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The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Fort Hills Mine off to a rocky start
  • Cenovus finds another buyer for non-core assets
  • Shipping natgas to Ontario just got a whole lot cheaper
  • Kinder Morgan responds to fake oil spill on West Coast
  • NEB raises yellow card on BC pipeline construction
  • LNG to blame for future growth in carbon emissions
  • Natural resources still a big chunk of Canadian economy
  • Veresen makes another plea for Jordan Cove
  • California officially hates all oil companies
  • BP joins the party in Mexico
  • Norway's "rainy day" fund tops US$1 trillion
  • Google and Microsoft consider teaming up with Big Oil
  • OPEC defers decisions over production caps until early next year

ALBERTA

Fort Hills not off to a good start
The Alberta Energy Regulator (AER) reported the deaths of 123 birds at the Fort Hills mine site, located about 90 km north of Fort McMurray. The birds were found on the north end of the mine's tailings storage structure, which is not yet fully operational. Suncor says bird deterrents were in-place and functioning at the time. Most of the birds were horned larks, a species not native to the area. The company says it is working with government regulators and wildlife experts to determine the cause of the incident and whether more safeguards are required. Fort Hills is in the process of starting up the front-end of the plant, including mining, ore preparation and primary extraction. A full start-up of the entire facility is not expected until the end of the year. 

Cenovus may have found buyer for Suffield assets
According to the Globe and Mail, Torxen Resources is leading a bid to acquire Cenovus Energy's Suffield assets in Alberta. The natural gas properties are reported to be worth as much as $600 million. Torxen is led by former Cenovus CEO John Brannan.

Demand for ethane in Alberta looking strong
Veresen announced that its Alberta Ethane Gathering System (AEGS) has entered into a 20-year take-or-pay contract for about 95% of its existing capacity, effective January 1, 2019. The company says it will continue to work towards contracting the remaining 5% of capacity and will consider expanding the facility if there's sufficient demand. The AEGS has the capacity to deliver 320,000 bbl/day of ethane to various chemical plants in the Fort Saskatchewan area.

Cost of shipping natural gas to Ontario going down
The National Energy Board (NEB) has approved TransCanada's new long-term pricing contracts for natural gas deliveries on its Canadian Mainline, stretching from the Western Canadian Sedimentary Basin into Ontario. A total of 23 shippers have committed to ship 1.5 million GJ/day of natural gas from Empress, Alberta to Dawn, Ontario. The toll will be reduced from $1.86 to $0.77 per GJ as of November 1, 2017. Natural gas producers in BC and Alberta have been hit hard by low gas prices and increased competition from US imports, located much closer to the lucrative Ontario market.


CANADA

Emergency response drill at Burnaby Mountain
Kinder Morgan Canada carried out a full-scale emergency response exercise at its Burnaby Mountain terminal this week, fulfilling one of many conditions mandated by the NEB. Representatives from the NEB, Environment Canada and Transport Canada watched the company's response to a hypothetical release of crude from a damaged pipe manifold. Kinder Morgan called the exercise a success, and notes the company carries out about 20 such drills every year, usually with no media and little fanfare. The NEB will publish their full evaluation of the exercise sometime within the next 90 days.

NEB raises yellow card on BC pipeline installation
The NEB also issued three Inspection Officer Orders this week to Spectra Energy on violations of worker safety, pipe handling concerns and environmental protection during construction of the High Pine Expansion Project near Chetwynd, BC. The NEB says the line does not pose any risks to the public or the environment. The regulator has imposed 27 action items to be addressed by the company. Spectra Energy is a wholly-owned subsidiary of Enbridge.

Cost of lowering emissions in upstream production
According to Wood Mackenzie, the cost of reducing carbon emissions as per the Paris Climate Accord will reduce the value of oil and gas production assets by US$45 billion, assuming a carbon price of US$40/tonne. WoodMac says about two-thirds of the world's upstream assets are in countries with little or no carbon regulations, but two-thirds of production is located in "high" and "extreme" risk OECD jurisdictions. While production is expected to increase 15% over the next 10 years, carbon emissions are expected to rise 17% as much of that production growth is coming from more carbon-intensive industries, particularly LNG but also heavy oil and the oil sands. LNG is expected to drive most of the growth in carbon emissions through 2025, rising an estimated 44%.

Natural resources still a big chunk of Canadian economy
Real GDP in the country's natural resources sector (defined as energy, mining, forestry and fishing) increased by 2.5% in the second quarter, led by a strong showing from the energy sector. Higher export volumes offset lower prices in Q2. The energy sector also added about 6,400 jobs in Q2, an increase of 2.4% from the previous quarter. Natural resource activity accounts for 11% of Canada's total GDP, or $215 billion. Canada's real GDP across all industries was 1.1% in the second quarter of this year.


USA

Veresen launches another attempt for Jordon Cove
After being sent back to the drawing board several times, Veresen has filed another application for its Jordan Cove Energy Project and Pacific Connector Gas Pipeline with the US Federal Energy Regulatory Commission (FERC). The Jordon Cove LNG export terminal is located in Coos Bay, Oregon, designed to export 7.8 million tonnes per year of LNG. Veresen says the revised pre-filing application reflects feedback from public scope meetings and open houses held in Oregon. FERC denied Veresen's last application for the project during the pre-filing stage, which precedes the full-scale regulatory review process. Total estimated capital costs for the project is $10 billion, about 90% to be spent within US borders.

Recovery continues post-Harvey
ExxonMobil says it has restarted its 362,000 bbl/day Beaumont refinery this week, after being shutdown for several weeks due to Hurricane Harvey. The refinery is operating at reduced rates and is expected to reach full capacity by the end of the month. Exxon's Baytown chemical plant and Mont Belvieu plastics plant are also returning to normal operation. Shell announced the restart of its 325,000 bbl/day Deer Park refinery, after being crippled by fire in mid-August and taken completely offline during Harvey. Total announced the restart of its Port Arthur refinery as well this week.

Colonial comes back to life
The massive 3 million bbl/day Colonial Pipeline has resumed gasoline shipments, now allowing Port Arthur refineries to use their own pumps to get products into the pipeline. Colonial delivers gasoline and refined products into southeastern and sortheastern US states. The pipeline was taken offline during Hurricane Harvey, causing gasoline prices to spike along the eastern seaboard. Colonial operators did not confirm when shipments will return to normal.

First a hurricane, then a fire
Valero Energy's 335,000 bbl/day refinery in Port Arthur, Texas was shutdown again this week due to a small fire, which started in a heavy oil tank. The facility had been down for about two weeks due to Hurricane Harvey. No injuries were reported and the extent of the damage was not disclosed. The company estimates nearly 1 million pounds of emissions were released into the air during the incident.

First a hurricane, then a power outage
BP says it has now restored power to one of its Thunder Horse platforms in the Gulf of Mexico, after the production facility suffered a power outage earlier in the week. The platform has a production capacity of up to 265,000 bbl/day. All four of BP's Thunder Horse platforms were evacuated earlier this month ahead of Hurricane Irma.

Another pipeline breaks ground
Williams Partners announced the start of construction on the greenfield section of its Atlantic Sunrise pipeline project, an expansion of the existing Transco natural gas pipeline. The project will deliver an extra 1.7 Bcf/day of Marcellus shale gas to markets in the mid-Atlantic and southeastern US. The US$3 billion line is expected to be placed into service by the middle of next year.

ETP makes progress on Rover
The on-again/off-again Rover Pipeline Project has once again resumed construction in Ohio, having received regulatory approval from FERC. The project was halted several times after operator Energy Transfer Partners (ETP) was accused of soil erosion and releasing drilling fluids into nearby wetlands. The company now faces US$2.3 million in fines over those violations in the state of Ohio. ETP says they plan to work with FERC to get the pipeline into service in the spring of 2018. 

Another mega-petrochemical plant gets off the ground in Texas - Part 1
Chevron Phillips Chemical announced the start-up of its new polyethylene units at Old Ocean, Texas. The US$6 billion facility converts "abundant" shale gas feedstock into 500,000 tons/year of polyethylene. The company is also building a "world scale" ethane cracker at its existing facilities in Baytown, Texas. Commissioning of the ethane cracker is expected to be completed by Q1/2018, with a transition to full production by the second quarter. Chevron Phillips Chemical is a 50/50 JV between Chevron Corp and Phillips 66.

Another mega-petrochemical plant gets off the ground in Texas - Part 2
A subsidiary of DowDuPont also announced the commissioning and start-up of new ethylene and polyethylene units in Freeport, Texas. The 1.5 million tonnes/year ethylene plant and 400,000 tonnes/year polyethylene plant is expected to reach full capacity by year-end. The new addition is part of the company's US$6 billion investment in the Texas and Louisiana petrochemical sectors. A series of additional expansions are planned through 2018.

California officially hates all oil companies - Part 1
A subsidiary of Valero Energy has scrapped plans to buy two petroleum storage and distribution terminals in Richmond, California belonging to Plains All American. The acquisition was opposed by California regulators. Both companies agreed it would be better to cancel the deal than try to defend "a taxpayer-funded lawsuit."

California officiallyhates all oil companies - Part 2
The Bay Area cities of San Francisco and Oakland have filed separate lawsuits against Chevron, ConocoPhillips, Exxon, BP and Shell for causing sea levels to rise and creating a public nuisance. The cities would like the oil majors to pay for municipal infrastructure projects. Several other California jurisdictions are planning similar lawsuits.


US PRODUCTION & INVENTORY DATA

Commercial crude oil stockpiles increased by 4.6 million barrels last week, seen mostly in the Gulf Coast. However, product stockpiles (gasoline and distillates) declined a total of 6.6 million barrels, more than analysts were expecting. Production out the Gulf of Mexico and Texas Eagle Ford shale has largely recovered from the effects of Hurricane Harvey. Total US production has now returned to pre-hurricane rates of 9.5 million bbl/day.

US rig counts continue to fall, declining by another 5 rigs this week to 744. Canada added 10 oil rigs this week, to a total of 122.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

SEP 20, 2017

OIL OUTPUT RETURNS TO PRE-HURRICANE LEVELS WHILE PRODUCT STOCKPILES CONTINUE TO FALL

 

AROUND THE WORLD

US$1 trillion, and counting
Norway’s sovereign wealth fund hit the US$1 trillion mark for the first time this week, driven by rising stock markets and a weak US dollar. The fund began collecting oil revenues in May of 1996, now owning 1.3% of all global stocks and some of the world's most lucrative real-estate properties. The massive size of the reserve creates challenges for fund managers, who are having difficulties finding new places to park their cash without inflating asset prices.

Problems in Peru
Villagers in the Peruvian Amazon have shut down about 50 oil wells operated by Toronto-based Frontera Energy over pollution concerns and trampling of indigenous rights in the Corrientes River basin. About 600 villagers have seized the wells, a power plant and oil tanks in Block 192, the country's largest oil field, demanding remediation of contaminated sites and better access to healthcare and education. The oil field produces about 9,500 bbl/day.

BP joins the party in Mexico
BP's natural gas marketing and trading division in Mexico has begun delivering 200,000 MMBTU/day of gas to eight states in Mexico, making it one of the first private companies to do so under the country’s new energy reform measures. Earlier this month, Royal Dutch Shell and Andeavor announced their first gasoline distribution contracts in the country.

CNOOC seeking dance partner in GoM
China's CNOOC is looking for a partner to develop deepwater assets on the Mexican side of the Gulf of Mexico. The company recently won exploration rights for two deepwater blocks in the Perdido Fold Belt, just south of the US/Mexico maritime border. Any joint-ventures would need to be approved by the Mexican government.

Argentina issues IOUs
Argentina is experiencing delays in delivering its promised subsidy cheques to various oil and gas majors, promised under the country's Plan Gas incentive program. The program guarantees producers an inflated price for their natural gas, substantially higher than current spot prices. The deal was meant to entice oil majors back into the South American country, traditionally shunned for its unstable government, lack of infrastructure and high labour costs.

Old tech meets new tech
French energy giant Total is reportedly in talks with Google and Microsoft to help advance artificial intelligence in the field of exploration and seismic analysis. The company says they hope to "find a new way to make oil and gas discoveries" but has yet to formalize any partnerships with Silicon Valley.

Chevron tip-toes back into Kurdistan
After taking a two-year hiatus, Chevron has drilled its first exploration well in the Kurdistan region of Iraq, despite a pending sovereignty referendum in the region. Chevron owns a 80% stake in the Sarta and Qara Dagh oil fields but has no production from the region. The US Administration has voiced opposition against the independence vote for fear of destabilizing the region.

Less focus on production, more focus on exports
At this week's monitoring meeting in Vienna, OPEC says it's now looking at monitoring exports, not just production, which is considerably more complicated. Iraqi's oil minister floated rumours that OPEC and its partners were considering extending or deepening supply cuts. Kuwait's oil minister says there's no such discussion. Russia's energy minister says its too early to start talking about extending cuts, and there needs to be a plan in place to eventually return to normal production rates. OPEC concluded that the global supply glut is easing, but no decisions on production quotas will be made until early next year.


NEXT WEEK'S EVENTS

Saturday:

  • Third round of NAFTA talks begin in Ottawa, ON

Monday:

  • Total Strategy & Outlook 2017
  • ECB President Mario Draghi addresses EU Parliament in Brussels, Belgium

Tuesday:

  • API Weekly Statistical Bulletin released @ 4:30pm ET
  • Fed Chain Janet Yellen delivers Keynote Address "Prospects for Growth: Reassessing the Fundamentals" in Cleveland, Ohio @ 12:45pm ET

Wednesday:

Thursday:

Friday:

  • July GDP released by Statistics Canada @ 8:30am ET
  • August Industrial Product and Raw Materials Price Indices released by Statistics Canada @ 8:30am ET
  • Baker Hughes Rig Count released @ 1:00pm ET
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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