October’s Energy Reports from EIA and Platts: O&G news from beyond the Permian’s borders—news that, in some way, touches the Basin.
Global offshore oil production in 2015 was at the highest level since 2010, and accounted for nearly 30 percent of total global crude oil production. Offshore oil production increased in both 2014 and 2015, reversing consecutive annual declines from 2010 to 2013. Production from onshore tight oil plays has increased faster over the past several years and accounts for an increasing amount of total oil production.
Russia is the world’s largest producer of crude oil (including lease condensate) and the second-largest producer of dry natural gas. Russia also produces significant amounts of coal. Russia’s economy is highly dependent on its hydrocarbons, and oil and natural gas revenues account for more than 40 percent of the federal budget revenues.
Short positions in West Texas Intermediate (WTI) crude oil futures contracts held by producers or merchants totaled more than 540,000 contracts as of Oct. 11, 2016, the most since 2007, according to data from the U.S. Commodity Futures Trading Commission (CFTC). Banks have tightened lending standards for some energy companies as crude oil prices declined throughout 2014 and 2015, and some banks require producers to hedge against future price risk as a condition for lending.
U.S. energy-related carbon dioxide (CO2) emissions totaled 2,530 million metric tons in the first six months of 2016. This was the lowest emissions level for the first six months of the year since 1991, as mild weather and changes in the fuels used to generate electricity contributed to the decline in energy-related emissions. EIA’s Short-Term Energy Outlook projects that energy-associated CO2 emissions will fall to 5,179 million metric tons in 2016, the lowest annual level since 1992.
Starting with the Weekly Petroleum Status Report (WPSR) published on Oct. 13, the U.S. Energy Information Administration (EIA) will no longer include crude oil lease stocks in U.S. total commercial crude oil inventory data. Crude oil lease stocks refer to oil (currently about 31 million barrels) that is stored in tanks at sites across the United States where producers are drilling on leased land. Lease stocks are not yet available for commercial use, and in many cases, operators do not count them as production until the oil is transferred off the lease.
In the first half of 2016, the United States exported 4.7 million barrels per day (b/d) of petroleum products, an increase of 500,000 b/d over the first half of 2015 and almost 10 times the crude oil export volume. While U.S. exports of distillate and gasoline increased by 50,000 b/d and nearly 140,000 b/d, respectively, propane exports increased by more than 230,000 b/d. Propane surpassed motor gasoline to become the second-largest U.S. petroleum product export, after distillate.
China’s SPR push, India’s Demand
China’s thirst for crude imports will continue to grow as Beijing steps up efforts to bolster strategic stocks, but India will witness structural growth in demand as disposable incomes rise, Fatih Birol, executive director of the International Energy Agency, said Tuesday.
“India is moving to the centerstage of global energy affairs as a major consumer. With growing income levels in India, we will see oil demand growth increasing, which will boost oil imports by India,” Birol told reporters gathered at a news conference on the sidelines of the Singapore International Energy Week.
India’s oil products demand grew 8.5 percent year-on-year in 2015 to 177 million mt, or 3.81 million b/d. Over January-August 2016, products demand was up 10 percent at 128.39 million mt, or 4.13 million b/d, according to India’s Petroleum Planning and Analysis Cell.
The IEA expects India’s oil demand to average 4.3 million b/d in 2016.
The government’s clear policies, strong and sustained GDP growth, and a huge push towards making India a manufacturing hub were not only helping to accelerate oil consumption but was also whetting the appetite of leading multinationals to set up shop in the nation.
Commenting on China, Birol said that crude oil imports would grow in the coming years despite weak domestic demand because of declining domestic production and increased efforts to maintain higher levels of crude stocks for energy security.
“China is one of those countries whose oil security measures are of crucial importance for China and also for the rest of the world. I am very happy to see the Chinese government taking oil security as a serious issue. This is a very good policy to follow,” he added.
On oil products consumption outlook for China, Birol said, “One of the reasons Chinese oil demand prospects have weakened now compared with the past is because China has put in place strong efficiency measures and policies and the economy is going through a restructuring process.”
China in September unveiled its strategic petroleum reserves as of early 2016 that showed volumes jumping 22 percent from six months earlier, leading analysts to believe that Beijing would have accelerated the momentum of building stocks even further in H1 when prices plunged on the international market.
According to the National Bureau of Statistics, China’s SPR sticks rose by 5.87 million mt to 31.97 million mt, or 234.34 million barrels, by early 2016, from 191.31 million barrels in mid-2015.
Birol said that a rebalancing of global oil markets was now expected in the second half of 2017, but it could happen earlier if OPEC and non-OPEC producers cooperated.
Birol’s comments follows IEA saying on Oct. 11 that without the intervention of OPEC, the market will remain oversupplied through the first half of next year, despite tentative signs that stocks were starting to decline.
OPEC convened a meeting of technical experts on Oct. 28-29 in Vienna to hash out details of a freeze on production at between 32.5 million b/d and 33 million b/d such as individual country allocations, enforcement mechanisms, and a start date.
The aim is to have the freeze deal ready to be ratified by OPEC’s next formal meeting to be held on Nov. 30 in Vienna.
Birol added that if the demand-supply outlook did not change, the world could see a third successive year of capital expenditure cuts in 2017.
“In 2015 and 2016, we saw sharp declines in oil investments and if there are no changes in the current context, we may well see it happening for the third time in 2017. If it happens, it would be the first time in the history of oil that the industry will see three years in a row a decline in oil investments and this may well have some consequences for the market in the years to come,” he said.
The Electric Car Theory
Birol said that the strong growth seen in the electric car market would not be enough to throttle oil demand growth in the coming years.
Giving an example, he pointed out that last year 550,000 electric cars came on the road, the highest number ever. But it was still less than 1 percent of the total car population.
“For assumption purposes, say by next year even if every second car sold was an electric car, still global oil demand will grow, because the driver of oil demand growth in the future is not cars. It’s trucks, planes, and the petrochemicals industry. Therefore, only electric cars will not lead oil demand to hit a peak in the short term or the medium term.”
Singapore has become an IEA association country, which will help to deepen their partnership and help to establish a more sustainable and secure energy landscape for the future.
The announcement was made jointly on Monday by S. Iswaran, Singapore’s Minister for Trade and Industry, and IEA’s Fatih Birol.
“Becoming an association country is particularly important for Singapore given its role as a regional energy hub in the heart of Southeast Asia—a rapidly developing region where energy demand is set to increase 80 percent by 2040 due to a booming population and robust economic growth,” according to a statement.
Birol added on Tuesday that IEA hoped that India would also become an association country soon.
“We are discussing our proposal with the Indian government. We would like to see India as part of the IEA family very soon,” he added.