Tuesday, July 28, 2015 -- Good Morning, Texas! The State Is On Track To Beat 1972 Oil Production Record

As promised, here is the fifth of several photos that will be posted over the next several days. The first batch of photos will be of the Statoil Trust wells a few miles west of Williston. This 5-well pad is just east of another 4-well pad in the same section.

Active rigs in the Bakken:

	7/28/2015	07/28/2014	07/28/2012	07/28/2011	07/28/2010
Active Rigs	73	193	207	181	139

RBN Energy: an update on the global LNG market. 

Given all that’s going on in the energy world, it’s not surprising to see the international LNG market in a state of flux. Consider this: Demand for LNG has plateaued in Asia (by far the largest market for LNG, led by Japan and South Korea) due to a combination of milder-than-normal weather, slower economic growth, renewed competition from nuclear, and lower-cost power from oil and coal. Also, the biggest Asian growth markets (China and India) are looking to pipe in natural gas from their neighbors (Russian/Siberian gas into China, for instance) as a lower-cost alternative to LNG. Europe, meanwhile, is concerned about relying too heavily on piped-in gas from Putin’s Russia, and is considering its gas-supply options too—including, as of late, piped-in gas from Iran. All of this comes as a flood of new liquefaction/LNG export capacity is poised to enter commercial operation (most of it in Australia and the U.S.; see blue and lime-green layers in Figure 1), and as major LNG consumers are trying to move away from long-term LNG supply deals indexed to oil prices and toward shorter-term and spot deals, prices tied to spot natural gas (as U.S. LNG exporters are offering), and—very important—“destination flexibility” to allow LNG to be shipped wherever the liquefaction off-taker wants.

here’s a lot we can say for sure about the LNG market. For instance, we know that, in anticipation of growing demand, a lot is being invested in developing new gas-liquefaction and LNG export capacity, most of it in Australia and the U.S. Barring some kind of market meltdown (which is very unlikely), these projects will be completed and become operational, on or close to schedule (though a few in Australia are running late). Another thing we know is that while the long-term outlook for growth in LNG demand remains bullish, in the past couple of years LNG demand growth has been taking a breather of sorts (for the mild-weather, weak-economy and other reasons cited above). Because the investments in new liquefaction/export capacity were based upon the expectation of uninterrupted growth in LNG demand, the market is now starting to experience a yawning gap between supply (too much) and demand (lagging) that may well widen over the next five years as capacity additions continue to outpace demand growth. This has resulted in a market very favorable to those buying LNG on the spot and short-term markets, who have been enjoying LNG spot prices of less than $8/MMbtu. LNG purchased under long-term Sales and Purchase Agreements (SPAs) indexed (as most are) to crude oil prices also costs less now, of course, with oil selling for only $50/Bbl or so, but still is priced at a premium to spot.  

As you might guess, Qatar’s got it all: lots of cheap gas, low-cost infrastructure and easy access to both Asia and Europe, and a head-start in the LNG trade. Australia’s got a lot too, but its liquefaction costs are relatively high (its liquefaction/export capacity, sited in remote locations and “greenfield” in nature, has been costly to develop and very susceptible to cost overruns), and while the Land of Oz has easy access to Asia (and a shipping-cost advantage over the U.S. in that market—at least until the first West Coast LNG export terminal is built), its access to Europe is much less favorable than Qatar’s or the U.S.’s.

As we said, the liquefaction/LNG export terminals now under construction in the U.S., Australia and elsewhere will get built, and, with the 2014-15 lull in LNG demand growth, it may take until the early 2020’s for the wave of new capacity coming online over the next three or four years to be absorbed by incremental demand from China, India and other growing markets. That near- and mid-term supply/demand disconnect will keep spot and short-term LNG prices low, and make LNG traders and consuming utilities a bit wary of making new take-or-pay liquefaction commitments, at least for capacity that would come online before, say, 2021 or 2022. Again, it seems likely that U.S. liquefaction/LNG export projects (a dozen or more of which are on deck) would have an edge in meeting that incremental demand because of their ability to provide the full package of competitive advantages.

Much, much more at the link for those folks interested in natural gas. 

FuelFix is reporting: Texas on track to beat 1972 oil production record.

Texas remains on track to produce a record amount of crude despite the lingering downturn that’s shut down rigs and spurred oil companies to lay off tens of thousands of workers.

Even as oil companies pare their spending budgets and pull back from some drilling activity, production in Texas has continued surging toward all-time highs, said Karr Ingham, an economist for the Texas Alliance of Energy Producers, at his twice-per-year assessment of the state’s oil industry on Monday.

Statewide oil output is expected to reach 1.28 billion barrels this year, exceeding the state’s record of 1.26 billion barrels set in 1972.

The resiliency of the state’s production numbers came as a surprise to Ingham, who had expected output to fall along with oil prices. Last July, before crude collapsed, Ingham predicted that Texas would break its 1972 record within two years.

After prices declined and hundreds of rigs were idled, Ingham began to doubt his forecast. But producers have continued to wrangle more oil from the ground than they did a year ago, with output in Texas ticking up 17 percent from the same time last year.