Tuesday, May 21, 2019

3 Things To Know About The U.S. Oil And Natural Gas Industry

Oil Pump Acrylic Print featuring the photograph Oil Pump Jack And American Flag Waving by Imagery by CharlyThe U.S. is now easily the world’s largest oil and gas producer, yielding 20% more oil and 25% more gas than Russia. The U.S. could also become the largest global seller of these essential fuels within five years. Obviously, there’s a lot more than just three, but let me hit on the triad of pillars.

1) Producing at All-Time Records

The U.S. shale revolution that started in 2008 has not just transformed our domestic energy outlook but also energy markets around the world. Over this time, U.S. crude oil production has surged 140% to 12.2 million b/d, while gas output is up 55% to 88 Bcf/d. The U.S. is now easily the world’s largest oil and gas producer, yielding 20% more oil and 25% more gas than Russia.

As it turns out, contrary to wide assertions, U.S. crude production didn’t peak in 1970, and U.S. gas production didn’t peak in 2005. The American shale boom itself is a testament to the non-stop evolution of oil and gas operational efficiencies and technologies.

The U.S. oil and gas industry is stronger today than it’s ever been. The price collapse from 2014 to 2017 forced the industry to cut costs to survive. And with some 100 E&P firms going bankrupt during that time, those left standing are mean, lean oil and gas producing machines – and more consolidation will allow them to persist during challenging times of low prices.

This is why IHS Markit says that 1.9 million new jobs in oil and gas will open up from 2016 to 2035.

2) Will Still Supply the Bulk of Our Energy

Today, oil and gas are our two most important sources of energy, meeting 65% of total U.S. energy demand. We lean on oil for 97% of our transportation needs, and increasingly, natural gas leads by generating 35% of all U.S. electricity.

And there’s so much more to come.

Quietly, the U.S. Department of Energy recently projected that gas will easily add the most amount of power capacity through 2050, at 235,000 megawatts. This will be a cornerstone of meeting our climate change and environmental goals: “Thanks to Natural Gas, US CO2 Emissions Lowest Since 1985.

Gas will also remain integral to heating, manufacturing, and in the underappreciated business of “peaking plants,” flexible gas units that backup intermittent wind and solar power. And at 19-20 million b/d, U.S. oil demand remains “buoyantly very high.” Oil (transport) and wind and solar (power) compete in different sectors of the U.S. economy.

And U.S. car sales in 2018 were 17.3 million units. Just 2% of them run on electricity. “Electric vehicle revolution will come from China, not U.S.” Indeed, the U.S. Department of Energy predicts that oil and gas will still supply over 60% of our energy needs for as far out as it currently models (2050).

All of this mandates that we must produce more oil and gas along with the infrastructure required for their expansion. If not, we will expensively and dangerously be forcing ourselves to rely more on the global supply chains, largely now in the hands of more “politically risky” producers like OPEC and Russia.

California and the New England states illustrate exactly what happens when you pass laws that block the domestic production of fuels that you still vitally need: Saudi Arabia for oil and Russia for gas.

3) Going Global

Not just being the largest oil and gas producer, The U.S. could also become the largest global seller of these essential fuels within five years. The American oil export boom started in December 2015 with a law change to ship crude beyond just neighbor Canada.

And gas followed suit in February 2016 when our first LNG export facility in the contiguous U.S. (Cheniere Energy’s Sabine Pass) shipped its first cargo from Louisiana.

At over 2.5 million b/d, U.S. crude oil exports were 35% higher last month than they were in April 2018, made even more impressive given the trade war with China. Oil product exports were double that. Much more is coming.

There are at least eight proposals for new deepwater oil ports along the Gulf, augmented by expansions of existing terminals. And these new projects aim to fully load VLCCs (Very Large Crude Carriers) within a single day.

By early next year, U.S. Gulf crude export capacity should be around 8.5 million b/d. For natural gas, with three operational today, three more LNG export facilities will be online by the end of this year.

Our total LNG export capacity stands to reach nearly 8 Bcf/d, or nearly 20% of the total global demand market. Although unlikely to all come online, proposed projects are five or six times that amount.

Our gas prices are low and transparent, and our LNG contracts are far more flexible. Today at 4-5 Bcf/d and reaching some 30 nations, we are slated to become the leading LNG exporter before 2025.

Let’s hope that we don’t get in our own way: “China to increase tariffs on US LNG to 25%.” We better get this right, fast: “Russia Could Take Hold Of China’s Entire Gas Market.

Those opposing U.S. LNG development plans are handing this critical and soaring market to Vladimir Putin: “Russia’s wants to raise its share of the global LNG market to as much as 20 percent by 2035, after having doubled its share to 8 percent last year.“

Indeed, just like getting the required pipelines built, especially from the booming Permian Basin in West Texas, the infrastructure build-out to ship oil and gas around the world from the Gulf will be bumpier than it should be.

But, the world is depending on us.

The U.S. will be responsible for over 70% of new global oil supply over the next five to seven years at least, so prices will be that much higher if we don’t produce as called upon.

In addition, U.S. natural gas will also help others cut dependence on riskier suppliers (‘Freedom gas’: US opens LNG floodgates to Europe), while also lowering their greenhouse gas emissions by lessening their overreliance on coal and backing up wind and solar power.

Blue state politicans take note: dire warnings from the International Energy Agency on oil and gas have to do with not enough investment in producing them. That tells you all you need to know about how robust global demand for these essential commodities really is.

Monday, May 20, 2019

Factbox: Strait of Hormuz - The World's Most Important Oil Artery

Saudi Arabia said on Monday that two Saudi oil tankers were among vessels targeted in a “sabotage attack” off the coast of the United Arab Emirates, condemning it as an attempt to undermine the security of global crude supplies.

The UAE said on Sunday that four commercial vessels were sabotaged near Fujairah emirate, one of the world’s largest bunkering hubs lying just outside the Strait of Hormuz. It did not say who was
behind the operation, which took place amid heightened tensions between the United States and Iran.
Iran’s foreign ministry called the incidents “worrisome and dreadful” and asked for an investigation.
The Strait of Hormuz, a vital shipping route linking Middle East oil producers to markets in Asia, Europe, North America and beyond, has been at the heart of regional tensions for decades.

What Is the Strait of Hormuz?

The waterway separates Iran and Oman, linking the Gulf to the Gulf of Oman and Arabian Sea. The Strait is 21 miles (33 km) wide at its narrowest point, but the shipping lane is just two miles (three km) wide in either direction.

Why Does It Matter?

The U.S. Energy Information Administration estimated that 18.5 million barrels per day (bpd) of seaborne oil passed through the waterway in 2016. That was about 30 percent of crude and other oil liquids traded by sea in 2016.

About 17.2 million bpd of crude and condensates were estimated to have been shipped through the Strait in 2017 and about 17.4 million bpd in the first half of 2018, according to oil analytics firm Vortexa.

With global oil consumption standing at about 100 million bpd, that means almost a fifth passes through the Strait.

Most crude exported from Saudi Arabia, Iran, the UAE, Kuwait and Iraq — all members of the Organization of the Petroleum Exporting Countries — is shipped through the waterway.

It is also the route used for nearly all the liquefied natural gas (LNG) produced by the world’s biggest LNG exporter, Qatar.

During the 1980-1988 Iran-Iraq war, the two sides sought to disrupt each other’s oil exports in what was known as the Tanker War.

The U.S. Fifth Fleet, based in Bahrain, is tasked with protecting the commercial ships in the area.

While the presence of the U.S. Fifth Fleet should ensure that the critical waterway remains open, provocative Iranian military maneuvers are likely in the immediate offing as is a nuclear restart”, analysts at bank RBC wrote on April 22.

Iran agreed to rein in its nuclear program in return for an easing of sanctions under a 2015 deal with the United States and five other global powers. Washington pulled out of the pact in 2018. Western powers fear Iran wants to make nuclear weapons. Tehran denies this.

All of these geopolitical stories could present a cruel summer scenario for President (Donald) Trump as he seeks to keep oil prices in check,” the RBC analysts wrote.

Are There Alternative Routes for Gulf Oil?

The UAE and Saudi Arabia have sought to find other routes to bypass the Strait, including building more oil pipelines.

Have There Been Incidents in the Strait Before?

In July 1988, the U.S. warship Vincennes shot down an Iranian airliner, killing all 290 aboard, in what Washington said was an accident after crew mistook the plane for a fighter. Tehran said it was a deliberate attack. The United States said the Vincennes was in the area to protect neutral vessels against Iranian navy attacks.

In early 2008, the United States said Iranian boats threatened its warships after they approached three U.S. naval ships in the Strait.

In June 2008, the then Revolutionary Guards commander-in-chief, Mohammad Ali Jafari, said Iran would impose controls on shipping in the Strait if it was attacked.

In July 2010, Japanese oil tanker M Star was attacked in the Strait. A militant group called Abdullah Azzam Brigades, which is linked to al Qaeda, claimed responsibility.

n January 2012, Iran threatened to block the Strait in retaliation for U.S. and European sanctions that targeted its oil revenues in an attempt to stop Tehran’s nuclear program.

In May 2015, Iranian ships fired shots at a Singapore-flagged tanker which it said damaged an Iranian oil platform, causing the vessel to flee. It also seized a container ship in the Strait.

In July 2018, President Hassan Rouhani hinted Iran could disrupt oil flows through the Strait in response to U.S. calls to reduce Iran’s oil exports to zero. A Revolutionary Guards commander also said Iran would block all exports through the Strait if Iranian exports were stopped.

Friday, May 17, 2019

Insurer says Iran's Guards likely to have organized tanker attacks

The Norwegian oil tanker Andrea Victory was damaged in an alleged 'sabotage attacks' in the Gulf [Emirati National Media Council/AFP]

https://www.reuters.com/article/us-usa-iran-oil-tankers-exclusive/exclusive-insurer-says-irans-guards-likely-to-have-organized-tanker-attacks-idUSKCN1SN1P7

LONDON/OSLO (Reuters) - Iran’s elite Revolutionary Guards (IRGC) are “highly likely” to have facilitated attacks last Sunday on four tankers including two Saudi ships off Fujairah in the United Arab Emirates, according to a Norwegian insurers’ report seen by Reuters.

The UAE, Saudi Arabia and Norway are investigating the attacks, which also hit a UAE- and a Norwegian-flagged vessel. 

A confidential assessment issued this week by the Norwegian Shipowners’ Mutual War Risks Insurance Association (DNK) concluded that the attack was likely to have been carried out by a surface vessel operating close by that despatched underwater drones carrying 30-50 kg (65-110 lb) of high-grade explosives to detonate on impact. 

The attacks took place against a backdrop of U.S.-Iranian tension following Washington’s decision this month to try to cut Tehran’s oil exports to zero and beef up its military presence in the Gulf in response to what it called Iranian threats.

The DNK based its assessment that the IRGC was likely to have orchestrated the attacks on a number of factors, including: 

- A high likelihood that the IRGC had previously supplied its allies, the Houthi militia fighting a Saudi-backed government in Yemen, with explosive-laden surface drone boats capable of homing in on GPS navigational positions for accuracy. 

- The similarity of shrapnel found on the Norwegian tanker to shrapnel from drone boats used off Yemen by Houthis, even though the craft previously used by the Houthis were surface boats rather than the underwater drones likely to have been deployed in Fujairah. 

- The fact that Iran and particularly the IRGC had recently threatened to use military force and that, against a militarily stronger foe, they were highly likely to choose “asymmetric measures with plausible deniability”. DNK noted that the Fujairah attack had caused “relatively limited damage” and had been carried out at a time when U.S. Navy ships were still en route to the Gulf.

Both the Saudi-flagged crude oil tanker Amjad and the UAE-flagged bunker vessel A.Michel sustained damage in the area of their engine rooms, while the Saudi tanker Al Marzoqah was damaged in the aft section and the Norwegian tanker Andrea Victory suffered extensive damage to the stern, DNK said. 

The DNK report said the attacks had been carried out between six and 10 nautical miles off Fujairah, which lies close to the Strait of Hormuz.

SENDING A MESSAGE

Iran has in the past threatened to block all exports through the Strait of Hormuz, through which an estimated fifth of the world’s oil passes.
According to DNK, it was highly likely that the attacks had been intended to send a message to the United States and its allies that Iran did not need to block the Strait to disrupt freedom of navigation in the region.

DNK said Iran was also likely to continue similar low-scale attacks on merchant vessels in the coming period. 

Iranian officials and the Revolutionary Guards’ (IRGC) spokesman were not available for comment. 

Tehran had already rejected allegations of involvement and Iranian Foreign Minister Mohammad Javad Zarif had said that “extremist individuals” in the U.S. government were pursuing dangerous policies. No one claimed responsibility for the attacks. 

DNK’s managing director Svein Ringbakken declined to comment, except to say that “this is an internal and confidential report produced to inform shipowner members of the DNK about the incidents in Fujairah and the most likely explanation”.
The UAE has not blamed anyone for the attack.

Two U.S. government sources said this week that U.S. officials believed Iran had encouraged Houthi militants or Iraq-based Shi’ite militias to carry out the attack. 

In a joint letter seen by Reuters and sent to the U.N. Security Council on Wednesday, the UAE, Saudi Arabia and Norway said the attacks had been deliberate and could have resulted in casualties, spillages of oil or harmful chemicals. 

“The attacks damaged the hulls of at least three of the vessels, threatened the safety and lives of those on board, and could have led to an environmental disaster,” the letter said. 

Last month, the United States designated the entire IRGC as a terrorist organization. Washington had previously designated entities and individuals connected with the IRGC, which controls vast segments of Iran’s economy. 

Tehran responded by designating the regional United States Central Command (CENTCOM) as a terrorist organization. 

Additional reporting by Alexander Cornwell and Parisa Hafezi in Dubai, Michelle Nichols in New York; Editing by Kevin Liffey

Thursday, May 16, 2019

OPEC+ Grapples With Iran Crisis as Ministers Meet in Jeddah


https://www.bloomberg.com/news/articles/2019-05-15/opec-to-grapple-with-iran-crisis-as-ministers-meet-in-jeddah
  • Iran’s oil exports, sanctions set to dominate discussions
  • Persian Gulf tensions rise after Saudi oil pipeline attack
When OPEC and its allies gather in the Saudi Arabian city of Jeddah this weekend, their conversation will be dominated by a member of the group that isn’t there: Iran.
As U.S. President Donald Trump squeezes oil exports from the Islamic Republic with sanctions, the discussions among other producers such as Saudi Arabia and Russia will likely focus on whether they need to fill a resulting supply gap. Their talks take place amid flaring political tensions in the Middle East, where Riyadh says its oil tankers and pipeline network were attacked this week.

“It’s a critical issue,” said Ed Morse, head of commodities research at Citigroup Inc. in New York. “This is a very tight physical market which is confronting significant losses of supply, and seeing signs of potential disruption in the Persian Gulf.”

Oil prices, holding near $72 a barrel in London, could easily climb this summer as global supplies are strained by Trump’s crackdown on Iran and simmering geopolitical tensions from Venezuela to Libya. But as opening the taps too soon could instead send prices crashing, Riyadh and Moscow face a dilemma over their next move.

“They should keep supply on a leash for now,” said Derek Brower, a director at consultant RS Energy Group Inc. “The market wants OPEC to recognize that balances will weaken later this year, and also next year.”

The two oil giants are spearheading a coalition known as OPEC+, made up of producers from the Organization of Petroleum Exporting Countries and beyond, which has been restraining output this year to keep world markets balanced. A committee including all major members except Iran will review market conditions on Sunday before the full group meets next month.


As the White House tightens its crackdown on Iran’s oil sales, Saudi Arabia is under pressure to compensate by raising its crude production. Trump tweeted on April 26 that he’d secured the kingdom’s pledge of co-operation.

Iran’s oil output has tumbled more than 30% since last May, data complied by Bloomberg show, when Trump abandoned an agreement on the country’s nuclear program and announced that financial sanctions would be re-imposed. Production could plunge further this month, to the lowest since the Iran-Iraq war in the 1980s, the International Energy Agency predicts.

Nonetheless, a decision by the Saudis and Russia to shift from restraining supply to boosting it isn’t straightforward.

There’s still no clarity on whether Iran’s biggest customer, China, will flout the U.S. ban and thus how far output will ultimately fall. Saudi Arabia is reluctant to repeat its experience of last year, according to Citigroup’s Morse, when it ramped up production in anticipation of a shortage that never arrived.

Record Levels

Riyadh bolstered output to record levels last autumn as U.S. officials promised to completely choke off Iranian supplies, only to see prices crash 35% in the fourth quarter as the Trump administration allowed some flows to continue. Saudi Arabian Energy Minister Khalid Al-Falih said late last month that while the kingdom will ultimately accommodate Iran’s customers, it’s not going to rush.

“The Saudis have been very conservative when it comes to adding barrels to the market,” said Mohammad Darwazah, a director at Medley Global Advisers in New York. “Saudi policy makers will certainly have a difficult needle to thread as they balance U.S. pressure to replace Iranian barrels with their own fiscal needs.”

A Saudi move to increase production substantially, and in the process take away Iran’s customers, could also be a severe test of OPEC’s unity.

OPEC+ nations are currently bound by limits on their output which run until the end of June, when the agreement could either expire or be renewed. Saudi Arabia is entitled to raise production by about 500,000 barrels day from last month’s levels, or about 5%, and still remain within its agreed restrictions.


But losses in Iran stand to be much larger, potentially spiraling to 900,000 barrels a day according to Goldman Sachs Group Inc., and could require a bigger and more contentious surge from the kingdom.

Such a move is unlikely to be formally ratified when OPEC+ convenes in late June, as the group’s agreements require unanimous approval and Iran would withhold its support.

Saudi Arabia, Russia and others with idle production capacity could proceed regardless, but risk straining already tense relations in the group to breaking point. Iranian Oil Minister Bijan Namdar Zanganeh warned on May 2 that OPEC is headed for a collapse.

‘Pretty Clear’

“It is pretty clear that Iran will not sign on for any OPEC output increase beyond current quotas,” said Helima Croft, chief commodities strategist at RBC Capital Markets LLC. “In the current context, Saudi plans to backfill the Iranian barrels may be viewed as acts of economic warfare.”
If this weekend’s deliberations could be difficult, OPEC’s ministerial meeting next month, when Iran will be present, is set to be much tougher.

While the cartel has weathered a range of internal conflicts over its six-decade history, recent tensions have been particularly acute. Friction between Riyadh and Tehran pushed talks at two meetings to near-breakdown last year, and in December Qatar quit the organization after 57 years of membership amid a dispute with the Saudis.

“I can imagine the June meeting being postponed” or “not having a consensus vote -- not even having a consensus trying to be reached,” said Citigroup’s Morse.

Wednesday, May 15, 2019

BREAKING: Two Saudi Arabian Oil Pumping Stations Attacked By Iran Backed...

Chevron taps out in Anadarko Petroleum battle, will get $1B termination fee

Chevron said on Friday, April 12, 2019, that it will buy Anadarko Petroleum for $33 billion in the biggest industry megadeal in years. Photo: Associated Press / James Nielsen

https://www.foxbusiness.com/energy/chevron-taps-out-in-battle-for-anadarko-petroleum

Chevron will not provide a counteroffer for Anadarko Petroleum Corp., paving the way for Occidental Petroleum to acquire the oil and gas driller after a rare, public fight between the two firms.

Chevron had until Friday to submit a counterproposal for Anadarko after the Texas-based firm earlier this week determined a revised offer from Occidental was superior. Chevron announced on Thursday, however, that it will not move forward with a new bid.

"Winning in any environment doesn't mean winning at any cost. Cost and capital discipline always matter, and we will not dilute our returns or erode value for our shareholders for the sake of doing a deal," CEO Michael Wirth said in a statement. "We are well positioned to deliver superior value creation for our shareholders."

Under the terms of the initial agreement between Chevron and Anadarko, the San Ramon, California-based company is entitled to a $1 billion termination fee.

Analysts largely applauded Chevron's decision and said the oil giant has no need to pursue a megamerger the size of the Anadarko transaction in the future.

"Chevron simply does not need to expand its upstream asset base through large-scale M&A. There is much to like about the existing assets, and there are plenty of growth opportunities for the future," Raymond James' Pavel Molchanov said in a note.

To win the feud, Occidental sweetened its $38 billion offer to include more cash. The Houston-based firm also got backing from Warren Buffett's Berkshire Hathaway, which said it would make a $10 billion preferred stock investment contingent on the deal closing. Total S.A. also agreed to buy Anadarko's African assets for $8.8 billion in a hasty transaction arranged by Occidental CEO Vicki Hollub.
Given the higher cash included in the offer, Occidental's bid does not require a shareholder vote.

The merger is poised to create an oil and gas powerhouse with extensive operations in the lucrative U.S. shale basin, including the Permian Basin, one that stretches from Texas to New Mexico and is considered the hotbed of shale production in the country.

Occidental will also control Anadarko's assets in the Gulf of Mexico and South America. The firm reportedly pursued the merger over fears that it would be unable to adequately compete in the future against giant Chevron and Exxon Mobil Corp.