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25 April 2015

Press review 25-04-2015 - Contrasting trends

This was a busy week with multiple developments of interest in energy markets and international politics. Libya is back to front pages, and again for the wrong reasons. However, both the media and politicians remain reluctant in admitting the role of the 2011 European/NATO bombings on the current refugee crisis. The way Italy is being left on its own to deal with the crisis is also quite revealing of the impasse the European Union is in today.

The Brent index extended the current rally, closing the week above 65 $/b, the highest price in over four months. Nevertheless, this price is yet far from bringing solace to the western petroleum industry, that proceeds its haemorrhage of capital and jobs. One of the reasons is the gentle and mooted return of Iran to the international petroleum market, bringing on stream reserves of high EROEI with which international companies can no longer compete.

Albawaba Business
A happy customer: China invested $21 billion in Iran's oil sector

Iranian Deputy Oil Minister Abbas Sheri Moqaddam has said that China has so far invested €20 billion ($21 billion) in the country’s oil industry.

Pointing to Chinese oil minister’s recent trip to Iran, Moqaddam said that Chinese banks are investigating a plan to finance Iranian projects at three times the amount of money Iran has in China, Fars news agency reported April 17.
Apparently, for many of Iran's costumers the stand-off with NATO over its Nuclear programme is taken as solved, even if a final agreement is yet to be signed.
Indian delegation to visit Iran to discuss oil deals
Nidhi Verma and Vincent Baby, 17-04-2015

An Indian delegation will visit Iran this week to scout for investment opportunities ahead of an anticipated nuclear deal between the OPEC-member and world powers that would soften sanctions against the country, sources privy to the plan said.

Officials from India's finance and oil ministries and executives from ONGC Videsh and Mangalore Refinery and Petrochemicals Ltd are part of the delegation that will hold meeting with their Iranian counterparts on Saturday, the sources said.

India is Iran's biggest oil client after China although its imports from Tehran have declined under pressure from western sanctions.

New Delhi's oil imports from Tehran have eased from 370,000 bpd in 2010/11 to about 220,000 bpd in 2014/15 under pressure from international sanctions.
News of job losses in the western petroleum industry succeed. 2015 may well go in history as one of the worst years ever for the sector, with huge impacts on many regional economies. In Europe this is especially severe around the North Sea.
Schlumberger profit falls 39%; cuts 11,000 jobs
Lisa Beilfuss, 16-04-2015

Schlumberger Ltd. reported a 39% decline in first-quarter earnings and announced further layoffs, as lower oil prices has slowed drilling activity in North America.

"The abruptness of the fall in activity, particularly in North America, required us to take additional actions during the quarter," Chief Executive Paal Kibsgaard said.

Schlumberger said Thursday that it cut 11,000 more jobs, leading to a total reduction of about 15% compared with the peak of the third quarter of 2014. The company had laid off 9,000 employees late last year.
An even worse outlook in Canada, where marginal costs of petroleum extraction are somewhere north of 100 $/b. If prices remain where they are long enough, eventually all tar sands extraction operations will be shut in.
Calgary Herald
Canadian oil and gas firms 'bleeding money' amidst darkest outlook in a decade
Dan Healing and Jeremy Van Loon, 17-04-2015

Canada’s oil and gas industry is projected to report the biggest drop in profit in at least a decade starting next week as crude’s collapse pummels some of the world’s costliest producers.

Earnings per share for Canadian petroleum producers will fall more than half for the 63 members of an energy industry sub-sector of the Standard & Poor’s/TSX Composite Index, according to data compiled by Bloomberg. Almost half of those companies, including Calgary-based Cenovus Energy and Canadian Natural Resources Ltd., are expected to post losses in the quarter that ended March 31.

“This will be a brutal quarter for earnings,” said Robert Mark, director of research at MacDougall, MacDougall & MacTier Inc. “They’re bleeding money right now.”
The severe contraction lived today by the petroleum industry is leading some to regard already the following price cycle. As pointed in the article below, no matter how good the low petrol and diesel prices feel today, they will inevitably result in a price shock at a later stage. Such is the nature of market undergoing a decline in average EROEI.
Big Oil’s Latest Fear: A Price Shock After Spending Cuts
Bradley Olson, 22-04-2015

As the oil patch grows accustomed to a new world of $50 to $60 crude, it’s now looking ahead to a different but equally daunting sort of cliff.

Oil companies are warning there will be a price to pay -- a much higher price -- for all the cost cutting being done today to cope with the collapse in the crude market. Big projects intended to start pumping oil and natural gas 5 to 10 years from now are being canceled or put on hold as the price crash forced $114 billion in spending cuts on the industry.

Energy giants from Exxon Mobil Corp. to Royal Dutch Shell say they’re taking a much more cautious approach to approving projects that cost billions and take years to complete. That’s setting the table for a future oil-price shock when a growing world population drives higher demand, said oil executives and financiers at the IHS CeraWeek Energy Conference in Houston.
The clock is ticking for the US petroleum industry, things seem to stay afloat for the moment, but in the following months a great number of companies and business will go bankrupt or will simply disappear.
Half of U.S. Fracking Companies Will Be Dead or Sold This Year
David Wethe, 22-04-2015

Half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies, an executive with Weatherford International Plc said.

There could be about 20 companies left that provide hydraulic fracturing services, Rob Fulks, pressure pumping marketing director at Weatherford, said in an interview Wednesday at the IHS CERAWeek conference in Houston. Demand for fracking, a production method that along with horizontal drilling spurred a boom in U.S. oil and natural gas output, has declined as customers leave wells uncompleted because of low prices.
The effects of the present under-priced market are starting to show up in the statistics, with the first relevant decline of extraction figures in the US in various years.
The Petroleum Truth Report
U.S. Oil Production Fell 135,000 Barrels Per Day in January
Arthur Berman, 23-04-2015

U.S. crude oil production fell at least 135,000 barrels of oil per day in January 2015 compared to December 2014 according to the EIA (Figure 1).

Bakken Shale production fell the most of any play or jurisdiction losing 37,000 barrels per day in North Dakota and 4,000 barrels per day in Montana for a total of 41,000 barrels of oil per day (Figure 2). Production in California, the offshore Gulf of Mexico, Alaska and Wyoming also declined significantly.
Various analysts are now trying to anticipate the full impact of this market on petroleum extraction in the US, both in volume and in time.
Energy Matters
US Oil Production Forecast Scenario
Euan Mearns, 19-04-2015

Readers are keen to know when US oil production will begin to fall. This is not an easy question to answer but in the comments to last week’s rig count update some interesting links were posted. Among them I came across a link to an Energy Information Agency (EIA) report into US drilling efficiency that sought to link future production to drilling activity and this seemed an interesting avenue to explore. The analysis presented here is jam packed with multiple lines of uncertainty, but a simple analysis based on many assumptions suggests that US production may actually increase further by about 1 Mbpd, due to an estimated 18 month time lag between drilling and first production, improved drilling efficiency and a growing backlog of drilled but idle wells. US oil production may not actually begin to fall in earnest until the middle of 2016.

An issue worth revisiting is the spectacular increase of earthquakes in the regions where source rocks and other low permeability reservoirs are being exploited. The drilling into these resources might not be the culprit, rather waste disposal activities, but some sort of environmental regulation is to be expected. It will be one more hurdle to petroleum extraction from these resources.
Oklahoma goes from two 3.0 quakes a year to two a day
Morgan Brennan, 21-04-2015

In November of 2011, a magnitude 5.7 earthquake ripped through the small Oklahoma town of Prague, damaging more than a dozen homes and toppling a turret on a St. Gregory's University building in nearby Shawnee.

It was the worst of three large quakes to strike the area over several days, and it still as ranks as the worst Oklahoma has ever experienced.

Since then, hundreds more have rattled the state, racking up millions of dollars in damages and unleashing a political and financial maelstrom.

Until 2008, Oklahoma typically had one or two earthquakes of magnitude 3.0 or greater per year, according to the U.S. Geological Survey; since the start of 2015, the state has averaged 2 of this strength or greater per day.
The collapse in the cost of PV continues to ripple through the electricity market. China installed 5 GW just in the first three months of the year; this newly added capacity will produce about the same electricity as a nuclear power plant over the course of an year. This pace also means that the ambitious government goals for renewable energies are set to be accomplished.
China officially installed 5.04GW of new solar capacity in Q1
Mark Osborne, 20-04-2015

According to figures released by China’s National Energy Administration (NEA), a combined total of 5.04GW of new solar capacity was grid connected in the first quarter of 2015.

The NEA said in a statement that the 5.04GW total included 4.38GW of utility-scale solar power plants and 660MW of distributed generation installations.

Cumulative solar capacity was said to have reached 33.12GW at the end of the first quarter of 2015, which included 27.79GW of utility-scale projects and 5.3GW of distributed generation capacity.
It is not only in China that PV makes sense, in Africa it is bringing affordable electricity for the first time to rural areas.
Clean Technica
Ghana Off-Grid Households To Benefit From 100,000 Solar PV Systems
Joshua S Hill, 21-04-2015

UK provider of commercial PayGo solar systems, Azuri Technology, has announced that it plans to partner with Oasis African Resources to provide 100,000 off-grid homes in Ghana with pay-as-you-go solar power over the next 2 years.

The announcement was made at the Solar & Off-Grid Renewables West Africa Event on Tuesday, in a partnership which is supported by the Ghana Ministry of Power, and according to Azuri Technology, “aligns with the Government’s current efforts to bring reliable power to Ghana at scale.”

The project will partner with agricultural cooperatives and women-based organizations, and focus primarily on the country’s cocoa farming regions. This new initiative will build upon previous work done by the Ghanaian Government, which according to Azuri Technology has “proven the success of this solution for rural Ghanaians over the last 18 months.”
Here in Europe governments have pretty much outlawed solar energy, but positive news still pop up occasionally. Germany got the green light from the Commission for a new round of investment on its offshore wind programme. This development means that the much dreaded north-south high-voltage power lines are in great measure inevitable. And also that the weight of fossil fuels in the electricity mix will continue to decline.
European Commission
State aid: Commission approves support to 20 offshore wind farms in Germany
Press release, 16-04-2015

The European Commission has found that German plans to support the building of 20 offshore wind farms are in line with EU state aid rules. Seventeen wind farms will be located in the North Sea and three in the Baltic Sea. The Commission concluded that the project would further EU energy and environmental objectives without unduly distorting competition in the Single Market.

In October 2014 Germany notified plans to support the construction and operation of several offshore wind farms. Aid would be granted to operators in the form of a premium paid on top of the market price for electricity.

The size of each wind farm ranges from 252 megawatt (MW) to 688 MW and, in total, the projects will make available up to 7 gigawatt (GW) of renewable energy generation capacity. The total investment costs amount to € 29.3 billion. All wind farms are planned to start producing electricity by the end of 2019 at the latest. In total, they are expected to generate 28 terawatt-hours (TWh) of renewable electricity per year amounting to almost 13% of Germany's 2020 scenario for renewable energy given in the National Renewable Energy Action Plan (NREAP).
In contrast to Europe, Americans have so far resisted the temptation to protect traditional electricity suppliers from affordable renewables. Solar is now growing at the formidable pace of 50% per year in a country with some of the best irradiation resources in the world. The contrast with the US petroleum industry is striking - barring political or legislative blockade, it will be in this market that money will be made in the next few years.
About Oil
The DIY energy revolution
Maria Pia Rossignaud, 21-04-2015

According to a study by the Rocky Mountain Institute, self-consumption electricity networks are increasingly confirmed in the USA, composed of combined home electricity systems, with solar panels and storage batteries, allowing for cost savings on bills and environmental protection.

In recent years, the growth of the solar energy market, with panels installed on roofs, has been surprising. According to the Solar Energy Industries Association, the rate of growth of solar energy has been higher than 50 percent in the last three years. The Rocky Mountain Institute’s report offers a vision of the next revolution by analyzing the same segments of change. The news from the Washington Post reports: "We are at a metaphorical crossroads in energy production according the latest report of the Rocky Mountain Institute, an influential think tank on energy policy". The reasons are linked to the increasing feasibility of combined home electricity systems, namely, solar panels with batteries for energy storage. Self-consumption solar electricity networks will always be cheaper if this system is combined with systems with batteries that recharge quickly. The prediction may not be very far from reality according to Homer Energy, the company that creates intelligent energy-saving networks. When, thanks to technology, each customer saves on utility bills, generating their own electricity and able to sell it, the industry’s business model will change.
The developments in renewable energies in recent years have sparked waves of optimism; for many the days of fossil fuels are numbered. That is unlikely to be the case; however, affordable renewable energy will certainly rock the boat and force the revision of many preconceptions about energy markets, in particular its perfect competition nature.
Are fossil fuels about to become extinct?
Leslie Shaffer, 15-04-2015

Solar's big heyday may be just three years away as the unsubsidized cost of panels plus storage is set to become cheaper than retail power supply in several large markets, Bernstein said.

"The math would work in: Australia, Japan and Spain. Brazil and parts of California will become economic shortly thereafter," Bernstein said in a note last week. "At that point, solar without subsidy and without kid-glove regulatory treatment, would – if combined with energy storage solutions – be capable of supplying electricity ('on' and 'off')."

It expects solar will reach a cost below $0.40 a watt by 2018, leading to a combined cost of the solar-plus-battery electricity supply of $0.24 a kilowatt hour on an unsubsidized basis in select markets, including Australia, where residential retail power averages $0.26 a kilowatt hour.

[...] "In terms of legacy businesses, fossil fuel producers will be sitting on depreciating assets with all the incentives pointing to producing as fast as possible," it said. "Utilities will face years or decades of operational deleveraging. Regulators attempting to preserve utility returns will effectively be trying to inoculate their population against the future."
If you were born or live in Europe, take some moments this weekend to appreciate how fortunate you are. Reflect also on how your choices (or lack thereof) may be affecting equality around the world.

See you another time.

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