AuthorTopic: Hills Group Oil Depletion Economic and Thermodynamic Report  (Read 71301 times)

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Re: Hills Group Oil Depletion Economic and Thermodynamic Report
« Reply #240 on: September 25, 2019, 04:06:19 AM »
A fine detailing of just another one of the mechanisms that is likely to be involved in peak demand. It isn't as though the big think tanks have been calling for a peak demand scenario for the fun of it.

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🛢️ Europe’s Gas Demand Soars As Dutch Giant Folds
« Reply #241 on: October 03, 2019, 04:43:31 AM »

Europe’s Gas Demand Soars As Dutch Giant Folds

Europe’s energy landscape will be completely changed once the Dutch shut down the largest gas field on the continent years ahead of schedule, according to Rystad Energy.

The Netherlands recently announced that production at Groningen – Europe’s largest gas field – will be halted in 2022, eight years earlier than initially planned. However, despite the ambitious target of decommissioning the field by 2022, Rystad Energy expects that there could be some residual production from Groningen up to 2030 as it is technically challenging to completely shut down production in such a short timeframe.

The drastic drop in output from Groningen will redefine the European energy landscape. The field, which had a rebound in production at the start of this century, reaching 57 billion cubic meters (Bcm) in 2013, was for decades the central cog in northwest Europe’s gas system.

“The phase-out of this giant field will force Europe to expand its gas imports at an even quicker pace. We can already see this drastic shift taking place in the Netherlands, which is in the midst of the transition from being a net gas exporter to a net importer,” says Carlos Torres-Diaz, head of gas markets research at Rystad Energy.

In Europe, more supply from alternative sources will be needed as domestic production declines and demand continues to increase. The continent has ambitious plans to decommission coal and nuclear power generation, and this could lead to higher gas demand, especially in the medium term. Renewable energy sources should replace some of the lost power capacity, but due to the low capacity factors of these technologies and their intermittency, the power system will rely strongly on gas power to provide security of supply. Consequently, Rystad Energy forecasts that gas-for-power demand in Europe will continue to increase until 2025 and then gradually decrease as renewables gain momentum.

The Netherlands has formally set an ambitious goal that 83% of total power generation is to be sourced from solar and wind by 2040. Such a transition to renewables means that the need for gas-power could reach a peak in 2020 and start a gradual decline earlier than in the rest of Europe. This will lead to a 32% drop in total gas demand in the country over the next two decades, from around 37 Bcm in 2019 to 25 Bcm by 2040.
Related: OPEC Chief Invites All 97 Oil Producers To Join OPEC+ Coalition

“More pipeline and LNG imports will be needed in the Netherlands to replace declining production from Groningen. Dutch exports to neighboring countries are also expected to drop making the whole region more dependent on LNG imports to meet its demand,” Torres-Diaz added.

Rystad Energy expects the global market for LNG to remain oversupplied over the next two years and then tighten after 2023.

“We remain optimistic about the potential for global growth in demand driven by Asia in the long term and forecast total LNG demand to reach 604 million tonnes per annum (tpa) by 2030. That means 175 million tpa of new supply is needed to meet demand by 2030,” Torres-Diaz remarked.

Turning to the global market for natural gas, Rystad Energy forecasts global supply will reach 4660 Bcm by 2030. The additions are driven by North America, the Middle East and Russia.

“Since our last forecast in June 2019, we have increased our base supply outlook by around 50 Bcm for 2030, driven by increased supply potential from the US and Russia” Torres-Diaz said.

Traditional gas suppliers, such as Indonesia, Norway and the Netherlands, are facing production declines due to maturing fields and the production cap at Groningen in the Netherlands.

By Rystad Energy
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Replacement Rate Hits 20-Year Low: Oil Industry Only Replace 1 In 6 Barrels

Oil and gas companies have discovered 7.7 billion barrels of oil equivalent (boe) year-to-date, according to Rystad Energy’s latest global discoveries report.

“The industry is well on track to repeat the feat achieved in 2018 when around 10 billion boe of recoverable resources were discovered,” says Palzor Shenga, senior analyst on Rystad Energy’s upstream team.

(Click to enlarge)

Russia has seen the most discovered resources thus far in 2019, with the Dinkov and Nyarmeyskoye discovery announced earlier this year holding around 1.5 billion boe of recoverable resources. Guyana and Cyprus nab the other places on the podium.

(Click to enlarge)

The so-called resource replacement ratio for conventional resources now stands around 16%, which is the lowest seen in recent history.

“This means that only one barrel out of every six consumed is being replaced by new sources. This is the lowest replacement ratio we have witnessed in the last two decades,” Shenga added.

(Click to enlarge)

However, the industry has high hopes after the prolific success of ExxonMobil’s Stabroek block off the coast of Guyana and more recent discoveries by other operators in the region, which have led to a surge in offshore exploration in the Caribbean. More acreage is being made available for bidding, with some countries conducting their first-ever licensing rounds in 2019 and 2020.
Related: Banks See Oil Prices Staying Low Despite Attacks On Saudi Oil

Offshore drilling activity has been on a steady rise in recent years, with 23 new exploration wells expected in 2019. By comparison, only seven offshore wells were drilled in 2013.

“We estimate the annual number of wells drilled could increase slightly to 25 wells in 2020, as more operators join the Caribbean exploration circuit,” says Santosh Kumar, an exploration analyst on the upstream team.

Rystad Energy expects the Guyana-Suriname basin will continue to occupy headlines with a few planned wells in both Guyana and Suriname. The basin is pinned as one of the most prospective, underexplored basins in the world and will definitely get a facelift from its current assigned volumes if hydrocarbons are established towards the east.

“Explorers have set their sights on establishing a working petroleum system and unlocking the underlying commercial prospectively of the basin. The latest update suggests that the basin could have a potential of around 13 billion boe,” Shenga said.

A wildcat exploration campaign led by Apache is currently underway in Guyana’s eastern neighbor, Suriname. Prior to this only 14 wells have been drilled in the Guyana-Suriname basin beyond water depths greater than 20 meters.

By Rystad Energy
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🛢️ A Draconian Crackdown Looms Over Natural Gas
« Reply #243 on: October 17, 2019, 12:00:22 AM »
When the Big Banks stop issuing debt on this investment, it's dead.


A Draconian Crackdown Looms Over Natural Gas
By Nick Cunningham - Oct 16, 2019, 3:30 PM CDT

The natural gas industry is reeling as the political climate begins to shift against the industry faster and earlier than many expected.

“If large institutional financial banks stop funding fossil fuel companies, that's going to be a real challenge,” Charlie Riedl, executive director of industry trade group Center for Liquefied Natural Gas, said this week at the Gulf Coast Energy Forum in New Orleans, according to S&P Global Platts. “That's a conversation we have to have. If natural gas becomes the next coal, that's going to be a real challenge.”

The coal industry has been battered by all sides over the past decade, crushed by the surge of shale gas itself and by renewable energy, but also squeezed by a shrinking pool of capital as banks and insurers cut off finance. For instance, on Wednesday, insurer Axis Capital announced that it would restrict insurance to both coal and tar sands oil.

To date, the gas industry, although having been under fire from environmental groups for years, has been spared the draconian crackdown by both capital markets and regulatory action. In fact, Big Oil has made a massive bet on natural gas as the future, which oil executives view as a hedge against peak oil demand.

But the political winds are shifting quickly. Earlier this year, Berkeley, California became the first U.S. city to ban new natural gas hookups in new buildings. Menlo Park and Windsor soon followed, and dozens of other cities are exploring similar prohibitions.

Some Democratic presidential candidates have vowed to ban fracking if elected.
Related: Oil Prices Jump On A Lone Piece Of Bullish News

The industry risks losing its social license to operate. Record levels of gas flaring in Texas is surely not helping matters.

Charlie Riedl of the Center of Liquefied Natural Gas told S&P Global Platts that the industry has to do more to slash emissions.

It’s notable that the reference to gas becoming the new coal has been uttered by several industry executives in the past few weeks. “The industry really is at a critical juncture,” Woodside Petroleum CEO Peter Coleman said at a recent conference in Houston. “We run the risk of being demonized like that other fossil fuel out there called coal.”

For the oil industry, this is very much an existential problem. Many large oil companies are massive gas producers as well, and their portfolios are trending in a more gas-heavy direction.

Judging by BP’s recent PR blitz, they appear worried about the direction that the conversation on gas is taking.

BP’s CEO Bob Dudley said that Michael Bloomberg’s $500 million campaign to kill off natural gas-fired power plants is “irresponsible.”

“Every scenario I look at, we cannot carpet the world with renewables fast enough,” Dudley told CNBC.

Dudley’s counterpart at Shell also doubled down this week, calling the “demonization” of oil and gas “unjustified.” Shell has gone to great lengths to cast its business as one in transition, and last year the company announced that it would tie executive pay to reductions in greenhouse gas emissions.

By some measures, Shell is ahead of its peers. But that is a low bar to clear. The amount of money spent on clean energy by the oil majors is a pittance. ExxonMobil, for instance, spent a tiny fraction of 1 percent of its overall spending on low-carbon technologies between 2010 and 2018.

Shell’s CEO Ben van Beurden has struck a more conciliatory tone than his American competitors. “Things that we did 10 years ago, and everybody thought was entirely appropriate, correct, and ethical, maybe in today’s value sets [people will] say, ‘How could you do that’?” van Beurden told the FT in an interview last month.

But his patience seemed a little more worn out in an interview with Reuters this week. “Despite what a lot of activists say, it is entirely legitimate to invest in oil and gas because the world demands it,” van Beurden said. “We have no choice” but to continue to spend on long-term oil and gas projects, he added. Reuters noted that the Anglo-Dutch oil giant has plans to give final investment decisions on more than 35 new oil and gas projects by 2025.
Related: What’s Behind The Bearish Bias In Oil Markets?

A September report from Carbon Tracker found that the oil majors funneled $50 billion into projects that are not aligned with the Paris Climate Agreement. Those investments were made since just last year. In other words, the industry is betting on, and very much invested in, the world blowing past climate targets.

In the Reuters interview, Shell’s Ben van Beurden dismissed the notion that the company’s projects would not be viable. “One of the bigger risks is not so much that we will become dinosaurs because we are still investing in oil and gas when there is no need for it anymore. A bigger risk is prematurely turning your back on oil and gas,” he said.

But he did admit that he was nervous that the company was losing investor interest amid growing pressure to act on climate change. He said that Shell’s shares were trading at a discount in part because of “societal risk.”

“I am afraid of that, to be honest,” he added. “It is not at a scale that the alarm bells are ringing, but it is an unhealthy trend.”

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🛢️ Brazil's $50 Billion Oil Boom Is Falling Apart
« Reply #244 on: November 01, 2019, 05:49:28 AM »

Brazil's $50 Billion Oil Boom Is Falling Apart
By Julianne Geiger - Oct 31, 2019, 6:30 PM CDT Brazil Oil Auction

Exxon may not be interested in stepping up to the bidding plate at Brazil’s massive $50 billion transfer of rights auction next week, because the oilfields up for grabs come with a hefty price tag, Exxon’s president of exploration, Stephen Greenlee said in an interview with Bloomberg.

Exxon, Greenlee explained, already holds licenses offshore Brazil, but when it bought those rights, the assets were far less expensive than what the Buzios oilfield is expected to go for this time around.

“Whether or not we participate, it would be wrapped up in how we would see that opportunity versus all the other investment options, because there are a lot of investment options out there right now,” Greenlee said, adding that Exxon wasn’t the only oil company with reservations about the high price tag.

Already Total SA, Repsol, and BP Plc have said they are not interested.

No doubt, Brazil’s auction is offering as close to a sure thing as you can get—but oil companies are worried that the high price tag of the rights would eat into any profits, shrinking it to less attractive levels.

Related: Protect The Oil: Trump’s Top Priority In The Middle East

For Exxon, who has gone gangbusters into Guyana, Brazil is not the last frontier. But it is not definitively bowing out of Brazil. Exxon will consider the opportunity, weighing it against available opportunities in US shale and LNG projects.

Brazil’s transfer of rights auction is scheduled to take place on November 6. Petroleo Brasileiro SA is intending to “bid to win” Buzios, which has been hailed by Exxon as the “largest and most prolific” deepwater discovery ever.

Next door to Brazil, ExxonMobil is currently pushing ahead with Hess on its Guyana Liza Phase 1 discovery, with hopes of achieving first producing there by December. The US oil major is also looking to increase its oil production in the Permian to 1 million bpd by 2024.

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🛢️ Why 2020 Could Be A Crisis Year For Refiners
« Reply #245 on: November 10, 2019, 04:27:06 AM »

Why 2020 Could Be A Crisis Year For Refiners
By Tsvetana Paraskova - Nov 09, 2019, 6:00 PM CST

“The single largest oil market disruptor”—as some experts and media have dubbed the new shipping fuel rules set to kick in in less than two months—has had refiners on edge this year as they prepare for the dramatic switch in marine fuel specifications.   

The refining industry around the world has carefully planned to boost compliant fuel production in the back end of the year, expecting windfall from the IMO-effect in the months immediately preceding the shipping rules change. 

But as January 1, 2020, is fast approaching, the previously expected refining margins bonanza could turn to bust as the disruption is now expected to be much less dramatic than previously thought.

According to the new rules by the International Maritime Organization (IMO), only 0.5-percent or lower sulfur fuel oil should be used on ships beginning January 1, 2020, unless said ships have installed the so-called scrubbers—systems that remove sulfur from exhaust gas emitted by bunkers—so they can continue to use high-sulfur fuel oil (HSFO).

To be sure, the new fuel specifications are set to send shockwaves through the entire supply chain in the shipping industry—from crude oil producers, to refiners, to traders, to shippers, to end-consumers of everything traded on ships.

However, supply of compliant low-sulfur fuel could be just as sufficient, while demand may be subdued, due to the global economic and trade growth slowdown and at least some non-compliance from shippers, which analysts at Wood Mackenzie put at around 10 percent for 2020.

Russia is one of the countries set to delay the IMO rules implementation, but only in its territorial waters including rivers, Energy Minister Alexander Novak said, responding to questions sent by Bloomberg. Russia will still comply with the rules in international waters. Due to its predominantly high-sulfur oil, Russia is set to be one of the biggest losers in the new marine fuel rules.
Related: Canadian Oil Prices Crash After Keystone Spill

The new regulation will lead to low-sulfur fuel oil (LSFO) displacing HSFO demand, but the change looks less dramatic now than it did several months ago.

The shipping industry consumes 3.5 million bpd of HSFO, while refiners around the world are set to provide 1.5 million bpd of IMO-compliant very-low sulfur fuel oil (VLSFO), according to WoodMac’s Head of Oils Analysis Alan Gelder. There will still be demand for HSFO—from the ships with scrubbers installed, and from some non-compliance, including shippers prepared to cheat in markets with limited controls, and non-compatibility of VLSFO. Around 1 million bpd of marine fuel demand would be for marine gasoil (MGO), a middle distillate similar to diesel, WoodMac reckons.

VLSFO is cheaper than marine gasoil, but some conservative customers could still prefer MGO, Sharon Weintraub, Chief Executive Officer for Supply and Trading, Eastern Hemisphere, at BP, told Reuters in September.

Supply of VLSFO looks to be greater than initially thought, Matt Stanley, an oil broker with StarFuels in Dubai, told Reuters.

With relatively adequate supply of compliant fuel, refiners may not see the refining margins boom they were expecting earlier this year.

As 2020 is drawing nearer, LSFO storage around the world’s key bunkering port, Singapore, is piling up. As at end-October, 7.3-7.5 million tons of LSFO and blendstocks were sitting in floating storage on board 29 supertankers offshore Singapore, up from 7 million tons at the start of October, according to Refinitiv analysts quoted by Reuters.

Japanese refiners are ready to supply LFSO but they will keep up HSFO production and supply because Japan hasn’t banned discharging of water from open-loop scrubbers at ports, according to S&P Global Platts.   
Related: Why The U.S. Won't Back Down From Syrian Oil Fields

Regardless of the marine fuel that the shipping industry will use, demand for each of those could be much lower than expected in view of the global economic slowdown and seaborne trade growth slowdown.

In its September Oil Market Report, the International Energy Agency (IEA) said that the trade slowdown weighs on fuel oil demand and allows for a less disruptive switch to IMO-compliant fuel. In March, the IEA expected gasoil shortage of 200,000-300,000 bpd in 2020.

“With fewer than four months left before the rule kicks in, we believe that the oil market is likely to be better supplied than we thought,” the IEA said in September.

Refining capacity has increased globally, while bunker demand is now lower due to the ongoing contraction in global trade, the agency noted. In addition, U.S. light oil supply has increased, and U.S. grades are in demand with refiners who process them into VLSFO fuels. These recent developments “now point at the likelihood of an even smoother start to the implementation,” the IEA said.

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🛢️ Another Oil Major Bails On Marcellus Shale
« Reply #246 on: December 24, 2019, 01:46:36 AM »

Another Oil Major Bails On Marcellus Shale
By David Messler - Dec 23, 2019, 2:00 PM CST

There have been some signs the shale boom that re-energized America’s domestic energy industry a few years back, might be entering a maturing phase of its development. A phase where weaker players would hit a debt wall or be bought out at discounted value. A phase where, companies with cash who might have felt shale plays were too frothy at present levels, and had stayed on the sidelines waiting for the “froth” to dissipate. Biding their time. Now you can now almost hear the knives on the whetstone.

Beginning in 2019 these signs began to take shape in the massive retrenchment of the service industry that powered shale growth. Companies like Halliburton, (HAL) and Schlumberger, (SLB) threw in the towel and began to take charges against earnings, and layoff hundreds of staff.

This trend took on a real and tangible face when in a recent filing Chevron (CVX) said it would write down and put on the auction block its Marcellus shale assets. Assets it acquired from Atlas Energy in 2011 for $3.2 bn.

In the third quarter, 2019 conference call where this news was released to analysts, Michael Wirth, Chairman and CEO of Chevron commented-

“Mr. Wirth said Chevron must be selective about its investments moving forward, focusing on oil-rich regions like the Permian Basin in West Texas and New Mexico.” - WSJ

According to CVX, not all shale is created equal. Let’s make a note of that! My job as an oil industry expert is to dig a little deeper and see if we can determine just what drove this decision.

The Marcellus vs. The Permian

Why is Chevron abandoning the Marcellus for the Permian? Let's take a look at the isopach maps for both. In the graphic for the Marcellus, noted as Figure 2, you can see it is a relatively thin structure over most of its extent. And thins progressively the farther west it goes. The EIA comments thusly about production in the Marcellus:

"Most of the current production is located in areas where the formation thickness is greater than 50 feet." - EIA
Related: Expect More Writedowns From Oil Majors

Well, that just makes sense! But, as you look at the map of the Marcellus, one thing that strikes you is... those areas are concentrated in just a few areas on the eastern edge of the play, that some call the "Sweet Spots.” As you will see in the acreage map obtained from Chevron, they are generally quite a bit west of these sweet spots in about 50 percent of the acreage shown.


By comparison, the Permian play that is drawing Chevron's attention as it exits the Marcellus is thousands of feet in thickness across a broad swath of the Permian, as the EIA map below reveals.


Superficially, it seems to make sense. Cash out of a play that's gas-prone if you prefer oil. One that at best is a few hundreds of feet in vertical pay and go to one with thousands of vertical feet of pay across multiple horizons.

Too bad for CVX's shareholders they didn't figure that out before plunking down a few billion for acreage in the Marcellus.

Take some Maalox've got gas!

If you take a look at the acreage map below, you can see Chevron's current Marcellus footprint. As noted above they are well out of position to the eastern sweet spots in about half the play.

Source: Chevron's Post Atlas Energy Marcellus shale footprint. Note that Chevron's acreage is about half and half. Half in the sweet spot where formation thickness is in the 150-300' range, and half in the 25-50' thickness range.


The next thing we learn from the map showing oil to gas ratios is, it's really gassy. Well that’s no surprise really as the Marcellus is the reigning champ for gas as the table from the EIA’s Drilling Productivity Report reveals.


The problem and of course the root cause of Chevron’s dissatisfaction is that gas prices are in the tank due to over production domestically. There is no immediate cure on the horizon for that problem.

Thermal maturity

Thermal maturity refers to the alteration of the rock from burial depth. The heat generated from deeper burial causes the kerogen (the precursor to oil and gas) to transform into the useful forms we drill to obtain. The EIA report again has pertinent information as to what drove Chevron's decision to walk away from the Marcellus.
Related: The Complete Guide To Cementing

Thermal maturity values (based on vitrinite reflectance, Ro measurements of core samples) in the Marcellus Shale generally increase in a southeastern direction, as shown in Figure 6, ranging from 0.5 percent Ro to more than 3.5 percent across the Appalachian basin. Recent Marcellus Shale drilling activity and results suggest that the most substantial hydrocarbon production takes place roughly southeastward of the 0.6 percent Ro maturity contour in the western parts of West Virginia, eastern Ohio, Pennsylvania, and southern New York. At thermal maturity values of greater than 3.5 percent Ro, the hydrocarbon production potential from the Marcellus Shale may become problematic based on the limited drilling results released to date. - EIA

Another problem CVX may have found is that a bunch of its southwestern acreage appears to be in the "thermally over-mature" area. What this will all boil down to is that the acreage will not be productive.

How about pressure?

Pressure is generally regarded as a good thing in oilfield operations, particularly when it comes to producing oil. Naturally pressured or over-pressured formations produce more oil and gas than those that are under-pressured. Pressure helps the well to overcome the effects of gravity and forces hydrocarbons up the well bore to the surface. Much cheaper than alternatives.

The EIA report, from which I drew much of the information I present here, comments about the Marcellus pressure regime.

The Marcellus exhibits several different pressure regimes across the Appalachian basin. Generally, the Marcellus is under-pressured to the southwest and normal-pressured to potentially over-pressured to the northeast, with a transitional area in between. Likely, the highest ultimate recoveries will be from the normal to over-pressured areas. The presence of these distinct pressure regimes and variations in lithology requires different approaches to well stimulation and completion (Zagorski et al., 2012). - EIA

Nearly all of Chevron's acreage is in the western section of Pennsylvania, with about half in the southwest section. The least pressured acreage in the Marcellus.

What has been happening with gas prices since CVX did this deal?


You could pretty much ski down this slope, absent the big "mogul" in early 2018, when it got cold for a week.


What the chart above tells is that operators are laying down rigs in the Marcellus in droves. Why? Because gas prices are so low, they can't make any money.

Or, they may be like poor old CVX and just have some bad rock they need to unload to the next "greater fool."


CVX got "city-slickered," in its deal with Atlas. Its position in the Marcellus consists of:

    Gas-prone reservoirs at a time when gas prices are very low.
    Low pressure regimes that add to the costs of production.
    Poor thickness of reservoir rock.
    Thermal maturities that yield mostly gas vis a vis oil, or is not productive at all.

The Atlas folks have to be chuckling a bit as they head out to the Country Club. They pulled the ultimate "lipstick on a pig," play with CVX, who fat with $100 bbl oil money opened up its checkbook to catch a wave only to find it fell flat.

It's time to high grade its drilling portfolio and shift resources to where the return will be better. And that's just what CVX is telling us it is going to do, focusing on the Permian.

Your takeaway

CVX's write-down of its Marcellus assets surely won't be the last in this play. There is just too much gas right now.

One of the problems with lower tiers of rock is that there are just less oil and gas contained in the volume of rock as opposed to Tier I acreage. This in part accounts for the sharp drop-off in production a few months after they are brought on line.

What’s next for CVX? It missed out on the Anadarko opportunity earlier this year. When the CEO says “we going to focus on the Permian,” is he talking up the possibility spending some of ~$10 bn in cash CVX has in its coffers? We wouldn’t be surprised.

Chevron will open Monday, the 23rd trading near recent highs. Knowing this charge will hit Q-4 earnings, the stock price will likely fall back toward the $110’s. It has been remarkably resilient in that area bouncing off it twice this year. CVX pays a sweet dividend of $4.76 per share, yielding just under 4 percent currently. By comparison peers Shell and BP are paying in the 6.5 percent range, so pure yield seekers might want to look at them.

Bottom-line. CVX made a misstep in the Marcellus and now must pay for it. None-the-less, it is an extraordinarily well managed company and we think at the sub-$110 level it belongs in every energy portfolio.

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🛢️ Is This The Beginning Of A Shale Crisis?
« Reply #247 on: December 27, 2019, 12:13:45 AM »


Is This The Beginning Of A Shale Crisis?
By Nick Cunningham - Dec 23, 2019, 6:00 PM CST

Banks are cutting their lending to struggling U.S. shale drillers, another blow to an industry that has long been dealing with a questionable business model.

Banks are restricting lending and revising their estimates on the value of some shale reserves, according to the Wall Street Journal. Even the largest banks, such as JPMorgan Chase and Capitol One Financial Corp., are expected to cut their exposure to the shale industry. Sources told the WSJ that the banks are growing more concerned that if drillers go bankrupt, their assets – the value of which could be declining – may not cover the outstanding loans.

The scrambling among big financial institutions comes as the industry is being hit by a wave of write downs. Chevron said earlier this month that it expects to take a $10 to $11 billion write down, largely the result of weak assets in Appalachia and a big LNG project in Canada. Last week, Royal Dutch Shell said that it would write down $1.7 to $2.3 billion in assets in the fourth quarter, although the company declined to offer more details.

In recent months, other big oil companies also reported write downs, including Repsol BP, Equinor and Halliburton.
Related: The Complete Guide To Cementing

But the oil majors aren’t in any danger of going bankrupt. Weaker shale drillers pose a bigger risk to banks because some may be unable to pay back debt. Roughly 200 oil and gas companies have gone bankrupt in North America since 2015, according to Haynes & Boone. More than 30 bankruptcies have occurred in 2019, the highest number in three years. Energy companies accounted for more than 90 percent of defaults on corporate debt in the third quarter, the WSJ noted, using Moody’s data.

Haynes & Boone estimates that banks could cut their credit lines to the sector by as much as 10 percent. But, that is an industry-wide average. For individual companies that are in a weak position, the reductions will be much more significant. Meanwhile, according to Credit Benchmark, roughly 22 oil and gas companies saw their credit ratings upgraded by a variety of financial institutions in November, while 33 saw their ratings downgraded.

If the spigot of capital flowing from Wall Street into West Texas is tightened, drilling and production could continue to slow.

The Dallas Fed recently revealed that broader lending growth in West Texas has slowed dramatically. The value of loans in West Texas grew by 4.8 percent in the third quarter, compared to 7.5 percent in the rest of the state. Loan value for apartments and other housing fell by 15 percent, compared to an increase of 12 percent in the rest of Texas. Home inventories are now on the rise.

On the ground, the effects are becoming increasingly visible. The Permian is shedding jobs and vacancies in corporate office space have increased.

The problem plaguing the shale sector is more damning than just overly optimistic profit forecasts from oil executives. The issue is also one of disappointing operational results, which cuts to the heart of the problem with shale. Put bluntly, shale wells are not producing as much oil as advertised, and in the aggregate, they are declining at faster rates than the industry promised, as the WSJ has reported over the past year.
Related: Expect More Writedowns From Oil Majors

If shale wells ultimately produce less over their lifetimes than companies advertised to their investors, then the companies themselves are likely worth a lot less than previously thought. They will produce less oil and gas, less cash flow and even the unproduced reserves they are sitting on could suddenly be worth much less than previously thought.

That has massive implications for the entire sector. The problem is crystallized in a quote from Michelle Foss, an energy fellow at Rice University’s Baker Institute for Public Policy. “There is a struggle now for investors to determine what things are actually worth,” Foss told the WSJ.

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🛢️ Is This The Beginning Of The End For Texas Oil?
« Reply #248 on: March 27, 2020, 01:18:40 AM »
One can only hope.


Is This The Beginning Of The End For Texas Oil?
By Nick Cunningham - Mar 26, 2020, 8:00 PM CDT

Widespread misery was evident in the Dallas Fed’s latest survey, which included responses from 161 energy firms and took place from March 11-19. The quarterly survey offers a window into not just the economic health of the industry, but also a look into the psyche of many oil executives in Texas. The numbers were stunning. The broad business activity index, which measures activity in the energy industry, plunged in the first quarter, dropping to a -50.9 reading, down from -4.9 in the fourth quarter. More specific indices reveal similar numbers. For instance, the Dallas Fed’s index on capex fell off a cliff, declining from 9.1 in the fourth quarter to -49.0 in the first three months of the year, a reflection of the severe cuts to spending budgets.

In a rather revealing slide from the Dallas Fed survey, the average price that a driller needs to simply cover operating expenses (let alone earn a return) ranged from $23 in the Eagle Ford to $36 in “other” shale basins. In other words, with WTI currently trading below $25 per barrel, the “average” shale driller is not even covering the cost of keeping shale wells online.

Related: World’s Largest Oil Trader Says Demand Could Plummet By 20 Million Bpd
Those are just the costs for operating. Breakevens to drill new wells are roughly double those levels, with average breakevens for Permian wells at $46. But even that figure only includes the cost of drilling a new well, and excludes other costs, such as debt servicing, overhead, and other corporate costs. “At $40 per barrel, you’re in the hole; at $30, it is hard to even keep producing existing wells. Nothing can be drilled at $30 per barrel,” one oil executive said in the Dallas Fed survey.

That does not mean that there will be an immediate wave of shut-ins. Companies keep operations going for a variety of reasons – there are costs to starting up and shutting down, the reservoir can be damaged in the process, and certain terms of land leases or debt obligations incentivize drilling even when it may not make sense.

But the figures do reveal that the industry is in a state of profound crisis and a lot of wells will shut down if current prices persist.

More than half of oil executives said that their headcount could drop this year, with nearly a quarter saying payrolls would “decrease significantly.”

Related: Oil Climbs As U.S. Pushes For An End To The Price War

When asked how long companies expected to remain solvent if WTI remained stuck below $40 per barrel, about 15 percent of respondents said they would be insolvent in less than 12 months, and another 25 percent said between one and two years.

In the special comment section, which allows oil executives to respond anonymously, the tone was dire. Here are a few select comments:

    “My outlook on the domestic oil and gas industry has never been bleaker.”
    “This will weed out the Ponzi guys in the shale plays. There’s lots of capital destruction occurring…The service industry for fracking will implode.”
    “Banks are squeezing the E&P sector, including our company, and demanding we quit drilling to pay down our debt, even though we are in compliance with the terms of our credit agreement. We will likely shut down drilling next month, pay an early termination penalty to our rig contractor, and liquidate excess hedges to pay down debt. We are in survival mode now.”
    “We were planning for a soft 2020. Soft would be great now. We are now expecting an almost total stop in business in the coming weeks and months.”
    “I am scared! In my opinion, the Texas Railroad Commission (TRRC) should institute proration as we had in the 1950s and early 1960s.”
    “It is looking to be a bloodbath for most firms.”
    “I am shutting in everything I can and cutting general and administrative expenses to minimal levels to try and ride out the storm. Those who are in debt will not survive.”
    “I do not believe the energy industry, except with respect to the largest producers, has the capital liquidity and reserves to survive a price collapse of the depth and time extent that will be experienced.”
    “If Russia and Saudi Arabia hold the line for nine months to a year, they can reassess and then sell oil for $80 per barrel with no competition from the United States shale.”

In fact, the topic of Russia and Saudi Arabia came up repeatedly as a source of trouble. Surprisingly, many executives downplayed the impact of the coronavirus, although perhaps that is because the survey was conducted before many of the more stringent stay-at-home orders went into effect.

There is a small strain of optimism from industry executives. Only about 15 percent of respondents see WTI staying below $35 per barrel by the end of 2020. Almost two-thirds of them see prices between $35 and $50. To be sure, even WTI in that range puts U.S. shale drillers in a financial bind, but the crisis would be not as severe as today.

By Nick Cunningham of
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🛢️ The Reality Of The End Of Oil
« Reply #249 on: April 12, 2020, 08:46:40 AM »
From!  Peak Oil comes to the MSM!


The Reality Of The End Of Oil
By Robert Rapier - Apr 11, 2020, 2:00 PM CDT

The Oil Age has powered the world for well over a century. There have been two general schools of thought about how it will ultimately end.

There were those who believed that oil production would peak and begin to decline in the face of high global demand. This is essentially the peak oil argument, which many laymen mistakenly understand as “The world is running out of oil.”

In reality, the argument wasn’t that the world was going to run out of oil, it was that oil production would begin a long decline and cause havoc in a world that is still highly dependent upon oil.

This version of the end of oil became very popular just before the shale oil boom. The idea was neatly summarized in 2005 when the late Matt Simmons published Twilight in the Desert, in which he argued that oil production in Saudi Arabia was nearing terminal decline.

In this version, there is no easy replacement for oil, so oil prices skyrocket above $100 a barrel (bbl) as people seek to maintain mobility. In fact, for a while it looked like this version might play out.

But growing shale oil production largely burst that bubble in 2014, when it became clear that there was still a lot of oil to be produced.

Fast forward a few years, and a new version of the end of oil began to take hold. In this version, exponential increases in electric vehicles (EVs) and ride-sharing are predicted to be two key factors that will make oil obsolete.

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In this version, oil prices plunge as demand starts to fall. This is the exact opposite of the peak oil argument, where oil prices surge as supply starts to fall.

As Michael Liebreich, the founder and senior contributor of Bloomberg New Energy Finance, recently put it on Twitter: “I’ve always said the end-game for oil is not when it reaches $200/barrel, it’s when it settles at $20/barrel.”

I felt like it would be likely that we would see some combination: A period of shortages and high prices, but ultimately a peak in demand that would lead to lower prices. I wrote an article nearly three years ago outlining that view. However, I felt like that point was probably a decade away. And it would be highly dependent on whether U.S. shale oil production continued to grow.

One thing the coronavirus (COVID-19) pandemic has done is to collapse oil demand, and subsequently prices. The world still needs oil during this crisis, but what we are seeing today is exactly what I think we would see in the peak demand scenario.

In that case, we will see the need for a much smaller oil industry. And that is likely where we are headed now, with oil prices in the $20s, and the timing of a recovery still uncertain.

I believe what we saw in the 2005-2014 time frame was a preview of the peak oil scenario. Oil company revenues were skyrocketing during this period, and energy stocks were one of the best-performing sectors.

But today, we are seeing a preview of the peak demand scenario. That outcome is very different. In this scenario, only the strongest oil companies survive, and the sector becomes one most investors would rather avoid.

Are we there yet? I don’t think so, but it is hard to say what the lingering impact on oil demand will be from the coronavirus pandemic. When oil demand dropped during the 2008-2009 financial crisis, it bounced back strongly in 2010. I am not so sure that’s going to happen this time. This pandemic seems destined to change our world in a number of ways, and some of those ways involve lower oil demand.

If that transition starts to happen in earnest, then the peak demand scenario that I thought we would see in maybe 2030 will be here a lot sooner than that.

By Robert Rapier
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🛢️ The Death Of U.S. Oil
« Reply #250 on: April 30, 2020, 08:31:34 AM »
Art Berman on the Death Watch.

"In nomine patris et filii et spiritus sancti"


The Death Of U.S. Oil
By Arthur Berman - Apr 28, 2020, 7:00 PM CDT

It’s game-over for most of the U.S. oil industry.

Prices have collapsed and storage is nearly full. The only option for many producers is to shut in their wells. That means no income. Most have considerable debt so bankruptcy is next.

Peggy Noonan wrote in her column recently that “this is a never-before-seen level of national economic calamity; history doesn’t get bigger than this.” That is the superficial view.

Coronavirus has changed everything. The longer it lasts, the less the future will look anything like the past.

Most people, policy makers and economists are energy blind and cannot, therefore, fully grasp the gravity or the consequences of what is happening.

Energy is the economy and oil is the most important and productive portion of energy. U.S. oil consumption is at its lowest level since 1971 when production was only about 78% of what it was in 2019. As goes oil, so goes the economy…down.

The old oil industry and the old economy are gone. The energy mix that underlies the economy will be different now. Oil production and prices are unlikely to regain late 2018 levels. Renewable sources will fall behind along with efforts to mitigate climate change.

It’s Really Bad

2020 global liquids demand may average 20 mmb/d less than in 2019 (Figure 1). This estimate is really a thought experiment because it is impossible to know what supply and demand are in the present much less in the next quarter or beyond. This is a time of unimaginable flux and uncertainty because no one knows how long economic activity will be depressed, how long it will take to recover or if it will recover.

The estimate in Figure 1 differs from most forecasts in two important ways. First, I believe that supply will fall much faster than most other sources. That is because storage will soon be full and shutting in production will be the only option for many producers.

Figure 1. 2020 global oil demand may average 20 million barrels per day lower than in 2019.

Source: OPEC, IEA, Vitol, Trafigura, Goldman Sachs and Labyrinth Consulting Services, Inc.

Second, I doubt that there will be a demand recovery in the third quarter despite the re-opening of businesses in the second. That is because we are in a global depression. Unemployment will remain high and consumers will be damaged from lack of income over the months of quarantine. The truth is that I doubt that demand will ever recover.

Economies will re-start slowly. A useful analogy is being at a traffic light behind 25 stopped cars. The light will change from green to red before your car begins to move. It may take several light changes before you get to the other side of the intersection.

U.S. consumption has fallen about 30% from 20 mmb/d in January to 14 mmb/d in April. Refinery intakes are already 25% lower than in the first quarter of the year and will fall further as consumption decreases. Refineries will close.

Most U.S. refineries require intermediate and heavy crude oil that must be imported. Few U.S. grades of oil can be used to produce diesel without blending them with imported oil. That is because they are too light to contain the organic compounds need to make diesel. Redesigning refineries will not change this.

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The world’s natural resource extraction, shipping and distribution system relies on diesel. As refineries close and less diesel is produced, there will be lower levels of natural resource extraction, less manufacturing and less buying of goods.

Diesel cannot be produced without first producing gasoline. The U.S. has had a gasoline surplus since late 2014 and the current surplus is the highest in 5 years (Figure 2).

Figure 2. U.S. gasoline comparative inventory has increased 30 million barrels since March 20 to a record level of 28.4 million barrels more than the five-year average.

Source: EIA and Labyrinth Consulting Services, Inc.

Diesel demand is less elastic than gasoline demand because of its critical role in heavy transport. What will happen to the excess produced gasoline if storage is full? Will it be burned?

Those who see an opportunity for renewable energy in the demise of oil need to think again. The manufacture of solar panels, wind turbines and electric cars depend on diesel all along the supply chain from extraction to distribution of finished products. A world in economic depression will default to the cheapest and most productive fuels. Oil will be cheap and abundant for a long time. There will be little money or appetite for the massive equipment changes that renewable sources require. Climate change will not be high in the consciousness of people struggling to survive.

Figure 3 is another thought experiment in which I use tight oil rig count and output to estimate forward levels of U.S. production. The normal trajectory is an estimate of how production might decline as rigs are idled from lack of capital investment. It suggests that tight oil production might decrease by about 50% from 7 to 3.5 mmb/d by July 2021.

Figure 3. Thought experiment based on rig count through April 2020 and 12-month lagged production.

Source: Baker Hughes, EIA DPR, Drilling Info and Labyrinth Consulting Services, Inc.

The shut-in trajectory suggests that tight oil production may fall below 3 mmb/d by June of this year. Since tight oil accounts for about 55% of U.S. output, total crude oil and condensate production could decline from 12 mmb/d to 5.5 mmb/d by the end of the first half of 2020. This estimate is much more aggressive than EIA forecasts because EIA hasn’t adequately modeled the speed of shut in production with full storage levels.

Energy is the Economy

Gross domestic product (GDP) is proportional to oil consumption (Figure 4). That’s because oil is the economy. Every aspect of production and use of goods and services requires burning fossil energy. There are approximately 4.5 years of human labor in a barrel of oil (N. J. Hagens, personal communication and The Oil Drum). No other energy source comes close to that level of energy density.

Figure 4. Gross domestic product (GDP) is proportional to oil consumption

Source: EIA, World Bank and Labyrinth Consulting Services, Inc.

Those who believe that the world will function the same on lower energy density sources like wind and solar should review their old physics text books. You cannot fit 4.5 years of work from sunlight or wind into the 5.6 cubic feet space of a barrel of oil.

Seventeen investment analysts recently estimated that U.S. GDP would contract an average of 30-35% in 2020 (Figure 5) within a range of 9-50%. The correlation shown in Figure 4 suggests it will decrease by about 20-25% based on estimated decrease in U.S. oil consumption. Any value within this spectrum is catastrophic.

Premium: 2 Stocks To Consider As Oil Nears $15

Figure 5. U.S. GDP to contract 30-35% in 2020 based on estimates by seventeen investment analysts

Source: Charles Schwab and Labyrinth Consulting Services, Inc.

Economist Lawrence Summers has warned that the U.S. financial system may collapse because of cascading defaults. Approximately 25% of U.S. renters did not pay their landlords and 23% of Americans did not make their mortgage payment in April. When people don’t pay their creditors, creditors in turn cannot pay their creditors. For comparison, a 28% mortgage default rate contributed to the 2008 financial collapse.

Joseph Stiglitz recently explained that the current pandemic will affect the developing world more severely than it has developed countries. It might lead to mass migration problems that could dwarf the dislocations of the last six years out of Africa and the Middle East.

Slouching Toward Bethlehem

Many will probably find my analysis overly pessimistic. Crude oil markets do not. Negative WTI futures prices last week could not have sent a stronger signal for producers to cease and desist.

Large segments of the U.S. oil industry will have to be nationalized before the year is over. The price of oil is too low to justify the cost of extraction even if storage were available. The value of a barrel of oil, however, is 4.5 man-years of work and that productivity multiplier will be essential if the U.S. economy is to avoid collapse or for it to recover if collapse is unavoidable.

The United States has engaged in the foolish practice of draining America first since the beginning of tight oil production a decade ago. There was value up to the point that domestic oil substituted for imported light oil but exporting more was dumb. That is true especially now that someone else’s oil will be cheap to buy for years.

There are few moments when we may truly say that things are different now. This is one of those moments. We do not know what awful form the future may take, what rough beast slouches toward Bethlehem to be born.

The game is over for oil. We should place all of our attention on saving the economy.

I hope that we learn to view what is happening as a chance to simplify and to learn to be satisfied with no more than what we need. It is unlikely that we will have much choice.

By Art Berman for

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Leave a comment

    Robert Berke on April 28 2020 said:
    Berman is the gold standard for geologist, and whether we agree or not, his ideas need to be taken seriously.
    Jotes on April 29 2020 said:
    great article
    Dan Pearson on April 29 2020 said:
    Art Berman has been correct about the US shale oil industry since he pointed out that shale oil wasn't profitable even back when crude oil was at $100/bbl in 2014.Shale oil was supported by ZIRP $, then by Wall Street equity, then by loads of debt.

    The US flooded the world with surplus high cost shale oil which wasn't economic in the 1st place.
    Art's statement that the shale oil revolution is not a revolution, its more like a retirement party is on the mark.

    US shale driller/producers want prices high so they can produce expensive shale oil, yet they over produce causing world oil prices to collapse. You cannot have it both ways.
    Mamdouh Salameh on April 29 2020 said:
    The author is indeed very pessimistic. Still, I agree with him that the coronavirus outbreak will change our way of life in more ways than one.

    However, the game will never be over for oil throughout the 21st century and probably far beyond because this would mean the end of the global economy and, dare say, civilization as we know it and enjoy it
    One thing the coronavirus outbreak has proven irrevocably is how inseparable oil and the global economy are by demonstrating that destroying one automatically destroys the other and vice versa.

    And despite a lot of pontification from energy experts, global oil markets will resume their business as usual once the global lockdown starts to ease. Once the global economy is back in business, the coronavirus will fade into a distant memory.

    And whilst the outbreak has inflicted very heavy damage on both the global economy and the global oil market, once the outbreak is controlled, the global economy and China’s in particular will behave like a patient who has been quarantined with no food. Once out of the quarantine, his appetite would be rapacious and this is exactly how the global economy and the global oil market will react with oil imports doubling if not tripling to recoup lost demand. Oil prices and demand will recoup all their previous losses with prices event touching $50-$60 a barrel in the second half of this year.

    As for the US shale oil industry, the die is cast. Since its inception in 2008, it has been an unprofitable industry. If it was judged by the strict commercial criteria by which other successful companies are judged, it would have been declared bankrupt years ago.

    US shale oil producers have been for years taking advantage of OPEC+’s production cuts to enhance their market share at the expense of OPEC+ members by producing excessively even at a loss and undermining OPEC+ efforts to support oil prices by trying to cap them. Shale oil producers didn’t even spare a thought for other oil-producing nations of the world whose livelihood they have trampled on for years with the full knowledge that US tax payers will bail them out even when their outstanding debts are heading towards $1 trillion. They had a chance recently to redeem themselves by agreeing to cut production and join OPEC+ efforts to stabilize oil prices but they adamantly refused. They continued to show the ugly face of capitalism. They paid for their greed and obstinacy by the recent collapse of the WTI crude oil price to less than $1 a barrel.

    The recent collapse of the WTI price is a unique American failure story. Still, the level of the WTI oil price collapse was very unusual. US shale oil producers have been facing unusual problems, namely rising outstanding debts almost reaching one trillion dollars, inability to export their oil or selling it at home because of the current circumstances and lack of their own storage. Renting storage outside would have cost them far more the contract price for their oil in the current situation. So they had to either give it away or sell it at any price.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
    Robert Ballantyne on April 29 2020 said:
    Yes the folly of closing everything down has consequences. The folly of what gets closed down (work for average people) and what does not get suspended (payments by average people to creditors) due to lobbyist making sure the burden is placed on the shoulders of the lower middle class ..... (see credit bankruptcy changes they lobbied for and received the last time they fleeced the lower middle class into indentured servitude) What was done has been uneconomic and ineffective..... they destroyed an economy out of fear of the unknown.

    The winners will be the cities that spent poorly, managed money poorly and will have their pension bailed out by ...... yes the lower middleclass. Someday this group will get tired of being bent over the desk and put a stop to being fleeced.

    Nice write up .... very nice work.
    Robert Berke on April 29 2020 said:
    It’s interesting to see to see a leading energy website, like Oilprice, featuring two opposing articles at the same time.
    One article written by geologist with Berman predicted that oil would never again see high prices, and the industry would like collapse, along with the US economy.

    While on the same website, another feature article states that hedge funds are loading up on future contracts, anticipating an oil price recovery very soon.

    What to make of it. Do we load up or run for our lives? Each side has convincing arguments. In the field of science, I would probably lean towards, Berman. But in the finance world, I tend to listen to the traders.

    The reason is that the traders, big time gamblers though they are, but unlike Casino gambler who take short odds against the house, hedge fund gamblers always go with the best history-based probabilities.

    Those probabilities say that in the last twenty years, at least six major global virus outbreaks, that threatened to become pandemics were all successfully contained, while every recession was followed by record breaking economic numbers.

    The scientist says this time it’s different, the system is permanently broken. He buttresses his arguments with strong and convincing examples of a currently failing industry.

    Berman believes that the current downturn has systematically and permanently injured the oil industry. No one is arguing that the collapse is not happening. But even if all of Berman’s examples, are true, as I think they are, they are still only one time events, and most are fixable by rising prices, that every single recovery has brought.
    James Hilden-Minton on April 30 2020 said:
    Oil is not as important to GDP as Berman makes it out to be. Simply try regression real global GDP growth on both growth in electricity generation and growth in crude production. One sees that electricity, not oil is the dominant driver of economic growth. The coefficient for electricity is about 1, while for oil it is about 0.5. Also oil is only marginally statistically significant after accounting for electricity. It is electricity that really drives the economy. Switching from use of oil to use of electricity is beneficial for achieving higher rates of economic growth.

    Another point here is that if on examines the differential sensitivity of GDP growth by type of fuel used for power generation, there is no statistical difference between renewables, coal or gas power generation. It's all equally useful for growing the global economy.

    So Berman is simply wrong about renewables being inferior to oil for growing the economy. Electricity is twice as potent for economic growth than oil, and it does not matter where the electricity comes from. So yes wind and solar can and do drive economic growth.
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Re: 🛢️ The Death Of U.S. Oil
« Reply #251 on: April 30, 2020, 10:35:30 AM »
Art Berman on the Death Watch.

The Death Of U.S. Oil
By Arthur Berman - Apr 28, 2020, 7:00 PM CDT

Peggy Noonan wrote in her column recently that “this is a never-before-seen level of national economic calamity; history doesn’t get bigger than this.” That is the superficial view.

Coronavirus has changed everything. The longer it lasts, the less the future will look anything like the past.

Most people, policy makers and economists are energy blind and cannot, therefore, fully grasp the gravity or the consequences of what is happening.

//    So Berman is simply wrong about renewables being inferior to oil for growing the economy. Electricity is twice as potent for economic growth than oil, and it does not matter where the electricity comes from. So yes wind and solar can and do drive economic growth.

This article is one of the most important things I've read in a while, if you spend your time casting about inside your own head as regards the future. Of course,

Coronavirus has changed everything. The longer it lasts, the less the future will look anything like the past.

is one of those statements that you can read many things into, depending on your POV. Interesting comments as well.
Great find, RE.
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🛢️ The Oil Nations On The Brink Of Collapse
« Reply #252 on: May 03, 2020, 12:39:07 AM »

The Oil Nations On The Brink Of Collapse
By Editorial Dept - May 01, 2020, 12:00 PM CDT

Global upheaval is likely to result from the oil price crash, upending the current fragile balance of power because key oil-producing countries, including Iraq and Nigeria, can’t buy their way out of this crisis with near-zero-interest loans like the Saudis and Americans can.

Even with Brent at $25 (indeed, even when it fell below $20), the Saudis were throwing around cash at all kinds of investments, including COVID-sinking cruise lines. The American shale patch can bail itself out if it wishes to, even amid desperate talk of looming bankruptcies. But in Nigeria, where oil comprises about 9% of GDP and 90% of exports, and with a break-even price of around $57 a barrel (with a fiscal breakeven of around $100), the economy is in serious trouble. If the economy is in trouble, the government is in even bigger trouble. Roughly 20 million people are unemployed, and that is now expected to climb another 25%. It’s enough to bring down a government, with the only lifeline now a $3.4-billion IMF emergency loan just approved. But making matters worse is the fact that no one even wants to touch Nigerian oil right now because there isn’t enough demand for it--even at $10 a barrel. And it’s competing with overproduced U.S. crude (light and low in sulfur).

In Iraq, the fragility will translate into a boon for the Islamic State first and foremost, while Iran and the United States grapple for control in this proxy war setting. Massive political and social…
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🛢️ U.S. Oil, Gas Rigs Fall Below 400 For The First Time Since 1940
« Reply #253 on: May 09, 2020, 12:42:00 AM »
You are bearing witness to the last days of Industrial Civiliation.  You have Box Seats on the 5- Yard Line.

Consider yourself lucky.  Only one generation in a 100 is alive during a Civilization Collapse.


U.S. Oil, Gas Rigs Fall Below 400 For The First Time Since 1940
By Julianne Geiger - May 08, 2020, 12:25 PM CDT

Baker Hughes reported on Friday that the number of oil and gas rigs in the US fell again this week by 34, falling to 374, with the total oil and gas rigs sitting at 614 fewer than this time last year as U.S. drillers scurry to keep their heads above water amid strict stay-at-home orders that caused oil demand to plummet at alarming rates—and oil prices along with it.

It is the fewest number of active rigs since Baker Hughes started to keep in 1940.

The number of oil rigs decreased for the week by 33 rigs, according to Baker Hughes data, bringing the total to 292—a 513-rig loss year over year. It is the fewest number of active oil rigs since late 2009.

The total number of active gas rigs in the United States fell by 1 according to the report, to 80. This compares to 183 a year ago.

The EIA’s estimate for the week is that oil production in the United States fell to 11.9 million barrels of oil per day on average for week ending May 1, which is 1.2 million bpd off the all-time high and a substantial 300,000 bpd lower than the week prior. It is the fifth straight weekly production decline. It is the first sub-12 million bpd rate in the United States since February 2019.

Canada’s overall rig count decreased by 1 rigs this week, to 26 rigs. Oil and gas rigs in Canada are now down 37 year on year.

At 1:12 am, WTI was trading up 1.53% at $23.91, while the Brent benchmark was trading up 2.82% at $30.29.

By Julianne Geiger for
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🛢️ The Major Problem With Shutting Down Oil Wells
« Reply #254 on: May 11, 2020, 01:19:00 AM »

The Major Problem With Shutting Down Oil Wells
By Irina Slav - May 10, 2020, 12:00 PM CDT

Oil well shut-ins are the new black. Everyone, especially in the U.S. shale patch, seems to be shutting in wells in response to what is shaping up to be the Great Glut of 2020. Now, many are asking how all these wells will be restarted once prices improve.

The answer? Nobody knows.

Shutting in oil wells is markedly different from flipping a switch. It is a job that has to be done with extreme care based on the characteristics of the formation into which the well is drilled, its rate of production, and the specificities of the oil that flows from it.

But even with careful planning, there is a risk of permanent damage if the well remains shut-in for more than a couple of weeks.

Here are some of the problems shutting-in could cause in oil wells.

Under pressure

There is a kind of routine well shut-in that aims to increase the output of oil and/or gas by letting the pressure in the rock that contains the hydrocarbons build up. These shut-ins never last months, however. They are a short affair, and they are only suitable for wells drilled in rocks that have the “proper” pressure--that is, pressure that has the potential to build up.

This is not the case with low-pressure wells. In low-pressure wells, experts from the Journal of Petroleum Technology write, a shut-in could negatively affect the permeability of the oil-bearing rock.

What is permeability? The tiny little pores in the rock where the oil and gas hide. High reservoir pressure pushes them out relatively easily. Low reservoir pressure keeps them in. The problem is solvable with chemicals, the experts note, but let’s not forget that chemicals cost money, which would increase the cost of reviving the shut-in wells.


Crossflow refers to the flow of oil and gas from high-pressure areas in the rock formation to low-pressure areas. (Yes, rock formations are not as homogenous as one might hope) On the one hand, this is a problem because the recovery of oil and gas from a low-pressure area in the formation is more difficult. On the other, crossflow is problematic because it results in the undesirable mixing of different kinds of hydrocarbons from different areas in the formation. Separating the different hydrocarbons after the fact may not be possible.

The undulating wellbore

Undulations of the wellbore are common in horizontal wells. One of the great advantages of horizontal wells is the increased contact between the well and the reservoir. The purpose of wellbore undulations is to further increase the contact between the well and the reservoir and improve output. However, things get tricky with shut-ins.

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Water buildup in the well is one problem that experts warn could render the well unusable eventually. If enough water collects in the well, pumping it all out to get back to the oil may become uneconomical, the JPT authors note. Other experts note that water is not the only substance that would build up in a horizontal well if it is shut-in for a lengthy period. Heavier hydrocarbon fractions such as paraffin and tar could also accumulate in the wellbore and affect the future performance of the well negatively.

Not all wells are created equal

Undulations are not the only problem for shale well shut-ins. The bigger problem is that shale wells shut-ins are terra incognita for the industry, while in conventional oil drilling, there is a lot of information on how to properly shut in wells.

Because of the specific nature of shale wells, there is a host of problems that could be caused by a lengthy shut-in, one expert in that particular field told the JPT, from problems with the on-ground equipment to unexpected chemical reactions in the reservoir rock. In any case, water will build up as tends to happen with all shut-in wells.

Wild cards

Picking the best well to shut in seems to be a very tricky business, and even if you are careful with the picking, you could still get a nasty surprise when you try to resume pumping from that well. And this is where the most unpleasant difference between conventional and shale oil wells seems to lie: conventional wells don’t necessarily need to be shut in.

As the chief of Russia’s Zarubezhneft recently told local media, with a conventional well, all you need is to adjust the flow rate by 2-3 percent lower, and you could get a total output reduction of 200,000 to 300,000 bpd. This does not seem to be an option in the shale patch where all reports are either about well shut-ins or the suspension of new well drilling and fracking.

The United States is on track to reduce its crude oil production by 1.7 million bpd. Most of this would come from well shut-ins in the shale patch. Because of the lack of evidence about the most likely effects of these shut-ins on production, the next few months will be interesting. Perhaps there won’t be much damage and producers would be quick to ramp up once prices improve. Or maybe many of those wells will need to be plugged and abandoned, and new wells would need to be drilled.

Uncertainty still reigns.

By Irina Slav for
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