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. 

The Permitorium Continues -- Perhaps The Best Story of The Day -- Not The Bakken

Link here.

This is truly incredible, truly incredible.

Though delays in federal permitting for new Gulf of Mexico drilling are shrinking, industry executives fear new opportunities abroad will draw staffing and equipment away from Gulf projects.

Operators are finding it more difficult to lure back offshore rigs chased away by the drilling moratorium that followed last year's BP oil spill. The increasing complexity of drilling in deeper waters is also making it more difficult to hire, train and retain qualified staff, companies report.

Speaking Dec. 1 on the future of offshore operations at an industry gathering hosted by Jefferies & Co. in Houston, oil and gas executives said they expect an active 2012 in the Gulf, especially in the deep waters of the outer continental shelf. Several new finds and an uptick in interest by big global players like Statoil and Petrobras are seen as particularly benefiting Houston-area offshore service providers.

But at the same time, some of the Gulf's most active drillers admit that they are being slowed down not only by a permitting backlog, but by the growing difficulty of deepwater operations and a boom in activity in Africa, Australia and Brazil.

I said that a long, long time ago -- the rigs and the personnel wouldn't be coming back. First the outright moratorium and then the permitorium in the Gulf. I tracked the number of rigs leaving the Gulf for quite some time, then lost interest. I said at the time, once the rigs left, they wouldn't come back. Prescient.

I've had folks write to tell me the permitorium is lifted and things are back to normal. Hmmm. 

Too much work to be done in Africa, Australia, and Brazil. Even our president went to Brazil to encourage their oil industry; I don't think any president has gone to our offshore drilling prospects to cheer for our oil industry. Remarkable.

Now this is the really, really incredible story. Earlier today I happened across a story in the Houston business journal on-line suggesting that the president was becoming more supportive of the domestic oil and gas industry. Not only was it completely vacuous, but there was not one data point in the article to suggest anything along that line.

"Permitorium"

While oil spikes to $105, the administration continues to do anything to kill the domestic oil industry.

Interior doesn't want to act on oil permits in the Gulf of Mexico, much less even approve them.

When I see this, I am not convinced that he won't shut down the Bakken through fracking regulations.

Nothing New: Oil Demand Grows; Policies Stymie Production -- US

Link here.

Stronger US petroleum deliveries for all of 2010 as of December reflected a growing US economic recovery, the American Petroleum Institute said. But its chief economist warned that the Obama administration policies could restrict growth of US crude oil production to help meet higher US demand in the future. 

Well, yeah, duh.

The API refers to the policies in the Gulf of Mexico as the "permitorium." The economist says this is also true in the Bakken; that I am not sure what he is referring to. There were some delays a year or so ago in the Fort Berthold Indian Reservation, but I am not aware of problems now unless there are delays in the national parks or national forest areas in North Dakota, and that's very possible.

US oil production rose by 1.3% in December to an average 5.52 million bopd from 5.45 a year earlier (to me that's inconsequential: that represents 70,000 bopd, or as noted, a 1.3% increase -- inconsequential.

Full-year production averaged 5.49 million bopd in 2010 compared with 5.36 million bopd in 2009.  That's an increase of 2.4% over the course of one year, again fairly inconsequential.

What is concerning, didn't the US once produce almost 10 million bopd? They say every million barrels of oil produced in the US translated into one million jobs. Have we lost 4 million jobs due to decimated domestic drilling program?

Moratorium in Gulf: Noble Mothballs Ten Rigs During Slowdown -- Not a Bakken Story

Noble mothballs ten (10) rigs due to post-moratorium gulf regulations.

Noble also said in its latest fleet status report that another deepwater rig in the U.S. Gulf, the Clyde Boudreaux, would be without a contract next month because the client decided not to extend its agreement.

If the deepwater rig moves out of the gulf, it will be the fifth to do so. See "gulf moratorium."

New impact statements guarantee drilling ain't gonna start any time soon in the gulf. So much for domestic energy independence. I believe we are more dependent on foreign oil than when "we" first started talking about it.

Great news for Canadian oil sands and the Bakken.

Updates

January 6, 2011: Marathon confirmed story below -- canceled Noble's Jim Day submersible. Number six.

January 4, 2011: another Noble deep-water submersible not wanted in the Gulf. Marathon refuses to accept delivery. This would be number six for Noble.

Enbridge Affiliates to Increase Takeaway Capacity From The Bakken

This is a nice, short announcement from a couple of Enbridge affiliates ready to increase daily shipment out of the Bakken.

But for investors, this is even more interesting news: Enbridge will ration space on its mainline next month (November, 2010) because of high demand and capacity cuts following a pipeline break last month.

I wonder if the "high demand" is from the additional oil coming out of the Bakken, or if it's all oil sands oil? Probably the latter. I can't imagine the Bakken, as prolific as it is, making a sizable dent in the volume of Canadian oil sands oil. Wishful thinking. 

Enbridge's mainline pipeline system carries the bulk of Canada's crude oil exports to the United States.

Wanna bet this puts upward pressure on the price of oil? Just saying. 

This announcement comes at the same time as Schlumberger suggests that deep water drilling in the Gulf of Mexico controlled by the US is "dead in the water." Note: Schlumberger did not say this in so many words; it is my paraphrasing, my opinion of what was said, my interpretation of what was said, at the 3Q10 earnings conference call. It should not be taken out of context.

Updates

Update, October 28, 2010: I interpret this article to suggest that Shell hints that lifting of GofM moratorium hasn't changed reality.

Deep Water Rigs Moving Out of the Gulf: Probably Never to Return

This is the fourth rig that is moving out of the Gulf (Discoverer Americas drillship/Transocean) that I know of, and can document a link. This is a Transocean rig which will move to Egypt next week (mid-Sept, 2010). The Marianas in the next paragraph has already departed for Nigeria. (Links break without subscription after period of time.)

This is the third rig that is moving out of the Gulf (Marianas/Transocean) (actually, it's the third rig that I know of, and can document a link). This is a Transocean rig which will move to Nigeria, and is under contract with Italy's ENI. I doubt "we" will ever see this rig back in the Gulf -- at least in my investing lifetime. 

This is the second rig to move out of the Gulf (Ocean Endeavor/Diamond Offshore). Once moved, unlikely to return for a very long time.

The story of the first rig to move from the Gulf is posted here (Ocean Confidence/Diamond Offshore).

So much for American energy independence.  Louisiana is in a world of hurt. That's what happens when they elect a governor the administration does not like. The administration directs yet another moratorium on off-shore drilling, based on criteria other than depth of water. Anything to destroy the oil industry.

NEWS

September 1, 2014: the statement that rigs are never likely to return seems to have been wrong. There are reports that the GOM is "back."

May 29, 2012: more evidence that after-spill actions taken by the government caused more economic damage than the incident itself.

Only days after the incident, Interior Secretary Ken Salazar issued a moratorium on new permits for deepwater offshore oil drilling over strenuous objections from the industry and the impacted region itself. The Gulf Coast's continued support for offshore drilling is unsurprising, given that though the moratorium only applied to 33 applications, those included some of the more profitable projects for the region. A report from Louisiana State University estimated the cost to the region of a moratorium could reach as high as $2.1 billion and more than 8,100 jobs. Across the country, the report expected as many as 12,000 jobs to be lost.

One year after the implementation of the moratorium, a study conducted by Quest Offshore Inc. for the National Ocean Industries Association and the American Petroleum Institute suggested that slowed drilling permit approvals under the Obama administration and the moratorium had contributed to the loss of more than 60,000 jobs through the Gulf region from 2008 to 2011.

An API-commissioned study from Quest Offshore estimated even more dramatic losses, suggesting that as many as 90,000 jobs had been lost in 2011 alone. As many as 11 offshore oil rigs were thought to have left for calmer waters in Brazil, Egypt and Angola, with total costs for the Gulf Coast through 2015 estimated at around $21.4 billion.

December 30, 2011: interesting spin by the AP.  Compare this article with the industry's take on the permitorium in the story below, dated December 23, 2011. This is all about spin-Obama. In case the link breaks, this is a story that says that after 18 months, the "Gulf is back." 

December 23, 2011: despite a lifting of the ban on drilling in the Gulf, rigs not coming back. 

July 22, 2010, on CNBC: Diamond Offshore/CEO on CNBC says the Gulf moratorium will result in direct loss of about 200 US jobs. Some of the senior employees on their rigs will move with the rigs to Africa. The CEO is concerned that if the moratorium is prolonged, training of personnel to work on deep water rigs will shift overseas, eventually ceding US dominance in deep water drilling to other countries. (Personally I doubt that will happen, but the employees will be coming from countries other than the US as these rigs move overseas.)