Tag Archives: oil and gas

Energy Jobs: Automation and Numbers – 2/10/17

If members of Congress and the new President are really dedicated to wringing more jobs out the energy sector, then they should make sure they’re looking for them in the right place.

Since oil prices collapsed in 2014, Bloomberg estimates that 440,000 jobs in the U.S. have been lost as a result of the downturn. As a result, the world’s biggest oil services companies have had to spend billions on severance costs and, now, few seem ready to risk a repeat of that huge expense. Many in the oil industry are increasingly turning to automation to replace many of the lost jobs, a trend unlikely to change as technology costs continue to fall relative to wages. The UBS estimates that the US oil industry will only need about half as many workers per barrel of oil produced post-2017 versus pre-2015.

That doesn’t necessarily mean that states known for oil output are heading for high unemployment rates. For example, Texas may have suffered greatly during the 1980’s oil price downturn, but its economy has since become far less dependent on the commodity thanks to strong growth in other sectors. In fact, Texas has had net creation of new jobs recently despite the severe oil price downturn.

Only about 2.5% of Texas’ employment was related to natural resource extraction before the crisis because oil was and increasingly is not a particularly labor intensive industry. Even now Austin and Dallas are thriving with job growth rates of 4.3% and 4.2% respectively because neither city is dependent on oil prices to drive economic growth. Overall, the biggest oil producing state in the U.S. has held together just fine despite the lower-for-longer oil prices.

Meanwhile, large number of new energy jobs are coming from the wind and solar energy industries. U.S. wind-farm developers and suppliers had more than 100,000 workers at the end of the year, compared to 65,971 coal mining jobs at the start of last year, according to the U.S. Energy Department.

Perhaps surprisingly, the top 10 congressional districts for wind energy are all in Republican-dominated red states such as Iowa and Texas, according to American Wind Energy Association CEO Tom Kiernan.

“We’re hiring workers in the rust belt,” Kiernan said in an interview. “We’re helping families keep farms they’ve held for generations. The lifeblood of our industry is in rural America.”

And the extension of two key federal tax credits by the Republican-controlled Congress at the end of 2015 along with the fact that the new Energy Secretary, Rick Perry, saw Texas become the largest producer of wind power during his term as Governor gives some cause for optimism in the renewable energy companies.

OPEC Deal: Good Compliance, Pessimistic Reactions – 2/6/17

OPEC members seem committed to showing commitment to their deal for whatever that’s worth.

In OPEC’s initial agreement, production data compiled by analysts in the group’s secretariat will be the principal tool for judging whether members are complying with the deal. Notably, the data won’t cover non-members such as Russia. The committee also has no plans to use external agencies to verify implementation of the pledged supply curbs.

Still, non-official channels are happy to keep track for them. Tanker-tracker Petro-Logistics SA estimates that oil supplies from OPEC plunged in January in one of the first outside assessments of compliance. OPEC will reduce supply by 900,000 barrels a day in January, about 75% of the cut that the producer group agreed, according the Geneva-based consultant group.

The data suggests “a high level of compliance thus far into the production curtailment agreement,” said Daniel Gerber, CEO of Petro-Logistics.

An implementation rate of 75% is high relative to past deals such as the 2008 deal where it only reached 70%, according to Hasan Qabazard, OPEC’s former head of research.

For now, there’s no indication that the cuts will need to be extended beyond the initial six-month term, Algeria’s representative Boutarfa said at a recent meeting, echoing previous comments by the Saudi oil minister.

Unfortunately for OPEC, six months of cuts may do little to move prices. The U.S. rig count has been rising and, with a looming resurgence in U.S. output, analysts have their doubts about the efficacy of the OPEC agreement and any future deals the group could make. As the capacity for oil production in the U.S. rises and global demand for oil falls, the group’s power over the market is a fraction of what it once was during the 1973 Oil Embargo and resulting crisis.

The latest energy outlook by supermajor BP illustrates the market-share/price problem facing OPEC.

BP’s Energy Outlook 2017 estimates that there is an abundance of oil resources, and “known resources today dwarf the world’s likely consumption of oil out to 2050 and beyond”. BP expects oil demand growth to slow down in the years to come and pegs the cumulative oil demand until 2035 at around 700 billion barrels, “significantly less than recoverable oil in the Middle East alone”.

In this view, low-cost producers — primarily OPEC nations and Russia — would try to seize more market share. BP predicts that the abundance of oil resources would prompt the lowest-cost producers to pump the low-cost barrels as quickly as possible before demand falls off.

However, OPEC has the recent experience of oil prices crashing weighing on it. After attempting to force high-cost shale drillers out of the market and seeing the resulting drop in oil revenue OPEC appears reluctant to return to a market-share strategy. But OPEC’s decision to cut supply is currently benefiting U.S. shale putting the cartel in a lose-lose situation.

Commenting on OPEC’s current and future relevance and influence on the oil markets, Wood Mackenzie said in an analysis last week:

“The group may still be able to control oil prices to a limited degree, but the benefits of that control will accrue to parties outside the cartel. If OPEC remains a functional entity by the end of 2017, its greatest hits will surely be in the past.”

OPEC Deal Not Sufficient for Draining Inventories – 1/23/17

Comments from Saudi Energy Minister Khalid Al-Falih are raises concerns that OPEC’s biggest oil producer will abandon output cuts before prices make significant gains.

“We don’t think it’s necessary, given the level of compliance we have seen and given the expectations of demand,” Al-Falih said recently. “The re-balancing which started slowly in 2016 will have its full impact by the first half. Of course, there are many variables that can come into play between now and June, and at that time we will be able to reassess.”

OPEC’s decision to cut output reversed a two-year policy to maximize sales and protect market share from high cost shale drillers in the U.S — a strategy that had contributed to the worldwide glut of crude oil. The group, together with 11 other countries, came to an agreement on reducing supply by about 1.8 million barrels a day with cuts in effect from January to June.

Al-Falih said he was confident of the deal’s success and that OPEC will stop intervening in the market once global crude inventories return to their five-year average.

Yet, analysts from Bloomberg see the current agreement as a half-measure when it comes to clearing the global glut. According to their analysis, ending the deal by mid-year as planned and restoring production could mean a return to a building oil inventories. OPEC said draining bloated stockpiles was the main aim of the supply curbs.

If they extend the deal for six months beyond its scheduled expiry in June, that surplus will be entirely eliminated by the end of the year, according to Bloomberg calculations based on IEA data. If they don’t prolong the cuts and instead restore output to previous levels, about two-thirds of that glut will remain in place.

Oil prices rose 20% in the month after OPEC agreed to cut output. Since then, they’ve slipped almost 5% as traders, eyeing U.S. shale production, await proof that the deal will work. Many remember how Russia broke its pledge to cutback in 2008, while other members of group also failed to fully implement the agreement.

“OPEC is going to yet again over-promise and under-deliver,” said Eugen Weinberg, head of commodities research at Commerzbank AG, in a Bloomberg TV interview. “We are going to get cheating from OPEC; we’re going to get false information.”

Other analysts say OPEC has little choice but to go forward, given the economic damage the price rout has brought on the group’s members.

“The reward is so big that I believe they will be more respectful than they have been in the past,” said Paolo Scaroni, vice chairman of NM Rothschild & Sons Ltd. “They are so desperate that they will do whatever they can to do it — even sacrifices.”

The figures may not be useful, as exports will for some time still reflect production levels from before the agreement, said Ed Morse, head of commodities research at Citigroup Inc.

Based on the initial data, the committee will be able to report compliance of as much as 60%, said Morse. The best rate attained during its 2008 agreement was 70%, according to Hasan Qabazard, OPEC’s former head of research.

“They’re looking for 80% compliance,” said Morse. “50 to 60% compliance in the first few weeks is pretty good. If you just add up the Gulf countries and Russia today, that’s a very constructive contribution.”

EIA: Oil Outlook – 1/20/17

EIA full article on oil outlook.

The U.S. Energy Information Administration’s January Short-Term Energy Outlook (STEO) forecasts benchmark West Texas Intermediate (WTI) crude oil prices to average $52/b in 2017 and expect it to rise to $55/b in 2018.

Strong demand and the recent agreement among members of OPEC and some key non-member oil producers are putting upward pressure on crude oil prices. However, the EIA forecasts increases in global production should prevent significant price changes through 2018. Despite the recent OPEC agreement, EIA expects global petroleum and other liquid inventory builds to continue, but at a slowing rate, in 2017 and 2018.

Market reactions to the November OPEC agreement contributed to rising oil prices in December despite increasing global oil inventories and U.S. oil rig productivity.

Crude oil spot prices are expected to remain fairly flat over 2017 in part as a result of the responsiveness of U.S. tight oil production. The EIA forecasts oil prices will slowly increase in 2018 as inventory builds slow. This rise in oil prices encourages production increases, particularly in the Lower 48 onshore. However, any production increases realized while the global markets are building inventories will moderate price increases, which will in turn limit additional production increases.

Total U.S. crude oil production is estimated to have averaged 8.9 million b/d in 2016, down 0.5 million b/d from 2015, with all of the decline in the Lower 48 onshore. The EIA forecasts U.S. crude oil production will increase to an average of 9.0 million b/d in 2017 and 9.3 million b/d in 2018 on higher activity, drilling efficiency, and well-level productivity.

In its previous outlook, the EIA expected Lower 48 onshore production to decline through the end of 2017. However, the new forecast reflects crude oil prices near or above $50/b, which have led to increased investment by some U.S. production companies, particularly in the Permian Basin. EIA expects that declines in Lower 48 production have largely ended and forecasts relatively flat production in the first quarter of 2017 at 6.7 million b/d, which will then increase to an annual average of 7.0 million b/d in 2018. Even modest increases in crude oil prices could contribute to supply growth in other U.S. tight oil regions.

EIA estimates global petroleum and other liquids production will increase through the forecast. Annual estimated and forecast production levels for 2016, 2017, and 2018 were revised up to 96.4 million b/d, 97.5 million b/d, and 98.9 million b/d, respectively. More information about crude oil prices and production is available in EIA’s latest This Week in Petroleum.

Comments from Davos Paint Bleak Picture for Oil Price Hopes – 1/19/17

Among oil industry experts and officials in Davos, Switzerland, pervasive skepticism about the effectiveness of the OPEC deal in rising oil prices. At the front of everyone’s mind: the rising output from U.S. shale oil rigs.

Oil-price gains will trigger a “significant” increase in U.S. shale output as OPEC and other producers rein in supply, according to the head of the International Energy Agency (IEA).

At $56 to $57 a barrel, “a lot of shale plays in the United States would make perfect sense to produce” Executive Director Fatih Birol said in a Bloomberg TV interview in Davos. “I expect U.S. production will start to increase again… as a result of the higher prices,” Birol said. “Prices will go up, U.S. and other production will go up and put downward pressure on prices again. And up and down. We are entering a period of greater oil-price volatility.”

Birol’s comments suggest that the IEA has become more optimistic about the outlook for U.S. production. Previously, the agency said it expected U.S. tight oil — as shale is also known — to rise only “marginally” in 2017.

Oil prices have risen about 20% since the Organization of Petroleum Exporting Countries (OPEC) reached a deal to curtail supply last year. The November agreement prompted a surge in activity in the U.S..

While oil prices have increased more than 20% since OPEC decided to cut production to boost prices, it has also helped bring back more shale drillers who caused prices to drop in the first place due to oversupply in the market.

“This means that while 2017 is starting out very bullish for oil, it may not end that way,” said Bjarne Schieldrop, chief commodities analyst at SEB AB bank. “Physical delivery of oil will force the price back down again in the second half of this year.”

Production in the U.S. has increased by about 460,000 barrels a day, or 5.4%, in the past six months. In response, the EIA recently raised its domestic output forecast for 2017 to 9 million barrels a day from 8.78 million projected in December. Output is projected to increase to 9.3 million barrels a day for 2018.

“The U.S. oil producers, and Canadian producers and all over the world are adapting to doing better in a lower price environment and that has created a resiliency that we haven’t seen,” Kenneth Hersh, chairman of NGP Energy Capital Management, said in Davos. “U.S. unconventional has increased about half a million barrels on a $50 base, whereas two years ago it was unthinkable oil production in the U.S. would increase at $50.”

The consistent belief that U.S. shale will keep prices low is bad news for OPEC members and non-members who agreed to cut production to re-balance markets, likely at the expense of their own market share.

U.S. Shale Oil Drilling Revival On the Way – 1/18/17

The Energy Information Administration (EIA) reports that shale oil production is rising strongly in the U.S. and many analysts are forecasting a year of revival for shale.

Project approvals are to more than double this year and exploration spending is set to increase for the first time in three years, according to Wood Mackenzie Ltd. 20 oil and gas fields are planned for development in 2017 compared with 9 in 2016, the industry consultant said in a report, while spending on exploration and developing existing projects will increase by 3% following two years of cuts.

Beyond 2017, there are still many projects that have break-even costs higher than $60 a barrel, especially offshore. Of the 40 larger deepwater projects up for approval, about half have a rate of return less than 15% at a $60 oil price, according to Wood Mackenzie. This relatively low return for costly, difficult projects could be problematic if prices remain below $60 as expected.

Spending is picking up fastest in onshore U.S. operations, unsurprisingly, where companies can respond quickly to higher oil prices thanks to speed of fracking operations and abundance of drilled but untapped wells. Spending on U.S. onshore projects is likely to grow 23% to $61 billion, based on the Wood Mackenzie report. In much of the world outside the U.S. exploration spending is expected to continue to decrease.

While the outlook is improving, global upstream spending in 2017 will remain 40% below 2014, Wood Mackenzie said. Project approvals will also be below the 2007-2014 average of 40 a year.

So what does that mean for the OPEC push for higher oil prices?

How effective the OPEC supply cuts can be if U.S. output rises was always a major concern for OPEC officials. So far, Saudi Arabia’s oil minister, Khalid al-Falih, has voiced skepticism of shale’s potential impact. Speaking at Davos, he observed that oil-field-service providers are renegotiating terms with drillers and are likely to raise the break even price for shale production.

Still, slightly higher costs have already been priced in as far as many traders are concerned. And the EIA forecasts that prices for West Texas Intermediate will average $52.50 a barrel in 2017 with output increasing throughout the year. In just the last three months, U.S. petroleum-liquids production bounced by about 350,000 barrels a day (b/d) — more than the output cut promised by Russia as part of its deal with OPEC. At $52.50, the EIA sees U.S. output rising by another 775,000 b/d by the end of 2017.

Realistically, a revival for shale drilling in the U.S. is inevitable, but just how badly it tears apart the OPEC deal will be an interesting show.

Shale Oil: Price Recovery Brings Opportunity and Risk – 1/17/17

Oil prices appear to be stabilizing, so what does that mean for U.S. shale drillers who survived the price collapse?

Today, the price of crude is hovering in the mid-$50’s a barrel range and that is triggering a revival in U.S shale patches that were devastated during the last two years.

The good news: U.S. producers are capable of rising production quickly and as output rises so do job numbers.

Since OPEC began talks to cut production in November, oil prices have risen by about 25% allowing shale oil drillers to hedge prices for 2017. As a result, the total oil rig count has gone from a low of 316 to 529 in a matter of months. In the past three months, US shale provided an extra 500,000 barrels a day or more than Saudi Arabia committed to cut as part of the OPEC deal.

And though the increase is small relative to what was lost over the past two years, jobs have started to reappear and more are expected, according to analysts from Simmons & Co. Reuters reports that they also forecast the number of active oil and gas rigs to average 763 in 2017 and 877 in 2018, from the average 509 in 2016.

The bad news: cost saving measures made during the last couple of years may not be sustainable and high US production will put a ceiling on prices.

Much of the cost cutting that U.S. producers accomplished in the downturn came at the expense of oil-field-services companies. And as the price of oil has rebounded so have the prices charged by companies that help them tap new wells. The cost of an experienced drilling crew and oil-field supplies has risen between 10% and 20% in the winter of 2016, experts say. From running rigs, trucking water and sand, and providing the labor, the US oil industry is in a time of renegotiation that could send costs surging.

Advances in production techniques made drilling wells economic at around $55 a barrel as opposed to $90 just two years ago, however rising prices for supplies and services would increase the price companies need to break even.

In Oklahoma’s Scoop formation, one of the cheaper drilling areas in U.S., a typical well can now make money at $51 oil, according to Simmons. But factoring in a 15% to 30% escalation in service costs, those same wells would need between $57 and $63 a barrel to break even, the bank estimates. If such an increase in expenses occurs while increased US production keeps prices around $58 as analysts forecast, then all but the best shale plays in the US could struggle in 2017.

Still, more than 5,200 drilled-but-uncompleted wells, known as DUCs, stand ready as another option. Those wells could be completed and pumped profitably at $40 barrel, according to Ryan Duman, a senior analyst with consultancy Wood Mackenzie, which allows many companies to keep output up in the short-term.

Energy in the U.S.: 2016 and 2017 – 1/12/17

Ten years ago, coal accounted for about 49% of the electricity generated annually in the U.S. This year, the EIA’s December Short Term Energy Outlook has it close to 30%, compared to 34% for natural gas and 5% for wind which both more than doubled their shares of total generation for the same period.

Almost 50 GW of coal-fired capacity has been retired since 2010 with virtually no new coal-fired capacity added or planned.

On average, the coal power plants retired were more than 50 years old while the average life of such plants is 40 years, according to the National Association of Regulatory Utility Commissioners. That capacity, and by extension the main point of consumption for coal, is expendable for utilities and being replaced almost entirely by natural gas, wind, and solar power assets.

As Gerard Anderson, chairman and CEO of Detroit-based DTE Energy, in an interview with mlive.com said “All of those retirements  are going to happen regardless of what Trump may or may not do with the Clean Power Plan [referring to the company’s plans to close another eight coal power plants in the years ahead]… I don’t know anybody in the country who would build another coal plant.”

Or as Robert Murray, CEO of Murray Energy Corp., the largest underground coal mining company in the U.S. has a similar opinion saying in an interview with POWER: “I’ve asked President-elect Trump to temper his comments about bringing coal miners back and bringing coal back. It will not happen. The destruction that has happened is permanent.”

Apparently, even if it played a part in moving utility companies away from coal, there are other forces at work besides government regulation. The most likely suspects are changing economics and customer preference for cleaner fuels.

Natural gas at least appears cleaner than coal when it comes to CO2 emissions, and natural gas prices are so low in some places that coal cannot even compete on a price basis. With the abundant supplies unlocked by fracking and horizontal drilling, that fact doesn’t look likely to change. As a result, energy generation from natural gas has rocketed upwards at coal’s expense.

source: wikipedia

Renewables are also chippng away at coal’s market share. Wind power generated more than 4.4% of the nation’s electricity in 2014 versus 2.3% in 2010 and 0.2% in 2000, and solar’s growth rate and future potential are staggeringly high. From essentially zero installed utility-scale generation capacity in 2008, operating capacity jumped to 14 GW by the end of 2015 and the latest Solar Market Insight report estimates that more than 10 GW of utility-scale generation will come online this year alone. The Solar Energy Industries Association projects that another 20 GW of capacity will come online by 2020.

And as far as jobs in energy, the solar and wind industries reportedly create more jobs than coal each.

At least according to the latest census by an entity affiliated with SEIA, there were more than 200,000 solar industry jobs at the end of 2015, 150,000 of which were in installation and manufacturing. In wind, the American Wind Energy Association credits the industry with some 88,000 jobs at the beginning of 2016, of which 21,000 were wind-related manufacturing jobs and 38,000 were project development and construction jobs.

Meanwhile, data from the Bureau of Labor Statistics puts the number of coal mining jobs at about 68,000.

On top of winning by sheer numbers, many of those wind jobs are located in Republican-led districts. Earlier this year, AWEA released data showing that 86% of all the wind generating capacity in the United States is located in congressional districts represented by Republicans.

Oil in 2017: Will the OPEC Deal Work? – 1/10/17

The promise of production cuts from OPEC and its partners gave oil prices a boost in 2016. Now the traders who bought in are waiting to see results.

Unlike in the U.S., where output is published weekly, members of OPEC can take months to release production numbers. Even then, their data can contradict independent surveys as most of the group’s members tend to cheat on their deals. Now all the waiting is putting at risk the little optimism left in the market as stories of rising rig counts in the U.S. pile up. Many analysts were skeptical about commitment to the deal from the start.

Still, 2017 could see a lack of any serious gains or losses.

Market prices already reflect OPEC cuts, and it is unlikely that 2017 will see any more major supply cuts unless Venezuela, the most unstable OPEC member, sees its production vanish all at once instead of in a gradual decline as expected. In fact, because OPEC plans to operate below capacity, there will be plenty of capacity to bring online should something unexpected happens.

On top of the flex capacity, bloated oil inventories remain large enough of a price dampener that reducing them is a major goal of OPEC’s intervention according to the group.

The IEA estimates that OPEC’s cuts could start to deplete inventories as early as the first quarter of 2017, while OPEC itself says that at best the deal will speed up the re-balancing of the global oil market, only resulting in demand exceeding supply in the second half of the year.

According to a Bloomberg survey, analysts are expecting crude prices to average $58 per barrel in the fourth quarter of 2017 with forecasts reportedly closer than usual.

Shale Oil in 2017: A Reflex Test – 1/5/17

After pulling off its biggest deal in a decade, OPEC faces a new balancing act in 2017: boosting prices without jump starting the U.S. shale patch.

The shale boom created a global supply glut that sent oil prices plummeting in mid-2014, a trend only amplified by a OPEC strategy favoring market share preservation over price controls. During the rout, oil prices fell from more than $100 a barrel to as low as $26, straining the budgets of companies and countries to the breaking point.

With the new cuts, prices could average $58 a barrel in 2017, according analyst estimates compiled by Bloomberg. While that gain will aid OPEC members in desperate need of revenue, it could also spur a revival in U.S. drilling.

Everyone is watching to see how quickly U.S. shale will rebound. Estimates vary on possible additions this year, ranging from 500,000 b/d to 1 million b/d, but everyone agrees that U.S. shale will add production in 2017.

U.S. drillers who survived the rout by becoming leaner and more efficient are a constant threat to the efficacy of the OPEC deal. At 8.8 million barrels a day, the U.S. is already pumping near 2014 levels, using only a third of the rigs, according to data from Baker Hughes Inc. and the U.S. EIA. And, even now, there are signs that U.S. shale is ready for comeback despite prices stabilizing at around $50 a barrel. Since May, about 200 rigs have been added in U.S. shale patches with more expected.

Should prices pass $60, it could mean a million-barrel shale surge from the U.S., Macquarie Research analysts Vikas Dwivedi and Walt Chancellor noted in a Dec. 12 report. A Citigroup Inc. analysis also projects that if oil passes $70 a barrel, the U.S. could start pumping out an extra million barrels a day. Either case would completely overwhelm the OPEC cuts.

The issue for the oil industry now isn’t whether U.S. drillers will expand their operations, but rather “how quickly does shale come on to tap those higher prices, and then how quickly they push them back down,” said Peter Pulikkan, a Bloomberg Intelligence analyst in New York. “2017 is the year where you are going to see shale’s reflexes tested.” I couldn’t agree more.

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