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Last Updated: July, 11 2019 10:30:26 AM
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In the July 2019 update of its Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecasts that Brent crude oil prices will average $67 per barrel (b) in 2019 and in 2020. EIA expects that West Texas Intermediate (WTI) crude oil prices will average $60/b in 2019 and $63/b in 2020 (Figure 1). The forecast of relatively stable crude oil prices in the mid-$60/b range reflects EIA’s expectation that heading into 2020, global oil consumption will grow at a similar rate as global oil supply at current price levels. However, several risks to both consumption and supply could push prices out of this range.

Figure 1. Monthly Brent and West Texas Intermediate crude oil prices

Brent crude oil spot price averaged $64/b in June, down from an average of $71/b in both April and May. The recent price declines largely reflect increasing concerns about global oil demand growth as a result of increasingly weak global economic signals. Weakening global oil demand and strong supply growth in the United States contributed to global petroleum and other liquid fuels inventory builds in the first half of 2019 and limited any sustained upward pressure on crude oil prices. In terms of price formation in recent months, these factors have outweighed decreasing crude oil supply from members of the Organization of the Petroleum Exporting Countries (OPEC). OPEC output fell because of declining crude oil production in Venezuela and Iran, the extension of the agreement between OPEC and non-OPEC participants (OPEC+) through the first quarter of 2020, and Saudi Arabia’s continued over compliance with the existing OPEC+ agreements.

EIA expects that the combination of strong growth in U.S. and other non-OPEC liquid fuels production and slowing global oil demand growth will contribute to a balanced market in the second half of 2019 and about 150,000 barrels per day (b/d) growth in global petroleum and other liquid fuels inventories in 2020 (Figure 2). The global oil inventory builds in 2020 are expected to put some downward pressure on crude oil prices; however, EIA assumes that the downward pressure will be offset by upward price pressures as a result of the IMO 2020 regulations  going into effect. Although EIA expects the new regulations to have a limited impact on crude oil prices, many unknowns remain about how the global refining and shipping industries will respond to the regulation and how actual outcomes of these decisions will affect crude oil prices.

Figure 2. World liquid fuels production consumption balance

Developments regarding the rate of economic growth and its effect on global oil demand further contribute to crude oil price uncertainty. Based on forecasts from Oxford Economics, EIA lowered its global oil-weighted gross domestic product (GDP) growth projection to 2.2% in 2019, which would be the lowest annual growth rate since 2009. The low GDP growth rate, in turn, is expected to result in an annual oil consumption growth of 1.1 million b/d, the lowest level of growth since 2011 and similar to growth levels seen in 2016.

EIA forecasts that both economic growth and liquid demand growth will rebound in 2020. Annual oil-weighted GDP growth is expected to increase to 2.7% in 2020, leading to increased oil demand growth. EIA expects world liquid fuels demand growth of more than 1.4 million b/d in 2020, more than two-thirds of which is forecast to come collectively from China, the United States, India, and Russia.

On the supply side, EIA expects continuing declines (albeit at a slower pace) in OPEC production to be more than offset by supply growth in the United States and other non-OPEC countries. However, compliance with OPEC+ production targets and the potential for supply disruptions in key oil-producing countries could pose risks to the forecast.

On July 2, 2019, OPEC+ extended production cuts announced in December 2018 through the end of the first quarter of 2020. EIA’s forecast assumes the OPEC+ agreement will remain in place through the end of the first quarter of 2020, with OPEC+ continuing to target a balanced market after that. The degree of adherence to production targets from the OPEC+ agreement will be a key determinant of whether global crude oil inventories remain higher than the five-year (2014–18) average during the forecast period and will be a significant driver of crude oil prices. EIA forecasts OPEC total liquids production will average 35.3 million b/d in the second half of 2019 and 34.8 million b/d in 2020, down from 37.3 million b/d in 2018. The decline through 2019 to date is mainly the result of Saudi Arabia’s over compliance with the December 2018 OPEC+ agreement and rapidly decreasing crude oil production in Iran and Venezuela. Combined production in Iran and Venezuela fell to an estimated 2.8 million b/d as of June 2019, a 2.4 million b/d decrease compared with June 2018. These factors contributed to OPEC’s crude oil production averaging 29.9 million b/d in June, the lowest level since mid-2014.

Additional supply disruptions may potentially remove large volumes of crude oil from the global market and cause crude oil prices to increase. Events in Venezuela and Libya, in particular, could cause production to drop quickly. In Venezuela, widespread power outages, long-term inefficient management of the country's oil industry, and U.S. sanctions directed at Venezuela's energy sector and state-owned Petróleos de Venezuela (PdVSA) have all contributed to accelerating declines. Although Libya’s crude oil production increased during the first half of 2019, supply disruptions will remain a significant risk through 2020 because of the tentative security situation in the country and the lack of investment in existing infrastructure. Disruptions to shipping through the Strait of Hormuz would also cause prices to increase.

Finally, the U.S. tight oil sector continues to be dynamic, and quickly evolving trends in this sector could affect both current crude oil prices and expectations for future prices. EIA expects U.S. crude oil production, which reached a record-high 11.0 million b/d in 2018, to average 12.4 million b/d in 2019 and 13.3 million b/d in 2020. Much of the growth in U.S. crude oil production is attributable to tight oil formations in the Permian region of Texas and New Mexico, which account for 950,000 b/d of the U.S. growth expected in 2019 and 740,000 b/d of the growth in 2020. A downside risk to Permian crude oil production is the increased production of natural gas from this region. Drilling in areas with high concentrations of natural gas in the Permian region might increase only if natural gas pipeline constraints are eased and tighter flaring limits are not implemented.

U.S. average regular gasoline and diesel prices increase

The U.S. average regular gasoline retail price increased 3 cents from the previous week to $2.74 per gallon on July 8, 11 cents lower than the same time last year. The Gulf Coast price increased 5 cents to $2.42 per gallon, and the Midwest and East Coast prices each increased nearly 4 cents to $2.67 per gallon and $2.66 per gallon, respectively. The Rocky Mountain price fell nearly 3 cents to $2.80 per gallon, and the West Coast price fell nearly 1 cent to $3.38 per gallon.

The U.S. average diesel fuel price increased more than 1 cent to $3.06 per gallon on July 8, 19 cents lower than a year ago. The Midwest price increased over 4 cents to $2.97 per gallon, and the East Coast and the Gulf Coast prices each increased less than 1 cent, remaining at $3.08 per gallon and $2.80 per gallon, respectively. The Rocky Mountain price fell nearly 2 cents to $2.98 per gallon, and the West Coast price fell less than 1 cent to $3.62 per gallon.

Propane/propylene inventories decline

U.S. propane/propylene stocks decreased by 0.2 million barrels last week to 76.9 million barrels as of July 5, 2019, 5.7 million barrels (7.9%) greater than the five-year (2014-2018) average inventory levels for this same time of year. Midwest and Gulf Coast inventories decreased by 0.4 million barrels and 0.2 million barrels, respectively, while Rocky Mountain/West Coast inventories decreased slightly, remaining virtually unchanged. East Coast inventories increased by 0.4 million barrels. Propylene non-fuel-use inventories represented 6.0% of total propane/propylene inventories.

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Nigeria’s Energy Focus Must Change From Crude Oil to Gas – Dr Chukwueloka Umeh

According to the Nigeria National Petroleum Corporation (NNPC), Nigeria has the world’s 9th largest natural gas reserves (192 TCF of gas reserves). As at 2018, Nigeria exported over 1tcf of gas as Liquefied Natural Gas (LNG) to several countries. However domestically, we produce less than 4,000MW of power for over 180million people.

Think about this – imagine every Nigerian holding a 20W light bulb, that’s how much power we generate in Nigeria. In comparison, South Africa generates 42,000MW of power for a population of 57 million. We have the capacity to produce over 2 million Metric Tonnes of fertilizer (primarily urea) per year but we still import fertilizer. The Federal Government’s initiative to rejuvenate the agriculture sector is definitely the right thing to do for our economy, but fertilizer must be readily available to support the industry. Why do we import fertilizer when we have so much gas?

I could go on and on with these statistics, but you can see where I’m going with this so I won’t belabor the point. I will leave you with this mental image: imagine a man that lives with his family on the banks of a river that has fresh, clean water. Rather than collect and use this water directly from the river, he treks over 20km each day to buy bottled water from a company that collects the same water, bottles it and sells to him at a profit. This is the tragedy on Nigeria and it should make us all very sad.

Several indigenous companies like Nestoil were born and grown by the opportunities created by the local and international oil majors – NNPC and its subsidiaries – NGC, NAPIMS, Shell, Mobil, Agip, NDPHC. Nestoil’s main focus is the Engineering Procurement Construction and Commissioning of oil and gas pipelines and flowstations, essentially, infrastructure that supports upstream companies to produce and transport oil and natural gas, as well as and downstream companies to store and move their product. In our 28 years of doing business, we have built over 300km of pipelines of various sizes through the harshest terrain, ranging from dry land to seasonal swamp, to pure swamps, as well as some of the toughest and most volatile and hostile communities in Nigeria. I would be remiss if I do not use this opportunity to say a big thank you to those companies that gave us the opportunity to serve you. The over 2,000 direct staff and over 50,000 indirect staff we employ thank you. We are very grateful for the past opportunities given to us, and look forward to future opportunities that we can get.

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July, 19 2019
Your Weekly Update: 15 - 19 July 2019

Market Watch 

Headline crude prices for the week beginning 15 July 2019 – Brent: US$66/b; WTI: US$59/b

  • Global oil prices gained as US crude inventories shrank more than expected and a hurricane in the Gulf of Mexico threatened American offshore production
  • Tropical Storm Barry – which became a hurricane on landfall in Louisiana – was in the path of up to a third of Gulf of Mexico crude output, prompting producers to shut down most of their operations; resumption of normal service has begun
  • At the same time, US crude oil stockpiles fell by almost 10 million barrels, far more than expected, with US refineries ramping up production ahead of summer demand to add some bullishness to the market
  • The ongoing tensions between the US and Iran have not escalated further yet, but Iran has vowed to continue retaliating against the British seizure of its crude tanker in the Mediterranean off Gibraltar
  • These factors have been enough to keep current crude prices trending higher, but oil producing club OPEC warns that the market will swing back into surplus next year, estimating that it is currently producing 560,000 b/d more than will be needed without even factoring in rising US shale production
  • In Venezuela, where oil production has been crippled by sanctions, Chevron is reportedly seeking a waiver to continue operating in the country after the current waiver expires in July 27
  • The US active oil and gas rig count fell once again, shedding a net five rigs (including 4 oil rigs) as merely stable prices reduced the appetite for investment; the total active rig count is now 958, 96 sites lower than this period last year
  • As the threat of Tropical Storm Barry abated, crude prices fell back in line. Without any further disruptions on the horizon, Brent should trend in the US$62-64/b range and WTI in the US$55-57 range


Headlines of the week

Upstream

  • Norway’s Equinor has bought a 16% stake in Swedish upstream firm Lundin Petroleum for US$650 million, which gains it an additional 2.6% interest in the giant Johan Sverdrup oil field bringing Equinor’s total stake up to 42.6%
  • Inpex has picked up the exploration permit for Block AC/P66 in Australia’s Northwest Shelf, which lies in the vicinity of existing promising oil fields
  • US independent Callon Petroleum Company has acquired Carrizo Oil & Gas for US$3.2 billion, deepening its holdings in the Permian and Eagle Ford shale basins, including 90,000 net acres in the prolific Delaware Basin
  • Total has agreed to divest several of its non-core assets in the UK – covering the Balloch, Dumbarton, Lochranza, Drumtochty, Flyndre, Affleck, Cawdow, GoldenEagle, Scott and Telford fields – to Petrogas NEO for US$635 million
  • CNOOC and Sinopec has signed a new agreement to collaborate on exploration activities in the Bohai Basin, Beibu Gulf, North Jiangsu and South Yellow Sea
  • Murphy Oil has completed the sale of its Malaysian upstream assets to a unit of Thailand’s PTTEP for US$2.035 billion for five offshore projects in Sabah
  • Seven upstream discoveries were made in Colombia in 2Q19, making it the market with the most discoveries during the period, leading India, Russia and Pakistan which each made three new oil and gas finds
  • Turkey has vowed to continue drilling offshore Cyprus unless a cooperation proposal between Turkish and Greek Cypriots is accepted
  • Encana is reportedly selling off its assets in eastern Oklahoma’s Arkoma Basin for US$165 million in cash to an undisclosed buyer
  • Sinopec is hunting for partners or buyers for its Buck Lake assets in Alberta’s Duvernay shale basin in Canada, to reduce its current full ownership

Midstream/Downstream

  • The Governor of Pennsylvania Tom Wolf has ruled out using state funds to save the Philadelphia Energy Solutions refinery after it was shuttered following a massive fire that took out the entire site last month
  • Blackouts hit Venezuela’s Amuay and Cardon refineries, bringing the 955,000 b/d Paraguana refining Center to a complete halt on total lack of power
  • Chevron Phillips Chemical (CP Chem) and Qatar Petroleum have agreed to develop a new 2 mtpa petrochemical complex on the US Gulf Coast, with the US Gulf Coast II Petrochemical Project drawing on NGLs from the Permian
  • Marathon Petroleum will shut down the gasoline FCCU unit at its 585,000 b/d Galveston Bay Refinery in Texas for up to 8 weeks for repairs

Natural Gas/LNG

  • Total has agreed to buy NG from Tellurian’s Driftwood LNG facility in Lake Charles, Louisiana in two separate deals – 1 million tons per annum for Total Gas & Power North America and 1.5 mtpa for Total Gas & Power – as well as invest US$500 million in Driftwood Holdings LP
  • Mozambique has put on hold plans to raise funds for its stake in the Anadarko-led Mozambique LNG project, citing current bad market conditions
  • ExxonMobil and Lucid Energy Group have agreed to collaborate on a long-term natural gas gathering and processing project, bringing natural gas from New Mexico’s Delaware Basin to the South Carlsbad gas processing system before being delivered to ExxonMobil’s downstream facilities in the US Gulf Coast
July, 19 2019
Iran drives unplanned OPEC crude oil production outage to highest levels since late 2015

Unplanned crude oil production outages for the Organization of the Petroleum Exporting Countries (OPEC) averaged 2.5 million barrels per day (b/d) in the first half of 2019, the highest six-month average since the end of 2015. EIA estimates that in June, Iran alone accounted for more than 60% (1.7 million b/d) of all OPEC unplanned outages.

EIA differentiates among declines in production resulting from unplanned production outages, permanent losses of production capacity, and voluntary production cutbacks for OPEC members. Only the first of those categories is included in the historical unplanned production outage estimates that EIA publishes in its monthly Short-Term Energy Outlook (STEO).

Unplanned production outages include, but are not limited to, sanctions, armed conflicts, political disputes, labor actions, natural disasters, and unplanned maintenance. Unplanned outages can be short-lived or last for a number of years, but as long as the production capacity is not lost, EIA tracks these disruptions as outages rather than lost capacity.

Loss of production capacity includes natural capacity declines and declines resulting from irreparable damage that are unlikely to return within one year. This lost capacity cannot contribute to global supply without significant investment and lead time.

Voluntary cutbacks are associated with OPEC production agreements and only apply to OPEC members. Voluntary cutbacks count toward the country’s spare capacity but are not counted as unplanned production outages.

EIA defines spare crude oil production capacity—which only applies to OPEC members adhering to OPEC production agreements—as potential oil production that could be brought online within 30 days and sustained for at least 90 days, consistent with sound business practices. EIA does not include unplanned crude oil production outages in its assessment of spare production capacity.

As an example, EIA considers Iranian production declines that result from U.S. sanctions to be unplanned production outages, making Iran a significant contributor to the total OPEC unplanned crude oil production outages. During the fourth quarter of 2015, before the Joint Comprehensive Plan of Action became effective in January 2016, EIA estimated that an average 800,000 b/d of Iranian production was disrupted. In the first quarter of 2019, the first full quarter since U.S. sanctions on Iran were re-imposed in November 2018, Iranian disruptions averaged 1.2 million b/d.

Another long-term contributor to EIA’s estimate of OPEC unplanned crude oil production outages is the Partitioned Neutral Zone (PNZ) between Kuwait and Saudi Arabia. Production halted there in 2014 because of a political dispute between the two countries. EIA attributes half of the PNZ’s estimated 500,000 b/d production capacity to each country.

In the July 2019 STEO, EIA only considered about 100,000 b/d of Venezuela’s 130,000 b/d production decline from January to February as an unplanned crude oil production outage. After a series of ongoing nationwide power outages in Venezuela that began on March 7 and cut electricity to the country's oil-producing areas, EIA estimates that PdVSA, Venezuela’s national oil company, could not restart the disrupted production because of deteriorating infrastructure, and the previously disrupted 100,000 b/d became lost capacity.

July, 18 2019