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21 May 2016

Press review 21-05-2016 - The decline

Alberta was again at the news forefront this week. Monday authorities ordered the immediate evacuation of various oil sands extraction sites north of Fort McMurray, as the wild fires turned again towards the West. While there are no precise news on damages to mining or processing facilities, a number of living quarters for industry workers are known to have been raised. Broad numbers, over 1 Mb/d have been offline for two weeks.

Day trading was hectic again in the petroleum market, the Brent index flirted with 50 $/b, then collapsed to the low 47s $/b, just recover back again. Still, this ended up being the highest weekly close price for Brent since last October.

Various price oracles have substantially changed their outlook this week, now totally dismissing the "lower for longer" mantra they were touting just a couple of months ago. What happens next largely depends on the faith of 900 Mb held in extra stocks by China or the OECD. In any case, a long term petroleum extraction decline is mostly guaranteed.

Edmonton Journal
Oilsands facilities and work camps north of Fort McMurray evacuated as firestorm rapidly moves north
Otiena Ellwand, 16-05-2016

At a hastily called news conference, officials said four to five camps on Aostra Road were under a mandatory evacuation order, sending workers north to the Syncrude and Suncor oilsands facilities for refuge. The order was issued because of the “unpredictable nature” of the fire and the fact that those camps could be isolated if the road was jeopardized, said Scott Long, executive director of the Alberta Emergency Management Agency.

[...] There are 4,000 to 5,000 workers at the Suncor and Syncrude facilities. Non-essential personnel there are staging an “orderly, controlled” precautionary evacuation to camps further north. If the fire gets closer, then a mandatory evacuation order would be issued, Long said. It’s unclear how many people are staying behind as essential staff.

The wildfire is currently 15 to 20 kilometres from the oilsands facilities and is consuming 30 to 40 metres of forest per minute. The fire jumped Tower Road, a dirt road where several residential trailers are located, but officials said the oilsands facilities are the main concern at this time.
At this time the level of damage withstood by the tar sands industry is unknown. However, there are numbers of facilities that appear in the path of the multiple fires that raged in the region. The weather forecast for this weekend is favourable, with lower temperatures and possibly some rain. Only then the extent of damage will be known.
Finantial Post
Fort McMurray fire destroys oilsands camp, forces evacuation of thousands of workers as blaze continues to grow
Geoffrey Morgan, 17-05-2016

Following is a breakdown of the facilities affected this past couple of weeks. Canada has temporarily become a petroleum importing nation.
Wildfires Cause Feedstock Crisis For Canadian Refiners
Charles Kennedy, 18-05-2016

As analysts forecast that the Canadian oil sands industry could lose over US$760 million as a result of the wildfires that continue to ravage Alberta, reports emerge that oil sands producer Suncor has purchased a shipment of North Sea crude, leading to speculation of a shortage in Canada.

On Wednesday, Canadian analysts from the Conference Board of Canada said the loss from the wildfires amounted to 14 million barrels of oil, which they put a US$763-million price tag on, due to wildfire damage, evacuations and shutdowns.

More specifically, the wildfires have cost the industry 1.2 million barrels per day over a period of two weeks, or 0.33 percent of Alberta’s 2016 GDP forecast, according to the Globe and Mail.

Earlier this week there were are also more news of further attacks by rebels to the Nigerian petroleum infrastructure. The country has last 600 kb/d already this year and the social tension keeps mounting.
Associated Press
Nigeria oil output, naira slump _ attack and strike threats
Michelle Faul, 17-05-2016

Militant attacks on oil installations and a threatened nationwide strike are driving Nigeria's petroleum production and its naira currency to new lows.

Angola has become Africa's biggest oil producer as Nigeria's output slumped to 1.4 million barrels a day, Oil Minister Ibe Kachikwu said Monday, endangering a budget based on production of 2.2 million barrels. Angolan production was steady at near 1.8 million barrels daily, according to the Organization of Petroleum Exporting Countries.

The naira fell to 350 to the dollar on the parallel market, against an official rate of 199, amid reports and denials that President Muhammadu Buhari's government plans an imminent devaluation, bowing to demands of the International Monetary Fund in exchange for soft loans.

Nigeria's National Labour Congress and the Trade Union Congress, which say they represent 6.5 million workers, and some civic organizations called for a strike Wednesday to protest a 70 percent increase in gasoline prices, forced by shortages of foreign currency. Nigeria is dependent upon imports with oil accounting for 70 percent of government revenue.
Iraq is another country featuring regularly in this review. The Baghdad government seems largely paralysed at the moment, be it on the military, social or business fronts. Money is scarce, there is only so much you can do, and what you can do right now is not much.
Iraq oil projects face delays as companies resist spending cuts
Ahmed Rasheed, 13-05-2016

International oil firms have warned Iraq that projects to increase its crude output will be delayed if the government insists on drastic spending cuts this year, a senior Iraqi oil official said on Friday.

Oil companies helping Iraq develop its massive oil fields effectively perform a role similar to oil service firms in that they have to clear spending with the government each year. They are then repaid with crude oil produced from existing fields.

The arrangement worked smoothly when oil prices were above $100 a barrel but since crude has collapsed to $40 a barrel, Iraq has been struggling to find enough oil to repay the companies for their investment.
Following is one of the best digests on the "shale subprime" in a good while. Right now the industry is spending almost all of its profits on interest. And while this happens extraction remains strongly above 3 Mb/d. Prices no longer in matter in America.
Yahoo! Finance
Why oil and gas companies are barely scraping by
Justine Underhill, 17-05-2016

The U.S. energy sector (XLE) is facing $370 billion of debt, a number that has more than doubled in the past decade. But even as oil rebounds off 13-year lows, many energy companies are struggling to stay afloat.

To simply make the interest payments on the debt, energy companies shelled out $16.7 billion last year—about half of their total operating profit, according to data compiled by FactSet and Yahoo Finance.

The figures from the past quarter are increasingly grim: over 86% of energy sector operating profits were used to cover the interest payments on debt.

[...] While $5.1 billion of U.S. energy debt matures this year, $25.1 billion will mature in 2017. The number risies to $52.5 billion in 2020.
A company extracting 59 kb/d was able to amass 10 G$ in debt. Such things can not possibly happen by chance.
US energy bankruptcy wave surges despite recovering oil prices

[...] Bankruptcy filers this week included Linn Energy and Penn Virginia Corporation. Struggling SandRidge Energy, a former high flyer once led by legendary wildcatter Tom Ward, said it would not be able to file quarterly results on time.

The number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during the depths of the telecommunications sector bust of 2002 and 2003, according to Reuters data, the law firm Haynes & Boone and bankruptcydata.com.

Linn's bankruptcy was the biggest among energy companies so far in this downturn, even though the company is a modest producer of about 59,000 barrels of oil per day, and 607 million cubic feet of gas per day.

Founded in 2003, Linn has about $10 billion in debt, about twice that of Samson Resources and Energy XXI, two of the largest oil and gas companies to file recently.
While a long term petroleum extraction decline is settling, the industry is still far from having the price support for a reversal. Investments on new projects are still declining and should continue declining for the time being.
OPEC: Energy industry spending to decline
Daniel J. Graeber, 13-05-2016

Global spending in exploration and production over the next two years is expected to be about half what it was between 2012 and 2014, OPEC said in a monthly report.

In February, when crude oil prices were hovering around $30 per barrel, a review from the U.S. Energy Information Administration found 2015 investments in the energy industry declined in the United States by more than 30 percent last year.

Even though crude oil prices have recovered about $15 per barrel since then, companies handing in their first quarter reports took notice of the resultant decline in industry spending. Oil field services companies Baker Hughes and Halliburton each reported heavy losses. Paal Kibsgaard, the CEO of industry leader Schlumberger, said the market was unpredictable, while Bernard Duroc-Danner, the head of rival Weatherford International, said the downturn was "violent."
Two years of depressed prices have also left their mark on consumption trends. Even in the US the consumption of road fuels seems set for an all time high this year. As usual, it is outside the OECD that these trends are stronger.
Financial Times
Booming petrol demand from US to India buoys oil price
Gregory Meyer and Neil Hume, 19-05-2016

Well before Memorial day at the end of May, the customary start of vacationers’ “driving season”, US petrol demand is soaring. Last week gasoline consumption reached 9.755m barrels per day, a number topped only once in August 2007, the US Energy Information Administration estimates.

Analysts debate the precision of the government’s weekly consumption figures, which are subject to later revision. Still, “there’s no doubt in anybody’s mind that gasoline demand has been solid”, says Mark Anderle, director of supply and trading at TAC Energy, a Dallas-based fuel wholesaler.

The story is similar elsewhere. Despite wobbles among emerging economies, transport fuel demand is building in India, China and Russia, the International Energy Agency says in a monthly oil report. The watchdog suggests any changes to its global consumption outlook “are now more likely to be upwards than downwards, as gasoline demand grows strongly in nearly every key market”.
The long weekend read. This theme has been under the rug for a while, another Winter went by without much worries regarding natural gas supplies in Europe. But the pieces are still all over the chessboard.
Who will make the next move?
Demostenes Floros, 10-05-2016

The very strong tensions between Turkey and the Russian Federation regarding the Syrian conflict and the future of the Middle East have led to the freezing of the construction of Turkish Stream, the Gazprom-designed gas pipeline under the Black Sea, with a landing place in Turkey, on the border with Greece, to transport natural gas to Central-Southern Europe and the Balkans. On December 2, 2015, as a result of the shooting down of a Russian military jet by Turkey, Russia, in the words of Energy Minister Alexander Novak, “suspended negotiations with regard to Turkish Stream,” and stopped the construction of the $22-billion nuclear power plant of Akkuyu in Mersin (Turkey) contracted to Rosatom. After this, Russia accelerated the Nord Stream II project, its effort to double the transport capacity of the Nord Stream I pipeline. Previously, on December 1, 2014, Vladimir Putin had officially terminated the construction of the South Stream gas pipeline due, firstly, to the effects of U.S. pressure on Bulgaria — resulting in the withdrawal of the construction permit — and obstacles imposed by the European Commission — a “non-constructive approach,” in the words of the Russian President — regarding the use of the pipeline. In this political context, how can the scenario evolve with regard to energy infrastructure (pipelines) aimed at supplying Russian natural gas to the northeastern Mediterranean? What effects can a changed geopolitical energy context have on Turkey and Greece?
This story intertwines two topics followed in this review. Specially relevant is what is not referred in the piece: substitution. And possibly because there are no big hopes of avoiding one of the most remarkable materials used by Man.
Financial Times
Solar power driving new demand for silver
Henry Sanderson, 13-05-2016

The introduction of the Kodak camera in 1888 ushered in a more than century-long boom in demand for silver, which helps capture images on film. That ended with the mass market uptake of the digital camera this decade, which led to the bankruptcy of Kodak.

Now a new industry is driving demand for silver — solar. Installations and investment in solar panels, which uses the metal for its electrical conductivity, are at record levels.

Silver demand used in solar photovoltaic applications rose 23 per cent last year, the second straight year of increases, according to Thomson Reuters GFMS.

[...] The changing dynamic could yet make silver one of the few commodities that benefits from the rollout of renewable energy, along with copper for wiring and lithium for use in grid batteries. Total global installed photovoltaic power capacity is expected to rise by around 150 per cent to hit 605GW by 2020, according to Bloomberg New Energy Finance.

“Ten years ago, silver demand going into solar panels was just a blip, a rounding error,” said Mitchell Krebs, chief executive of silver miner Coeur Mining. “Solar looks like it will become a larger and larger part of the overall demand picture for silver and become something significant.”
Another piece worth nothing in the emerging technology of autonomous vehicles. EDF became these days the first company in the world to ever take a commercial delivery of fully autonomous vehicles. The video is a remarkable preview of things to come.

After some digressions in recent times, this review ends with a musical suggestion closer to my core taste. Although this trio has been around for a while, I only recently found about them.

And that is all. Have a good week.

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