Fightin' Words; Fight's On -- June 1, 2016

Earlier we updated the LNG / Poland story. Today, Bloomberg has more:

Poland will struggle to replace all the natural gas it gets from Russia’s Gazprom PJSC, including with U.S. supplies, as it bids to lower dependence on its eastern neighbor, according to the Moscow-based company.

“Of course, everybody is free to choose how to purchase his gas and to ensure the competitiveness of his economy," Gazprom Deputy Chief Executive Officer Alexander Medvedev told reporters in Moscow Tuesday. “There is a well-known fairy-tale about an old woman who asked a golden fish to turn her into a Sea Empress but in the end she found herself back with her broken washtub in front of her," he said, referring to a story by Alexander Pushkin.

Poland, which relies on Russian gas for two-thirds of its needs, has sought lower prices from Gazprom amid political tensions between the nations over President Vladimir Putin’s policies in eastern Europe. The European Union nation will get its first shipments of liquefied natural gas from Qatar and Norway into a new terminal next month, and has proposed doubling its capacity and building a pipeline to Norway to completely cut its reliance on Russia.

Poland was Gazprom’s fifth-biggest EU customer last year, buying about 9 billion cubic meters (320 billion cubic feet) worth more than $2 billion. It is one of the most vocal opponents of a push by Putin to expand a natural gas link to Europe that circumvents Ukraine.

Huge Insurer To Exit Califoria Over Huge ObamaCare Losses -- June 1, 2016

ObamaCare, headline, section B, today's Wall Street Journal: UnitedHealth to exit California, a key market. Business losses mount.

• Trump: "Let's Make America Great Again"
• Hillary: "Let's Re-Visit ObamaCare"
• Gary Johnson: "Let's Make Hillary President"

May's auto sales data will be out this week. Last month's data, April's top selling cars:

#10: Chevrolet Malibu
#9: Chrysler 200
#8: BMW 3-Series
#7: Chevrolet Camaro
#6: Toyota Camry
#5: Honda Accord
#4: Mazda MX-5 Miata
#3: Ford Mustang
#2: Ford F-Series
#1: Honda Civic

Tesla: free-charging won't be available for Model 3 owners, unlike earlier models/owners.

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Back to the Bakken

Active rigs:

	6/1/2016	06/01/2015	06/01/2014	06/01/2013	06/01/2012
Active Rigs	27	80	189	187	215

RBN Energy: condensate update.

“Condensates are long and you can’t give them away … No, things have changed – condensate supply is tight and prices are running up relative to WTI … But wait wait, the oversupply is back and prices are down again.” No wonder the market’s love for condensates has faded.  It’s a liquid hydrocarbon that is being buffeted by every force the market can bring to bear: declining production, lots of new committed infrastructure (stabilizers, pipelines, and splitters), wide-open export markets, volatile crack spread splitter economics -- the list goes on. Adding to this whirlwind is the fact that historically there has been limited analytical data to work with, with most condensate information buried deep inside crude production numbers from producer investor presentations and less-than-revealing Energy Information Administration (EIA) crude oil reports.  But we have some new tools to help understand what’s going on, including the EIA’s new 914 crude quality data and condensate export numbers from ClipperData.  Today, we continue our exploration of rapidly evolving condensate markets.

In Part 1 of Faded Love we revisited RBN condensate classics, including Fifty Shades of Condensates and Like A Box of Chocolates. 

We showed that while condensates are produced from all of the major basins across the U.S., the Eagle Ford in South Texas has been responsible for most of the production growth over the past five years, and how the Eagle Ford has been hit harder by low crude prices than any of the other major shale plays, resulting in declines in condensate production.  We then touched on the splitters built to process condensates in the U.S. and on other infrastructure to handle segregated processed condensate for export – now no longer required since the lifting of the crude/condensate export ban.  With the ban gone, there’s no longer anything special about a condensate barrel; it is just like any other crude oil, except lighter.  These developments have converged to create a topsy-turvy market for condensates, where both opportunities and dangers lurk for those brave enough to buy, sell and trade condensate barrels.

From today's RBN Energy blog: an update on the new EIA form 914:

The new 914, in use since January 2015 reporting, is an expanded survey for the collection of oil and gas production data from a sample of operators of oi/condensate and natural gas wells in 15 states and the federal Gulf of Mexico. For our purposes here, the big deal is that the new EIA-914 collects this crude oil production data in 10 API gravity buckets. So, after years of, well, Dancing in the Dark (our mid-2015 blog on condensate splitters), we get our first shot at official condensate statistics using the two API gravity buckets above 50 degrees API shown in Figure 1. Sampled producer companies (those large enough to be included in the survey) are required to fill out the form each month for their oil production and oil sales by API gravity category. There are 10 API gravity categories on the form reported in total for the U.S., but due to EIA’s confidentiality rules, these are collapsed to only four categories for the reporting of state‐level API gravity estimates.

There are all sorts of statistical quirks and machinations that EIA must go through to use this data due to the facts that 1) it is only a sample (85% volumetric coverage based on data from 450 operators out of roughly 13,000 oil and gas operators in the U.S.), and 2) EIA trues up and reconciles the 914 form data with production data from the individual states provided and consolidated by our friends at DrillingInfo.

Seven New Permits -- Have We Turned The Corner? -- May 31, 2016

One well coming off the confidential list Wednesday:

• 32200, SI/NC, Hess, BB-Budahn-LS-150-95-0506H-1, Blue Buttes, no production data,

Active rigs:

	5/31/2016	05/31/2015	05/31/2014	05/31/2013	05/31/2012
Active Rigs	28	80	189	187	214

Seven (7) new permits --

• Operators: Newfield (4), Whiting (3)
• Fields: Lost Bridge (Dunn), Truax (Williams)
• Comments:

Three (3) producing wells completed:

• 31753, 950, CLR, Maryland 2-16H, Catwalk, t5/16; cum --
• 31984, 800, EOG, Austin 439-2326H, Parshall, t5/16; cum --
• 32120, 871, EOG, Asutin 438-2635H, Parshall, t5/16; cum --

Homeland Security And UND Partner On Drone Research -- May 31, 2016

Officer.com is reporting:

The Department of Homeland Security (DHS) Science and Technology Directorate (S&T) and the University of North Dakota (UND) announced today they have signed a three-year cooperative research and development agreement to both examine the beneficial use of unmanned aerial systems/ unmanned aerial vehicles (UAS/UAV) and to mitigate their use for nefarious purposes.

“Through this agreement, we will develop a better understanding of the capabilities and vulnerabilities of UAS/UAVs and spur the development of technologies to counter the potential threats based upon their use,” said DHS Under Secretary for Science and Technology Dr. Reginald Brothers. “A better understanding will spur innovative ideas and approaches to reduce this new threat facing our homeland.”

Over at "Big Stories/The Next Big Thing," I track the North Dakota drone story. 

Saudi Missteps Continue -- May 31, 2016

This is one of those huge stories that anyone following the oil and gas industry already knows ... but I was late. I didn't figure it out until just a few minutes ago. Graphs are worth a thousand words, and some 140-characters tweets are worth a picture.

Quick, what did Prince Salman call his "strategic plan" for his country?

Vision 2030.

Quick, what does Prince Salman want to do?

Diversify his country's economy.

Quick, what is Saudi Arabia really good at?

Almost anything that has to do with oil and can be run by contractors (US, Indian, predominantly).

Quick, what has Prince Salman recommended for diversifying his economy?

Build refineries.

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Everyone pretty much agrees that Saudi Arabia, at some point in the future, will become a net importer of oil.

Quick: "on the street," when is it being said that Saudi Arabia will become a net importer of oil?

2030. There are many, many links for this issue; here is one: http://www.bloomberg.com/news/articles/2012-09-04/saudi-arabia-may-become-oil-importer-by-2030-citigroup-says-1-.

Again, quick, what did Prince Salman call his "strategic plan" for his country?

Yup: Vision 2030.

I don't think that Citigroup suggesting that Saudi will be a net importer of oil by 2030 and Prince Salman calling his strategic plan Vision 2030 were coincidental.

Saudi Arabia may be in more trouble than we realize.

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This is where I got it wrong. I had assumed Prince Salman was going to build refineries in his home country to export refined products. He will build refineries in other countries, notably the US and Vietnam, he has said. I don't recall if he has also said India. Hold that thought.

Prince Salman is not going to build refineries in his home country to export refined products. Those refined products will be needed for his own population. And that does not bring revenue into state coffers. In fact, if he follows the Venezuelan example, his kingdom will step into even deeper doo-doo.

As far as building refineries in other countries:

• Vietnam: okay; perhaps not a bad choice; not great, but not bad
• India: not going to happen (see Apple's experience)
• US: Saudi Aramco can expand their one refinery in the US; buy others (subject to regulatory approval); but build more? In this politically correct / green environment? LOL.

So, we now have another misstep by Saudi Arabia: Vision 2030's emphasis on building more refineries around the world. It won't be that easy. With US refineries operating at less than 100% capacity, I just don't see the need for more refineries.

But, hey, what about all that diesel and gasoline that China and India will need? Helloooo? I don't know about India, but China is now exporting (as is Japan) refined products (see earlier posts this morning). It turns out that Saudi Arabia does not have a monopoly on knowing how to refine oil.

Now the third Saudi misstep and this is a doozy. This misstep is bigger than Vision 2030 that calls for diversifying into refineries.

In October, 2014, Saudi agreed to open the crude oil taps. The price of oil plummeted. What did China do? It appears that China doubled down, tripled down, quadrupled down on refining.

I remember all those posts about Saudi "giving away their oil," and China buying it; folks wondered what China was doing with all that oil. I guess we now know.  They were refining it and exporting it.

Know what is so amazing about that graph? Two things. One you can see on the graph. One, you can't.

The "thing" you can see on the graph is how fast this happened. In less than a year! Only a couple of years ago, China was a net importer of diesel. The more one looks at that graph, the more incredible it looks. The first question one asks: who bought that Chinese diesel and at whose expense?

China's domestic consumption didn't decrease this past year; if anything it went up. So, China had to have increased utilization of existing refineries or completed new ones.

The thing one does not see in this graph: China's domestic demand for refined products.

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Saudi's Missteps

 
By letting oil go to $100 or more per bbl, Saudi opened the door for US shale revolution. US shale operators needed that kind of incentive to "crack the code." Now that US frackers have cracked the code, $60 oil is just fine. Not great, but fine.

Then, in an attempt to bankrupt US frackers, they said they would flood the market; oil price plummeted; and Saudi has a "trillion-dollar mistake" to remedy.

This incredibly cheap oil AND the global glut of oil gave Chinese entrepreneurs (like US frackers) the incentive to expand refining operations. In one year, China has made strides that simply amaze me. I would assume if oil stays this cheap AND this plentiful, China will continue to increase its refining capacity.

Saudi Arabia won't even have it's Vision 2030 finalized and presented to the Supreme Council until 2017? 2018? Later?  How much diesel and gasoline will China be exporting in 2020, ten years before 2030?

When China becomes a net exporter of diesel it speaks volumes.

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In An Attempt To Crush The US Shale Oil Revolution, Saudi Crushed OPEC

A couple things to get out of the way.

First, as I've often said, there never was any OPEC. It was always Saudi Arabia.

Second, I don't recall if I've blogged about this before, but over the past year or so, I've thought about the huge turmoil Saudi's action would cause in Africa because of its decision to open the spigots. And now we're seeing it. CNBC is reporting that Saudi's attempts to crush the US shale revolution backfired:

Saudi Arabia engineered OPEC's policy to kill off U.S. shale oil production. The plan was straightforward: Keep pumping oil, maintain market share and outlast the Americans.

But the plan is also producing casualties within the cartel itself: Angola, Nigeria and a Venezuela that's on the verge of implosion.

Six months after OPEC left its high-production policy in place, some of the cartel members who called loudest for output cuts are feeling the most pain. Inflation is soaring and currencies have plummeted in lesser petro states, as top exporter Saudi Arabia continues to dictate policy.