Oil and Gas Today
By Mike Salter
Well here we are in the middle of June, and what an interesting month. With the OPEC meeting, and the release of interesting reports and data, and a vote in the European Parliament!
Firstly the price of Brent crude seems to be bouncing around the $62.50-$65.00 mark per barrel. Last weekend, following the OPEC meeting and some figures released in the US weakening the dollar, it jumped around a lot but settled back into the range as stated.
The OPEC meeting agreed to maintain OPEC production at 30Mbbl/day meantime, which was really no surprise. It should be noted that the IEA report that in May OPEC production averaged 31.33bbl/day for the month, with global supplies actually falling slightly by an average of 155,000bbl/day due to reduced non-OPEC production. Both OPEC and the IEA are anticipating continued growth in demand with OPEC appearing to stick to its strategy of allowing market forces to rebalance the market. This will, it is hoped, pull prices higher over time. It was also recognised that supply could be affected by production coming on line for Iran.
In the US production seemed to be being maintained, in spite of the reduction in rig count. There was some evidence that the costs of fracing had reduced considerably due to a number of factors not least pad drilling and better downhole technology.
Staying with fracing there were two related events also in the past few days. Firstly, the report from the US Government’s Environmental Protection Agency (EPA), into fracing and its effects, potential and actual, on the environment.
This is a study that was commissioned by the US Government, to look at the issues surrounding the technology.
The conclusions are, as to be expected, quite complex, but the executive summary is quite clear that it has found no evidence that fracing per se has any effect on the surface environment or on drinking water supplies. These elements may be affected by controllable activities such as well design, treatment of returned water and general good practice. These activities are little different from drilling activities that do not use the fracing technology.
It is a very interesting report which is evidence based, taking three years to compile and conclude. (I recommend reading the Executive Summary, you can download it here).
The second event which seems to be at the other end of the spectrum, is a vote by the European Parliament to support a Europe wide moratorium on fracing. We are told that the vote carries little weight as no-one is obliged to adhere to it!
The debate will continue- but I hope on an informed basis.
The other interesting publication this week was BP’s annual Statistical Energy Review for 2015.
For those businesses with a Far Eastern locus there are some encouraging signs from the stats as published.
In my view the star that could provide substantial opportunities is India.
The sub-continent has seen astonishing growth in energy consumption, much of which is coal, but a consistent 3% increase in the consumption of oil, with only a falling 23.2% of its oil being produced domestically, it is becoming more dependant on imports, likewise its experiencing reducing natural gas production with increasing LNG imports, which increased by 6.7%.
The government is having a major push on encouraging domestic production, activities which, as I have previously indicated, can be constrained by bureaucracy.
The other country to note for increased activity must be Indonesia. Like India, it has a growing population and a growing economy, with concomitant growth in energy consumption that has doubled over 16 years. Again coal is a major source of energy, oil is dominant, but reducing in domestic production, as is gas. (Indonesia is, I think, the only member of OPEC, the Organisation of Petroleum Exporting Countries, to be a net importer of Oil).
Again, this is a country that needs to increase activity to increase domestic production.
Finally, there is China with 23% of world energy consumption, an increase in 2014 of 2.4%.
Coal is again the dominant source of energy, but oil imports increased by 8.4% to 7Mbbl/day. There were increases in gas consumption too. China was in 2014 the world’s largest importer of oil. CNBC reports that the Chinese have been buying Iranian oil via a swaps scheme.
Again there is a big thrust to gain domestic production of both gas and oil.
Interestingly in the three countries just detailed, the biggest increase in energy source has been renewables, where there has been a significant increase in energy production.
It would appear that, Middle East apart, the Far East would represent the best prospect for medium and long-term growth, with possibly West Africa being the short term target. There are, in addition to the big players mentioned, smaller countries like Vietnam and Myanmar that would indicate an increase in activity.
Europe, according to the BP stats, showed contraction in almost all energy areas, consumption and production, with the exception of renewables.
The prospects are in my view, not good for short-term price increases, certainly the IOCs are not counting on this, but they will, as in the past, modify their behaviour and adapt- they have to.
….and lets see how fracing in Europe plays out.
All the best.