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Petroleum Demand Highest In 109 Months

Issue 100- Texas Gulf Coast Drilling

Introduction…American Petroleum Institute reports U.S. petroleum demand for last month was the hightest in 109 months.  Total U.S. petroleum delivers in May moved ut 4.9% from May 2016 to an average of 20.1 million b/d.  These were the highest May deliveries in 10 years and the highest delivery for any month in more than 9 years.

What caused demand to increase? The overall US economy grew adding 138,000 jobs in May.  The unemployment rate changed little at 4.3%.

“Strong demand for petroleum is a good sign for the economy which grew for the 96th consecutive month,” said Chief Economist Erica Bowman. “American workers and consumers continue to benefit from these positive economic signs along with relatively low fuel prices.”

Crude oil production was up from the prior month, the prior year, and the prior year-to-date to the highest output level for any month since October 2015. Crude oil production increased 0.9% from April and was up 5.1% from May 2016 to average 9.3 million b/d in May.

In conclusion…A strong U.S. economy creates a strong demand for petroleum.  In this case, what’s good for the U.S. economy is good for the petroleum industry.

Growth In U.S. Natural Gas Production Creates Opportunity

Issue 99 Loading First LNG Shipment At Sabine Pass

Introduction….The first export shipment of liquefied natural gas (LNG) produced in Lower 48 states on February 24, 2016 is a milestone reflecting a decade of natural gas production growth puts the U.S. in a new position in worldwide energy trade. (EIA)

The rapid growth of shale gas has increased natural gas production each year since 2006.  The resulting decline in natural gas prices has led to rising natural gas exports to Mexico via pipeline, and now to overseas markets via LNG tankers.

Under construction or approved…

Cheniere Energy’s Sabine Pass Liquefaction Project in Sabine Pass, Louisiana, consists of six different liquefaction units, or trains, the first of which began service in February after many delays. The other trains are in various stages of development and permitting. Total permitted capacity by FERC is 4.16 Bcf/d.

Four LNG export terminals are currently under construction:

  • Dominion Energy’s Cove Point LNG facility in Cove Point, Maryland, is scheduled to bring one train totaling 0.82 Bcf/d online near the end of 2017.
  • Corpus Christi LNG, another Cheniere project, is under construction in Corpus Christi, Texas. The terminal is scheduled to begin service in 2018, with total permitted capacity at 2.14 Bcf/d.
  • Sempra Energy’s Cameron LNG terminal, located in Hackberry, Louisiana, is under construction and is scheduled to bring three trains online in 2018. A total of 1.7 Bcf/d has been permitted.
  • Freeport LNG‘s terminal planned for Freeport, Texas, has three trains under construction totaling 1.8 Bcf/d. The first two are scheduled to begin service in 2019, and the third in 2020.

Another terminal, Southern Union’s Lake Charles (Louisiana) LNG facility, has been approved by FERC but is not yet under construction. Lake Charles also has an LNG import terminal. Several more LNG export terminals, mostly on the Gulf Coast, have been proposed or have pending applications with FERC.

A lesson from history…You may remember the story off the San Francisco 49ers gold rush where a total of $2 billion worth of gold was extracted during the Gold Rush, which peaked in 1852.  The  non-native population swelled by 99,000 in the California territory

The company that provided the cloths needed by the 49ers is still in operations today.  Levi Strauss & Co. had 2016 sales totaling $4.6 billion.  Itls one year sales were more than twice the value of the gold rush that started the company.

Today’s opportunity created by growth in natural gas production?…Some might think today’s opportunity is in building the LNG export facilities.  However, that is a major capital expenditure with several years required to get any payback.  Many are developing and producing natural gas.  That’s not it either.

However, Just as in the 49ers story, the biggest opportunity is in providing the what is desperately needed by the producers.  This service is required by the environmental regulators.  It’s not salt water disposal either.  In fact it’s more profitable.  Message me  to learn more at bill@billmoist.net.

Sources:  “Growth in domestic natural gas production leads to development of LNG export terminals” U.S Energy Information Administration (EIA,) 4 March 2016; “Summary of LNG Export Applications of the Lower 48 States,” Energy.gov

OPEC Losing War With Fracking

OPEC Meeting Discussing Production Cuts- 98th Issue

Thanks to the shale revolution, U.S. production is up and costs have dropped significantly. Yet, OPEC is trying to increase prices by cutting its production.

First shale oil and now offshore deep-water oil are reducing their costs of production, making it more difficult for OPEC’s policies to have the intended effect. Shale oil production costs have come down significantly over the past several years, making its production profitable at below $40 a barrel.

Now, deep-water oil production is expected to bring down its costs to between $40 and $50 per barrel by early next year from an average break-even price of about $62 in the first quarter of this year and $75 in 2014. OPEC expects to keep oil prices between $50 and $60 a barrel by extending its production cuts for another nine months—keeping roughly 2 percent of global oil production off the market to increase prices.

Where is this going…As U.S. oil production increased in recent years, OPEC oil got edged out of the lucrative American oil market. America imported about 60 percent of its oil in 2007, but by 2014, the U.S. only imported 27 percent of its oil, according to government data. And now in 2016, net U.S. oil imported droped to 25% of its oil.  The rising U.S. oil production reduced demand for Saudi oil abroad, too, keeping prices low.

The Organization of the Petroleum Exporting Countries lost $76 billion in 2016 due to low oil prices caused by rising U.S. oil production, according to a report published May 15th by the U.S. Energy Information Administration.

In summary…Every U.S. President, since the 1973 Arab Oil Embargo has calling for U.S. energy independence.  Now the Frackers have accomplished just that by finding a way to be profitable in these low energy prices.  God bless the Frackers.

Source:  Tom Stepstone, “OPEC Cuts Production in Losing War with Fracking,” OIlPro, June 8, 2017;  Andrew Follett,  “OPEC Lost $76 Billion Last Year Due to US Fracking,” The Daily Signal, 16 May 2017

16-Story Super-Spec Rigs Bring Second Shale Boom

Drillers Mastered Feat Of Pumping For Less

Introduction...On a drilling rig towering above quiet cattle farms in Southeast Texas, Eric Williams perched inside the cabin of the 16-story machine, twisting a pair of joysticks to guide a gigantic wrench roaring into action, drowning out every sound as it reached for a 1,500-pound pipe emerging from the earth – pipe that soon will feed oil into a second shale boom.

Years ago, a worker doing Williams’ job would have stood outside on the rig floor, working a brake handle and knobs as men, drenched in sweat and syrupy fluid, worked the pipe by hand – a dangerous job. Now he sits behind six computer screens and a complex array of controls, piloting a 10-ton wrench on a so-called super-spec rig, one of a new breed of advanced drilling machines that are bigger and stronger than the ones that sparked the first U.S. shale oil bonanza a few years ago.

New technologies…They’re part of the fleet of new technologies paving the way for a historic surge of oil that could break the nation’s 1970 production record next year and further erode the decades-long grip the Saudi-led Organization of the Petroleum Exporting Countries has had on global oil markets. The cartel’s gathering in Vienna last week to extend oil production cuts put into place earlier this year showed how quickly the oil world’s center of gravity has shifted.

This particular $25 million machine, churning about 100 miles northwest of Houston, in the Bryan-College Station metropolitan area, has drilling systems more powerful than two semi-trucks screaming down the highway, and it can force fluid down a well with more than 100 times the pressure of a fire hose.

All told, it’s capable of supporting a fully-loaded Boeing 747, and it walks the dozen feet between well sites on four 10-ton feet. It can drill an oil well in less than 10 days, shaving more than a week from the average drilling time in 2010, and allowing oil companies to drill a greater number of wells each year.

Just a few years ago, even talking about production cuts would have sent crude prices skyrocketing. This time, when OPEC and other major producers agreed to reduce output by 1.8 million barrels a day into next year, prices fell nearly 5 percent as traders remained unconvinced the move would do much to shrink supplies in the face of rising U.S. production.

“OPEC’s market influence is highly questionable,” said Antoine Halff, director of global oil markets at Columbia University’s Center on Global Energy Policy. “We spent seven years revising shale forecasts upward because it went up much faster than anyone expected.”

In summary…The market’s cold response underscored just how much clout the cartel has ceded to U.S. oil companies, which found ways to wring a lot more oil from the earth at a profit – even at low prices.

Source: Collin Eaton, “Big rigs pave way for second shale oil boom,” Houston Chronicle, 27 May 2017

World Class Strategies For Business Growth

CEO Insights

Introduction...Monday & Tuesday, May 22 & 23 Julie and I attended the C-Suite Network national conference in Dallas.  C-Suite Network is the world’s most trusted network of C-Suite Leaders. Here is my summary of the most important items shared.

Click here to watch World Class Strategies For Businss Growth.

If better, faster disposal proeject that plays faster intrigures you, drop me a note and we can discuss further.  Bill@billmoist.net

 

Saudi Arabia Oil Riches Decline Force Social Change

Saudi Arabia Amid Change- 95th Issue

Introduction…This blog has been documenting the shift in economic power from OPEC and its partners, to the frackers in the United States.  Even at a $50 per barrel price, plus or minus, U.S. producers have cut production cost nearly in half and billions of dollars are pouring into new production.

But, in Saudi Arabia, the low energy prices have forced painful change even in what may be the world’s most conservative.  Woman are joining the workforce and music can be found in the streets.  Even in what may be the world’s most conservative country. The government has stripped the notorious religious police of their power and the more than 3,000 guardians of morality, who terrorized women for wearing makeup and arrested unmarried couples for walking next to each other on the street, are a rare sight these days.

But what does it mean that Saudi King, the guardian of the holy cities of Mecca and Medina, has reined in the feared moral police?  And why have the fundamentalists gone silent rather than lament the loss of values?

Is the fairy tale ending?…The primary reason is the disappearance of Saudi Arabia’s fairy-tale riches. The kingdom is experiencing the deepest crisis since oil first produced in 1938.  The current low prices have led to a 50% drop in revenue.  In 2015, the government budget deficit ballooned to 90 million euros, and the country’s borrowing began.

In conclusion…Saudi Arabia was the pillar in the Middle Eastern order that no longer exists.  This order was destroyed by the Arab Spring, and the wars in Iraq, Syria, and Yemen (neighboring states.)  Now, Iran and Saudi Arabia are fighting over power in the region.  These events are threatening stability in the kingdom.

Source: Susanne Koelbl, “Tasting Freedom.  Saudi Arabia Experiments with Reform Amid Economic Downturn,” Spiegel Online International, 17 May 2017

Shale Expansion Dominates Competition

U.S Shale oil drilling rig

Introduction…U.S. Shale drilling budgets increases ten times faster than the rise of international oil companies’ budgets. This as OPEC is meeting May 25th to decide to continue production cuts.

U.S. shale producers are taking advantage of the production cut that OPEC and 11 non-OPEC nations struck in mid-November.

The comparison…Drillers in North America plan a combined capital expenditure of US$84 billion this year, an increase of 32 percent compared to last year, according to Barclays analysts, quoted by Bloomberg.

By comparison, the budget programs for international projects are seen up just 3 percent in 2017, Barclays reckons. Among the five supermajors, it’s only Exxon that is planning higher capital spending this year, of US$22 billion, up by 16 percent from 2016. The other four are either keeping investment budgets flat, or as in Chevron’s case, are reducing the expenditure.

“The level of capital budget increases really surprised us,” Wood Mackenzie research analyst in Houston, Roy Martin, told Bloomberg in a phone interview.

“The specter of American supply is real,” he noted.

In summary…The U.S. shale spending plans and growing production highlight the difficult position in which OPEC is caught – while the cartel is cutting production and trying to talk oil prices up, the shale drillers are reaping profits from the most profitable plays (hey, Permian) and reinvesting them in increased capital programs to pump more.

Reference:  Tsvetana Paraskova, “U.S. Shale Spending Dwarfs Competition: Grows 10 Times Faster,” OilPrice.com, 11 May 2017

Past Energy Independence To Global Dominance

 Trump Signs Order To Expand Offshore Driling

Introduction…May 1, 2017 President Trump signs order to expand offshore drilling.  That day the President said, “Our country is blessed incredible natural resources including abundant offshore oil and gas reserves.  But the Federal Government has kept 94% of these reserves closed to exploration. This deprives our country of thousands of jobs and billions of dollars in wealth…This executive order begins the process of opening offshore areas to energy exploration.  It reverses the previous administrations Artic leasing ban…This helps create a much brighter future for our country…This is a very important day.”

U.S. Energy-dominant…The U.S. is in the position to be energy-dominant, not just independent, thanks to fracking and plans to loosen drilling regulations, Interior Secretary Ryan Zinke said (last) Monday.

Oil production across the U.S. may increase by 17 percent to a record 10.24 million barrels a day by the end of next year as companies cut costs and become more efficient in drilling, especially in areas such as West Texas and North Dakota. Domestic output hasn’t surpassed 10 million barrels a day since 1970. At a time when OPEC and other producers are cutting output, U.S. exports surged above 1 million barrels a day for the first time.

In conclusion…“In 1983, I was told we’re going be out of oil and fossil fuels definitively in 2003. That’s not true,” Zinke said at the Offshore Technology Conference in Houston. “And, you know, I always say God’s got a sense of humor — he gave us fracking. And fracking is a game-changer — certainly a global game-changer.”

Source: Laura Blewitt, “Trump’s U.S. Looks Past Energy Independence to Global Dominance,” Blomberg, 1 May 2017

No Longer Dependent On OPEC?

Results Of 1973 OPEC Oil Embargo

Introduction…The 1973-1974 OPEC Oil Embargo on the United States caused the price of oil to nearly double, high inflation, high unemployment, and shortage of gasoline resulting in long lines at the service station.  The pledge of nearly every U.S. President since President Richard Nixon has been U.S. energy independence.

Click here to watch the video that demonstrates this shift in economic dependence.

Let’s briefly review a few of the oilandgasinsider.com articles that demonstrates this shift in economic dependence.

  1. Texas Oil & Gas Production in Expansion Cycle
  2. Why Billions Are Pouring Into U.S. Shale
  3. Private equity funds raised $19.8 Billion for US oil ventures first quarter
  4. Even though price is still around $50 per barrel because producers have slashed up to ½ the cost of pumping oil from 2 years ago, making new production profitable
  5. OPEC On The Brink of Collapse
  6. Russia Cutting Production as U.S. Shale Escalates
  7. Dumping Billions in Canadian Assets For Permian Basin
  8. Marathon acquired 70,000 acres in Permian and 51,500 acres for $1.1 Billion
  9. Why Major Oil Company Goes Big On US Shale- ExxonMobile –major oil companies all but abandoned new US production several decades ago.
  10. Texas Fifth Straight Double Digit Jump in oil rig count on February 7, 2017
  11. Nearly $1 Trillion Worth Of Oil Found In Texas, Largest Deposit Ever Discovered In US.
  12. Permian Basin producing oil and gas since 1920 so infrastructure is well developed reducing production costs. And some are still claiming the largest deposit ever discovered in the US

Conclusion…The United States did oust Saudi Arabia as the world’s largest oil producer May 2016.  However, Saudi Arabia regained that title four months later. But, just as important, the United States holds 264 billion barrels of oil of which one-half is in shale.  This total exceeds both Russia and Saudi Arabia.

To conclude the U.S. is “No Longer Dependent on OPEC” may be true finally after 45 years of Presidents pledging to make the United States energy independent.  This is Bill Moist, MS, CPA

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Texas Oil & Gas Expansion Cycle

Texas Oil & Gas Expansion

Introduction…Crude oil and natural gas drilling and development in Texas has embarked upon a new cycle of expansion, according to the latest Texas Petro Index (TPI), which improved to 160.4 in March to post its fourth straight monthly increase.

Expansion is here…Driving the TPI upward during first quarter 2017 were crude oil and natural gas prices, drilling activity, the number of drilling permits issued, and the value of statewide oil and gas production, which were all higher compared to year-ago levels. However, the TPI is only about half the value of the record TPI of 313.5 in November 2014, and it still has not caught up in some other economic arenas.

Employment is increasing, but it still lags behind last year after the loss of well over 100,000 upstream jobs, said Ingham. An estimated 9,000 jobs have been added back since reaching the low point in September 2016.

Conclusion…”We still have a long way to go,” Ingham said, “but 2017 is going to be a year of recovery and expansion in the Texas statewide oil and gas exploration and production economy. “Activity levels will continue to expand, jobs will continue to be added, and the industry will support the broader state economy again, rather than acting as a drag on growth as it has for the prior two years.”

Source: “Oil and gas economy in Texas enters expansion cycle,” Oil & Gas Journal, 20 April 2017