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While Politics Dominates The News, Big Oil Invests In Global Energy Reality

One of the big concerns during the depths of the oil price bust of 2014-2016 was the fact that so many big, integrated and state-run oil companies were delaying or taking a full pass on investing in major and highly-costly international projects. During the financial retrenchment of this dark period, exploration for major new resources consistently took a back seat to finding ways to pay the bills and service the company’s debt.

This lack of investment in new exploration and infrastructure projects led to concerns among many energy analysts that we could be facing a shortage of global supply early in the next decade as decline rates caused existing reserves to play out without the needed new production coming on line to replace them.  The surge in new supply from U.S. shale plays has served to alleviate those concerns for the near-term, and a new report issued by the Norwegian research firm Rystad Energy documents a similar surge in new international investments that should help avoid supply shortages further down the road.

“We expect global FID volumes in 2019 to triple over last year, and 2019’s megaproject awards could lead to billions of subcontracting dollars in coming years,” said Rystad Energy upstream research analyst Readul Islam, “The only supply segment likely to shrink this year is the oil sands, whereas deepwater, offshore shelf and other conventional onshore developments are all poised to show substantial growth. From a geographical perspective, all regions are headed for robust growth except Europe and North America, still bearing in mind that shale plays are not included in these numbers.”

That last point – that shale plays are not included in this report – is key. As I pointed out last week, the Permian Basin has become a focal point for major development not just for big independents like Pioneer Natural Resources, Noble Energy, Apache Corporation and others, but also for major, integrated companies like ExxonMobil, BP, Shell and Chevron. These U.S. shale plays are likely to sustain significant production growth for years to come, giving the big investments documented by Rystad in its report the running room they need to move from final investment decisions to first production, which can easily consume five-to-seven years.

So, if you’ve been wondering why all those stories about concerns of a looming supply crunch on the horizon have disappeared from your daily news clips, this is the reason.

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4 Big Ways the Permian Basin Drives U.S. Energy Growth

Tuesday Energy Update

(Because Energy Fuels Our Lives)

Despite recent low crude prices and a significant drop in the DrillingInfo rig count during January, the giant Permian Basin of West Texas and Southeast New Mexico continues to expand its role as the main driver of energy growth in North America. In just the past week, we have seen the following significant events that are attributable all or in part to what has become the world’s second most-productive oil and gas resource:

A driver of upstream and midstream profits – Both ExxonMobil and Chevron beat analyst expectations with their 4th quarter earnings announcements, driven mostly by their upstream and midstream developments in the Permian. Exxon beat forecasts by almost one-third, with its full-year 2018 earnings coming in at the highest level since 2014. Driven by its Permian drilling, Chevron’s oil and natural gas production rose to an all-time high as the company produced a record 3 million barrels of oil per day (bopd) during the 4th quarter.

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The Oil And Gas Situation: 7 Key Things To Know About Oil and Gasoline

During the course of a radio appearance I made on January 29 (BYU Radio’s “Top of Mind” program hosted by Julie Rose) I was reminded of just how little most Americans really understand about oil and gas in general, and how the gasoline or diesel they use in their cars is manufactured and delivered to their local gas stations.

That’s not a criticism of ordinary Americans, because 98% of them have no real need to understand such things in the course of their lives, and our system of education does almost nothing to educate them about this particular topic. Nor is it a criticism of Ms. Rose, who herself is extremely knowledgeable, but poses questions she knows most of her listeners are wondering about.

Given all of that, I have endeavored here to put together seven key things to know about oil and gasoline that might help the average person better understand this key element in their daily lives:

  1. Where does Gasoline come from? – Gasoline is one of many products derived from crude oil at oil refineries. One good way to think of crude oil is as a complex soup with all kinds of ingredients floating around in it. The refining process basically takes the crude oil soup that comes up out of the ground through oil wells and separates all those ingredients out of it. Gasoline is like the noodles in your chicken vegetable soup.

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The Oil And Gas Situation: Eight Predictions For 2019

Well, that all escalated – or rather, de-escalated – quickly, huh? During the course of a six-day vacation around Christmas, the WTI price for crude dropped from $50/bbl down to $42/bbl. That takes a situation on oil prices that was already troubling for most domestic producers into the potentially-calamitous range for companies saddled with heavy debt loads and high lifting costs.

This latest collapse in crude prices comes on the heels of a longer-term drop that lasted throughout October and November. From October 2 through November 30, WTI fell from $76.41/bbl to $50.93, a decline of about 33%, as it became obvious to traders and investors that the market had become significantly over-supplied despite the re-implementation of U.S. sanctions on Iran by the Trump Administration.

This overall 45% drop in the domestic benchmark price for crude took place during the same period when producers were setting their capital drilling budgets for 2019. While one might think that reality would cause a significant curtailment of drilling activity during the first half of 2019, consider that only about a third of that price drop had come about by November 1, by which time most of these companies were finalizing those budgets. With WTI sitting at $63/bbl at that time, few were anticipating a further drop of this magnitude by the end of December.

Here’s the thing: Thousands of domestic drilling projects that are economic to drill at $63/bbl are uneconomic to drill at $42/bbl. So right now we are already beginning to see reports that some companies are going back and reconsidering some budgeting decisions that were made just a month ago. Others are likely still in wait-and-see mode as they try to assess whether the December price drop is a temporary result of panic-selling or a more long-term phenomenon related to a weakening global economy.

Given all of this, my first prediction is that we will see a gradual fall in the domestic U.S. rig count throughout the first half of 2019.

 

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Crude And LNG Export Facilities Work To Solve Bottlenecks Before They Can Start

Several recent big items of positive news relating to exports of oil and LNG along the Texas Gulf Coast might come just in time to help allay fears of new, downstream bottlenecks for production coming out of the Permian Basin and Eagle Ford Shale plays.

The current bottleneck, of course, involves a lack of needed pipeline takeaway capacity for oil and gas coming out of the Permian Basin. But a dozen or more pipeline expansions and new-build projects currently in progress promise to quickly alleviate that situation during the course of 2019 and 2020. The vast majority of takeaway capacity in these projects will be designed to move the production to ports along the Texas and Louisiana Gulf Coast, with several of the lines picking up crude and natural gas produced in the Eagle Ford along the way.

This outlook has in recent weeks produced a new concern that, as those new pipelines get filled up with more and more volumes coming out of West and South Texas, new bottlenecks could materialize related to the capacity along the Gulf Coast to refine and export the production. Several recent developments in the Corpus Christi area hold the promise of heading the potential new bottlenecks off before the can form.

Where natural gas is concerned, Cheniere Energy this week was able to load its first shipment of LNG out of its new Corpus Christi LNG terminal . The Maria Energy tanker, which has a capacity of 174,000 cubic meters of LNG, left the terminal with a full load on December 11, the first load of LNG to ever ship out of a Texas-based facility. “Exporting the first commissioning cargo of LNG from Texas demonstrates Cheniere’s ability to deliver projects safely and ahead of schedule, including the first greenfield LNG export facility in the lower 48 states,” Cheniere chief executive Jack Fusco said.

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The Oil And Gas Situation: A Time For Setting Records

They say numbers don’t lie, and the last two weeks for the U.S. oil and gas industry have seen the announcements of some pretty amazing numbers. These are numbers that demonstrate exactly how productive and efficient the business has become, and numbers that must be put into some context to understand how extraordinary they really are.

So, as we move into mid-December 2018, let’s give it a shot:

The U.S became a “net exporter” of petroleum liquids for the first time 75 years. – That’s right, the week of November 30 through December 5 saw the United States of America actually export more crude oil and other oil-derived liquids than it imported from other countries. The key part of that sentence is “other oil-derived liquids,” which include gasoline, diesel and other refined products. Rolling all of those products into the equation, the U.S. exported about 211,000 barrels per day more than it imported for the week, as reported by Bloomberg.

The U.S. did not become a net exporter of “crude oil,” as some others in the energy news media mistakenly reported. As Robert Rapier reported at Forbes.com over the weekend, our country is still a sizable net importer of crude alone, an equation that will not be reversed anytime soon.

Regardless, the fact that the U.S. had higher volumes of oil-derived liquids moving out of its various ports than it had coming for a full week is an extraordinary change of circumstance from just a decade ago, a true sea change delivered by the ability to extract oil from the nation’s shale formations.

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Here’s Why Gas Prices go up Every Year at This Time

If you’re wondering why gas prices go up a this time of year, I explain it all with host Julie Rose on @BYUradio here.

Every year at this time, gas prices seem to go up. Or maybe it’s just that we notice it a bit more, because we’re making vacation plans? You’re not imagining things: the price for regular unleaded gas is at its highest level in three years. Americans are paying an average of $2.74 per gallon of regular unleaded right now, which is 30-cents higher than it was at the start of the year.

https://www.byuradio.org/episode/bd967e47-688e-456e-a4df-b34a80821876?playhead=62&autoplay=true

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On This Earth Day, Thank Mother Earth for the Gift of Fossil Fuels

Today’s Campaign Update

(Because The Campaign Never Ends)

Today is Earth Day, and it is the perfect time to celebrate the natural resources like oil, natural gas and coal, which are gifts to humanity from Mother Earth herself.  These indispensable drivers of modern society will no doubt be demonized today amid all the frightful doom and gloom predictions that will be launched by environmental activists and repeated by various media outlets.

All the vitriol directed at these fossil fuels by the environmental community notwithstanding, it is a simple fact that our prosperous, modern, energy-hungry society was made possible by the existence of these fuels.  Without the discovery of and ability to produce fossil fuels, it is likely that mankind would still be mired in a primitive form of existence, reliant on burning wood for heat, horses for transportation, and still living largely in the dark after nightfall.

Without the miracle of the petroleum-fueled internal combustion engine, there would be no automobiles – or primitive ones at best – dirigibles would probably still be our main mode of air transportation, there would have been no space program to drive all the technological advancement of the second half of the 20th century.  Without those things, there would be no high tech industry to speak of, no Internet, and thus no ability to read what I’m writing here.

But what about wind, solar and nuclear?  The production of modern wind turbines, solar panels and nuclear power plants is extremely energy-intensive enterprises, and is by and large powered by the burning of fossil fuels.  In other words, without the massive energy levels generated by the fossil fuel chicken, the “green” energy eggs would not have been possible.  Few of those gigantic wind turbines you see dotting landscapes across America will, in their entire useful lifetime, generate as much power as was required to fabricate them, transport them to their locations, and erect them.

And on this particular day we should all be doubly thankful for the recent discovery of the means – hydraulic fracturing, combined with horizontal drilling – of producing oil and natural gas from shale rock formations.  Because while Europe continues to struggle with failing “cap and trade” carbon trading schemes that haven’t reduced that continent’s greenhouse gas emissions, those same emissions have been reduced in the US to pre-1994 levels through increased use of natural gas in the power generation sector.  Thus, while radicals in the “green” community have done everything they can to turn “fracking” into their cause du jour for limiting or banning, the product of their boogeyman has done more to clean the air through the free market than any of the myriad command and control regulations issued by the Environmental Protection Agency.

So on this 49th celebration of Earth Day, let’s all try to remember that one of the greatest gifts Mother Earth has ever given us is the fossil fuels that make such worldwide celebrations possible.

Meanwhile, as you will no doubt be assaulted all day today with all manner of frightful scenarios about our future environmental challenges, you might find it edifying to review similar pronouncements made by the environmental luminaries of the day at the inaugural Earth Day celebration:

“Demographers agree almost unanimously on the following grim timetable: by 1975 widespread famines will begin in India; these will spread by 1990 to include all of India, PakistanChina and the Near East, Africa. By the year 2000, or conceivably sooner, South and Central America will exist under famine conditions….By the year 2000, thirty years from now, the entire world, with the exception of Western Europe, North America, and Australia, will be in famine.” – Peter Gunter, professor, North Texas State University

“It is already too late to avoid mass starvation.”  – Denis Hayes, chief organizer for Earth Day

“Population will inevitably and completely outstrip whatever small increases in food supplies we make. The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years.” — Stanford University biologist Paul Ehrlich

“Most of the people who are going to die in the greatest cataclysm in the history of man have already been born… [By 1975] some experts feel that food shortages will have escalated the present level of world hunger and starvation into famines of unbelievable proportions. Other experts, more optimistic, think the ultimate food-population collision will not occur until the decade of the 1980s.” — Paul Ehrlich

And my very favorite of them all:

“By the year 2000, if present trends continue, we will be using up crude oil at such a rate…that there won’t be any more crude oil. You’ll drive up to the pump and say, `Fill ‘er up, buddy,’ and he’ll say, `I am very sorry, there isn’t any.’” – Kenneth Watt, Ecologist

Have a great Earth Day today.

Just another day in fossil-fueled America.

That is all.

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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ConocoPhillips’ Permian Asset Sale Is Part Of A Well-Received Strategic Plan

We have become so accustomed in recent years to seeing headlines about companies making major acquisitions to either move into the booming Permian Basin or expand their existing operations there that when we read a headline that says “ConocoPhillips Sells Permian Assets and Expands Elsewhere” (Houston Chronicle, April 3, 2018) it really grabs your attention.  In the face of a big independent like Pioneer Natural Resources announcing in February that it is staking its entire business on the Permian, or Concho Resources making the largest-ever acquisition of Permian assets, any news of a big Permian player selling acreage there seems counter-intuitive.

Of course, when you drill down into the Chronicle’sstory, you find that the news about ConocoPhillips (COP) isn’t so earth-shattering.  In fact, the disposition of acreage in the Permian was made up of several small packages of non-core properties that have thus far remained largely undeveloped.  Prior to these sales, COP owned 144,000 net acres of leasehold in the greater Permian region, and the vast majority of that acreage still remains in the company’s portfolio.  Far from leaving the Permian, the company is actually high-grading its asset base there , and using the proceeds from the sales to acquire acreage in other producing areas.

One of those areas is the liquids-rich natural gas play in Alberta and British Columbia called the Montney Field, where COP announced a 35,000 acre acquisition that brings its overall leasehold in that area to 140,000 acres.  Despite being a leaseholder in the Montney since 2009, COP had drilled just 29 appraisal wells there through the end of 2017, and plans to continue its resource appraisal activities throughout 2018.  This new acquisition is a clear indication that the company is seeing positive results there.

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