Monthly Archives: August 2014

Shale oil

Day of Reckoning

Leave a comment

Respected consultants RBN Energy held a conference last week in Houston, partnering with engineering company Turner, Mason & Company. The conference theme was “Surviving the Flood” - examining the reality that there is too much crude oil coming into the US Gulf Coast refiners.

By all accounts, the conference was very good. The “day of reckoning” as one speaker called it, was coming some time in the next few years, when the flood of crude oil coming from shale production as well as from conventional domestic drilling would force the price of crude oil to be discounted by as much as $15-$20 per barrel.

According to RBN and TMC, there are several factors at work which will have a bearing on when this day of reckoning arrives. Production and transportation of crude to continue to increase, refining capacity to not grow, and whether US laws restricting the export of crude oil are lifted.

But as Stuart Ehrenreich of Cascade Resources & Consulting pointed out to me by email, some exports are already allowed. ”What most folks don’t realize is that swaps ARE ALLOWED under certain circumstances. It actually is quietly being done now.”

There’s no doubt that the increased domestic production has caused a commensurate drop in imports of crude oil, but there are some vested interests at play in the import game. PDVSA (Venezuela) and PEMEX (Mexico) own some refining assets in the Gulf, and will continue to insist on using their own oil, as will Saudi Arabia who own some Motiva assets.

The expression “Day of Reckoning” does seem a little melodramatic. Some prices are already being discounted, for instance the price that Saudi Arabia charges the USA compared to the price they charge in Europe. The idea of an event occurring in a day is great for headlines, but short of a “black swan” event it is more likely to be a gradual deterioration of the situation. Will there be some sort of tipping point? Unlikely.

Still, it is good to see the industry starting to address the key questions and consequences, though we are still to see an adequate embrace of the question of petcoke outcomes in this new world of shale oil. The oil industry is not going to address the needs of the aluminium industry, but the aluminium industry has also not yet come to grips with what is happening to one of its key raw materials.

 

 

AZ China

US Shale oil bites Nigeria

Leave a comment

It is well known that the USA has drastically reduced its imports of crude oil as domestic production returns to levels not seen in 30 years. But the producers of the crude that the USA no longer buys are starting to feel the pinch.

Nigeria has been one of the losers. The USA was top of the list in of customers in 2012 when it took $3.76 billion worth of Nigerian crude in Q1 alone. In Q1 2014, the USA was in 10th position with only $909.8 million of crude imports.

The Nigerians are not only lamenting the loss of sales. The abundance of crude in a major market like the USA has put pressure on the price of crude oil, with Brent hovering around $100.

Nigeria produces about 2.2 million barrels of crude oil per day. it was selling up to half that to the USA, but sales are now down to about 400,000bpd.

The problem is, crude oil sales are by far the major source of Nigerian GDP. The same scenario will be true for several other nations that are heavily oil-dependent for their GDP - reduced demand from the USA cannot be easily replaced.

In Nigeria’s case, they are selling more to India. From almost nothing in 2012, Nigeria sold $3.2 billion in the first quarter of 2014.

AZ China, Shale oil

Is it a bubble or a paradigm shift? Does it matter?

Leave a comment

That’s a question that can’t be answered fully for a couple of years yet. But the peak oil theory enthusiasts are already claiming that shale oil is nothing more than a blip on the radar screen. Meanwhile, others are taking this view to task.

John Kemp, one of Reuters’ most senior commentators, takes pro-peak oil man Professor James Hamilton on in a recent article. Professor Hamilton had argued that $100 oil is here to stay, but John Kemp found holes in his thesis.

“If oil wells were not extremely profitable, North Dakota and Texas would not be experiencing a drilling boom, with demand for both rigs and petroleum engineers at the highest level for three decades, said John Kemp in a recent opinion piece.

It’s hard to know who is right, but one thing that John Kemp said is surely up for further examination. Mr Kemp has criticised Professor Hamilton’s assertion that most new oil discovered is of lower quality. Mr Kemp says this isn’t so.

To me, this seems part right and part wrong, and its the part that’s wrong that is important for the aluminium industry. it’s true that some crudes coming from Eagle Ford and other areas is light and sweet, and this is presenting something of a dilemma to Gulf Coast oil refineries that have geared themselves up for heavy sour oil.

But the biggest field is the Alberta tar sands area, which is producing a heavy sour crude. This crude delivers a discounted blend to the refinery and a better economic equation, and as more pipeline and rail capacity delivers more of this crude to refineries, that’s a bigger problem for aluminium producers. Canadian heavy sour crude produces a coke that is unsuitable for anode manufacture.

We will let the experts argue over who is right and who is wrong. Right now we need to see more anode coke available in the longer term, but that desire is under threat from the vast quantities of heavy sour crude oil from Canada.

Shale oil

Making dollars go further

Leave a comment

A recent Wall St Journal article highlighted the value of investment in shale oil and gas in the USA.

According to the article, output of shale oil per rig has been rising by 30%-40% per year since 2012, and by about half that for gas. That means that for every dollar of investment, the outputs have been improving constantly. What’s more, a large chunk of the money invested in shale oil plays has been invested into purchasing land, meaning it’s a one-time spend per rig.

Why is this important? Between 2006 and 2012, almost US$1 trillion has been invested into the recent explosion in shale oil and gas. But the WSJ sees no looming credit crisis - with much of the debt not maturing until 2018.