started up the 2,264 b/d LPG processing plant at its Mina al-Ahmedi refinery, focusing on delivering LPG for petchems usage

Natural Gas/LNG

  • Kosmos Energy has announced a ‘major’ gas discovery in Mauritania at its Orca-1 well; combined with the Marsouin-1 discovery in the BirAllah, Orca-1 is the largest deepwater oil and gas discovery so far in 2019 and could underpin standalone LNG development in the West African nation
  • BP has announced it is on track to start production from the deepwater Raven field in Egypt by end-2019 – the third stage of its West Nile Delta project that also encompasses the producing Giza and Fayoum developments
  • Denmark’s state energy regulator has given permission for the controversial Nord Stream 2 pipeline to be built in its waters to connect Russia to Germany
  • Plans to expand the Sakhalin-2 LNG plant in Russia’s far east have been put on hold, reportedly due to a lack of gas resources and international sanctions in place, with Gazprom also looking to pipe gas to China instead of liquefying
  • Cheniere expects its Corpus Christi LNG Train 3 in Texas to start-up ahead of its previous timeline of 2H2021, while also expecting to begin operations at the Sabine Pass LNG Train 6 in Louisiana by 1H2023
  • Turkey’s state energy firm Botas is accepting tenders for up to 70 cargoes of LNG for delivery over 2020-2023, as it aims to diversify its gas sources
  • Sempra Energy and Japan’s Mitsui & Co have signed a new MoU to collaborate on more LNG projects, including the Cameron LNG Phase 2 and the future expansion of the Energia Costa Azul project in Baja California
November, 08 2019