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Chart of the Week
Drilling Cost Surge Curbs U.S. Supply Enthusiasm
- Cost inflation triggered by higher drilling demand and supply chain issues has seen the price of new oil wells go up 16% year-on-year, according to Platts.
- Diesel fuel costs and prices of steel piping have seen the most marked increases, though operator’s efficiencies such as faster drilling techniques have offset almost half of the negative impact of drilling costs.
- At the same time, the production rates of new rigs continue to decline across all major producing plays in the U.S., with well efficiency in the Permian falling 15% year-on-year to 1,078 b/d.
- According to WoodMac, ultra-deepwater wells are set to suffer the most this year, with average floating rig rate costs edging higher by 26% compared to last year, almost double that of onshore cost inflation.
- U.S. oil major Chevron (NYSE:CVX) might very become a harbinger of an oil industry anti-ESG wave, with minority shareholder Strive Asset Management arguing that climate goals force “value-destroying limitations” on the company.
- Australia’s largest oil producer Santos (ASX:STO) has reportedly agreed to sell 5% in the Papua New Guinea project PNG LNG to the state-owned Kumul Petroleum for $1.1 billion.
- UK energy major Shell (LON:SHEL) has relinquished its stakes in two offshore wind projects in Ireland with a total capacity of 2.65 GW, less than a year after it bought a 51% stake in them.
Tuesday, September 27, 2022
Things are still looking bearish for crude, with WTI still trading below the 80 per barrel mark, but a number of bullish catalysts could offer support. Hurricane Ian, was touted to become the next menace of oil production and refining in the U.S. Gulf of Mexico. As of Tuesday morning, two oil majors have decided to shut oil platforms in anticipation, and the hurricane is now expected to make landfall in Florida. Hence, oil market bulls see OPEC+ as their ultimate line of defense against a meager macroeconomic background and a strengthening dollar, with all eyes on Russia, which is likely to propose a major production cut at the next OPEC+ meeting on October 5th.
Gulf Platforms Shut Ahead of Hurricane Ian. Oil majors BP (NYSE:BP) and Chevron (NYSE:CVX) have shut their oil platforms in the Gulf of Mexico, including the 250,000 b/d Thunder Horse and the 60,000 b/d Petronius ahead of Hurricane Ian, with other facilities unlikely to be impacted by it.
Trading Majors Hijack LNG Trade. As the price of an average cargo of LNG grew tenfold year-on-year to 175-200 million, small-to-medium-sized players are being squeezed out of the market to the benefit of trading majors like Vitol or Shell, as they are unable to secure adequate credit lines.
Emirati LNG Comes to the Rescue. German utility RWE (ETR:RWE) signed an agreement with ADNOC for the supply of liquefied natural gas, with first cargoes already expected to arrive to Brunsbuettel in late 2022, a novelty for the UAE which has so far never exported LNG into Europe. Related: Democrats Propose Buying And Selling Oil To Fund EV Rollout
Iran Brings the Goods to Venezuela. As Iran has ramped up its crude deliveries to Venezuela, another two tankers are set to discharge Iranian light crude and condensate at the main port of Jose, providing PDVSA with further diluents to convert heavy domestic crudes into exportable grades.
EU Gas Price Cap Still on the Table. Whilst it seemed that the idea of a gas price cap has been put on the back burner by Brussels, a group of EU countries led by Italy and Poland are urging the European Commission to limit wholesale gas prices as soon as possible.
Saudi Arabia Launches Green Drive. Saudi Arabia is set to tender 3.3 GW of new wind and solar capacity as the Middle Eastern kingdom seeks to minimize its historically high crude burn rates for power generation, bringing renewables’ share in power to 50% by 2030.
Total Lands Another Qatari Deal. The French energy major TotalEnergies (NYSE:TTE) signed another deal with QatarEnergy that would see it invest $1.5 billion into the North Field South (NFS) expansion project, the first Western major to be unveiled as a NFS partner.
Nord Stream 2 Drops Out of The Game. German authorities have indicated a sudden drop in pressure in the scrapped Nord Stream 2 pipeline, saying it might be leaking in its subsea section, potentially creating another division line between Germany and Russia.
Always a Good Time to Strike in France. As of today, the CGT trade union has launched an unprecedented three-day strike at all three of TotalEnergies’ (NYSE:TTE) refineries demanding higher salaries, with ExxonMobil’s (NYSE:XOM) Fos-Lavera refinery also debilitated by a strike.
Solar Stocks Shine Amidst Commodity Gloom. Buoyed by the recent adoption of the Inflation Reduction Act and a looming Chinese stimulus package, solar stocks such as First Solar (NASDAQ:FSLR) have been steadily increasing from their May lows despite clean energy moving in the other direction.
Belgium Goes Down the German Way. Despite widespread protests across Belgium, Brussels said it would continue with the decommissioning of its Doel 3 nuclear reactor amidst fears of power blackouts this winter, with 2023 power prices trading slightly above €390 per MWh.
Copper Plummets As Slowdown Woes Hit Hard. As the impending slowdown in economic growth worsens the prospects of copper demand in construction and electronics, LME copper prices have dropped to their lowest since July, trading slightly above 7,300 per metric ton.
Gas Is the Undesired Savior of California. EIA data suggests that the California power grid relied on natural gas for almost half of its electricity generation during recent heatwaves across the state, with maximum gas usage (60%) recorded during the peak demand hours of 5 p.m. and 9 p.m.
By Tom Kool for Oilprice.com
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The reasons are the current tightness in the global oil market, the resilience of oil demand and the fast-shrinking global spare oil production capacity including OPEC+’s.
If Russia is going to propose at the next OPEC+ meeting on October that the group cut 1.0 million barrels a day (mbd) from its collective production, it means that Russia is preparing to halt its oil exports to any country that agree to cap the price of Russian crude.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert