Tuesday, March 15, 2016

Tea Leaves Suggest We Will See Russian - OPEC Deal Before End Of April, 2016

No specifics, just reading the tea leaves. Most likely the first meeting will end with concessions to Iran and then working from there, with more definitive commitments at the next OPEC meeting in June.

This would make for a great poll, but will hold off for now.

From Forbes, March 15, 2016:
Russian Energy Minister Alexander Novak traveled to Tehran on March 14 on a trade mission where he met with Iranian Petroleum Minister Bijan Zanganeh and Iranian Energy Minister Hamid Chitchian. On the agenda were discussions about the proposed “production freeze”, which Iran has consistently and unequivocally stated it will not consider joining until after its oil production reaches the pre-sanctions level of 4 million barrels per day.
Neither Russia nor Saudi Arabia had planned significant production increases in 2016.
Russia’s January production of 10.88 million barrels per day was already at a post-Soviet record high. Russia could freeze production but still increase exports of crude oil relative to oil products by manipulating its tax regime.
Saudi Arabia’s output was relatively stable in January at near record levels of 10.23 million barrels per day.
Iraq has signaled that it will consider participating in the proposal, but only if all other major OPEC and no-OPEC producers were in agreement. By declaring that its January production was 4.775 million barrels per day, Iraq has put forth an inflated production ceiling that doesn’t reflect actual production but would lock-in a targeted production increase. Iraq’s January oil production was closer to 4.35 million barrels per day.
Getting Iran on board will require finding a mutually acceptable production ceiling.  Yet, Iran has refused to cap its production at January levels, which OPEC secondary sources estimate to be 2.93 million barrels per day. In Tehran’s perspective, this would leave an unacceptable amount of money on the table considering that pre-sanctions production was around 3.8 million barrels per day. Iran produced an estimated 3.22 million barrels per day in February.

No New Permits In The Bakken Today; One Well Coming Off Confidential List Wednesday -- March 15, 2016

Active rigs:


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No new permits issued today.

Two oil and gas permits renewed:
Kaiser-Francis (2), Ecko and Diesel in Stark County
Three (3) producing wells completed:
  • 30757, 81, Roen 24X-23E, Elk, t1/16; cum on-line for two days;
  • 30875, 192, XTO, Roen 24X-23AXD, Elk, 4 sections, t1/16; cum on -line for two days;
  • 30758, 396, XTO, Roen 24X-23A, Elk, t1/16; cum on-line for 3 days;
One well coming off confidential list Wednesday:
  • 31728, SI/NC, SM Energy, Bissonnette 14B-31HN, Frazier, no production data,

Off The Net For The Rest Of The Day -- Sophia And I Have A Date

Tweeting now: California appeals court upholds Los Angeles ban on medical marijuana delivery.

Tweeting now:  Entire Washington, DC, Metro system will reportedly shut down for at least 29 hours starting at midnight for emergency safety checks of electric cables.

Tweeting now:  officer down in Ft Worth, Texas. Status not reported.

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Child Labor

India's Oil Demand On Verge Of "Take-Off" -- Oxford Institute For Energy Studies -- March 15, 2016

Updates

March 18, 2016: John Kemp tweeting / Reuters reporting -- India's gasoline demand growing at fastest rate ever

March 16, 2016: tweeting now --  State-owned Indian Oil Corp. earmarks $26 billion in investment over 5-7 years.

Original Post
 
This may be a document folks want to save as a PDF file.

I have a page which I call "the big stories."

At that page, I follow India under the heading, "natural gas and coal in post-nuclear world."

At the time I placed India there, I did not have a "placeholder" for India and oil and for the sake of keeping that page as clutter-free as possible, I won't add India / oil demand. I'll either leave that page as is, or change the heading to a more general "Energy in a Post-Nuclear World."

Whatever.

I say all that to say this. A reader just sent me a most interesting article on India's need for oil. I told him:
I have a regular reader who reminds me about India every month or so. I think India is off the radar scope of every American. For the past 20 years, the global economy has been all about China. At some point, maybe starting in 2020 (if not sooner), the global economy will be all about INDIA and China. China plateaus and India surges.
As noted above, this article is a must-read. I don't know if it might be lost in the ethernet someday, and that's why I recommend  saving it as a PDF file.

The article: India's Oil Demand: On the Verge of 'Take-Off' -- from The Oxford Institute for Energy Studies.

The abstract:
Over the last decade, non-OECD oil demand growth, and by extension global oil demand growth, was driven mainly by China, which accounted for half to two-thirds of this growth.

However, since the Chinese government embarked on a deliberate policy of rebalancing, the country's annual demand growth has slowed to under 03 mb/d, compared to an average demand growth of over 0.5 mb/d in the 10 years prior to 2013. In this new era of slower Chinese growth, a new contender has emerged: India, which in 2015 was the main driver of non-OECD oil demand growth.

In this paper we argue that in addition to the boost from low oil prices, structural and policy-driven changes are underway which could result in India's oil demand "taking off" in a similar way to China's during the late 1990s, when Chinese oil demand was at levels roughly equivalent to current Indian oil demand. These changes include: a rise in per capital oil consumption (reflected in rising motorization of the Indian economy), a massive program of road construction (amounting to 30 km/day), and a push towards increasing the share of manufacturing in GDP by 2022 (which could increase oil consumption by at least a third based on a conservative linear estimate). This paper also examines the implications of a take-off in domestic demand for India's recently acquired status as a net petroleum product exporter.
Some data points:
  • India, not China, is now driving non-OECD oil demand growth
  • world demand growth is at its strongest since 2010 -- remember, this report was released this month; mainstream media would have us believe global demand (because of China) for crude is oil is declining
  • growth demand in 2015 was independent of stimulus (although the 50% fall in oil prices provided a significant boost to consumer demand)
  • China is slowing down; the new kid on the block looking for growth: India
  • India is soon likely to overtake Japan as the 2nd-largest oil consuming economy in Asia
  • India's GDP growth is estimated to have overtaken China's in 2015 (7.2% vs 6.9%)
  • India's history of oil demand for the past decade suggests a pattern consistent with countries at relatively early stages of income and development
  • the upsurge in India's oil demand growth in 2014 and 2015 suggest that "something is going on"
  • Section 3 of the white paper discusses the concept of "take-off" in economic growth and energy use
  •  Figures 7 and 8 compare car ownership / penetration between India and China. India has 20 POVs/1,000 people; China has an astounding (by comparison) 90 vehicles / 1,000 people
  • China has 80 million POVs; India has less than 15 million
  • India has embarked on massive program of highway construction, aiming to construct 30 km of highway roads per day
Oil consumption by country (Asia), 1000 bbls/day:
  • China: 10,480 (2013); it was 8,938 in 2010;
  • Japan: 4,350 (2014); it was 4,429 in 2010; DECREASE
  • India: 3,660 (2013); it was 3,305 in 2010; SIGNIFICANT INCREASE
  • Korea: 2,340 (2014); it was 2,269 in 2010;
  • Australia: 1,079 (2014)

New Post-Boom Low: 30 Active Rigs; Spring Restrictions May Be In Play -- March 15, 2016

Active rigs:


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A reader reminds me that "we" are into "spring restrictions" discussions. "Spring restrictions" always affect drilling operations. With oil prices this low, operators unlikely to be eager to spend additional money moving rigs / complying with restrictions.

The reader suggests the number of active rigs could drop significantly.

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A Note to the Granddaughters

Does the name Johnny Bedford mean anything to anybody?

How about Johnny "Brutal" Bedford?

Here's his webpage. Wow, look at his physique, height and weight: 5'9" and weighs 195 pounds, and looks slim as can be. Upper arms, thighs must be all muscle.

I don't know. I will have to ask my granddaughters. LOL.

Our daughter "does" kickboxing four times a week. I'm not sure where it will lead. LOL.

This week, with spring break and the kids out of school, our daughter took the two older granddaughters (ages 12 and 9) to kickboxing this morning.

Their coach? Johnny "Brutal" Bedford. 


He looks like a nice, average-looking guy.

I can't wait to hear later today, who enjoyed the day more -- the younger or the older granddaughter. The older granddaughter is incredibly strong, both upper body and lower body due to competitive swimming and water polo. The younger granddaughter, a soccer player, freely admits her upper body strength is lacking.

No, Sophia, 19 months old, did not go.

"We Will Ban Fracking" -- Hillary Clinton -- March 15, 2016

A picture worth a thousand words.

Link: EIA.

Retail Sales Decline Month-Over-Month; January's Retail Sales Revised Downward, But Overall Things Are Great -- Bloomberg -- March 16, 2016

Updates

March 18, 2016: reflecting on the retail sales report posted below, it was interesting to look at the Bloomberg chart when the pathetic January retail sales came out. That's a pretty dismal graph.  
 
Original Post
 
This must have been a gut-check for the Bloomberg editors. One of the mouthpieces for the Obama administration had no way of spinning this story. Not only did retail sales drop month-over-month, but retail sales in the previous month (January) were revised downward. And February, this year, had an extra shopping day -- that extra shopping day was one reason analysts said car sales were so good in February.

From BloombergBusiness:
U.S. retail sales dropped in February and the prior month’s gain was revised to a decline, calling into question the narrative that bigger gains in consumer spending would propel economic growth at the start of 2016.
The 0.1 percent decline in purchases followed a revised 0.4 percent January decrease, Commerce Department figures showed Tuesday. Sales excluding gasoline rose 0.2 percent in February, reversing the previous month’s retreat.
The decrease in purchases, which included auto dealers, department stores and furniture outlets, showed Americans were salting away money saved at the gas pump amid volatile financial markets. The disappointing reading on the biggest part of the economy comes as Federal Reserve officials meet to gauge whether growth is strong enough to eventually warrant another increase in interest rates.
We've gone through this a million times. The savings on gasoline amounts to a couple of McDonald's dinners for a family of four each month.

The bigger expense? Affecting everyone? ObamaCare.

The 800-pound gorilla is not mentioned in this article by name, but at least it is mentioned in passing:
“We’re seeing higher rents, higher healthcare expenses, so that may be offsetting a lot of the benefit of lower gasoline prices,” said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida. “You’re still looking at strong job growth, good wage growth, and wages should continue to pick up as the labor market tightens.”

The writers mention that payrolls (the number of people working) but it does not mention that the number of hours in the average work week has declined under this administration. The average workweek is now slightly less than 35 hours -- driven by ObamaCare which mandates that full-time employees -- defined as working 35 hours -- must be provided health care insurance by their employer. In addition, wages -- despite all the talk of raising minimum wages -- have stagnated.

This link:
  • average hours/workweek: 34.4 hours
  • average wages: declined by 3 cents/hour in February, 2016
Less hours/week and less money per hour = less money overall.

I wonder how this will affect GDP forecast (GDPNow)? The most recent forecast was March 9, 2016, which has been posted. I assume GDPNow will update the forecast with these retail sales being announced today.

Some Data Points From UK's North Sea -- March 15 ,2 016

Iditarod update: It looks like we have a winner? Dallas Seavey has won three of the last four Iditarods. At the moment he is in first place. He and Mitch Seavey have finished the race and are in 1st and 2nd position respectively. Dallas: 8 days, 11 hours, 20 minutes, 16 seconds. It looks like this breaks the record set last year: 8 days, 18 hours, 13 minutes, 6 seconds.

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UK's North Sea Bust

From Rigzone there's a great article on the future of UK's North Sea oil industry. It's a boring article on tax structure and one analyst's argument that the UK needs to restructure (euphemism for "lower") taxes on North Sea oil production. Be that as it may, look at some of these data points and/or comments:
  • in order to reflect the maturity of the UK continental shelf (UKCS): maturity of the field
  • low oil prices affecting entire economy of Scotland; does this sound familiar?
  • hotel occupancy: a 15% decrease; does this sound familiar?
  • housing sales: down by 14% during the previous 12 months; does this sound familiar?
But look at this. This is incredible. I cannot get my hands around big numbers, but even so, this is amazing:
  • investment in the UKCS will be less than $1.4 billion this year (2016)
  • compare that to a typical level of $11 billion annually over the last five years
Again, the oil industry is going to go from $11 billion annually (for the last five years) to less than $1.5 billion this year in the UK North Sea. Wow. In the US, operators have cut back from 20% to 50% but nothing like this.

Current UK taxes on the oil and gas industry:
  • 50% tax on production profits
  • 67.5% for older fields
And we thought it was bad in the Bakken.

Comments And Commentary On Whether The Bakken Can Ever Ramp Up Again -- March 15, 2016

Disclaimer / reminder / note: I am inappropriately exuberant about the Bakken; I see the Bakken through oily-stained glasses.

I'm curious what readers think about this article that will be in today's Wall Street Journal: many shale companies are unable to ramp up oil output. Idle equipment, limited workforce prevent shale sector from playing role of swing producer.

First of all, before getting started, it seems there are three themes in this article which makes it difficult to analyze. These are the three story lines or arguments the writers posit:
  • many oil companies are in shell-shock; have little capital in which to ramp up even if/when the price of oil recovers
  • the shale industry in general will have trouble ramping up because of idled equipment, limited workforce
  • the shale industry may not be able to play the role as swing producer
We will dispense with the last argument first. I doubt if any roughneck really cares if US shale becomes the swing producer. It's a discussion for the ivory tower folks and for bloggers like me when looking at the big picture. Whether or not US shale is a swing producer, who cares? Not me.

I'll use the Bakken as my reference point for the rest of the article because that's what I follow most closely. 

The first argument posited: many oil companies have little capital in which to ramp up even wen the price of oil recovers. My initial thoughts:
  • it's going to take a lot less money to ramp up in 2017 than it took in 2007 when the Bakken boom was just beginning; do you remember the lease rates; do you remember all the infrastructure that needed to be put in place; remember what little "we" knew about drilling the Bakken; do you remember what little "we" knew about fracking
  • in 2000 when companies were looking for cash to start drilling the Bakken in Montana and in 2007 when companies were starting to drill in North Dakota, no one knew for sure how much oil, if any oil, was economically recoverable; try getting cash from a bank for oil exploration if you can't "guarantee" oil is there
Bottom line: if the price of oil recovers, the operators will find the cash from banks, investors, hedge funds.

The other argument posited by The WSJ writers: the shale industry in general will have trouble ramping up because of idled equipment, limited workforce. This is perhaps the easiest to debunk.

Again, remember, I am inappropriately exuberant about the Bakken.

In 2007 when the Bakken boom there was "no" infrastructure in place to handle the tsunami of workers flooding western North Dakota. Housing was a huge problem. Not any more.

The potential for production can only be achieved if there is adequate takeaway capacity. In 2007, there was no CBR -- none, zilch, nada. Now, there must be no less than ten CBR terminals in the Bakken. Those rails aren't going anywhere; and the tankers haven't disappeared. Rolling stock is now storing oil.

Pipelines when the Bakken boom began. A huge problem. Not any more.

Roughnecks needed for drilling? Were there any active rigs in North Dakota in 2005? A few years later there were 200 active rigs, and the rigs kept getting bigger and better. The bigger and better rigs had to be brought up from manufacturing sites out of state; now they are being stacked in the Bakken.

Will we need 200 active rigs to ramp up? Spud to TD at the beginning of the boom: 45 - 60 days. Now, 15 days. 200 active rigs to ramp up? There are upwards of a thousand DUCs that need to be fracked. At the height of the boom, about 2,500 wells were drilled each year. A thousand DUCs is not trivial.

Sand? Ceramic? Water? for fracking. Do folks remember all the problems getting sand, ceramic, water for fracking. I even received phone calls from people asking if I knew of any sources for sand. Seriously. Sand is no longer the issue it was eight years ago.

So, time for a poll: are you concerned about the ability of the Bakken to ramp up if oil goes to $100 tomorrow?
  • yes, there's no way the Bakken will ever be able to ramp back up even with oil at $100
  • no, the Bakken will do just fine

Another Huge Energy Story For The US -- South America Emerging As Market For US LNG -- RBN Energy -- March 15, 2016

Updates

March 20, 2016: see the Brazil story below (RBN Energy). Genscape suggests it's time for Europe to pivot west with regard to LNG imports:

According to figures from BP's Statistical Review of World Energy 2015, nearly 45 percent of the natural gas delivered to Europe via pipeline in 2014 originated in Russia and Central Asia.
Geopolitical challenges in Ukraine and Turkey, however, threaten the stability and growth potential of vital pipeline corridors in these regions. Moreover, new pipeline infrastructure linking gas-rich Iran to Europe likely is more than a decade away. Given the unfolding scenario, Europe finds itself at a crossroads in terms of ensuring reliable and sufficient natural gas supplies.
A recent Genscape white paper argues that the region's gas customers should take steps to increase imports of liquefied natural gas (LNG) from North America. Not only would "pivoting West" help European gas customers diversify their gas supplies, but also give U.S. LNG producers a long-term market for their exports, says Genscape LNG analyst Ted Michael. 
Original Post
Active rigs:


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RBN Energy: South America Emerging as Market for U.S. LNG.
Lately, it’s not just liquefied natural gas (LNG) prices that are headed south, it’s LNG cargoes too. A few days ago, the first LNG shipment from Cheniere Energy’s Sabine Pass liquefaction/export terminal was sent to Brazil, where a drought has slashed hydroelectric production and boosted the need for natural gas-fired power. Today we consider what’s driving LNG and natural gas demand in Brazil, Argentina and other countries in the southern half of the Americas, and what that may mean for U.S. LNG exporters and gas producers.
Given the impact that LNG exports are expected to have on U.S. natural gas production over the next 15 to 20 years, it’s not surprising that the recent buzz about the destination of the initial LNG shipment from Sabine Pass in southwestern Louisiana rivaled interest in Kanye West’s self-promotional feud with Taylor Swift (well, almost).
As we all know, the Kanye vs. Taylor brouhaha continues, and—more relevant to today’s blog—Chevron Transport’s 160,000 cubic meter Asia Vision LNG tanker left Sabine Pass on February 24, 2016, and is, by now approaching the Salvador da Bahia Regasification Terminal, a floating storage and regasification unit (FSRU) moored at BaĆ­a de Todos os Santos (Bay of All Saints) at Salvador, in Brazil’s state of Bahia.
Golar LNG Partners owns the FSRU, which is also known as Golar Winter; Petroleo Brasileiro—Brazil’s state-owned energy company, also known as Petrobras—charters it.
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Puppet

This story is also over at USA Today if unable to access NY Times

Obama reverses course on earlier decision to allow off-shore drilling along the US southeast course. The story is at The New York Times:
The Obama administration is expected to withdraw its plan to permit oil and gas drilling off the southeast Atlantic coast, yielding to an outpouring of opposition from coastal communities from Virginia to Georgia but dashing the hopes and expectations of many of those states’ top leaders.
The announcement by the Interior Department, which is seen as surprising, could come as soon as Tuesday, according to a person familiar with the decision who was not authorized to speak on the record because the plan had not been publicly disclosed.
This story is going to get a lot of folks excited, but it's a non-story for most and great news for the Bakken.
  • there is a glut of global oil; we don't need a new more to come on the market
  • we wouldn't see this oil for decades anyway; even if Obama had not changed his mind, there were plenty of existing headwinds to prevent drilling any time soon
  • the US can simply bank this oil for future generations; Saudi Arabia should be so lucky
  • there will winners and losers; for investors, don't invest in the losers 
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Hillary Puts Foot In Mouth

It's not "what she said," so much as "how she said it." How would you like if a presidential aspirant came to your community and told you he/she would destroy your livelihood. When I first heard her reported comments, I was dumbfounded. First of all, it was an old story; she did not "need to go there." 

From thestar.com.my: by-line, Frankfort, KY -- center of coal-mining country.
Facing a backlash from Appalachian Democrats, Hillary Clinton's campaign on Monday tried to reaffirm her commitment to coal communities one day after declaring on national television she was going to "to put a lot of coal miners and coal companies out of business."
Clinton's comments came during a Sunday night appearance on CNN, where she was asked a question about how her policies would benefit poor white people in southern states who generally vote Republican.
"I'm the only candidate, which has a policy about how to bring economic opportunity, using clean renewable energy as the key, into coal country. Because we're going to put a lot of coal miners and coal companies out of business," Clinton said. "We're going to make it clear that we don't want to forget those people."
They will all get 16 weeks of unemployment benefits, she could have added. 

The good folks in coal mining country only heard this:
"I'm the only candidate, which has a policy about how to bring economic opportunity, using clean renewable energy as the key, into coal country. Because we're going to put a lot of coal miners and coal companies out of business," Clinton said. 
She could have told them that if  previous misguided policies resulted in loss of jobs in coal mining, we need to do what we can to transition energy industry to natural gas.

Oh, that's right: she has also promised to ban fracking. 

There goes Indiana, Ohio, Pennsylvania, West Virginia, and Virginia.