The news flow from China this summer on its increasing fight and urgency to fight pollution supports China’s plan to increase natural gas to 10% of its energy mix in 2020 and 15% of its energy mix in 2030. This is a game changer to global natural gas markets and, by itself, can bring LNG to under supply 2 to 3 years earlier than expected. China’s natural gas consumption increased by ~15% per year from 2005 thru 2016 and ~1.5 bcf/d per year vs China’s 8.5% growth rate in energy in total. Yet natural gas only got to 5.9% of China’s energy mix. If China is to hit 10% by 2020, it will need to increase natural gas consumption by 4 to 5 bcf/d per year. Assuming China continues to grow its domestic natural gas production by 0.6 bcf/d per year (its growth rate for last five years), China will need to import an additional ~3.5 to ~4.5 bcf/d per year. This is “per year”! And if so, we believe BC LNG will be back and there is a higher probability than ever before for a Shell FID on its BC LNG project in 2018. Continue reading “China’s Plan To Increase Natural Gas To 10% Of Its Energy Mix Is A Global Game Changer Including For BC LNG”
We will be presenting a very bullish outlook for natural gas later today in our webcast for Stream’s 2018 Energy Outlook. The key to our call is that a massive natural gas demand surge has started and will lead to world LNG markets being corrected closer to 2020 than the current conventional wisdom of closer to 2025. One of the reasons we see this happening quickly is we share Shell’s view that global LNG markets, as of mid 2017, are not in an oversupply situation and there is data support (Japan LNG spot prices, NW Europe storage) for this view. Two weeks ago, Shell said “Actually, over the last 18 months, every LNG cargo that could technically be produced in this world has been produced and has found a well paying customer”. Therefore, we have a different starting point than conventional wisdom that says LNG markets are oversupplied in 2017. And if you combine a different starting point with a different view on a massive surge in natural gas demand, then you end up with a much different view of when LNG markets will move to undersupply. We will be posting a blog post today’s webcast on why we see a massive surge in natural gas demand. Continue reading “Shell: “Every LNG Cargo That Could Technically Be Produced In This World Has Been Produced And Has Found A Well Paying Customer””
We were surprised there wasn’t any Sunday and Monday oil market discussion on the Saturday night fire at Saudi Aramco’s SAMREF (Saudi Aramco Mobil Yanbu Refining Company. JV with Exxon Mobil) 400,000 b/d refinery at Yanbu on Saudi Arabia’s Red Sea coast. Rather, news from St. Petersburg from OPEC/non-OPEC monitoring committee and Saudi Arabia dominated oil markets and led to WTI being up $0.66 to close at $46.43/b on Monday and trading higher this morning. The lack of attention to the refinery fire was also helped by Saudi authorities stating that the Yanbu refinery fire did not affect operations. But the key reason is oil markets must believe the Saudi explanation that the fire “happened due to hot weather” and not the Houthis version that it was the result of a successful long range H-2 Burkan missile hitting the refinery. If markets believed the Houthis, WTI would have been much higher than $46.43/b on Monday. Continue reading “Oil Markets Must Believe The Saudi Aramco Yanbu Refinery Fire Was Caused By Hot Weather And Not A Houthi Missile”
Narrower than expected Cdn heavy oil differentials continue to surprise to the positive. They narrowed at the beginning of 2017 and continue to benefit, just like global heavy oil differentials, from OPEC cuts. Heavy oil differentials normally widen in June/July/Aug every year, but that has not happened this summer. We probably shouldn’t be surprised given the warning from US refiner Valero that narrower than normal heavy oil differentials are expected to continue as along as OPEC cuts stay in place. This has been a big plus for producers as they review their 2017 budgets and start to look ahead to 2018. 2017 budgets were generally set on higher WTI oil prices, higher AECO gas prices, lower Cdn $ exchange and likely flat interest rates. Cdn heavy oil differentials have been the bright spot. Continue reading “Narrow Cdn Heavy Oil Differentials Even When Differentials Normally Widen In June/July/Aug”
Its normally a waste of time to read an annual report released six months after year end, however that isn’t case for Saudi Aramco’s 2016 Annual Review [LINK] last week. There was good food for thought on long term oil markets that was overlooked in the headline reporting of 260.8 billion barrels of oil reserves and record oil production of 10.5 million b/d. It may not impact 2018 and the detail was lacking, but Saudi Aramco noted positive indications on three key technology initiatives that can impact long term (ie. post 2025, perhaps sooner) oil markets – solar efficiency losses from dust, increasing recovery factor from waterfloods using SmartWater, and fracking without sources of fresh water. If they can get the economics to work, these can impact long term oil markets by either potentially reducing Saudi Arabia demand for oil used for electricity generation or increasing oil recovery factors/lowering Saudi Arabia decline rates. What caught our attention was Saudi Aramco saying they are making progress on each and we can see them wanting to advance these technical initiatives to help with the marketing ahead of their 2018 IPO. Their ability to make these technology advancements work, or not work, economically could have a big impact on long term oil markets. Continue reading “Can Saudi Arabia Make SmartWater Flooding, Solar, And Fracking Work?”
It wasn’t too long ago that WTI was $100 in July 2014, still $60 in July 2015, and there was the big need, momentum, and expectation for at least one of Canada’s three new heavy oil pipelines (Keystone XL, Trans Mountain expansion, and Energy East) to go ahead. A lot has changed since then, both on the negative (lower oil prices, new governments, major oil sands M&A) and on the positive (declining Mexico and Venezuela production, OPEC cuts). July has already started off with interesting news on these pipelines, and by the end July, we should start to see more of the picture filled in for these three pipelines on which way they are going, or not going. It may well turn out that one or none of these three high profile new pipelines end up going ahead, rather it may well be the lower profile expansion of Enbridge’s existing oil pipeline system to the Midwest and Gulf of Mexico. We still believe there will be additional takeaway pipeline capacity for Cdn heavy oil around 2020 or soon thereafter. One way or another, the picture should be clearer by the of July on the direction on these pipelines. Continue reading “July Could Turn Out To Be A Turning Point For Trans Mountain, Keystone XL and Energy East”
Yesterday’s Trump/Duda positive comments for long term US LNG supply to Poland were another support factor for mid term natural gas prices. Any individual LNG supply deal is not material to broad markets. However, every time Cheniere can capture another long term LNG supply deal or there is another pipeline to Mexico, it adds to the strength of the most significant game changer to Henry Hub (HH) and AECO gas prices – Increasing US gas exports accelerated in 2015 adding 325 bcf of demand, accelerated in 2016 to add a further 509 bcf in 2016 for a cumulative 2 year impact of 834 bcf. Plus, the cumulative impact continues to increase ie. on June 25, Cheniere announced a 20-yr LNG supply deal of ~0.5 bcf/d to KOGAS (South Korea) [LINK]. These provide an increase to base demand that is not weather related and why HH and AECO gas prices were stronger than expected this winter despite record storage going into the winter and near record warm winter temperatures. The cumulative impact of these individual events has been a game changer and why an individual long term US LNG supply deal to Poland adds one more support factor to this game changing theme.
Increasing US natural gas exports is the key mid term factor for Cdn natural gas, especially with the increasing challenge for BC LNG. Higher HH gas prices do drag up AECO gas prices, even with a wide differential. Our July 4, 2017 blog “Today’s Qatar/Russia Gas Supply Announcements Add To The Challenge Facing BC LNG Post The New BC Govt” [LINK] noting the increasing challenge for BC LNG, which means that increasing US natural gas exports are the key mid term factor for Cdn natural as prices. Our June 22, 2017 blog ““Many” Montney Players Looking At Cheniere’s GoM LNG Vs Waiting For BC LNG” [LINK] highlighted the excellent Montney half cycle economics even at AECO $2.50 and Cheniere talking to “many” Montney players for supply to its GoM LNG. The more Montney that can be HH priced less transportation will provide even better returns than AECO gas prices with the current wide AECO differential.
Today’s Qatar and Russia announcements are expected to add 7.6 bcf/d of natural gas/LNG supply in 2020 to 2024. Russia’s Power of Siberia 3.6 bcf/d pipeline to China has a planed startup in Dec 2019, and Qatar’s expanded development of the massive North Field is now planned to add 4 bcf/d in 2022 to 2024. Any new added global natural gas supply adds competition to BC LNG. At the same time, it looks even less likely for FID on Petronas BC LNG in 2017 or 2018 given new BC Premier Horgan’s view that Petronas has a “serious problem with location” and that this “is a critical issue that needs to be addressed”. It will be one thing to pick a new location, but there will be added time with new reviews/approvals/analysis for the new site, which is why we find it difficult to see how FID happens quickly ie. certainly in 2017 and likely also 2018. Continue reading “Today’s Qatar/Russia Gas Supply Announcements Add To The Challenge Facing BC LNG Post The New BC Govt”
This week’s final US sellside energy conferences before the summer did not disappoint anyone who was looking to see what “new” technology applications are likely to be highlighted when energy conferences restart in September. This weekend’s Sunday Energy Tidbits memo will cover a range of non-technology sector insights from this week’s presentations including heavy oil differentials, service sector cost inflation, lower rig counts in H2/17 vs H1/17, drilled uncompleted wells, etc. But we wanted to highlight three technology developments that aren’t just bigger and tighter fracks, but are items pointing to why US shale/tight oil could continue to surprise to the upside in 2018 – finer proppants, scientifically engineered gas, and tank/cube development. Continue reading ““New” Technology Is Working And/Or Increasing In Application To Increase Oil Recovery From Shale/Tight Oil”
We expect to see US oil rigs start to level off and decline this summer if WTI stays ~$45 for a few more weeks. A weaker US$ this week has helped WTI bounce modestly off its bottom to $44.80 today, but we believe it needs to point to the higher $40s to prevent US oil rigs from declining. US oil rig levels ultimately respond to oil prices. The data shows the R2 correlation has been 0.959 for US oil rigs, on a 12 week lag, to WTI oil prices. This suggests that US oil rigs should start to respond soon to the recent drop in oil prices. Plus we believe the comments from quality shale/tight oil producers at the US sellside conference this week support the view that $45 oil is the price starting to impact drilling levels. US oil production should still keep increasing, but a decline in US oil rigs will help with the investor tone to oil later in 2017. Continue reading “$45 Is The New $50, But US Oil Rigs Should Start To Decline If WTI Stays ~$45 For A Few More Weeks”