Shell Called Tight LNG Markets >7 Mths Ago, Will They Keep Hinting And Pointing To LNG Canada FID Being Likely In 2018?

Shell’s LNG Outlook webcast is Monday Feb 26 and we expect to hear another continued bullish view on LNG markets –there was no LNG supply glut in 2017, it’s a rather tight LNG market and the LNG supply/demand gap is emerging in the early 2020’s.  Shell could easily title the presentation “we told you so” because they have been clearly saying so for at least several months.  The difference is that others have seen the H2/17 data support Shell’s call, are now sharing this view, and are looking to see what new LNG supply projects can be advanced to fill this near term gap,  Its not just a supply gap that is changing.  There are big changes to contract terms, duration, pricing and destinations, and these changes increasingly drive large LNG buyers to global LNG supply leaders with the diversified LNG businesses to deliver LNG supply as required.  Shell’s bullish LNG view on Monday will bring focus to what’s the next LNG supply project.   Shell has been giving clear hints that its LNG Canada project is likely the next FID on its list.  We don’t think a LNG Canada FID comes before the summer. But unless Shell makes a big change in direction on LNG Canada, we expect the hints on Monday to continue to point to LNG Canada as the next likely FID, and likely in 2018. Continue reading “Shell Called Tight LNG Markets >7 Mths Ago, Will They Keep Hinting And Pointing To LNG Canada FID Being Likely In 2018?”

Bad News For OPEC: EIA Sees US Oil Production +0.97 Mmb/d YoY In 2018 Using WTI $55.33/b

Its hard to believe there is bad news for OPEC with Brent trading this morning at $69.60 (830am MST), but there is bad news or at least a wake call for OPEC with the EIA increasing its US oil production growth forecast to 0.97 mmb/d YoY in 2018, up from its Dec forecast of 0.78 mmb/d YoY growth in 2018.  And this wake up call will be even louder next month as the EIA will likely increase its 2018 US oil growth again as the Jan 2018 forecast is based on WTI $55.33/b.   The last thing OPEC wants is to see greater than expected oil supply growth, especially in Q4/18 when the OPEC cuts are scheduled to end.  Its why we expect to see OPEC increasingly talk down oil markets by reminding that the cuts continue to show rebalancing is on track, but that rebalancing is still later in 2018.  OPEC’s challenge has switched from getting Brent to $60 to trying to make sure high oil prices don’t lead to oil supply surprising to the upside just as OPEC wants to end it cuts. This is especially so if the cuts end at Dec 31, 2018 as oil demand is always seasonally lower in Q1 than in the summer seasons.  Look for more OPEC comments like this morning’s comments from the UAE oil minister that oil rebalancing is not there yet. Continue reading “Bad News For OPEC: EIA Sees US Oil Production +0.97 Mmb/d YoY In 2018 Using WTI $55.33/b”

Good News For OPEC, International Rigs Not Yet Responding To Brent’s Recent Move To High $60s

There was good news for OPEC yesterday with the Baker Hughes worldwide rig counts for Dec 2017 showing that rig counts, outside of the US, haven’t really increased with the recent strength in Brent now in the high $60s.  Our blog may only say “OPEC” cuts, but we are referring to the collective OPEC/non-OPEC (ie. including Russia) cuts.   US shale is the primary focus/concern for OPEC and they probably just want US shale growth to be under 1 million b/d in 2018.  But the focus will also include rest of world excluding the US and OPEC/non-OPEC cut group (ROW) and the last thing OPEC wants is to see ROW have big rig increases and add oil supply growth before Dec 31, 2018, when the OPEC cuts are scheduled to end.  Any significant increases in ROW oil supply could impact the math for oil markets rebalancing and make the exit from the cuts more challenging, especially since global oil demand is always seasonally lower in Q1 of every year.  But for now, no real increase in ROW rigs means that OPEC remains on track to keep Brent in the $60s if it can maintain discipline on its cuts. Continue reading “Good News For OPEC, International Rigs Not Yet Responding To Brent’s Recent Move To High $60s”

Today’s 3.4 Earthquake In The Netherlands Should Be A Modest Positive To LNG Markets Rebalancing In Early 2020’s

There is no question that the stronger than expected LNG markets in H2/17 has been driven by China’s urgency in fighting pollution that has led to China’s LNG Dec imports being up 38% YoY to 7.8 bcf/d.  Its why we wrote out Sept 20 blog “China’s Plan To Increase Natural Gas To 10% Of Its Energy Mix Is A Global Game Changer Including For BC LNG[LINK].  However, we still look at events like today’s 3.4 earthquake in Groningen province (Netherlands) as a positive factor that will add support, albeit modest, to the faster than expected rebalancing to LNG markets.  The increasing earthquake activity in Groningen province led to the Dutch government regulating Groningen natural gas production down since Jan 1, 2014 (was 5.2 bcf/d in 2013, now 2.1 bcf/d).   We think the risk (increasing likelihood) is that this biggest earthquake since the 3.6 in Aug 2012 is likely to be a catalyst to a further regulated reduction in Groningen natural gas production and therefore increase Netherlands LNG imports ie. a modest positive to LNG markets. Continue reading “Today’s 3.4 Earthquake In The Netherlands Should Be A Modest Positive To LNG Markets Rebalancing In Early 2020’s”

Libya Reminds That Geopolitical Risk Is Likely To Be A Big Factor To Oil And OPEC In 2018

WTI’s big day yesterday was driven by the reports that a Libya oil pipeline explosion caused a shut in of 70,000 to 100, 000 b/d.   What caught our attention were the AP and Reuters reports that the explosion was not an accident but rather a deliberate attack.  The AP report notes it was ISIS.    It reminds that geopolitical risk may not be gone in Libya and will at least add risk that there could be a return to some of Libya’s prior issues that impacted its oil production levels and its ability to maintain its current ~1 million b/d thru H1/17 in the run up to the OPEC June meeting.   If Libya can’t sustain its production, it will help support the math to providing visibility to eliminating the oil oversupply in H2/18 and allow for some start of the exit of cuts in H2/18.   But perhaps even more than Libya’s pipeline explosion impact on the math for oil supply reduction, it reminds that geopolitical risk is likely to be a big factor to oil and OPEC in 2018. Continue reading “Libya Reminds That Geopolitical Risk Is Likely To Be A Big Factor To Oil And OPEC In 2018”

The Only Logical Time For OPEC To Start To Unwind The Cuts Is In July To Avoid Recreating A Surplus Problem

Before the end of Q1/18, we expect the market will turn its attention to how and when OPEC/non-OPEC exit from their cuts.  The lower seasonal oil demand in Q1 should help keep oil prices from running away too high too quickly.   Brent at $62.58 means the focus of the cuts is no longer how to get to $60, but how to manage to make sure a Brent >$60 is maintained without oil prices moving too high too fast.  At the June review, we expect OPEC to make the case that the oil surplus will be gone before the winter 2018/2019, which sets up the ability to start to wind down the cuts on July 1.  After all, this is the time of year when oil demand is always up seasonally every year.  It is the only logical time of year for the cut barrels to be returned to the market without causing a problem.  This timing should allow OPEC to manage an unwinding of the cuts and keeping Brent >$60 for the Saudi Aramco IPO, which in turn means WTI >$55 with the potential to look at a $60 base post termination of the cuts. Continue reading “The Only Logical Time For OPEC To Start To Unwind The Cuts Is In July To Avoid Recreating A Surplus Problem”

Increased Competition For Western Canada Heavy Oil With Exxon’s Start Of 150,000 b/d Hebron Oil Field, Offshore Newfoundland

All the big oil news this week (OPEC cuts, Keystone oil spill) overshadowed Exxon starting up oil production at the offshore Newfoundland Hebron oil field this week, which is to produce at peak rates of ~150,000 b/d from a single production structure.  Hebron is significant as it produces 20 API, not like the 33 API oil at nearby Hibernia.  This means it will compete against Western Canada heavy oil in PADD I East Coast and also PADD III Gulf Coast.   The Gulf Coast is the big opportunity given declining oil production from Venezuela and also Mexico.  The Hebron start up reinforces the need for Enbridge Line 3 expansion and/or Keystone XL for Western Canadian heavy oil to capture more of the Gulf Coast markets.  Continue reading “Increased Competition For Western Canada Heavy Oil With Exxon’s Start Of 150,000 b/d Hebron Oil Field, Offshore Newfoundland”

Is Saudi Arabia Signaling The Target For Rebalancing Oil Will Be Less Than The 5-Year Average Of Oil Inventories?

Oil trading today and tomorrow will be all about the chatter and speculating if OPEC and Russian will extend its cuts on Nov 30.  For the past couple months, the clear expectation has been an extension for a 9-month extension of the cuts to the end of 2018.  WTI has been very strong and has moved to high $50’s on the expectation for the extension. At 6am MST, WTI has moved off its bottom this morning and is now only down $0.39 to $57.68.  We are a little surprised it hasn’t moved a little weaker and that Saudi oil minister al-Falih’s comments aren’t getting much market attention this morning, or at least his saying ““What is a normal level of stocks? This is a technical matter and this needs talks with other parties”.   It seems that Al-Falih could be suggesting there could be some other definition for normal or the target.  In theory, this could allow them to put a lesser target in and they are further along to being rebalanced.   There is logic to using a different period.  It means that OPEC and Russia can say that rebalancing will be reached way sooner, but it is moving the goal posts closer versus the expectations of correcting to the 5-year average. Continue reading “Is Saudi Arabia Signaling The Target For Rebalancing Oil Will Be Less Than The 5-Year Average Of Oil Inventories?”

Cdn Heavy Oil Differentials Should Narrow With The Good News That PHMSA Approves Keystone Restart

There was good news this afternoon when PHMSA signed off on the restart of Keystone Pipeline at reduced pressures tomorrow (Nov 28).  Keystone was only down for 12 days, which is a faster return than we expected given the tough public comments from the South Dakota PUC.  But the good news for Keystone is that the restart decision authority was from PHMSA and not the PUC.  The PUC is still a wildcard, but its potential impact is probably down the road a month or two, or whenever they finish their forensic analysis and can determine if TransCanada violated any permit conditions.   The Keystone restart is good news for Cdn heavy oil producers as Cdn heavy oil differentials should recapture some of the recent widening that happened once Keystone was shut in.  TransCanada did not disclose the exact level of reduced volumes to restart and what volumes are reached in the rampup and when, but the fact that PHMSA signed off on the restart should bring both an immediate positive tone and impact to Cdn heavy oil.   Even at reduced volumes, this is good news for Cdn heavy oil, especially given the declining oil production of the primary competitors to Gulf of Mexico refiners (Mexico and Venezuela) in 2016 and continuing in 2017. Continue reading “Cdn Heavy Oil Differentials Should Narrow With The Good News That PHMSA Approves Keystone Restart”

Declining Venezuela/Mexico Production Should Limit The Widening Of Cdn Heavy Oil Diffs From The Keystone Pipeline Shut Down

Its been 10 days since Keystone Pipeline was shut down and its hard to see a quick restart.  We have a regulator with responsibility (Pipeline & Hazardous Materials Safety Administration) for the pipeline restart and one that wants to make sure it has its say (South Dakota Public Utilities Commission).  There is no formal indication for the cause of the leak, but it sounds like it is different than the cause of the nearby April 2016 Keystone Pipeline leak.   The only real option for displaced volumes is by rail as Enbridge’s heavy oil lines are full.  But we believe Gulf of Mexico refineries will want to lock up Cdn heavy oil barrels because of declining Venezuela and Mexico oil production.   Just like Venezuela and Mexico led to narrower than expected Cdn heavy oil differentials in 2017, it should help keep a cap on the widening Cdn heavy oil differentials to not much more than the cost of rail. Continue reading “Declining Venezuela/Mexico Production Should Limit The Widening Of Cdn Heavy Oil Diffs From The Keystone Pipeline Shut Down”