August Energy Reports from EIA and Platts: O&G news from beyond the Permian’s borders—news that, in some way, touches the Basin.
EIA
Aug. 31
The U.S. Energy Information Administration’s new Petroleum Supply Monthly report, which was released on Wednesday, Aug. 31, shows that U.S. gasoline consumption in June reached an all-time high for any month at 9.664 million barrels per day, based on EIA data going back to 1945. Full reports are available for download from www.eia.gov.
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Starting with its most recent release of the Weekly Petroleum Status Report (WPSR), EIA is now publishing weekly petroleum export and consumption estimates based on near-real-time export data provided by U.S. Customs and Border Protection (Customs). EIA previously relied on weekly export estimates based on monthly official export data published by the U.S. Census Bureau roughly six weeks following the end of each reporting month. This new methodology is expected to improve weekly estimates of petroleum consumption (measured as product supplied) by improving estimates of weekly exports of crude oil, petroleum products, and biofuels, which increased from 1 million barrels per day (b/d) in 2004 to nearly 5 million b/d in 2015.
Aug. 26
Members of the Organization of the Petroleum Exporting Countries (OPEC) earned $404 billion in net oil export revenue in 2015, according to U.S. Energy Information Administration (EIA) estimates. These earnings represent a 46 percent decline from $753 billion earned in 2014. Although these net export earnings include Iran’s revenues, the net export revenue is not adjusted for possible price discounts that Iran may have offered its customers between late 2011 and January 2016, when nuclear-related sanctions targeting Iran’s oil sales were in place.
Aug. 18
Crude oil production disruptions in Nigeria reached 750,000 barrels per day (b/d) in May 2016, the highest level since at least January 2009. The increased disruptions come as militants continue to focus attacks on oil and natural gas infrastructure in the West African region. Nigeria is a member of the Organization of the Petroleum Exporting Countries (OPEC) and was Africa’s largest oil producer until Angola’s oil production surpassed Nigeria’s earlier this year.
Aug. 10
Fuel ethanol production capacity in the United States was nearly 15 billion gallons per year, or 973,000 barrels per day (b/d), at the beginning of 2016, according to EIA’s most recent U.S. Fuel Ethanol Plant Production Capacity report. Total capacity of operable ethanol plants increased by more than 500 million gallons per year in January 2016 compared with January 2015.
Aug. 9
EIA Administrator Adam Sieminski issued the following comments on the new STEO forecast:
Gasoline/Refined Products:
“U.S. regular-grade gasoline prices are currently at a 16-week low and are expected to continue falling to a monthly average of less than $2 a gallon by the end of the year.”
“High gasoline production is leading to motor fuel inventories that are the highest on record for this time of year, which is helping to keep prices down at the pump.”
Crude Oil:
“After a steep drop over the past year in U.S. oil production, a recent uptick in the number of rigs drilling for oil is expected to contribute to more steady monthly oil output starting this fall.”
“Domestic monthly oil production is expected to begin consistently rising in late 2017 due in part to higher forecast oil prices and improvements in drilling productivity.”
Natural Gas:
“Despite the recent rise in natural gas prices, hot weather across the country is leading power plants to pull more natural gas from storage this summer, with the amount of electricity generated by natural gas to meet cooling demand reaching a record high in July.”
“Natural gas inventories were drawn down in the last week in July for the first time in 10 years during the June-August period, when gas stocks normally increase.”
Electricity:
“This summer’s hot temperatures are behind the expected 3 percent increase in electricity sales to the residential sector compared to last summer.”
Coal:
“U.S. energy-related CO2 emissions from fossil fuels are expected to average less than 5.2 billion metric tons this year, the lowest for any year since 1992. The drop in CO2 emissions is largely the result of low natural gas prices, which have contributed to natural gas displacing a large amount of coal used for electricity generation.”
Renewables:
“Wind power is expected to account for about 6 percent of total U.S. electricity generation next year, while solar power’s share will be about 1 percent.”
Aug. 5
Employment in oil and natural gas production reached a high of 538,000 jobs in October 2014. Since then, oil and natural gas production employment declined 26 percent, a loss of more than 142,000 jobs through May 2016, based on the latest jobs data available. The total decrease in production jobs is nearly three times the 51,000 jobs lost over a 13-month period during the 2008–09 recession. Not all production jobs are directly related to drilling—the majority of the jobs are actually for extraction or support activities, which include the operations of drilled wells, exploration, excavation, well surveying, casing work, and well construction. This also includes the maintenance of already producing wells.
Aug. 4
Natural gas plant liquids (NGPL) accounted for 22 percent of total U.S. petroleum and other liquid fuels production in 2015. In EIA’s Annual Energy Outlook 2016 (AEO2016) Reference case, increases in NGPL account for a significant share of total increases in petroleum and other liquid fuels production over 2015–40. Because NGPL can be recovered from natural gas production streams or in association with crude oil production, future NGPL production depends on assumptions concerning the abundance of crude oil and natural gas resources and on the price differential between oil and natural gas.
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Movements of crude oil by rail within the United States averaged 443,000 barrels per day (b/d) in the first five months of 2016, down 45 percent from the same period last year. Fewer shipments of crude oil by rail from the Midwest (PADD 2) to the East Coast (PADD 1) account for about half of the decline. Crude oil shipments by rail have generally decreased since last summer for several reasons, including narrowing price differences between domestic and imported crude oil, the opening of new crude oil pipelines, and declining domestic production in the Midwest and Gulf Coast onshore regions.
Aug. 1
The U.S. Energy Information Administration recently released the What Drives Petroleum Product Prices website that identifies and tracks several fundamental and financial market factors that influence spot and futures prices of gasoline and distillate, the two most-consumed petroleum products in the United States. This website offers charts that highlight changes in consumption, production, inventories, and trade, mostly related to the U.S. domestic market along with some charts that include global indicators. The website, a complement to the existing What Drives Crude Oil Prices website, will be updated monthly in conjunction with the Short-Term Energy Outlook.
Platts
Aug. 1
Jeff Mower, Director of Americas oil news for S&P Global Platts, had the following to say about barrel price fluctuations in 2Q2016:
“The refined product glut is pulling crude prices lower. Refiners had kept runs pretty high earlier this year on hopes that gasoline demand would kick in. We had a warmer-than-normal summer, and a lot of leftover diesel as a result. And gasoline demand growth, while a bit stronger from last year, just hasn’t met expectations.
So, refiners have started to cut runs, which means lower demand for crude.
What does this mean for the recovery? Seems like it’s getting kicked down the road a bit more, right? Producers last week in 2Q earnings calls were eyeing $60/b, and $50/b in the Permian, for recovery levels.
Breakevens have fallen a lot since 2014. For instance, $85/b broke even in the Permian (Midland) in 2014; that number is down to $38/b now.
We have seen increases in capex, but in regions with relatively low breakevens. I wouldn’t expect to see increases elsewhere, like in the Bakken or Eagle Ford.
Maybe it’s too early to tell – crude just fell below $40/b today and could rebound. However, the 12-month forward strip is pretty low—now at $45-46/b. We need crude supply to tighten up. Considering where refinery margins are, that means producers will have to cut back.”
Platts
China Oil Demand Little Changed Year Over Year in June
China’s apparent oil demand was largely unchanged in June 2016, dipping just 0.1 percent from a year earlier to 11.32 million barrels per day (b/d), according to a just-released analysis of Chinese government data by S&P Global Platts, the leading independent provider of information and benchmark prices for the commodities and energy markets.
Refinery throughput in June averaged 11.01 million b/d, data from the China’s National Bureau of Statistics (NBS) showed July 10. This was a 3.1 percent rise year-over-year and a 5.3 percent increase month-over-month.
However, net imports of key oil products in June averaged 308,000 b/d, the lowest level since November 2015 and a 53.3 percent slump from the same month last year, data from China’s General Administration of Customs showed.
Over the first half of 2016, China’s apparent oil demand growth declined 0.6 percent to an average 11.15 million b/d. This is a significant moderation from the expansion of 8.4 percent in apparent oil demand during the first six months of 2015 and comes on the back of economic growth easing to 6.7 percent in the first half of this year, compared with 6.8 percent in the fourth quarter of 2015.
However, S&P Global Platts China Oil Analytics, an on-line platform for supply/demand and trade data, indicates China’s oil apparent demand, derived using the existing calculation method, is likely being understated this year. This is because of higher refinery utilization achieved by independent refiners following the government’s deregulation of the sector last year by allowing them to utilize imported crude oil.
“Official data show refinery runs have risen only 1.9 percent this year, but we think refinery runs are at least 400,000 b/d higher than they should be, as it is likely that some production by independent refiners is not being captured by the government data,” said Song Yen Ling, senior analyst with Platts China Oil Analytics.
While the customs data reflects growing exports of transport fuels by state-owned refiners as they face increasing competition in the domestic market from independent refiners, the official production data likely does not accurately indicate the higher refinery runs that have been achieved by independents.
This would explain why growth in apparent oil demand this year has been lower than the original forecast of 2 percent made by Platts China Oil Analytics.
On a product level, gasoil and gasoline have most likely been affected the most from this underreporting, particularly as independent refiners mainly produce these two fuels.
Gasoil
Calculations based on the official data show that gasoil apparent demand in June fell by 6.4 percent year-on-year, signaling the 10th consecutive month of negative growth since the fourth quarter of last year. Consumption of gasoil has likely been sluggish on the back of stagnant industrial activity although indications by the government that it could boost infrastructure investment could provide a fillip to demand.
The fuel is used in the industrial and heavy transport sectors. Demand has taken a hit in recent years on the slowdown in the manufacturing sector, amid China’s transition towards more service-sector-led economic growth. Over January-June this year, gasoil apparent demand has fallen by 8.2 percent to an average 3.32 million b/d.
Gasoline
The domestic gasoline market has seen some change this year, with production of blended gasoline by fuel blenders rising to new highs, as indicated by record volumes of mixed aromatics, or reformate, being imported into China this year. Reformate is used as a blending component for finished gasoline. This added supply of blended gasoline is also likely not being captured by the official government data. Coupled with higher gasoline production by independent refiners, this has posed a significant competitive threat to the state-owned refiners and forced the latter to raise their own gasoline exports.
In June, China’s gasoline exports hit a new record level of 1.1 million mt., the first time that monthly exports had surpassed the 1 million mt. mark.
As a result, China’s gasoline apparent demand in June increased just 2.6 percent year-on-year to an average 2.8 million b/d, bringing apparent demand growth over January to June to 5.4 percent. This compares with a more robust growth rate of 8.9 percent over the same period of 2015.
Fuel Oil
China’s fuel oil apparent demand in June fell 31.6 percent year-on-year to 765,000 b/d. Fuel oil demand is on a decline in China because independent refiners, who now have access to imported crude oil, no longer need fuel oil as a primary processing feedstock. This has been happening since the second half of last year, when the government started approving crude oil import quotas for the country’s independent refiners. To date, a total of 1.2 million b/d of crude oil import quotas have been approved for these refiners, displacing a significant volume of fuel oil.
During the first half of this year, fuel oil apparent demand slumped 20.2 percent to 750,000 b/d, mainly due to a 44.4 percent slide in imports. With fuel oil not as popular with refiners as processing feedstock, consumption is mainly focused on the bunker market, with some buying by petrochemical plants as feedstock.
China’s crude oil imports between January and June surged 13.6 percent to 7.51 million b/d, surpassing growth of 8.8 percent seen in 2015.
Month-to-month demand in China is generally viewed to be subjected to short-term anomalies which are of interest and important to note, but often fail to reveal the country’s underlying demand trends. Year-to-year comparisons are viewed by the marketplace to be more indicative of the country’s energy profile.
*S&P Global Platts calculates China’s apparent or implied oil demand on the basis of crude throughput volumes at the domestic refineries and net oil product imports, as reported by the NBS and Chinese customs. S&P Global Platts also takes into account undeclared revisions in NBS historical data.
The government releases data on imports, exports, domestic crude production, and refinery throughput data, but does not give official data on the country’s actual oil consumption figure and oil stockpiles. Official statistics on oil storage are released intermittently.
In view of some significant shifts in Chinese consumption and trade patterns in recent years, S&P Global Platts has revised its methodology starting July 2015 to include production and net imports of liquefied petroleum gas (LPG), as well as imports of petroleum bitumen blend, a popular imported feedstock for China’s teapot refineries.
S&P Global Platts has also refined its calculation of exports of jet fuel and fuel oil to exclude international marine bunker sales and aviation fuel delivered to international flights. This also impacts net imports, and hence apparent demand calculations.
All historical figures used for comparison have also been calculated using the new methodology to ensure consistency.
S&P Global Platts aims to release its monthly calculation of China’s apparent demand between the 18th and 26th of every month via press release and via its website. Any use of this information must be appropriately attributed to S&P Global Platts. Note: S&P Global Platts uses a conversion rate of 7.33 barrels of crude per metric ton, the widely-accepted benchmark for markets East of Suez.
For more information on crude oil, visit the S&P Global Platts website at www.platts.com. For Chinese-language information on oil and the energy and metals markets, visit http://www.platts.cn/.