Oilman For SecState? Political Page -- December 2, 2016

Add to the list of those Donald Trump may be considering for Secretary of State: Rex Tillerson, CEO of Exxon Mobil.

If this is true, this sends a huge statement. Presidents Bush and Obama were interested in globalization and nation-building. Think SecState Hillary Clinton and John Kerry.

From the linked article:

The company has numerous partnerships with Rosneft, Russia’s state-owned oil company, and has lost more than $1 billion due to the sanctions the United States imposed on Russia, according to RT, a Russian state-owned news service.

Now, could we have an oilman in as SecState?

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Harry Reid and Nancy Pelosi Cannot Complain

Good, bad, or indifferent, Trump takes a page from the Democratic playbook: the bully threatens US corporations with consequences if they relocate "off-shore."

Okay, let's be honest. When the Obama administration or members of his party threatened this, I was upset.

With Trump, not. He was very, very open about making America great again. The difference between President Obama and a future President Trump is the way each would go about doing that. Huge difference. With Trump there will be carrots and sticks. With Obama, it was all sticks.

DOE Approves Another LNG Export Terminal, Port Charles, Louisiana -- It Never Quits -- December 2, 2016

Data points:

• Magnolia project
• the project: 
• a four-train LNG export terminal at the Port of Lake Charles
• capacity: at least 8 million tonnes/year
• will use the company's proprietary OSMR process technology
• natural gas will arrive via the Kinder Morgan Louisiana Pipeline; 20-year deal
• KBR is leading a joint-venture team with SKE&C for engineering, procurement, construction
• project developer: Liquefied Natural Gas Limited (LNGL)
• US DOE grants authorization for a proposed LNG terminal in Lake Charles, LA
• will be allowed to export LNG to countries with which the US has not entered into a free trade agreement

See RBN Energy's list here. From that link/post:

• LNG Ltd: has proposed the development of the Magnolia LNG project; as many as four 2-MTPA liquefaction plants, near Lake Charles

Reason #75 Why I Love To Blog -- December 2, 2016

Before reading the post below, if you haven't seen the earlier post on breakeven costs in the Bakken compared to the rest of US shale and the Mideast, go to that post, and then consider those numbers in light of the projections below. Just saying.

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The Post

Earlier this morning I posted the link to Filloon's Bakken update. His final words: WTI still has room to run.

The short squeeze continues, and institutional dollars will begin to roll into energy names over the last two weeks of this month. 

Not less than fifteen (15) minutes later, I see this headline over at Rigzone: OPEC crude cut could push oil to $75 per bbl in 2017.

The story was actually posted last night but I general wait until the next morning to look at the Rigzone articles. In this case, I'm glad I did.

From the linked Rigzone article:

The International Energy Agency has estimated that as a group, OPEC currently produces 33.8 MMbpd. In the September meeting in Algiers, the cartel said member nations would target dropping that volume between 32.5 MMbpd and 33 MMbpd.

Designed to boost the oil market’s recovery, the production drop will “accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward,” OPEC said in a statement Nov. 30.

World oil demand is expected to grow by about 1.2 MMbpd this year and in 2017. OPEC said that underscores that a market rebalancing is underway, but both Organization for Economic Co-operation and Development (OECD) and non-OECD inventories remain well above average. Given the inventory overhang, a lack of investment in 2016 and 2016, as well as massive industry layoffs, OPEC said it’s vital that stock levels are brought down.

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Looking Past 2017

Shale production to grow, offshore production to decline starting in 2018 -- Rigzone. 

But then in that same article:

With the announced OPEC production cut Wednesday, Rystad Energy expects global liquid production to remain at current levels into next year.

At the same time, demand is expected to grow by around 1.3 million barrels per day.

This means that the large amount of stored oil will decline considerably in 2017.

The Frack Spread -- Value Of NGLs Vs Natural Gas -- RBN Energy -- December 2, 2016

Mountains out of ant hills: $7,000,000. Over ten years. One thousand jobs.  $7,000/worker. $700/worker/year. $1.92/worker/day. Yup, that's the "corporate welfare," as many call it, that Carrier got. The state of Indiana is going to get significantly more back from each of those workers than $700/worker/year. The average family pays $1,530 in Indiana income taxes.  An employed worker will not be collecting welfare. And that's just the beginning. And someone not losing his/her job is priceless.

Active rigs:

	12/2/2016	12/02/2015	12/02/2014	12/02/2013	12/02/2012
Active Rigs	39	64	189	192	182

RBN Energy: The frack spread remains painfully low, but help is on the way.

The frac spread—the difference between the value of a typical basket of NGLs and the price of natural gas, in $/MMBtu—has averaged a paltry $2.28 for the past two years, by far the longest period of depressed NGL values since the start of the Shale Revolution. That’s bad news for natural gas processing economics, which are most favorable when NGL prices are strong and natural gas prices are weak. But things are about to get a lot better. Today we consider the currently low frac spread, what it means for natural gas producers and processors, and why a big turnaround may be in the offing.

The frac spread (short for “fractionation spread”) and its kissing cousin, the NGL-to-crude ratio, have been frequent topics in the RBN blogosphere, and for good reason. From the beginning, an underlying principal of RBN’s analysis of drill bit hydrocarbons (gas and liquids produced at the wellhead) has been our belief that the relationships between crude oil, natural gas and natural gas liquids (NGLs) have become far more important in the Shale Era than they were a generation ago. Now, what happens in oil markets impacts gas and NGL markets, and vice versa.

The NGL-to-crude ratio is a weighted average of OPIS/Mont Belvieu NGL prices divided by CME/NYMEX front month crude oil futures. The NGL mix that we use to calculate the ratio is 42% ethane, 28% propane, 11% normal butane, 6% isobutane, and 13% natural gasoline.

For many years the NGL-to-crude ratio averaged about 60%, staying within a 50%-to-70% range most of the time, and rising to a frothy 76% in September 2011.

But, as we’ve discussed often, rapidly growing natural gas production and increasingly oversupplied market conditions depressed natural gas prices in the early days of the Shale Revolution, which gave producers the incentive to shift their attention and resources toward “wet” gas shale areas that produced significant volumes of NGLs. The resulting NGL supply growth crushed NGL prices, which pushed the NGL-to-crude ratio down to a new plateau: since 2012 the ratio has averaged just over 40%, and even the collapse in oil prices since mid-2014 hasn’t changed the ratio much. (As of November 30, 2016, with NGL prices up in sympathy with the new OPEC deal, it stood at just 45.4%.)

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The Market

On a day in which the market is down -- one of the very few down days in the Trump rally -- and a trivial day at that, down only 30-some points, how many new highs, new lows? NYSE:

• new highs, 76: BHI, HP, UPS,
• new lows, 66

Bakken Update: The Saudi Big Short Squeeze -- Filloon -- December 2, 2016

Over at SeekingAlpha. Summary:

• Since the OPEC Algiers meeting in September, it has been manipulating oil prices to its advantage
• The OPEC cut isn't the issue as it caused oil prices to increase so operators would hedge then pushed prices down to create a larger move after its cut
• There is no organization to provide oversight to OPEC and even if there was the world feels comfortable with OPEC moves to manipulate prices
• The new Saudi Petroleum Minister has changed how it looks at oil prices and will continue to do anything with in its means to inflate prices 

From the article:

OPEC despises market manipulations with a negative effect on prices.

Oil hedging helped to keep the frac'ers in business when oil prices pulled back. This was part of the reason OPEC was wrong about the effectiveness of flooding the market. It believes the US effects oil prices in a negatively. It blames unconventional US production for today's low prices. Some of this is true, and there is no doubt it has a point, but OPEC has a motive for punishing the US oil industry.

In September, OPEC agreed in principle at a meeting in Algiers to reduce output for the first time since the 2008 financial crisis. Although the details were not released, it was strung out until December. This is important, because the initial announcement pushed oil prices to $52. US E&Ps added significant hedges as seen earlier. We didn't know there was a deal until Wednesday's Vienna meeting. The time between release provided an excellent opportunity for OPEC. The release of negative statements pushed oil prices lower. Iran, Iraq and Saudi Arabia all participated. We may include Russia as well.

It pushed oil prices down below $43/bbl as short positions were added. This provided an excellent opportunity for a short squeeze, and rhetoric was used until the last minute. It is possible the details weren't worked out until Wednesday, but it would seem the Saudi Big Short Squeeze was initiated to create an exaggerated move to the upside.

If accomplished, oil prices could climb and hold above current hedges of US operators. If so, OPEC may have a new mandate. The production cut in concert with a Trump presidency, might continue to move the markets higher. The short squeeze continues, and institutional dollars will begin to roll into energy names over the last two weeks of this month.