Oil From US Strategic Petroleum Reserve Will Be Flowing to Europe, If Anywhere

The story is starting to make sense. This is the real reason the IEA needed to release oil from the strategic petroleum reserves worldwide:

The initial disruption to oil output in Libya happened at a "fortuitous" time for European oil refiners as many were closed for maintenance.

"Now we're going into the summer driving season, those refineries which have returned to operation are about to ramp up their production."

Jones said the market was facing a possible shortfall of 1.8 million barrels per day for the remainder of June and 1.7 million for the next quarter.

American refiners switched to summer blends about 1.5 to 2.0 months ago. American refiners are well past the switch to summer blends. American storage tanks are at their fullest in years.

Storage tanks used by oil producers at the crude-trading hub in Cushing, Oklahoma, held 38 million barrels as of June 17, 41 percent above the five-year average for this time of year, according to Energy Department figures. Stockpiles at Cushing reached 41.9 million barrels in April, 2011, the highest point since at least 2004, when the Energy Department began tracking the figures.

The Europeans generally take their vacations in August, and their refiners are just beginning to switch to summer blends and getting ready for August driving and increased air traffic.

If any oil is released from American strategic petroleum reserves, it won't be going to American refineries; it will be going to European refineries.

If finally makes sense. It made no sense for the release of oil from the US strategic petroleum reserve if one simply looked at the American situation.

By the way, at the right price, this could also help provide American with a better balance of payments this quarter. 

(Reminder: American oil -- particularly the Bakken is light oil, the kind the European refineries use and were getting from Libya -- particularly the Italian refineries. Saudi oil is heavy oil and not "wanted" by Europe.)

Six (6) New Permits -- Bakken, North Dakota, USA

Daily activity report, June 24, 2011 --

Drillers: KOG (2), Dakota -3 (WMB), Petro-Hunt, Slawson, and Newfield.

Fields: Squaw Creek, South Fork, Eagle Nest, Painted Woods, and East Fork.

The two KOG wells will be on a single pad in South Fork.

In addition, Whiting and Oasis had four (4) and two (2) well files placed on confidential status, respectively.

Rigzone Story on Backlog in Completing Wells -- A Common Theme On This Site -- Bakken, North Dakota, USA

Link here.

According to Halliburton, the number of uncompleted wells in the United States was approaching 3,500 wells at the end of 1Q11.

As of the most recent count there were approximately 1,800 land rigs drilling in the lower 48 states for oil and gas. If you assume that each frac crew can complete six wells in the average time it takes to drill one well, then the equilibrium point for the number of frac crews in the lower-48 would be the number of horizontal and directional rigs drilling in US divided by 6.

Recent estimates peg the total horse power (hp) across North America available for stimulating wells at approximately 9 to 10 million. If you consider that between 25k to 40k hp is needed to stimulate each horizontal shale well, then that places the total number of frac crews covering North America somewhere in the neighborhood of 300 crews. Backing out a healthy figure for what are likely Canadian crews implies that there are at least 200 fracing crews available to complete wells in the US. Thus, as long as the unconventional count is over 1,200 rigs, then we would anticipate that the backlog for completions would continue to grow.

Currently there are approximately 1,300 rigs drilling unconventionally. This would suggest that the current back log will continue to grow by 100 uncompleted wells per month. At this pace the backlog could top 4,000 wells before the start of calendar 2012.

What is different about this build up compared to 2008 is that the composition of wells favors oil, condenstates, and NGLs. If you assume that the composition mirrors the rig mix, then over half the uncompleted wells will eventually produce oil.

During 2009 there were over 363,000 wells that produced nearly 1.7 billion barrels of crude in the lower 48 states. That equates to about about 12 barrels per day per well. However, you have to remember that over 2/3 of the existing oil wells are producing at marginal rates. So, using a higher average production of 200 bpd per uncompleted oil well would imply 400,000 barrels per day of production (~2,000 uncompleted oil wells x 200 bpd) untapped at the end of 2011. To put this in perspective, 400,000 bpd of oil would raise current U.S. production of 5.6 million bpd by 7 percent.
The implications of these trends points to a continude rise in prices for fracturing services and supplies. Current estimates place the amount of water used to fracture a well at 4,000,000 million gallons. Proppants (sand or ceramic) used hold the fissures open weigh approximately 5,000,000 lbs. per well. Usage of both is likely to continue rising considering that both the number of frac stages and the lateral lengths drilled are increasing. While there are several items going down the well during the hydraulic fracturing process, the largest component of the mix is definitely water.

Unconventional Oil: 1 Million Bbls Per Day Within Five Years -- Bakken, Niobrara, and Eagle Ford

Link here.

Unconventional oil production from the Bakken, Eagle Ford, and Niobrara plays is expected to approach 900,000 b/d in 2015 and exceed 1.3 million b/d by 2020, a consultant forecast.

Purvin & Gertz Inc. estimates current oil production from the Bakken, Eagle Ford, and Nobrara plays at 350,000-400,000 b/d.

The Bakken formation is in North Dakota and Montana, the Eagle Ford is in South Texas, and the Niobrara is in Colorado and Wyoming.

Geoff Houlton, a vice-president with Purvin & Gertz in Houston, told OGJ that shale oil production likely will help offset US oil import volumes in coming years.

Increasing supplies of light, sweet crude from shale oil plays are expected to reduce oil imports of similar quality crude into the Gulf Coast by greater than 500,000 b/d by 2016, he said.

OPEC: Release Could Backfire

Update

It's already starting.

Abdullah El-Badri, secretary general of the Organization of the Petroleum Exporting Countries, urged the International Energy Agency to reverse its earlier decision to release 60 million bbl of oil over the coming 30 days.

“I hope this practice will be stopped and stopped immediately,” El-Badri told a news conference in Vienna after the scheduled 8th ministerial-level meeting of the energy dialogue between OPEC and the European Union.

“We don't see a good reason to release this quantity, and I hope the IEA will refrain from using this practice,” El-Badry said, also telling the Kuwait News Agency that IEA had wronged OPEC with its decision to release the oil.

"The agency did not give OPEC an opportunity to increase its output before deciding to draw from the strategic reserves of its 28 members," he said, noting that such a move is justifiable only as “a final resort in extreme emergencies” and not to control prices.

“As international organizations, IEA, which represents the interests of consumers, and OPEC, which represents producers, have to work together for the stability of the market and to maintain fair prices,” El-Badri said.

It sounds like OPEC is very, very upset with the decision. I've seen this movie before. And it's not a happy ending.

Original Post

Conflict between USA and IEA, and now OPEC could weigh in.

Link here.

We've seen this movie before. It came out in 1973.