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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Husky invests in the US Midwest, defers Canadian expansion
  • Federal government passes the buck on pipeline development
  • Minnesota releases final EIS on Enbridge's Line 3
  • President Trump takes another stab at speeding up federal approvals
  • DAPL still in the headlines
  • EIA reports big drawdown in crude stockpiles ...
  • ... and big jump in domestic crude production
  • Superstar oil trader turns very, very bearish
  • ConocoPhillips dismantles 43-year old platform
  • Norway takes on Greenpeace
  • 2016 hottest year ever, or at least since 1900

ALBERTA

Pengrowth provides update on Lindbergh
Pengrowth Energy says second quarter production at its Lindbergh thermal project averaged 13,657 bbl/day at an average steam oil ratio (SOR) of 2.8. Phase One optimization continues to progress, including engineering, infrastructure work and the drilling of new wells. Pengrowth also says engineering and design is progressing on its second expansion phase. The company has regulatory approval to expand production at Lindbergh to 30,000 bbl/day but recently filed an amendment to raise that limit to 40,000 bbl/day.

Making progress at West Ells
Calgary/Hong Kong-based Sunshine Oilsands says it is making "significant progress" at its West Ells facility, located about 60 km west of Fort MacKay, Alberta. Start-up of the SAGD bitumen extraction plant was delayed due to "extensive damage" suffered during last year's spring wildfires. Phase 1 of the facility began producing bitumen in early March of this year and continues to ramp up to its design capacity of 5,000 bbl/day. The company says it remains focused on improving production performance and developing its SAGD chambers.

Airing your dirty laundry in public
After applying "significant pressure" on the company for over 2 years, London-based M&G Investment Management has published an open letter to Gibson Energy's Chairman James Estey expressing disappointment with the "pace of progress" at the midstream company. M&G would like Gibson to sell its Moose Jaw refinery and divest its entire trucking business. The firm also says Gibson needs to make "significant progress" on reducing its cost structure and should also consider an outright sale of the entire company. Estey responded that he welcomes M&G's input and remains focused on "creating long-term shareholder value." M&G Investment owns 19.4% of outstanding Gibson Energy shares.


CANADA

Husky buys more capacity in the US and defers Canadian expansion
Husky Energy announced the purchase of a refinery in the Midwest and several logistical assets from Calumet Specialty Products Partners for US$435 million in cash. The 50,000 bbl/day Superior Refinery processes light crude from the North Dakota Bakken shale and heavy crude from Western Canada, producing gasoline, diesel, asphalt and heavy fuel oils. Husky CEO Rob Peabody says the deal will "increase Husky’s downstream crude processing capacity, keeping value-added processing in lockstep with our growing production."  The company has also deferred a decision on expanding asphalt capacity at its Lloydminster refinery until after 2020. The expansion would have doubled the facility's capacity to 60,000 bbl/day.

Federal government passes the buck
Natural Resources Minister Jim Carr says it's not the federal government's job to get pipelines built. Carr says his government got the ball rolling on "restoring confidence among Canadians" and has provided certainty in the regulatory review process. The government denies using pipelines politics to score votes and says it's up to the companies to ultimately build more pipeline capacity.

Lightning ignites storage tanks south of Stoughton, SK
Three oil storage tanks in southern Saskatchewan were set ablaze last Tuesday after lightning stuck one of the tanks, splitting it wide open and blowing the top off. The contents of the tanks were contained within a berm. The fire was put out the next day. No injuries or environmental damage was reported.


USA

A new week brings a new Executive Order
President Trump signed another Executive Order this week aimed at speeding up environmental reviews and approvals of all infrastructure projects, including pipelines, roadways and electricity transmission. According to the President, "America needs increased infrastructure investment to strengthen our economy, enhance our competitiveness in world trade, create jobs and increase wages for our workers, and reduce the costs of goods and services for our families." The President has set a target of rendering federal decisions for major infrastructure projects within a two year time frame.

Minnesota releases final EIS on Line 3 Replacement
Minnesota's Department of Commerce (DoC) has released their Final Environmental Impact Statement for Enbridge's Line 3 Replacement Project. Enbridge plans to abandon 282 miles (450 km) of Line 3 pipe in the state, replacing it with 340 miles (550 km) of new pipe. Once completed, capacity on the line will be restored to 760,000 bbl/day. The DoC looked at the pros and cons of routing alternatives, impacts on Native American tribes, effects on GHG emissions, consequences of an oil spill as well as the risks associated with not building a new pipeline. The Sierra Club already panned the rather lengthy report as "half-baked" and incomplete. Line 3 is part of Enbridge's Mainline network which supplies 74% of Canadian crude imports into the Midwest region (PADD 2). A final decision from Minnesota's Public Utilities Commission is expected in the spring of 2018.

DAPL still in the news - Part 1
North Dakota's Public Service Commission (PSC) has a postponed a hearing on environmental violations that may have occurred during construction of the Dakota Access Pipeline (DAPL). The regulator is considering fining operator Energy Transfer Partners (ETP) for removing too many trees and improper handling of soils. The PSC says ETP has been "somewhat dismissive" and insufficient data has been collected to proceed with the investigation. ETP was also accused of "improperly reporting" American Indian artifacts during construction.

DAPL still in the news - Part 2
The state of North Dakota will receive US$10 million in compensation from the federal government to help pay law enforcements bills related to the Dakota Access Pipeline protests. The state had asked for US$38 million to cover all protest-related costs. The funds will come from the Justice Department's Emergency Federal Law Enforcement Assistance Program. ETP has offered to pick up the tab, but the state has refused the funds in order to avoid accusations of bribery.

Exxon scores another legal win
An appeals court in New Orleans has overturned a ruling that would have required ExxonMobil to revise is pipeline safety procedures. In 2015, the Pipeline and Hazardous Materials Safety Administration ordered Exxon to rewrite its procedures after its Pegasus Pipeline spilled 3,200 barrels of diluted Wabasca Heavy crude in 2013. The judges ruled that although the incident was "regrettable," it did not necessarily imply fault from the operator.

Sierra Club vs the DOE
A federal appeals court in Washington has rejected a claim from the Sierra Club that Department of Energy (DOE) approvals for LNG export licenses did not adequately consider environmental impacts. The Sierra Club argued that the DOE should have considered indirect impacts from the production and end use of natural gas as well as international trade agreements. The courts ruled that the Federal Energy Regulatory Commission (FERC) is responsible for conducting environmental reviews, and an addition review by the DOE would be redundant, time consuming and unnecessary.

Two contracts in one week
Houston-based KBR was awarded pre-FEED work (front end engineering design) and a project services contract for BP's Tortue Project field offshore Mauritania and Senegal. The company also scored a Project Management contract for the FEED phased of the Dalma Gas Field Development in the UAE. The value of the contracts were not disclosed.

When oil bulls turn really, really bearish
Superstar oil trader Andy Hall has shutdown his flagship hedge fund after concluding that trying to predict future oil prices is an impossible task. Hall says OPEC's failure to agree on future production cuts, a deteriorating medium-term outlook and algorithmic trading have made oil prices "chaotic" and non-investable. Hall's Astenbeck Master Commodities Fund II will be dissolved at the end of the month after having lost almost 30% of its value in the first half of this year.


US PRODUCTION & INVENTORY DATA

The US Energy Information Administration (EIA) reported a seventh consecutive weekly drawdown in crude inventories, temporarily putting a floor under oil prices. The 8.9 million barrel decline was the largest since September of 2016.

The EIA also reported a big jump in US oil output last week, helped by a recovery in production from Alaska. Domestic production is now at a 12-month high of 9.5 million bbl/day. On a more bullish note, Baker Hughes reported 11 fewer oil rigs in service this week, 5 in the US and 6 in Canada.

 
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WEEKLY US INVENTORY REPORT

AUG 16, 2017

CRUDE PRODUCTION HITS 1-YEAR HIGH OF 9.5 MILLION BPD

 

AROUND THE WORLD

Norwegians not so nice after all
Norway's Coast Guard has seized Greenpeace's Arctic Sunrise icebreaker and arrested all 35 crew members after protestors violated a 500 meter safety zone around Statoil's drilling rig in the Barents Sea. The Coast Guard has since seized the icebreaker and towed it back to shore. Statoil released a manifesto proclaiming their right to explore for oil in the Barents Sea in a "safe and responsible" manner and their commitment to the Paris Accord on combatting climate change. The Korpfjell field is 415 km off the northern coast of Norway, the most northern oil-drilling ever carried out in the Barents Sea.

Spinning off upstream offshore business
According to the UK's Competition And Markets Authority, Amec Foster Wheeler is considering spinning off its North Sea servicing business in order to avoid overlap with Wood Group's North Sea business and get regulatory approval for their $2.8 billion merger. If all goes according to plan, the deal is expected to close by the end of this year. The combined entity will employ 64,000 people, with about 60% of its revenues coming from the oil & gas business.

Ecuador remains defiant
Ecuador says it will cap production at its current 541,000 bbl/day, 26,000 bbl/day higher than its quota of 522,000 bbl/day under OPEC's agreement from last November. The country's Oil Minister Carloz Perez says "there is greater potential" to increase output in the country, but he will maintain this level until OPEC releases new guidelines. Ecuador has previously warned it wouldn't be able to stick to OPEC's quotas since it needed the extra crude to fund government spending.

Old platform gets dismantled
ConocoPhillips received permission to begin dismantling one of Norway's oldest oil platforms in the North Sea. The Ekofish 2/4 A platform began producing oil in 1974 and was permanently shut in 2013. The company says it will begin the decommissioning in the fourth quarter of this year.

Five down, two to go
BP announced the start-up of two gas projects in Australia and Trinidad, the fourth and fifth major upstream projects to start-up so far this year. A tight gas development in Oman and the Zohr gas field offshore Egypt are the last two of seven major projects planned for this year, adding another 800,000 boe/day in upstream production.

Chinese peak energy demand pushed back 5 years
According to state-owned China National Petroleum Corp (CNPC), the country will reach peak energy demand in 2040, five years later than originally estimated. CNPC says energy consumption will peak at 4.06 billion tonnes of oil equivalent annually. The upward revision was attributed to higher transportation demand, now expected to keep rising through to 2050, 20 years longer than previously estimated.

2016 the hottest year ever
According to NOAA (the National Oceanic and Atmospheric Administration) and the American Meteorological Society, 2016 was the hottest year since 1900, blamed on global warming and the lingering effects of the most recent El Niño warming phase. Despite previous reports of flatlining global CO2 emissions, NOAA says the concentration of major greenhouse gas emissions in the atmosphere surpassed 400 ppm for the first time in 800,000 years. Extreme heat was blamed for last year's "human-induced" Wood Buffalo wildfires while parts of eastern Canada experienced below normal temperatures for much of 2016. El Niño is a naturally occurring event that causes ocean warming in parts of the Pacific.


NEXT WEEK'S EVENTS

Monday:

  • June wholesale sales data released by StatsCan @ 8:30am ET

Tuesday:

  • June retail sales data released by StatsCan @ 8:30am ET
  • API Weekly Statistical Bulletin released @ 4:30pm ET
  • WTI September contract expiry

Wednesday:

Thursday:

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
  • Fed Chair Janet Yellen and ECB President Mario Draghi give speeches at Jackson Hole
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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