Notes From All Over -- Part 1 -- September 22, 2021

WTI: up 1.5%; up $1.05; trading at $71.45.

Oil: seems to be the only commodity that does not move with the fundamentals. Someone else said that first. Not me.

Peak oil: re-posting -- there are more and more indications that both OPEC and OPEC+ are struggling to lift production. I posted that last night at 6:03 p.m. Going through the news this morning provides more corroboration. 

Reality? As energy prices rise around the world, many continue to downplay the possibility of a global energy supply crisis, citing OPEC+ spare capacity available to come back online. But does OPEC+ really have as much spare capacity as advertised? Wow, wow, wow. I pointed that out four years ago (? -- maybe earlier) and kept up that drumbeat for quite awhile before finally moving on. I have a very, very smart reader who follows this much more closely than I do and has been saying the same thing for several years. 

Reality? Here's the link. Be sure to read the comments. 

Russia: Russia is the "+" in OPEC+. Russian gas output in 2021 has reached the limits of near-term productive capacity but it has proven to be insufficient to increase exports to Europe in 3Q21 when it was most needed. Link here. Go directly to The Oxford Institute for Energy Studies.

The big bounce in Russian gas production in 2021 has proven to be insufficient to meet the simultaneous spikes in demand at home and abroad.

Russian gas output has risen robustly and has been close to its maximum productive capacities but the necessity to fill the depleted domestic gas storage facilities in Q3 2021 limited the availability of Russian gas for Europe when it was most needed. 

Indeed, Russian exports to Europe this year have reached the record levels last seen in 2018-19, focusing mostly on Turkey and Germany – the two markets that are connected to the Russian gas system by direct undersea pipelines.

Moreover, with other supply sources to Europe falling, and given the changing geography of Russian reserves, it appears that Russia cannot single-handedly balance sudden spikes in European gas demand.

Russia is not running out of gas and its prolific gas reserves allow Russia to meet much higher overall demand, but this requires time, money, and contractual assurances of offtake.

China: amid a huge electricity shortage at home, Chinese LNG importers are jumping again into the spot market to secure cargoes, some of them seeking prompt delivery in October and November. This comes at the worst possible time, with Asian LNG prices at the highest seasonal level ever. Link here.

Cushing: crude stocks have dropped by 42% so far this year. Forty-two percent is closer to fifty percent than twenty-five percent. By a lot. Link to Charles Kennedy. There are two, maybe three, writers over at oilprice that I really, really respect. Charles Kennedy is one of them.

COP: I couldn't be happier. This has nothing to do with investing. I just love it when it appears that someone has made a huge call at just the right time. Although it was costly, there are indications that COP bought (Concho Resources and Shell assets in the Permian) at just the right time. I've been watching the oil market since 1984. Mostly just watching. I am not an expert. I don't understand it. I'm a lousy investor. I've seen a lot of ups and downs in the oil market over the last thirty-seven years, but I don't recall being as mesmerized by what's going on in the oil patch as I am now.

7/11: yesterday those watching the Fed sounded one-hundred percent sure the Fed would not raise rates until late 2022. Not so fast. Look at the dots. This morning it's being reported that seven of the eighteen dots want to raise hikes starting in late 2022; but, eleven of eighteen dots don't want to raise hikes until 2023. For once Steve Liesman is correct: is it really that big a deal to be talking about a quarter-point rise either in December, 2022, or January, 2023?

Jim Cramer: as early as last evening, Cramer seemed to be suggesting the "September" market was already turning. It will be interesting to see what he says this morning. The best two hours of business news on easily accessible, mainstream media is CNBC, 8:00 to 9:00 a.m. CT and 5:00 to 6:00 p.m. CT.

Going green or going broke? Energy price surge intensifies backlash against Brussels' (the EU's) carbon tax plan. Link here if you want to hit a paywall: Financial Times. MEPs consider scrapping carbon tax plan completely and replacing it with alternative such as tougher regulation.

Surging gas and electricity prices in Europe have intensified the political backlash against Brussels’ plans to extend carbon taxes on petrol and heating bills, threatening a central policy of the EU’s drive to hit net zero emissions by 2050.

EU energy ministers will meet in Slovenia on Wednesday to discuss Europe’s record energy costs, which have prompted some governments to prepare billions of euros worth of emergency aid for struggling households.

The price squeeze has emboldened countries such as Spain and France that are firmly opposed to the planned revamp of the EU’s carbon pricing system. They say it will plunge poorer households further into energy poverty by raising household and petrol bills. 

Covid-19: Pfizer is donating 500 million doses of its vaccine "for free." Not quite free, but "at cost." They will make no direct profit on this "donation." This will be to low and lower-middle-income countries at a not-for-profit price. Total purchase by the US in this agreement: one billion doses.

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Back to the Bakken

Active rigs* -- best guess: the NDIC has discontinued posting this data.

$71.54	9/22/2021	09/22/2020	09/22/2019	09/22/2018	09/22/2017
Active Rigs	26	11	58	66	58

No wells coming off confidential list. At least that's what is being reported by NDIC. We'll see.

RBN Energy: where has all the CAPEX gone? E&P investment down despite rising prices and cash flows.

Everyone knows the old saw, “Make hay while the sun shines.” Oil and gas producers have historically honored this sentiment by boosting their capital spending when commodity prices were high and cutting back when realizations dipped. Their investment peaked in 2014, when oil prices were hovering over $100 per barrel, plunged with the price crash in 2015-16, recovered with $70 oil in 2018, and crashed again in the ugly early days of the COVID-19 pandemic. The sun is out again in 2021, but E&Ps seem to have tossed out their old mantra in favor of fiscal discipline, setting and maintaining investment at historic lows despite solid oil prices and surging gas futures. In today’s RBN blog, we review mid-year changes to E&P capital budgets and their impact on oil and gas production. 

Before we get to 2021, let’s take a deeper dive into historical spending patterns. Capital spending by the 38 E&Ps we monitor peaked at just under $130 billion in 2014, when the price of WTI (blue area and right axis in Figure 1) was in triple-digit territory. That investment funded an extraordinary level of drilling activity: as many as 1,600 oil-focused drilling rigs (dashed green oval, orange line, and left axis) were at work at the time. After oil prices plunged below $40/bbl in late 2015, investment and drilling activity dipped below $40 billion and 350 rigs, respectively, in 2016 (dashed yellow oval). Capital spending and rig counts doubled in 2018 when oil prices surged above $70/bbl. Then the pandemic brought drilling activity nearly to a halt in early 2020 (dashed white oval) and total capital spending fell to $36.5 billion for the year.