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Oil Wealth Could Fund Free Education In This State

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Oil Wealth Could Fund Free Education In This State

By Irina Slav - Sep 22, 2019, 1:00 PM CDT

Money from New Mexico’s general fund would be used in a plan for providing local students with free college education regardless of their income level. The fund has recently enjoyed substantial inflows thanks to the booming development of the Permian shale play that spans Texas and New Mexico.

NPR reports that the plan, proposed by Governor Michelle Lujan Grisham, has to first be approved by the legislature of the state and quotes the Governor as saying, "It means better enrolment. It means better student success. In the long run, it means economic growth, improved outcomes for New Mexico workers and thinkers and parents. It means a better trained and better compensated workforce."

Ironically, another initiative by the New Mexico Governor could undermine her education plans. Michelle Lujan Grisham took office with two climate-friendly pledges: to make New Mexico’s electricity emission-free by 2045, and to curb methane emissions from the oil and gas industry more substantially than they are being limited now.

The industry is already beginning to worry about what these pledges would mean for its future. “The production is better here than in Texas,” one industry insider told Bloomberg in August. “But the oversight that they have here is such a pain in the ass. Every minute they make it a little harder.”

We’ve already seen something similar in Canada: drillers in Alberta started moving their rigs south, to the United States, seeking better returns and less regulatory pressure. Now, an outflow of drillers from New Mexico to Texas has not begun, but if the authorities prioritize emission cuts, some may choose to relocate and this would affect the amount of oil money flowing into the general fund.\

The free education plan would cost somewhere between $25 and $35 million annually and will enable 55,000 students to attend any of New Mexico’s public colleges and universities. Now that’s not a whole lot given that the state’s general fund is expected this year to exceed spending obligations by as much as $900 million. Yet the program will not just run for a few years if approved. It will run for longer. Related: Trump Clashes With California Over Fuel Regulations

Meanwhile, the contribution of the oil and gas industry to New Mexico’s general fund is expected to increase and not by a few million dollars. By 2030, the portion of revenues coming into the fund from the oil patch is estimated to increase threefold. In 2017, this contribution stood at $17 billion. By 2030, it is seen to reach $72.6 billion, if all goes well and the current rate of production increases continues.

New Mexico is not the only state intent on curbing harmful emissions. Yet so far, no state has managed to balance between continuing to support the oil industry and cutting emissions. In fact, those with the most ambitious climate change agendas—California, Washington, and New York, among others—have openly condemned the oil industry. The difference is, oil and gas production is not as vital for these states as it is for New Mexico. If the Governor’s initiative to provide free education to the future workforce of the state, chances are she will need the oil money coming in from the Permian, emissions and all.

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This has been a dream of the Socialist Dems for years.  Steal the oil Industry to pay for free everything.  Or tax it until it is non competitive. Great for the New Green Deal.  

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Iran Claims US Agreed To Lift Oil Sanctions For Talks, US Denies It

By Tsvetana Paraskova - Sep 27, 2019, 5:00 PM CDT

Iran’s President Hassan Rouhani said on Friday that that the U.S. had offered to lift all sanctions on the Islamic Republic in exchange for talks—a claim that the U.S. has denied.

Referring to possible negotiations between the U.S. and Iran, Rouhani said, as carried by the English translation on his official website:

“Of course, 3 out of the 6 countries, that is the Chancellor of Germany, Prime Minister of Britain, and President of France all insisted for the meeting to be held, saying that the US would lift all sanctions.”

“But the problem here is that under sanctions and maximum pressure, even if we want to negotiate with the Americans within the framework of P5+1, nobody can predict about the end and upshot of the negotiation,” the Iranian president said.

“It was up for debate what sanctions will be lifted and they had said clearly that we will lift all sanctions,” Rouhani added, as carried by Reuters.

The U.S. Department of State described these reports as “baseless,” according to Bloomberg News.

U.S. President Donald Trump tweeted on Friday “Iran wanted me to lift the sanctions imposed on them in order to meet. I said, of course, NO!”

Tension is running high again between the U.S. and Iran, after the attacks on the Abqaiq facility and the Khurais oil field in Saudi Arabia on September 14, which the United States, and several European countries including the UK, blamed on Iran.

Iran denies involvement in the attacks, while the U.S. continues with its maximum pressure campaign and continues to go after any person, entity, or tanker dealing with Iranian oil.

Earlier this week, the United States imposed sanctionson a number of Chinese tanker owning firms and executives for transporting Iranian oil in violation of the U.S. sanctions on the Islamic Republic. The fresh sanctions created chaos in the oil shipping sector as traders and shippers around the world scramble to avoid being involved in the latest U.S. sanctions regarding Iranian oil.  

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IEA Might Revise Down Oil Demand Growth Forecasts, Again

By Tsvetana Paraskova - Sep 27, 2019, 1:00 PM CDT

If the pace of global economy deteriorates further, the International Energy Agency (IEA) could revise down again its oil demand growth expectations for this year and next, the IEA’s executive director Fatih Birol told Reuters on Friday.

“It will depend on the global economy. If the global economy weakens, for which there are already some signs we may lower oil demand expectations,” Birol said on the sidelines of a forum in South Korea.

The IEA and many other organizations and analysts, including OPEC, have trimmed their oil demand growth estimates several times this year already, on the back of signs of slowing economic growth in the world, also due to the U.S.-China trade spat.  

The IEA’s latest downward revision to oil demand growth came in its August Oil Market Report, in which the Paris-based agency cut its forecast by 100,000 bpd to 1.1 million bpd for 2019, after seeing that between January and May demand growth was just 520,000 bpd, the lowest increase for the period since 2008. The IEA also revised down in August its oil demand growth estimate for 2020, by 50,000 bpd to 1.3 million bpd.

In its latest Oil Market Report published in September, the IEA kept its August forecasts unchanged, expecting 1.1 million bpd demand growth this year and 1.3 million bpd oil demand growth for next year.

Related: LNG Investments Hit Record In 2019

“For 2H19, we assume no further deterioration in the economic climate and in trade disputes. Oil demand growth will be significantly higher helped by a comparison versus a low base in 2H18, lower oil prices versus a year ago and additions to petrochemicals capacity,” the agency said in the report on September 12.

The IEA, however, warned that even if the oil market is tightening in the very short term, OPEC will be facing a “daunting” challenge in managing the market in 2020, when returning to a significant surplus would place pressure on oil prices.

Speaking to Reuters on Friday, the IEA’s Birol said that the lowest pace in Chinese economic growth in decades could pressure oil demand growth downward, but on the other hand, the lower oil prices compared to last year put an upward pressure on demand.

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Oil Plunges After Saudi Arabia Announces Yemen Ceasefire

By Irina Slav - Sep 27, 2019, 9:30 AM CDT

Oil prices fell sharply today after Saudi Arabia agreed to a partial ceasefire in Yemen, the Wall Street Journal reported, citing unnamed sources familiar with the move.

The Houthi rebels that Saudi Arabia and the UAE are fighting in Yemen said at the end of last week that drone attacks on Saudi targets would stop if the Kingdom stopped targeting its positions with air strikes.

The Houthi proposal came a day after Riyadh launched an attack on Houthi-held Hodeida—Yemen’s key port, which has been under rebel control for a while despite numerous attempts by the Saudi-led coalition to wrest control of the critical Bab el-Mandeb port.

The Houthi proposal came as a surprise to some, although it is not the first ceasefire in the years-long conflict. In December 2018, Yemen’s warring parties agreed to a UN-brokered ceasefire in and around the key port of Hodeidah, to facilitate the humanitarian access and the flow of goods to the civilian population who are suffering from the world’s worst humanitarian crisis.

Three weeks after the UN-brokered ceasefire in Hodeidah entered into force, the warring sides continued to trade accusations in January over who had broken the fragile truce. Since then, fighting has been more or less constant.

The Houthi rebels took responsibility for the September 14 attacks on Saudi oil infrastructure that cost some 5.7 million bpd in lost production capacity. Even so, both Riyadh and Washington blame the attacks on Iran, which has denied any involvement. The UK, France, and Germany followed suit, accusing Iran of the attacks.

Meanwhile, oil prices were already pressured by the announcement earlier this week that Saudi Arabia had returned to the level of production from before the attacks. That was despite reports suggesting it could take months for production to return to normal.

At the time of writing, Brent crude was trading at $60.98 a barrel, with West Texas Intermediate at $55.81 a barrel, both down by more of a percentage point.

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On 9/24/2019 at 2:11 PM, Pitcher said:

Money from New Mexico’s general fund would be used in a plan for providing local students with free college education regardless of their income level.

 

How horrific this is... Educating people for our future... I can't imagine a worse way to spend money... Maybe we just need to buy more bombs, but then no one would be educated enough to know how to use them.

 

America doesn't even rank in the top 20 around the world for many subjects in education... Maybe this would be a good investment, before everyone works at McDonalds or Wal-Mart...

 

Sorry for the sarcasm, but I don't see how anyone thinks education is a bad thing. Think of all the crap we spend tax dollars on, and yet education is looked at as if it is an expense instead of an investment. How stupid is that? What is the ROI for giving money to third world countries compared to the ROI on educating our citizens? This should be a no-brainer.

 

Some very smart kids come from very poor families and don't have the means to go... Not every kid has a famous mom who can have their SATs changed or just buy their way in... 

 

B/A

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Sarcasm, it’s not necessary with me but I get a lot of it from my liberal friends.  It’s my opinion and my experience that throwing money at any problem doesn’t necessarily mean success.  My father left our home when I was 7 years old, and we were very very poor.  My mother demanded excellence when it came to my education.  She wouldn’t let me go play until I got my homework done and don’t even think about bringing home a C on the Report Card.  She knew education was my ticket out of borderline poverty.  Education in my opinion is something that anyone can obtain but you need good teachers and parents who demand excellence from their children.  Unfortunately many parents are lazy and expect the schools to do it all.  Parents need to get involved.  

 

The point of the the article is this, it’s another money grab by the Dems.  It’s coming down to if the country will go Socialism or stay semi Capitalism.  You say you own a business.  How about the government take over your business, give you a barely enough wage for running it, and tell you that’s what you will do for the rest of your life.  Sounds a little extreme, right!!   It’s not.  This country will go to war before we surrender our businesses that we have taken years to build.  

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7 minutes ago, Pitcher said:

This country will go to war before we surrender our businesses that we have taken years to build.  

Yes...we will!👍🇺🇸

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Hated Energy Stocks May Be About To Rebound

By Tsvetana Paraskova - Sep 27, 2019, 6:00 PM CDT

Despite the fact that oil prices have recovered from the 2016 lows they hit in the worst downturn in a generation, energy stocks have seen little reprieve over the past two years.  

Investors have been shunning the energy sector amid heightened volatility in oil and gas prices, sudden price slumps, and concerns about future oil demand.

So cruel has been the investor snub that the energy sector has become one of the most hated industries to invest in.

At the same time, however, a growing number of analysts say that oil and gas stocks have been seriously undervalued, and the selloffs in the past few years may have been overdone.

The cheap energy stocks right now could be a buying opportunity, especially in light of predictions that the oil and gas sector is about to rebound, equity strategists say.  

One of the latest bullish voices came from JP Morgan this week.

“We believe favorable technicals, improving fundamentals with stabilizing business cycle, and ongoing geopolitical tensions in the Middle East could help redirect flows into this universally hated and cheap sector,” JP Morgan’s U.S. equity strategist, Dubravko Lakos-Bujas, said in a note to clients, as carried by CNBC.

So far this year, the energy sector has widely underperformed the S&P 500 index. According to Yardeni Research, Inc, the energy sector has gained 3.9 percent year to date to September 26, compared with an 18.8-percent increase in the S&P 500 index. Energy was the second worst performer among the major sectors in the S&P 500, with only health care trailing it with a 3.7-percent gain. Related: Trump Scrambles To Win Back Angry Farmers

JP Morgan expects energy stocks to rebound over the next year, thanks to the improving global economy and a stabilization of the business cycle—a somewhat contrarian view to the bears who see a recession and massive stock market drops just around the corner.

“With renewed synchronized global monetary easing and stimulus underway, liquidity conditions are starting to improve, which often leads to actual economic growth by about six months,” Lakos-Bujas wrote in his note, as carried by Barron’s.

It’s not only the economy that makes JP Morgan bullish on energy.

While investors continue to steer clear of the sector, insiders are buying energy stocks, which typically points to executives believing in the value of the investment at a bargain price.

And oil and gas stocks are trading at bargain prices right now, JP Morgan says. Related: Chinese LNG Imports See Strong Growth This Summer

“Absolute and relative valuations are at lows with small-cap E&Ps [exploration & production] trading below book value and at price levels seen almost 25 years ago,” Lakos-Bujas said in the note, Yahoo reports.

“In contrast, corporate sentiment is bullish with insider purchases rising to cycle highs and shareholder return at ~6% with stronger buyback announcements and higher dividends,” according to the equity strategist.

Higher oil prices will also help the energy sector over the next year, JP Morgan says. The investment bank sees oil price rising to US$80 a barrel in 2020—contrary to many forecasts of continued low oil prices because of an expected oversupply on the market.

With higher oil prices and the global economy stabilizing, JP Morgan expects energy stocks, especially those of exploration and production (E&P) companies, to be one of the main beneficiaries of the more stable business cycle.

JP Morgan’s bullish view may seem contrary to the doom-and-gloom scenarios that many analysts have painted over the past months, but it’s certainly not the only bullish voice on Wall Street.

Goldman Sachs has just said that it sees U.S. energy stocks as a buying opportunity at bargain prices right now. The energy sector has the potential to post the biggest gain over the next 12 months, Wall Street sell-side analysts and stocks experts said last month.

The sector has started to show some signs that oil and gas stocks may be close to breaking out of the downward trend. The recent selloff in energy stocks and energy-tracking funds may have been overdone, Jonas Elmerraji, senior market analyst at Baltimore-based Agora Financial, said earlier this month.

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Saudi Aramco Names First Japanese Bookrunner For Giant IPO

By Tsvetana Paraskova - Sep 26, 2019, 10:00 PM CDT

Saudi Aramco has picked SMBC Nikko Securities to be a bookrunner of its much-hyped much-delayed initial public offering (IPO)—the first Japanese financial company to land a role in what would be the world’s largest listing in history, Reuters reported on Thursday, quoting three sources.

Aramco has already given leading roles in its share listing to nine of the world’s largest banks. The winners in the world’s largest share sale who will act as joint global coordinators are JP Morgan, Morgan Stanley, Bank of America Merrill Lynch, Goldman Sachs, Credit Suisse, Citi, HSBC, and Saudi Arabia’s National Commercial Bank and Samba, Reuters reported earlier this month.

The selection of a Japanese bookrunner, SMBC Nikko Securities, comes as speculation and reports have it that the Saudi state oil giant may be leaning toward Tokyo as the international venue of the IPO.

At the end of August, The Wall Street Journal reportedthat the Saudis were leaning toward Tokyo and shunning London because of the Brexit uncertainty and Hong Kong because of the protests.

Another more recent sign emerged that Aramco may be seriously thinking about Tokyo. The chief executive of Japan Exchange Group, which owns the Tokyo stock exchange, has said that the group had contacted Saudi Aramco and was left with the impression that the Saudis are proceeding with the listing plan, Japanese Jiji Press reported on Thursday.

Amid reports that Saudi Arabia has moved to speed up the listing of Aramco and amid conflicting reports about the impact of the attacks on Saudi oil on what would be the world’s largest IPO ever, one of the latest reports coming out of the Kingdom is that Aramco is set to announce as soon as next month its intention to proceed with the initial public offering.

Aramco will officially announce its intention to sell shares on the stock market at some point around October 20, people familiar with the planning told Bloomberg on Wednesday.

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OPEC’s September Oil Production Falls To Near Decade-Low

By Julianne Geiger - Sep 30, 2019, 3:00 PM CDT

OPEC’s oil production has fallen to a near decade low for September, according to the latest Reuters survey, falling below 29 million barrels per day, with Saudi Arabia accounting for most of the output drop.

That’s a decline of 750,000 barrels per day on average, mostly from the decrease in oil production from OPEC heavyweight Saudi Aramco after its facilities were struck in an attack that Saudi Arabia and the United States has pinned on Iran.

The attacks on Saudi Aramco’s infrastructure took offline 5.7 million barrels per day on September 14, equivalent to 5% of the total global oil supply. While some estimates were that it could take Saudi Arabia months to restore production to pre-attack levels, within 9 days, 75% of the oil giant’s production had been restored. Just two days later, on September 25, Saudi Arabia has restored all of its production to pre-attack levels, according to chief executive officer of Aramco’s trading arm, Ibrahim Al-Buainain, as cited by Reuters.

OPEC oil output came in at an eight-year low for September, according to the Reuters poll, at 28.9 million bpd, with the cartel coming in at 218% compliance to its agreed production cuts that will run until March of next year. August’s compliance was 131%.

Saudi Arabia’s output was 700,000 bpd lower in September compared to August, at 9.05 million bpd, which it achieved by releasing oil barrels from inventory. According to the survey, Saudi Arabia’s production came in between 8.5 million bpd and 8.6 million bpd.

Other production decreases came from Venezuela as it struggles under growing oil inventories as more and more shippers refuse to transport the sanctioned country’s crude.

Nigeria increased its oil output, and its now the largest over producer in the group.

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Oil Markets: Everything Is About Weak Demand

By Tom Kool - Oct 04, 2019, 2:00 PM CDT

Oil prices recovered somewhat early on Friday morning, but handed in gains by noon as traders continue to worry about the state of the global economy.

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Oil prices dropped sharply during trading on Thursday but recovered on hopes of more aggressive action from the Federal Reserve. The U.S. jobs report on Friday revealed more weakness, but it wasn’t as poor as feared. Geopolitical risk has receded from the top of minds of oil traders. Everything is about weak demand now.

OPEC production fell most in 16 years in September. Largely due to the Abqaiq attack, OPEC’s oil production fell sharply in September. It was the single-largest disruption in history when it occurred, although its short duration meant that the outage fell short of the PDVSA strike in 2002 in terms of total volumes lost. Still, oil prices languish as demand continues to weaken. “Oil-demand growth is hitting the skids as macroeconomic, trade, and political risk drivers continue to intensify, from Brexit to impeachment through Persian Gulf conflict risk and the U.S.-China trade war,” Bob McNally, president of Rapidan Energy Group, told Bloomberg.

Unrest in Iraq puts spotlight on oil. Iraqi security forces have tried to violently suppress widespread protests in the country, and there is little sign of a resolution. Oil production has not been affected yet.

U.S. SPR more limited than expected. The U.S. strategic petroleum reserve is thought to be a massive trove of oil that can be readily deployed. For instance, in a hypothetical outage in the Strait of Hormuz, the U.S. should be expected to withdraw 3.5 mb/d of oil from the SPR. But the reserve might not be able to pull that off. Changes in pipeline flows, and huge increases in upstream production mean that only about 1.5 mb/d can be drawn down at a time, according to Platts.

Volkswagen to spend $2.2 billion on EVs. Volkswagen’s Traton truck division plans to spend 2 billion euros ($2.2 billion) over the next five years on EVs. Related: Markets Fear Oil Price Collapse: Should OPEC Cut More Production?

Investor group urges climate action. Climate Action 100+, a group of investors overseeing $35 trillion, saysthat of the most polluting companies in the world, only about 9 percent have aligned their operations with the Paris Climate Agreement. The investor group has already pressured oil companies, including Royal Dutch Shell (NYSE: RDS.A) and BP (NYSE: BP) to take more aggressive action.

Exxon and Shell issue profit warningsExxonMobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS.A)both issued profit warnings this week ahead of their third quarter reports later this month. Exxon said its earnings would be around 50 percent lower than the same quarter last year, largely due to lower oil prices.

Ecuador to leave OPEC. Ecuador said that it would leave OPEC in January due to fiscal problems.

Norwegian sovereign wealth fund to sell $6 billion in oil and gas stocks. After a two-year process, the sovereign wealth fund in Norway received approval to move forward with a $5.9 billion sale of oil and gas stocks.

Iran says French plan for talks with U.S. “broadly acceptable.” Iranian President Hassan Rouhani saidthat the French proposal to restart negotiations between Iran and the U.S. was “broadly acceptable.” They include Iran refraining from work on nuclear weapons and also helping to improve security for the region. In exchange, Iran would receive sanctions relief. Still, Rouhani said that mixed messages from the U.S., including President Trump saying publicly that he would escalate sanctions, undermined the possibility of talks.

Russia’s Rosneft wants payment in euros. Russia’s Rosneft is asking buyers of an oil cargo to pay in euros. “This could be a step to reduce U.S. dollar exposure, which makes sense for Russia, given the sanctions risk,” said Carsten Fritsch, an analyst at Commerzbank AG.

Chevron using joint ventures to scale up in PermianChevron (NYSE: CVX) is relying on joint ventures and partnerships to help scale up production in the Permian basin, according to Reuters. For instance, Chevron has a joint venture with Cimarex Energy (NYSE: XEC), which has been profitable since 2016. Chevron also has dozens of other agreements with other shale players in Texas and New Mexico. The model gives Chevron a share of the oil, but often relies on other companies to lead on drilling.

Pennsylvania joins cap-and-trade. The largest polluting state in the U.S. northeast will join RGGI, a regional cap-and-trade program with the mid-Atlantic and northeast. Entering the carbon market will put a cap on emissions from power plants, and utilities will have to buy and sell credits to comply. The measure could put more coal plants at risk. Pennsylvania regulators will have until July 2020 to draw up rules to join. Related: Sudden Eruption Of Violence In Iraq Threatens Oil Supply

More signs of financial stress for Permian drillers. Private-equity-backed American Energy-Permian Basin LLC convinced creditors to restructure $2 billion in debt, helping the company to avoid bankruptcy. The company was founded by the late Aubrey McClendon, and the company missed an interest payment in May. Meanwhile, micro-cap driller Abraxas (NASDAQ: AXAS) said it was suspending drilling operations in the Delaware basin.

Chevron says it will cut emissionsChevron (NYSE: CVX) said that it would cut greenhouse gas emissions by 5 to 10 percent from its upstream oil operations and by 2 to 5 percent in natural gas operations from 2016 to 2023.

Washington law impacts oil-by-rail to west coast.Phillips 66 (NYSE: PSX) has curtailed shipments of Bakken oil to its refinery in Washington State because of a law limited vapor pressure in oil-by-rail cargoes. A Phillips 66 refinery manager said that law is having a “significantly negative impact to refinery profitability.”

Sec. of Energy Rick Perry to resign. The U.S. Secretary of Energy Rick Perry is set to step downbefore the end of the year. Perry took a trip to Ukraine in May and that trip is starting to receive scrutiny from the impeachment inquiry in Washington.

BP names successor to DudleyBP (NYSE: BP) announced that Bernard Looney, head of the company’s upstream unit, will take over from Bob Dudley when he retires next year. 

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Oil Prices Jump On Bright U.S. Employment Data

By Tsvetana Paraskova - Oct 04, 2019, 11:00 AM CDT

Oil prices rose early on Friday after fresh data showed that the U.S. unemployment rate fell to 3.5 percent in September, the lowest rate in nearly 50 years, which eased some of the concerns about a looming recession.

As of 10:31 a.m. EDT on FridayWTI Crude was up 1.22 percent at US$53.09, and Brent Crude was trading up 1.73 percent at US$58.71.

Despite the price rise early on Friday, oil prices are set for a second consecutive week of losses.

Last week, oil prices posted a weekly loss and they just had their worst quarter this year, the worst three-month performance since Q4 2018 when prices crashed by 40 percent after the U.S. granted six-month waivers to the eight largest Iranian oil buyers.

In Q3, concerns about global oil demand growth trumped geopolitics and the fact that U.S. sanctions on Iran and Venezuela further tightened and cut off some more oil supply to the market, in addition to the cuts by the OPEC+ group.

This week, oil prices had a losing streak, falling early on Thursday to their lowest level since early August as mounting evidence of a global economic slowdown and rising U.S. oil inventories more than offset all the price gains from last month’s attack on Saudi oil infrastructure. Related: Oil Prices Tank On Global Recession Fears

Oil prices are now lower than they were just before the September 14 attacks on critical Saudi oil facilities, after the Kingdom was quick to reassure the market in the past weeks that no oil shipment would be skipped and production capacity would be restored. The market, however, turned decisively bearish this week with a string of economic data and forecasts showing that global economic growth is slowing down.

Friday’s jobs report, which also showed moderate U.S. job growth in September, eased some of the fears that had mounted during the week.

The U.S. manufacturing ISM report for September—showing a second consecutive month of contraction—weighed down on oil prices in the middle of the week, as did the inventory build of 3.1 million barrels for the week to September 27 reported by the Energy Information Administration on Wednesday.

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Saudi Aramco Restores Oil Production Capacity To Pre-Attack Levels

By Tsvetana Paraskova - Sep 25, 2019, 11:00 AM CDT

Saudi Aramco has restored Saudi Arabia’s oil production capacity to 11.3 million bpd—the level before the attacks on oil facilities ten days ago, Reuters reported on Wednesday, citing three sources with knowledge of the Kingdom’s oil company’s operations.

Separately, people familiar with the situation at Aramco told Bloomberg on Wednesday that Saudi Arabia is recovering from the September 14 attacks faster than expected—about a week faster than Saudi officials have given as a date to recover the full capacity, the end of September.

The attacks on Saudi oil infrastructure on September 14 knocked 5.7 million bpd—or 5 percent of global oil supply—offline. The market initially panicked, with prices jumping the most on record last Monday, until Saudi Arabia started to insist through official statements and sources that it would fully restore oil supply by the end of September.  

Despite continued reports that the Saudis would struggle to restore oil supply by the end of this month as they had promised and that repairs would likely take months rather than weeks, a source told Reuters on Monday that the Kingdom would fully restore by early next week the oil production lost in the attacks.

As of Monday, Saudi Arabia was said to have restored 75 percent of the production lost in the attacks. Output at the Khurais oil field was more than 1.3 million bpd as of Monday, while production from Abqaiq stood at around 3 million bpd.

According Reuters’ sources today, production at the Abqaiq plant is around 4.9 million bpd now.

Reports of the Saudis restoring capacity faster than indicated combined with renewed fears that a protracted U.S.-China trade war would further dent oil demand and with a surprise crude oil inventory buildestimated by the API to weigh down on oil prices early on Wednesday. As of 07:07 a.m. EDTWTI Crude was down 1.38 percent at $56.50, while Brent Crude was trading down 1.46 percent at $61.21.

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The US Oil Export Boom Is Only Just Getting Started

By Tsvetana Paraskova - Oct 03, 2019, 2:00 PM CDT

U.S. crude oil exports jumped by nearly 1 million bpd in the first half of 2019 from the same period in 2018 to average 2.9 million bpd between January and June this year, the Energy Information Administration (EIA) said on Thursday.

Average U.S. exports of crude oil rose by 966,000 bpd in the first half of 2019, compared to the first half of 2018. In June this year, the U.S. set a monthly average record of 3.2 million bpd of crude oil exports, EIA data showed.

Canada stayed the top foreign destination of U.S. crude oil, with U.S. exports rising by 3 percent year on year in H1 2019.

U.S. exports to Asia and Oceania jumped by 58 percent, with exports to South Korea, India, and Taiwan more than doubling.

A notable exception from the rising trend of U.S. crude sales in Asia was China— U.S. crude oil exports to China averaged 248,000 bpd in the first half of 2019, down by 64 percent from the same period last year, as Chinese buyers have been reluctant to buy U.S. crude oil amid the U.S.-China trade war, fearing that tariffs may come any moment, disrupting their plans and making the imported oil more expensive.

U.S. crude oil exports to Western Europe surged by 66 percent to average 824,000 bpd in the first half of 2019, EIA data showed.

Despite soaring crude oil exports, the United States is still one of the world’s biggest crude oil importers, EIA noted. U.S. net crude oil imports—that is imports less exports—averaged 4.2 million bpd in the first half this year, down by 6.1 million bpd for the first half of 2018, thanks to rising U.S. domestic crude oil production. Related: Is Libya’s Oil Output Set For A Steep Drop?

The United States briefly overtook Saudi Arabia as the world’s number one gross oil exporter at one point in June this year, the International Energy Agency (IEA) said last month.  

“A reminder to the producers that competition for market share is getting tougher comes from preliminary data showing that in June the US momentarily overtook Saudi Arabia and Russia as the world’s number one gross oil exporter,” the IEA said.

Although U.S. shale growth has hit a wall in recent months, production from the United States continues to grow year on year, adding to the current surplus on the market.

Even at a lower production growth pace, U.S. oil exports are expected to increase in the near future, because of reduced takeaway constraints from the Permian to the U.S. Gulf Coast, EIA said in its Short-Term Energy Outlook (STEO) for September. The Cactus II crude oil pipeline added an estimated 670,000 bpd capacity and the EPIC Midstream contributed another 400,000 bpd to takeaway capacity out of the Permian.  

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US Shale Won’t Go Bankrupt

Despite a wave of financial adversity that has tormented US onshore E&P companies lately, Rystad Energy does not view this as a harbinger of doom for the shale industry going forward.

“In a nutshell, we do not believe the recent bankruptcies that have beset a number of shale players are indicative of an industry-wide epidemic,” says Alisa Lukash, a senior analyst on Rystad Energy’s North American Shale team.

During the next seven years, the top 40 US shale oil producers are expected to spend about $100 billion on debt instalments and interest unless further debt refinancing is applied.

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These drillers, which accounted for nearly half of US shale crude production in 2018, are facing interest payments of between $2.6 billion and $5.1 billion annually, while the maturities schedule totals roughly $71 billion between 2020 and 2026.

During the first half of 2019, this peer group generated $23.7 billion in cash flow from operations (CFO) while spending $28 billion on capital expenditures (capex). Overall we see more than $112 billion in outstanding debt for the considered peer group, with a combined enterprise value of $355.5 billion as of September 2019.

“These numbers indicate a lack of financing to deal with the burden of the obligations. Given the low levels of external capital additions during the past 10 months, the probability of debt refinancing in the coming quarters seems relatively slim,” Lukash noted.

Rystad Energy expects further acreage restructuring and M&A activity in the industry, but emphasizes that many operators have managed to combine production growth with balanced spending and debt reductions.

“One should be careful about extrapolating on the basis of a few distressed companies. The peer group is very diverse both in terms of acreage quality and in capital efficiency,” Lukash remarked.

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How The World’s No.1 Oil Importer Deals With Higher Prices

By Simon Watkins - Sep 24, 2019, 6:00 PM CDT

Even if Saudi Arabia’s claim about how swiftly it will recover from the recent attack on its oil infrastructure can be believed – which it cannot – the Houthi/Iran alliance has demonstrated that it can hit the Saudi’s oil and gas industry at will. “Military assessments suggest that similar attacks are fundamentally difficult to protect against and, in our view, the market is under-appreciating the long term effect of the attacks,” Eugenia Victorino, head of Asia strategy for SEB, in Singapore, told OilPrice.com earlier this week.

Given this, and China’s position as the world’s top oil importer – essential for keeping its economic growth on track - the questions are: how well positioned is China to weather higher oil prices and how will it affect its position in the ongoing trade war with the U.S.?

To begin with, China’s level of oil imports has been steadily growing, from an already very high base, with last year seeing the country import 462 million metric tons of crude, a 10% increase over the previous year. At the same time as its basic economic demand for oil has increased, China has also sought to dramatically build up its strategic petroleum reserves through an increasing number of different channels, regardless of any – as it sees it – ‘short-term considerations’, such as U.S. sanctions on various countries.

“China’s top five sources of oil imports currently account for 55 per cent of its total crude imports, down from 60 per cent in 2013,” said Victorino. “And over that five year or so period, China has reduced its dependence on oil from the Middle East region as a whole,” she added. Specifically, by the end of 2018, the share of China’s oil imports from the Middle East had declined to 41 per cent from 47 per cent five years before. “Russia overtook Saudi Arabia as the top source, while Brazil surged in the ranks over the same period and in the meantime 2.9 per cent of 2018 crude imports came from the U.S., although the escalation of the trade tensions has seen the average share of oil imports from the U.S. decline to 1.3 per cent as of July,” she added. Related: Big Oil Starts Climate Initiative To Win Young People Back

In broader economic terms, the effects on the economy of the other protagonist in the trade war – the U.S. - via the conduit of gasoline prices was quantified at least in part a while back by various U.S. think tanks and trade associations. The rule of thumb for the U.S. is that every US$10 per barrel change in the price of crude oil results in a US$0.25 change in the price of a gallon of gasoline. In turn, for every US$0.01 that the average price of gasoline falls, more than US$1 billion per year in additional consumer spending is freed up, according to the American Automobile Association in Washington.

A crucial adjunct to this is that consistently rising at-the-pump gasoline prices over US$3 per gallon and towards US$4 is regarded as presidential electoral suicide. Indeed, Bob McNally, the former energy adviser to the former President George W. Bush, highlighted that: “Few things terrify an American president more than a spike in fuel prices.”

For China, though, the across-the-board economic correlations are less clear. The sensitivity of its headline inflation, for example – a key concern for China, given its high-growth economic model - to global oil prices is not unduly worrying. “Assuming a steady yuan, we estimate headline inflation can rise by 0.2 percentage points for every 10% increase in oil prices with a lag of one month,” said SEB’s Victorino. “While the transport sub-index of the CPI [consumer price index] basket has a high sensitivity to the evolution of crude oil prices, it has a relatively low weight in the CPI basket overall,” she added. Although China’s National Bureau of Statistics has not revealed the specific weights of the CPI sub-indices, SEB estimates transport accounts for 10-12 per cent of the CPI. Conversely, she underlined, in light of the positive relationship between factory gate prices and industrial profits, gains in the oil prices are supportive of the industrial sector.

Rising gate prices and industrial profits, in fact, reduce the chances of corporate defaults and, therefore, the need for China to embark on more pre-emptive fiscal stimulus programs. The current regime in Beijing is extremely wary of embarking on more of these fiscal spending programs, as it is aware of the dangerous level of financial shocks coming from the already high degree of leveraging in the system. “The commitment to deleveraging and financial risk control is unwavering and [Vice Premier] Liu He still has the ear of [President] Xi Jinping,” Rory Green, Asia economist for TS Lombard told OilPrice.com last week. Related: World’s Longest Elevator Could Trigger New Commodity Race

“The President remains convinced that another round of excessive debt creation could be fatal to China and more importantly to the regime,” he added. “The President, having removed the constraint of [presidential] term limits, has every incentive to focus on longer-term growth sustainability and risk control,” he underlined.

This unwillingness to embark on new fiscal stimulus programs is a function of Beijing’s broader confidence and willingness to accept lower economic growth overall and this, in turn, ties into China’s future stance in the ongoing trade war negotiations with the U.S. “Economic pressures are not so strong to force Beijing to concede on trade and the [ruling Communist] Party position throughout the dispute has been, and remains, constant,” said TS Lombard’s Green. “Any deal cannot cross its two red lines: it cannot mandate changes to the state-led-economic model and it must include significant easing of tariffs,” he added. “In turn, concessions are offered in three key areas: reduction of the trade surplus, IP [intellectual property] protection and market opening and limited commitment on RMB [renminbi] stability,” he told OilPrice.com.

There is every reason to believe that the impact of the trade war will variously continue to impact the global hydrocarbons markets, depending on the relative prominence of other key factors – mainly, geopolitical risk right now – but, said Green, the trade war calculus can be simplified by fixing one side of the equation. “The Chinese position [as above] will not change and a deal, therefore, depends on U.S. acceptance of limited Chinese concessions, which - given the election campaign underway in the U.S. - is not certain,” he concluded.

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Largest Oil Traders: Oil Prices Aren’t Going Anywhere

By Tsvetana Paraskova - Oct 10, 2019, 6:00 PM CDT

Oil prices are not going anywhere, at least until this time next year.

Brent Crude will still trade range-bound in the $50s a year from now, the heads of the world’s largest independent oil and commodity trading groups said on Wednesday.

The still unresolved U.S.-China trade dispute, mounting evidence that global economies are slowing, and rising U.S. oil production will continue to keep a lid on oil prices in a market that has factored in too little—or none at all—geopolitical risk premium, the chief executives of oil traders Vitol, Trafigura, and Gunvor said at the Oil & Money Conference in London this week.  

Vitol is bearish on oil prices, Trafigura is also bearish in the short term, while Gunvor thinks prices could inch higher but with swings in between, the managers said at the panel ‘Executive Forum: The View from the Trading Floor’ at the conference.

“Without some resolutions to the trade wars then we remain a little bit bearish, a five handle for us,” Russell Hardy, chief executive officer at Vitol, the world’s largest independent oil trader, said at the event, predicting where oil prices will be a year from now, as carried by S&P Global Platts.

A $50s handle for oil prices is the price at which oil currently trades, with Brent Crude at around $58 early on Thursday.

Like many other analysts, the executives of the top oil traders in the world see trade disputes and faltering economies as the chief oil market driver these days, despite the increased geopolitical risk following the unprecedented attack on critical Saudi oil infrastructure that took 5 percent of global oil supply offline in the middle of September. Related: Inventory Build Sends Oil Prices Lower

Vitol has been revising down its global oil demand growth estimates and now sees growth at just 600,000 bpd-650,000 bpd this year, Hardy said in early August.

In early September, Hardy said that Vitol expects oil prices to weaken in the fourth quarter this year, although prices are unlikely to be below $50 a barrel for a sustained period of time.

A month later, Hardy continues to believe that concerns about growth in economies and oil demand are driving the bearish market sentiment.

“The risk premium vanished pretty quickly after the Saudi attacks. Concerns over the future are winning,” Hardy told the Oil & Money Conference.

Jeremy Weir, executive chairman and CEO at Trafigura, also sees oil prices in the $50s in 12 months, maybe slightly lower than they are now.

According to Torbjörn Törnqvist, chief executive at Gunvor Group, oil prices will likely trade below $60 a year from now.

Gunvor’s chief executive also believes that OPEC may need to take further action to rebalance the market.

“I suspect Opec will need to rein the market in,” Törnqvist told the Financial Times. “Supply is rising and the market is signalling there is more than enough oil,” he added. 

Just as Vitol’s Hardy, Törnqvist also believes that “there seems to be very little risk premium from the geopolitical issues associated with the Saudi strikes.” Related: Is This The Next $170 Billion Energy Industry In The US?

On the sidelines of the same event, Shell’s chief executive Ben van Beurden said it was “a bit puzzling” over how well the market took the attacks in Saudi Arabia in stride.

“The market is a little bit anesthetized by trade wars and the glut of shale to the point where it has become blasé about geopolitical risk. I think it’s not representative of the real picture,” van Beurden told Bloomberg TV’s Annmarie Hordern on the sidelines of the Oil & Money Conference.

Not all analysts, however, are as bearish on oil prices as are the world’s top oil traders. S&P Global Platts Analytics sees Brent Crude ending this year trading at $65 to $70 a barrel, expecting crude oil stock draws in November and December to turn around the current bearish sentiment.

The market is currently driven by sentiment “rather than the real strong fundamentals of it,” Shell’s van Beurden told Bloomberg.  

“It’s very hard to make sense out of the market even on the best of days.”  

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The Largest US Oil Production Drop In A Decade Was Just A Glitch

By Tsvetana Paraskova - Oct 09, 2019, 2:00 PM CDT

The largest monthly drop in U.S. crude oil production in more than a decade in July is likely a temporary, geographically isolated glitch largely due to Gulf of Mexico shut-ins due to Hurricane Barry, the EIA said on Wednesday, expecting that U.S. crude oil production will return to grow month on month throughout the rest of this year.

According to the EIA’s most recent Petroleum Supply Monthly, U.S. crude oil production dipped in July by 276,000 barrels per day (bpd) from June. This was the largest decline in monthly crude oil production in more than a decade. This production drop was temporary and geographically constrained to the U.S. Gulf of Mexico area, where operators shut in production and evacuated platforms ahead of the expected passing of Hurricane Barry, according to EIA.   

The Federal Offshore Gulf of Mexico saw its crude oil production plunge by 332,000 bpd in July, the EIA data showed.

Oil and gas producers shut in as much as 73 percent of the oil production in the Gulf as Barry passed through the area.

In the October Short-Term Energy Outlook, EIA expects that U.S. crude oil production will increase in each of the remaining months of 2019, and reach 13.0 million bpd in December 2019. This year’s U.S. crude oil production is forecast to average 12.3 million bpd, while the 2020 production is seen averaging 13.2 million bpd.

Although production is expected to have picked up from the July dip, the EIA acknowledged that the slowing rateof growth in shale production reflects relatively flat crude oil prices and slowing growth in well-level productivity.

The growth rate is set to level off in 2020, due to lower oil prices in the first half of the year and continuing declines in well-level productivity, the EIA says.

Meanwhile, the U.S. shale patch is bracing for an extended period of weak oil prices, and drillers and oilfield services firms are cutting staff and reducing budgets to weather the slowdown in North America’s fracking growth.

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The Oil Majors Leading The M&A Boom In Oil And Gas

European supermajors BP and Shell occupy the top spots on opposite sides of Rystad Energy’s M&A ranking for the oil and gas sector during the last five-year period.

Rystad Energy has analyzed the share of resources traded globally from 2015 through July 2019. Two oil and gas companies stand out in the tally, not including the outlier deal between Occidental and Anadarko in May this year:

**BP has seen the most resource growth from mergers and acquisitions (M&A) across all supply segments, adding nearly 6.5 billion barrels of oil equivalent (boe).

**On the sell side, Shell tops the list by a wide margin. The Anglo-Dutch company has shed almost 11 billion boe since 2015 (excluding the effect of Shell’s 2015 acquisition of BG Group).

“The majority of BP’s shale and tight oil resource growth in recent years was attained through the acquisition of BHP’s upstream assets in the US last year,” says analyst Ilka Haarmann on Rystad Energy’s Upstream team. “On the other side of the spectrum, Shell divested significant resources from all supply segments after it acquired BG in 2015.”

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The global average value of announced oil and gas asset transactions is an important indicator of market activity. In the first half of 2019, the total deal value sky-rocketed thanks to Occidental’s $57 billion acquisition of Anadarko. However, the massive Oxy-APC transaction is a clear outlier. Excluding this deal, Rystad Energy’s monthly M&A rapport shows that the monthly average in the first half of 2019 was just $7 billion, down 37.5% from the corresponding period last year.

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“M&A activity is like a finger on the pulse of the upstream industry. And in recent months we have seen relatively low-value deals – the average tally pales in comparison to recent years,” Haarmann added. Related: You’re Footing The Bill For Bankrupt Shale Drillers

Yet these numbers do not paint a complete picture of the M&A market, as the share of offshore resources traded has risen steadily since 2015. Onshore resources, including shale and tight oil, accounted for as much as 54% of the traded resources in 2015, but has remained below 30% since 2016. Conversely, the ratio of offshore asset transactions has increased from 16% of traded resources in 2015 to more than 40% in 2018.

“As of July 2019, the share of offshore resources traded this year equaled the share of shale and tight oil resources traded,” Haarmann observed.

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Aramco Set To Approve World’s Largest IPO Next Week

By Tsvetana Paraskova - Oct 10, 2019, 4:00 PM CDT

The board of directors of Saudi Aramco could give the final approval to what would be the world’s largest initial public offering (IPO) ever as soon as next week, Bloomberg reported on Thursday, citing people with knowledge of the plans.

Aramco’s board has tentatively planned a meeting with the advisers to the listing around October 17 to review market conditions and feedback from a roadshow ending this week for seeking interest from possible anchor investors in the IPO, before approving the share sale, Bloomberg’s sources said. Yet, Aramco hasn’t made any final decision and it could still postpone or scrap those plans, according to the sources.

Aramco is also reportedly rushing investment banks to draft the pre-IPO reports on the company in time for October 20, when the Saudi oil giant is reportedly planning to officially announce its intention to list shares on the stock market, according to an internal schedule Bloomberg has seen.

Over the past two months, Aramco has noticeably accelerated the timeline for the much-hyped listing. A US$2-trillion valuation that the Saudis seek has been one of the sticking points—together with the international venue for the listing and concerns over transparency of Saudi reserves—in the IPO that has been delayed several times already.

Amid reports that Saudi Arabia has moved to speed up the listing of Aramco and amid conflicting reports about the impact of the attacks on Saudi oil on what would be the world’s largest IPO ever, one of the latest reports coming out of the Kingdom had it that Aramco is set to announce as soon as October its intention to proceed with the IPO.

Aramco will officially announce its intention to sell shares on the stock market at some point around October 20, people familiar with the planning told Bloomberg at the end of September.

Saudi Aramco will issue the prospectus for its initial public offering before this month’s end, the Wall Street Journal reported earlier this week, citing people familiar with the preparations for the biggest IPO in history.

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Is This The Next $170 Billion Energy Industry In The US?

By Tsvetana Paraskova - Oct 08, 2019, 5:00 PM CDT

Hydrogen is the simplest element on earth and most abundant element in the universe. It is an energy carrier as it has high energy content per unit of weight. And it has the potential to become a mainstream energy technology and a key clean fuel source in the future that could also help reduce greenhouse gas emissions.

The development of hydrogen research and technology in the next few decades could make hydrogen a multi-billion industry in the United States alone, Jeffrey Rissman, Industry Program Director & Head of Modeling at climate policy think tank Energy Innovation, writes in Forbes. By 2050, the hydrogen industry could generate as much as US$170 billion in annual revenues and make combined profits of more than US$100 billion, if hydrogen demand as a vehicle fuel results in 5 percent hydrogen-powered vehicles on the road in 2050, and if hydrogen is made entirely from electrolysis—the process of splitting hydrogen from water using an electric current.

This scenario is one of three possible pathways for hydrogen that Energy Innovation examined. This is the ‘hydrogen demand plus electrolysis (HD+E)’ scenario.

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Source: Energy Innovation Energy Policy Simulator (EPS) scenarios

This scenario assumes that hydrogen will be produced without greenhouse gas emissions and using electricity from renewable sources for the electrolysis.

The other two scenarios are ‘business as usual’, in which hydrogen is not expected to be a game-changer, and ‘hydrogen demand’, where hydrogen demand in cars and industry is similar to the HD+E scenario, but 95 percent of hydrogen will still be produced from natural gas.

In the HD+E case, emissions could be reduced by as much as 120 million metric tons (Mt) of carbon dioxide (CO2) equivalent annually in 2050. This would be comparable to removing 25 million passenger vehicles from U.S. roads, Energy Innovation’s Rissman says.   Related: ‘’Tesla May Lose 80% of Its Value’’

The HD+E scenario, however, contains one bold assumption—that hydrogen will be produced entirely from electrolysis with no emissions.

At present, hydrogen is typically produced from natural gas and coal—not exactly the cleanest alternative source of energy.

That’s why scientists call this type of hydrogen ‘grey’ hydrogen because its production is not zero emission.

According to the International Energy Agency (IEA), around 70 Mt of hydrogen are produced today in the world, 76 percent of which from natural gas and almost all the rest from coal.

In the U.S.—which produces nearly one-seventh of global supply—95 percent of the hydrogen is currently produced from natural gas. That’s not only because natural gas is abundant in the U.S.—hydrogen production from natural gas is currently a lot cheaper than from electrolysis.

In terms of consumption, nearly all of the hydrogen consumed in the United States is used by industry for refining petroleum, treating metals, producing fertilizers, and processing foods.  

Globally, hydrogen use is also dominated by industrial applications, with the top four single uses of hydrogen being oil refining (33 percent), ammonia production (27 percent), methanol production (11 percent) and steel production via the direct reduction of iron ore (3 percent), IEA estimates show.

Global hydrogen production today is responsible for 830 Mt of CO2 emissions annually, equal to the annual CO2 emissions of Indonesia and the United Kingdom combined, the IEA says, noting that if hydrogen production were to become emission-free, hydrogen could really be a green technology. Related: Greta Thunberg’s Not-So-Little Carbon Footprint

That’s because hydrogen, unlike other fuel sources, is used to generate power using a chemical reaction rather than combustion, producing only water and heat as byproduct.

The so-called ‘green hydrogen’ produced from renewable energy sources has been a promising concept but no breakthrough in this field has taken place yet.

But scientists are already developing various technologies to find a cheap, environmentally friendly, and feasible way to produce hydrogen—out of thin air and sunlight. The challenge is to turn those successful small-scale experiments into a large-scale cost-effective process.

The U.S. Department of Energy is studying and supporting various ways to produce hydrogen in a cost-effective and an environmentally friendly way. The DOE believes that there is potential to study hydrogen production from electrolysis, biomass gasification, thermochemical water splitting, photoelectrochemical water splitting, photobiological processes, and microbial biomass conversion.

In view of hydrogen’s potential to be a multi-billion industry of a zero-carbon energy source, Energy Innovation’s Rissman calls for more research into clean hydrogen technology: 

“Even as the U.S. deploys proven, emissions-reducing technologies today – including solar power, wind power, and energy efficiency – we must invest in research and development, to ensure that hydrogen technology is ready to transform the last few, difficult-to-decarbonize elements of the energy system in the coming decades

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Against All Odds: Iraq And Turkey Aim To Rebuild Oil Relations

By Vanand Meliksetian - Oct 14, 2019, 5:00 PM CDT

The Middle East is the world’s most dynamic and important energy market. Geopolitical interests, economics, and security concerns are continuously influencing the parameters according to which countries interact and compete in the region. While there are plenty of signs of a desire for cooperation and interdependence throughout the Middle East, turning these desires into reality is always a difficult task.

Iraq is a prime example of an influential energy-producing state in the region that has been transformed by external influences. The country’s invasion by U.S. troops in 2003 was the most important event in the region since the Islamic Revolution of 1979 in Iran which completely altered the geopolitical landscape. Regime change and the disastrous nation-building policy of the U.S. led to the complete implosion of the Iraqi state, which was an opportunity for neighbors to exert influence. Remarkably, Iran has benefitted most from a weakened Iraq, but Turkey is not far behind when it comes to establishing fruitful relations with both the Central Government and the Kurdish Regional Government, KRG, in Northern Iraq.

Despite Ankara’s fear of Kurdish autonomy reinvigorating calls for independence in its restive provinces, Turkey’s relations with the KRG in Erbil have been remarkably successful over the past two decades. The parties have agreed to establish mutually beneficial business endeavors such as an agreement to export oil in 2012 through an overland pipeline to the port city of Ceyhan. The deal hampered the KRG’s relations with the Central government in Bagdad which, at the time, was unable to establish control over the north. Related: Russia Aims To Ditch The Dollar For Oil & Gas Sales

Iraq

In recent times, however, Iraq’s internal political balance has changed considerably. Before the 2017 referendumfor Kurdish independence, the KRG had the upper hand when dealing with Bagdad. However, the Kurds miscalculated their support amongst Western allies, predominantly the U.S., which led to the reestablishing of control by Iraqi militias and the Central Government over areas liberated from ISIS.

Due to these developments, Ankara is now turning towards Bagdad for new energy deals. Recently, the two governments announced that they were looking into the option to construct a second pipeline that could more than double existing export capacity. Although the existing pipeline is still partly working, it has repeatedly been damaged by the PKK. Also, ISIS caused significant damages to the infrastructure when it controlled the area in 2014.

Bagdad intends to maintain firm control over its northern region to prevent Kurdish independence. The new pipeline, therefore, would create an alternative route for Iraqi oil exports. Additionally, the new line would also connect to infrastructure in Central and Southern Iraq. This would improve the country’s energy security as oil exports can be diverted towards the north in case the Strait of Hormuz is choked off.

On the other hand, Russia has been lobbying with the Iraqi government to prioritize an alternative option. Bagdad is also looking into reviving the old pipeline to Jordan and Lebanon through Syria. Security concerns, however, have impeded quick progress.

Despite the hopeful and business-oriented signals coming from Ankara and Bagdad, it remains highly unlikely whether a multi-billion pipeline will be constructed. The inflexibility of fixed assets and massive investments require a certain level of political stability between parties to provide financial certainty. Relations between Iraq and Turkey, historically, have been far from stable. Related: Is This The Next $170 Billion Energy Industry In The US?

The two countries have a range of disagreements and looming conflicts. In 2016 Turkish troops invadedNorthern Iraq to defeat ISIS and establish a foothold against the PKK, an action that was strongly criticized by Bagdad. Also, Turkey and Iraq disagree over the sharing of water resources that originate in Anatolia. Ankara will start filling several large water reservoirs behind newly constructed dams that will limit the Iraqi share for several years. The easing of tensions in these areas is as important for the feasibility of the new pipeline as profitability.

Another critical development is Turkey's recent invasion of Northern Syria after the surprise withdrawal of U.S. troops. Turkish President Erdogan has been successful in what many analysts deemed as impossible: uniting the Middle East to condemn the attack. According to the International Crisis Group, the military operation will lead to "significant civilian casualties, displace many inhabitants and fuel local insurgency" in case of hostilities advancing into densely populated areas.

The precarious status quo has been violated by Turkey. Also, other disagreements between Turkey and Iraq will act as significant hurdles to the realization of new projects. It is more likely that the countries won’t complete technical and financial feasibility studies until the situation stabilizes. Until then, the pipeline will remain nothing more than a signal of good intentions concerning cooperation and interdependence in the region.

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What’s Behind The Bearish Bias In Oil Markets?

By Josh Owens - Oct 15, 2019, 12:30 PM CDT

Information isn’t everything…It’s the only thing. That’s why we launched Oil & Gas Insider: To provide high-priority, next-level intelligence to energy industry professionals and sophisticated investors. 

Join the world's most comprehensive energy intelligence service today! 

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- The API gravity of the U.S. oil mix has lightenedsignificantly over the past decade, with booming light oil production from major shale basins.

- Oil with API gravity above 38 degrees is considered light, while crudes with gravity of 22 degrees or lower is considered heavy.

- Along the Gulf Coast, the average gravity of the crude slate has lightened from 30 degrees in 2011 to 32.6 degrees in 2018, according to the EIA.

Market Movers

- Whiting Petroleum (NYSE: WLL) is in deal talks with the smaller Abraxas Petroleum (NASDAQ: AXAS), although details have not been disclosed, according to Reuters.

- Parsley Energy (NYSE: PE) is set to acquire Jagged Peak Energy (NYSE: JAG) in an all-stock deal valued at $2.27 billion. Parsley’s share price fell 10 percent on the news.

- ProPetro (NYSE: PUMP) laid off 150 workers this month, according to Reuters. The move comes after Halliburton (NYSE: HAL) last week announced that it would cut staff by 650.

Tuesday, October 15, 2019

Oil prices fell more than 2 percent on Monday on diminished excitement surrounding the partial trade agreement between the U.S. and China. Following last week’s jolt, investors grew skeptical of the agreement as it became clear that Washington and Beijing had different interpretations of the outcome of last week’s talks. “It’s clearly a market that is very macro-focused right now,” said Ole Sloth Hansen, head of commodities strategy at Saxo Bank A/S in Copenhagen. “Speculators have been quite aggressive sellers during the past couple of weeks.”

Appalachian drillers cutting back. Natural gas production in the Marcellus and Utica shales continues to inch higher, but production could begin to slow as drillers cut back in the face of weak prices. EQT (NYSE: EQT) announced last month that it would lay off nearly a quarter of its workforce.

UK Labour Party proposes ban on ICE engines by 2030. The Labour Party in the UK proposed to ban sales of the internal combustion engine by 2030.

Related: Iraq's Return To Oil's Top Table

Fracking “dead” in UK. Cuadrilla has begun removing equipment from its only testing area following the last round of earthquakes in August. There are no plans to resume fracking in the area, and local residents and opponents of the company say that fracking in the UK is now dead.

Ecuador President reverses on fuel subsidies. After the uproar and massive resistance to the proposed cut in fuel subsidies, Ecuador’s President Lenin Moreno reversed course, agreeing to scrap the proposal. Indigenous groups cheered and called an end to protests following the decision. But Ecuador now won’t be able to realize the budgetary savings from reduced subsidies, raising questions about how it will undertake reforms.

ConocoPhillips exits Northern AustraliaConocoPhillips (NYSE: COP) agreed to sell its northern Australian assets to Santos (ASX: STO) for $1.39 billion. Conoco will exit the Darwin LNG plant.

California bans fossil fuel infrastructure on public land. California passed legislation that bars any California leasing authority from allowing pipelines or other oil and gas infrastructure on state land. The legislation comes in response to the Trump administration’s aggressive leasing of public lands for mining and drilling.

Saudi Arabia denies role in Iran tanker attack. Saudi Arabia denied any role in the attack on an Iranian tanker in the Red Sea last week. Iran said that it has obtainedevidence to prove that the attack was carried about by rockets, and that a government was involved. Iran also vowed to take revenge.

U.S. Justice Department investigating Pemex. The Wall Street Journal reports that the U.S. Justice Department and the SEC are investigating Pemex for a widespread bribery scheme. At issue was the 2018 bankruptcy of Oro *****. The company says that it was driven into bankruptcy by Pemex after refusing to pay bribes. Oro ***** is seeking $700 million in damages in a lawsuit submitted to a NAFTA arbitration panel. Related: Russia Scrambles To Save Energy Industry From Climate Change

Total SA’s $600 million bet on India. Total SA (NYSE: TOT) is spending $600 million to purchase a 37.4 stake in India’s Adani Gas Ltd.

Venezuela’s oil production could plunge on Chevron decision. The Trump administration could drive down Venezuela’s oil output by another 300,000 bpd if it decides to deny Chevron (NYSE: CVX) a waiver allowing the company to continue operating in the country, according to S&P Global Platts. Currently, Venezuela is producing about 600,000 bpd, but the forced exit of Chevron would damage joint ventures with PDVSA. “I think you'd see it go certainly to under 300,000 b/d within a month” if Chevron had to pull out, said Neil Bhatiya, an associate fellow with the Center for a New American Security, told Platts. The waiver expires next week.

Saudi energy minister says production to reach pre-attack levels. Saudi energy minister Prince Abdulaziz bin Salman said that the country’s oil production will surpass levels seen prior to the Abqaiq attack as soon as this month. He said production will likely average 9.86 mb/d in October and November. Production fell by 660,000 bpd to 9.13 mb/d in September.

Saudi Arabia to approve IPO this week. Saudi Arabia is expected to give official approval to the IPO of Saudi Aramco this week. “Aramco’s IPO will take place sooner than you think,” Yasir al-Rumayyan, chairman of Aramco, told the FT. The plans involve a public offering of 3 percent of the company on the domestic exchange as soon as November.

Enterprise to expand ethane pipelineEnterprise Products Partners (NYSE: EPD) is moving forward with plans to expand its ATEX ethane pipeline from Appalachia to Southeast Texas. “The expansion of ATEX will facilitate growing production from the Marcellus/Utica Basin and will provide access to attractive markets on the Gulf Coast through Enterprise’s integrated midstream network,” the company said in a statement.

European Investment Bank postpones gas lending decision. The European Investment Bank was set to consider a vote on Tuesday that would have cut off natural gas projects from lending eligibility, but it postponed the decision. Germany has reservations about the vote, but a top EIB official told Reuters that the vote is likely in November.

Immigration crackdown hits oil and gas. Reuters reports that some oil and gas companies in the Permian basin are having trouble finding enough workers because of the immigration crackdown by the Trump administration.

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The IMF's Latest Report Could Spell Disaster For Oil Markets

By Nick Cunningham - Oct 15, 2019, 7:00 PM CDT

The International Monetary Fund slashed its global growth forecast once again, predicting economic growth will fall to its weakest rate since the financial crisis a decade ago.

The IMF said that the world economy is in a “synchronized slowdown,” and will only expand by 3 percent this year. At one point last year, the IMF forecasted 3.9 percent growth for 2019. “Growth continues to be weakened by rising trade barriers and increasing geopolitical tensions,” the Fund said in a statement.

Needless to say, the ongoing U.S.-China trade war looms large in the analysis. “We estimate that the US-China trade tensions will cumulatively reduce the level of global GDP by 0.8 percent by 2020.” There are country-specific problems in emerging markets (Argentina, Iran and Turkey, for instance), but the world is also facing structural issues, such as low productivity growth and aging demographics, the IMF added.

A dramatic slowdown in trade and manufacturing have forced several consecutive downgrades in GDP predictions. Also, various geopolitical landmines could make things worse. The U.S.-China trade war is highly unpredictable and could deteriorate again, while the Brexit mess could yet blow up and derail the European economy.

Related: Iran President Vows Revenge For Oil Tanker Attack

The problem for the global economy is that once things start to slow down, there is a bit of a negative compounding effect that could trap the world into slower growth. Another blow to growth from, say, a no-deal Brexit or more trade barriers could be “an abrupt shift in risk sentiment, financial disruptions, and a reversal in capital flows to emerging market economies,” the IMF said. “In advanced economies, low inflation could become entrenched and constrain monetary policy space further into the future, limiting its effectiveness.”

For the four largest economies – the U.S., China, the Eurozone and Japan – the IMF sees no improvement in their growth prospects over the next five years.

This helps explain the pessimism dominating the oil market right now, which is vastly overshadowing a more nuanced picture on the fundamentals.

While most forecasters see a problem of oversupply next year, the market has tightened up in the interim. In a report, Commerzbank pointed out several factors that have failed to move the needle on oil prices. The “robust Chinese crude oil imports reported for September yesterday are being ignored by the market, as is the military escalation brought about by Turkey’s invasion of the Kurdish areas of northern Syria,” the investment bank said. Syria is a negligible oil producer, but unrest in the region could potentially spill over into northern Iraq, Commerzbank said. Related: What Trump’s “Baffling Decision” Means For The Saudi-Iran Crisis

Meanwhile, U.S. shale production has flatlined this year, ending years of explosive growth. The rig count has fallen sharply and companies are cutting drilling and spending. “We believe the lower activity during 2H19could put downward pressure on 2020 US oil growth,” Goldman Sachs said in a note, although the bank said that the largest companies are still going full speed. “Notably, we still anticipate healthy, double-digit production growth for many of the key US shale operators/US majors.”

The lower-than-expected production growth from shale drillers could result in a supply/demand picture that is tighter than once thought.

However, even with significant geopolitical risks to supplies in the Middle East and a slowing U.S. shale sector, oil prices have failed to rally in any meaningful way. Brent started off this week below $60. The weakening global economy is the overarching concern right now.

In fact, even as the IEA downgraded its 2019 oil demand estimate last week to just 1 mb/d – the weakest growth rate in years – it may still be overestimating demand. “The lack of any significant downgrade to the IEA forecasts is doubly surprising given the downward revisions in the latest OECD Interim Economic Outlook, which is embedded in the IEA demand model,” Standard Chartered wrote in a note.

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