Part II -- The Market And Energy Page, T+45 -- March 6, 2017

Updates

Later, 3:32 p.m. Central Time: over at Platts, another article saying the same thing, that without more E&P, their will be a supply/demand mismatch by 2022. Near the end:

Birol said EIA projects global supply to grow by 5.6 million b/d through 2022, with the US representing about 1.6 million b/d of that growth. Brazil and Canada make up the second- and third-largest amounts of that growth, respectively.

I think they are grossly underestimating supply at $75 / bbl in "today's money."  At $75-oil is not particularly onerous. 

Original Post

 
A reader sent me a great link over at The Financial Times. IEA: oil investment drought threatens price surge. "Short-termism" will catch up with supply by 2020, agency warns.

The gist of the article: too like investment is being made now in crude oil exploration which will ultimately bite us in the butt, as demand will surely exceed supply in 2020.

There are two sides of this coin: the IEA is worried about a price surge due to lack of supply. Investors, on the other side of the coin, are worried if "this" will happen soon enough.

So, there you have it: IEA is worried; investors are worried, but for different reasons.

After I read the article, I replied to the reader:

• short term (this year): bad news for Saudi (as suggested by the reader);
• mid term (next year): not much better;
• long term: after 2022 -- maybe it gets better; Financial Times thinks it will; 
• I've learned that predictions are hard to make; no one saw a) the Bakken revolution coming; and, b) the trillion-dollar mistake that Saudi Arabia made. That's why a lot of oil companies went bankrupt over the past two years

Two items from the article:

In the short term, a deal to cut supply between OPEC and big producers outside the cartel such as Russia has spurred shale companies to increase drilling activity. A drop in their costs has also helped. US shale drillers saw reductions of 30 per cent in 2015 — double the global average — and 22 per cent in 2016. 

“This also gives a clear indication that many are capable of positioning themselves to raise production in a lower price environment,” the IEA said. 

Even energy major ExxonMobil has said it will put half of the company’s investment in oil and gas production into “short-cycle” projects, such as shale oil, that could generate positive returns within three years. President Donald Trump’s administration could also support policies that boost US oil production. 

In other words, because US operators can survive (and perhaps thrive in a low-cost / low-price environment), operators are not breaking down the banks' doors to acquire financing for large E&P projects.

And this, the last paragraph in the article which sounds to me like the editor asked the writer if all the EVs coming on the market would attenuate the 2020 shortage:

Meanwhile, the total stock of electric vehicles is expected to hit 15m by 2022, up from 1.3m in 2015. Despite robust growth, the IEA says electric vehicles’ share of the total number of vehicles remains small and will only replace 200,000 b/d of oil demand over the next five years.

Finally, the last paragraph puts the 15 million EVs in perspective: replaces 200,000 bopd. This is an EIA report so I assume they are talking global EVs, and 200,000 bopd out of 20 million bopd is a rounding error.

The bigger question for some investors like me: will XOM be able to hold on? 

So, according to the IEA, all eyes are on 2020 when we will all have the advantage of 2020 hindsight. 

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This Didn't Take Long

Announced today in a press release: Secretary Zinke announces proposed 73-million acre oil and natural gas lease sale for Gulf of Mexico All available areas in federal waters will be offered in first region-wide sale under new Five Year Program.

WASHINGTON - U.S. Secretary of the Interior Ryan Zinke today announced that the Department will offer 73 million acres offshore Texas, Louisiana, Mississippi, Alabama, and Florida for oil and gas exploration and development.

The proposed region-wide lease sale scheduled for August 16, 2017, would include all available unleased areas in federal waters of the Gulf of Mexico.

“Opening more federal lands and waters to oil and gas drilling is a pillar of President Trump’s plan to make the United States energy independent,” Secretary Zinke said. “The Gulf is a vital part of that strategy to spur economic opportunities for industry, states, and local communities, to create jobs and home-grown energy and to reduce our dependence on foreign oil.”

Ryan Zinke was confirmed five days ago, March 1, 2017, or three business days. I assume his first day on the job was getting new keys to his office made and checking for wiretaps.

I see the only "tag" I have for the "Gulf" is "GulfMoratorium." Wow, how times have changed.